<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE GOLDMAN SACHS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6211 13-4019460
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. KATZ
GREGORY K. PALM
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000
(NAMES, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICARDO A. MESTRES, JR. ALAN L. BELLER
JOHN P. MEAD CHRISTOPHER E. AUSTIN
DAVID B. HARMS CLEARY, GOTTLIEB, STEEN & HAMILTON
ROBERT W. REEDER III ONE LIBERTY PLAZA
SULLIVAN & CROMWELL NEW YORK, NEW YORK 10006
125 BROAD STREET (212) 225-2000
NEW YORK, NEW YORK 10004
(212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share
Rights(3).................................................. $10,000,000 $2,950
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A portion of the shares to be registered represents shares that are to be
offered outside of the United States but that may be resold from time to
time in the United States. Such shares are not being registered for the
purpose of sales outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(3) Each share of Common Stock includes one Shareholder Protection Right as
described under "Description of Capital Stock".
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED AUGUST 24, 1998.
Shares
THE GOLDMAN SACHS GROUP, INC.
[GOLDMAN SACHS LOGO]
Common Stock
------------------------
This is an initial public offering of shares of Common Stock of The Goldman
Sachs Group, Inc. This prospectus relates to an offering of
shares in the United States. In addition, shares are being
offered outside the United States and the Asia/Pacific region and
shares are being offered in the Asia/Pacific region.
Goldman Sachs is offering of the shares to be sold in the
offerings. The selling shareholders identified in this prospectus are offering
an additional shares. Goldman Sachs will not receive any of the
proceeds from the sale of the shares being sold by the selling shareholders.
The underwriters intend to make available up to shares for
sale at the initial public offering price to Goldman Sachs employees and certain
other purchasers.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Goldman Sachs intends to list
the Common Stock on the New York Stock Exchange under the symbol "GS".
See "Risk Factors" beginning on page 14 to read about certain factors you
should consider before buying shares of the Common Stock.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Goldman Sachs................. $ $
Proceeds, before expenses, to the selling shareholders...... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from Goldman Sachs at the initial public
offering price less the underwriting discount. The international underwriters
and the Asia/Pacific underwriters may similarly purchase up to an aggregate of
an additional shares.
------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1998.
GOLDMAN, SACHS & CO.
------------------------
Prospectus dated , 1998.
<PAGE> 3
Description of photograph(s) will be provided.
2
<PAGE> 4
OUR BUSINESS PRINCIPLES
1. Our clients' interests always come first. Our experience shows that if we
serve our clients well, our own success will follow.
2. Our assets are our people, capital and reputation. If any of these is ever
diminished, the last is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
3. Our goal is to provide superior returns to our shareholders. Profitability
is critical to achieving superior returns, building our capital and attracting
and keeping our best people. Significant employee stock ownership aligns the
interests of our employees and our shareholders.
4. We take great pride in the professional quality of our work. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
5. We stress creativity and imagination in everything we do. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
6. We make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.
7. We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find the limits to the
responsibility that our best people are able to assume. Advancement depends
solely on ability, performance and contribution to the Firm's success, without
regard to race, color, religion, sex, age, national origin, disability, sexual
orientation, or any other impermissible criterion or circumstance.
8. We stress teamwork in everything we do. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the Firm and its clients.
9. The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think that
this is an important part of our success.
10. We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and that contribute greatly to our success.
11. We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to extinction.
12. We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.
13. Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must never
denigrate other firms.
14. Integrity and honesty are at the heart of our business. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the Firm and in their personal lives.
3
<PAGE> 5
CERTAIN INTRODUCTORY MATTERS
CERTAIN DEFINITIONS
Unless otherwise stated herein, the "Company", the "Firm", "Goldman Sachs",
"we" and "our" mean (a) prior to the completion of the Incorporation
Transactions, The Goldman Sachs Group, L.P., a Delaware limited partnership
("Group L.P."), and its consolidated subsidiaries and, prior to the formation of
Group L.P. in 1989, Goldman, Sachs & Co. ("GS&Co.") and its consolidated
subsidiaries; and (b) after the completion of the Incorporation Transactions,
The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), and its
consolidated subsidiaries.
"PLPs" means the Managing Directors who are also Schedule II limited
partners of Group L.P. (they participate in the profits of the Firm). "RLPs"
means the Schedule I limited partners (the retired limited partners) of Group
L.P.
SHARE AMOUNTS
Unless otherwise stated herein, all information contained in this
Prospectus assumes no exercise of the options to purchase additional shares
granted to the underwriters. GS Inc.'s common stock, par value $.01 per share
(the "Common Stock"), and GS Inc.'s nonvoting common stock, par value $.01 per
share (the "Nonvoting Common Stock"), are collectively referred to as the
"Common Shares".
REFERENCES TO DATES
Unless otherwise stated herein, all references to 1993, 1994, 1995, 1996
and 1997 refer to the Firm's fiscal year ended, or the date, as the context
requires, November 26, 1993, November 25, 1994, November 24, 1995, November 29,
1996 and November 28, 1997, respectively, and all references to May 1997 and May
1998 refer to the Firm's six-month fiscal period ended, or the date, as the
context requires, May 30, 1997 and May 29, 1998, respectively.
MARKET SHARE DATA
Except as otherwise indicated, all amounts with respect to the volume,
number and market share of mergers and acquisitions and underwriting
transactions and related ranking information have been derived from information
compiled and classified by Securities Data Company ("SDC"). SDC obtains and
gathers its information from sources it considers to be reliable, but SDC does
not guarantee the accuracy or completeness of the information. In the case of
mergers and acquisitions, data are based upon the dollar value of announced
transactions for the period indicated, taken as a whole. In the case of
underwritings, data are based upon the dollar value of total proceeds raised
(exclusive of any option to purchase additional shares) with equal credit to
each bookrunner for the period indicated, taken as a whole.
FINANCIAL DATA
The Firm's compensation and benefits expense does not reflect any payments
for services rendered by its partners and therefore understates the expected
operating costs to be incurred by the Firm after the offerings. In addition, the
Firm, as a partnership, generally was not subject to U.S. federal or state
income taxes.
Net revenues is total revenues, net of interest expense. Interest expense
is allocated to specific securities, commodities and other positions in relation
to the level of financing incurred by each position.
In Trading and Principal Investments, net revenues from the Firm's
investments in its merchant banking funds do not include management fees and
overrides. These management fees and overrides are included in Asset Management
and Securities Services.
The Firm's assets under supervision are comprised of assets under
management and other client assets. Assets under management typically generate
fees based on a percentage of their value and include the Firm's mutual funds,
separate accounts managed for institutional and individual investors, merchant
banking funds and other alternative investment funds. Other client assets are
comprised of assets in brokerage accounts of high net worth individuals on which
the Firm earns primarily commissions.
4
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the Common Stock. You should read the
entire Prospectus carefully, especially the risks of investing in the Common
Stock discussed under "Risk Factors".
THE GOLDMAN SACHS GROUP, INC.
Our mission is to be the preeminent global investment banking and
securities firm -- the advisor of choice for our clients and a leading
participant in global financial flows. We are a market leader in each of our
three principal business lines: (i) Investment Banking, (ii) Trading and
Principal Investments and (iii) Asset Management and Securities Services. We
provide services worldwide to a substantial and diversified client base, which
includes corporations, financial institutions, governments and high net worth
individuals. Our net revenues and pre-tax earnings for 1997 were $7.4 billion
and $3.0 billion, respectively, and for the six months ended May 1998 were $5.5
billion and $2.1 billion, respectively. As of May 1998, our total assets were
$241.9 billion and our partners' capital was $6.6 billion.
We have produced strong earnings growth and attractive returns on partners'
capital through various economic cycles and market conditions. Over the last 15
years, our pre-tax earnings have grown from $364 million in 1982 to $3.0 billion
in 1997, representing a compound annual growth rate of 15%. We have achieved
this growth, which has been almost exclusively organically generated, by
maintaining an intense commitment to our clients, focusing on our core
businesses and key opportunities and operating as a highly integrated, global
franchise.
Because we believe that the needs of our clients are global and that
international markets have high growth potential, we have aggressively leveraged
our U.S. market leadership into leading positions in other parts of the world.
Today, the Firm has a strong global presence as evidenced by the geographic
breadth of our transactions, leadership in our core products and the scale of
our international operations. As of May 1998, we operated offices in 22
countries and had over 4,100 employees (representing 36% of total employees)
based outside the United States.
We are committed to a distinctive culture and set of core values. Our core
values are reflected in our Business Principles, which emphasize (i) placing our
clients' interests first, (ii) integrity, (iii) commitment to excellence and
innovation and (iv) teamwork.
The Firm is managed by its principal owners. Simultaneously with the
Offerings, we will make equity-based awards that will total over $ in
aggregate value, to substantially all of our employees. Following the Offerings,
our employees will own approximately % of the Company on a fully diluted
basis. None of our employees are selling shares in the Offerings.
WHY WE ARE GOING PUBLIC
We have chosen to become a public company in order to better match the
Firm's capital structure to our mission of being the preeminent global
investment banking and securities firm. As a public company, we will have
greater financial strength, greater strategic flexibility and broader alignment
of employee interests with the interests of our shareholders. From a financial
perspective, public ownership will give us a more stable capital base, broaden
our sources of capital and lower our funding costs. From a strategic
perspective, while we expect most of our growth will continue to be organic,
public ownership will give us a currency with which we may choose to pursue
strategic acquisitions. From an employee perspective, public ownership will help
us meet a fundamental objective -- to share ownership broadly among the Firm's
employees.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
($ in millions)
<TABLE>
<CAPTION>
AS OF OR FOR
AS OF OR FOR SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------------ CAGR(3) ------------------- INCREASE
1995 1996 1997 '95-'97 1997 1998 '97-'98
---- ---- ---- ------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Investment Banking........ $ 1,595 $ 2,113 $ 2,587 27% $ 1,094 $ 1,587 45%
Trading and Principal
Investments............. 1,744 2,693 2,926 30 1,660 2,578 55
Asset Management and
Securities Services..... 1,144 1,323 1,934 30 877 1,296 48
-------- -------- -------- -------- --------
Total net revenues.......... $ 4,483 $ 6,129 $ 7,447 29 $ 3,631 $ 5,461 50
======== ======== ======== ======== ========
Pre-tax earnings(1)......... $ 1,368 $ 2,606 $ 3,014 48 $ 1,515 $ 2,059 36
Total assets................ 100,066 152,046 178,401 34 169,200 241,852 43
Adjusted assets(2).......... 73,552 93,279 119,883 28 102,989 153,355 49
Partners' capital........... 4,905 5,309 6,107 12 5,609 6,638 18
Pre-tax return on average
partners' capital(1)...... 28% 51% 53% 56%(4) 65%(4)
</TABLE>
- ---------------
The table above should be read in conjunction with the footnotes to "Selected
Consolidated Financial Data" as well as the following footnotes:
(1) The Firm's pre-tax earnings and compensation and benefits expense do not
reflect any payments for services rendered by its partners. Accordingly,
pre-tax earnings understate the expected operating costs to be incurred by
the Firm after the Offerings. See "Pro Forma Consolidated Financial
Information".
(2) Adjusted assets represent total assets less (i) securities purchased under
agreements to resell, (ii) certain securities borrowed transactions and
(iii) with respect to May 1998, the increase of $17 billion in total assets
related to the adoption of the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 125 that were deferred by SFAS No. 127.
(3) Compound annual growth rate.
(4) The pre-tax returns on average partners' capital for May 1997 and May 1998
have been annualized. Interim results may not be indicative of results for a
full year. See "Risk Factors".
------------------------
PRINCIPAL BUSINESS LINES
INVESTMENT BANKING
Investment Banking represented 35% of 1997 net revenues. We are a market
leader in both our financial advisory and underwriting businesses, serving over
3,000 clients worldwide. For the period January 1, 1993 to June 30, 1998, in
worldwide mergers and acquisitions advisory services, we had the
industry-leading market share of 23.8%, having advised on over $1.4 trillion of
transactions. Over the same period, we also achieved the number one market share
in underwriting worldwide initial public offerings and all common stock issues
with market shares of 15.2% and 14.1%, respectively.
TRADING AND PRINCIPAL INVESTMENTS
Trading and Principal Investments represented 39% of 1997 net revenues. We
make markets in equity and fixed income products, currencies and commodities;
enter into swaps and other derivative transactions; engage in proprietary
trading and arbitrage; and make principal investments. In trading, we focus on
building lasting relationships with our most active clients while maintaining
leadership positions in our key markets. We believe our value-added research,
market-making roles and proprietary activities enhance our understanding of
markets and ability to serve our clients. Principal investments includes the net
revenues from the Firm's investments in its merchant banking funds.
ASSET MANAGEMENT AND SECURITIES SERVICES
Asset Management and Securities Services represented 26% of 1997 net
revenues. We provide global investment management and advisory services; earn
commissions on agency transactions; earn management fees
6
<PAGE> 8
and derive overrides from our merchant banking funds; and provide prime
brokerage, securities lending and financing services. As of May 1998, the Firm
had approximately $305 billion of assets under supervision, of which $165
billion represented assets under management. Our asset management business is
rapidly growing, with current net asset inflows averaging over $115 million per
business day. We manage one of the largest private equity pools for corporate
and real estate investments, having raised over $13.2 billion of committed
equity capital as of June 1998.
INDUSTRY AND ECONOMIC OUTLOOK
We believe that significant growth and profit opportunities exist for
financial intermediaries worldwide. These opportunities derive from important
long-term trends, including (i) financial market deregulation, (ii) the
globalization of the world economy, (iii) the increasing focus of companies on
shareholder value, (iv) consolidations in various industries, (v) increases in
investable funds due in part to changing demographics and (vi) accelerating
technology and financial product innovation. As the table below demonstrates,
over the last 15 years these trends have contributed to a substantially higher
rate of growth in activity in the financial services industry than the growth in
overall economic activity. We believe that these long-term trends will continue
to affect growth in the financial services industry positively.
We believe scale, global resources and leading market positions are
important competitive advantages for financial intermediaries in this
environment. As a result, we believe the Firm is well positioned to capitalize
on the worldwide opportunities created by these long-term trends.
The following table sets forth selected key industry indicators:
KEY INDUSTRY INDICATORS
($ in billions, except GDP)
(volume in millions of shares)
<TABLE>
<CAPTION>
AS OF OR FOR
YEAR ENDED DECEMBER 31,
----------------------------------- CAGR
1982 1987 1992 1997 '82-'97
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Worldwide GDP ($ in trillions)(1)........... $ 11 $ 16 $ 23 $ 29 7%
Worldwide mergers and acquisitions.......... 56 327 353 1,579 25
Worldwide equity issued..................... 22 89 131 285 19
Worldwide debt issued....................... 73 492 1,165 2,086 25
Worldwide equity market capitalization(2)... 2,737 7,896 10,922 23,541 15
NYSE average daily volume................... 65 189 202 527 15
Worldwide pension assets(3)................. $1,175 $3,407 $ 5,956 $ 9,694 15
U.S. mutual fund assets(4).................. 297 770 1,646 4,490 20
</TABLE>
- ---------------
(1) Gross domestic product. Source: The Economist Intelligence Unit, 1998.
(2) Source: Emerging Stock Markets Factbook, International Finance Corporation.
(3) Source: InterSec Research Corp.
(4) Source: Mutual Fund Factbook, Investment Company Institute.
------------------------
COMPETITIVE STRENGTHS
STRONG CLIENT RELATIONSHIPS
We endeavor to treat each client relationship as a valued asset that we
develop over time. In 1997, over 75% of our Investment Banking revenues
represented business from existing clients of the Firm. We also aggressively
pursue new client relationships as evidenced by the over 400 investment banking
transactions we completed for first-time clients in 1997. In our trading
businesses, we focus on building lasting relationships with our clients, for
whom we structure and exe-
7
<PAGE> 9
cute transactions across a wide array of markets and countries. In our asset
management businesses, we manage assets for three of the five largest pension
pools in the United States as ranked by Pensions and Investments, have 14
clients for which we manage at least $1 billion each and maintain accounts for
over 40% of the Forbes "Four Hundred".
DISTINCTIVE PEOPLE AND CULTURE
Our most important asset is our people. We seek to reinforce our employees'
commitment to our culture and values through recruiting, training, a
comprehensive 360-degree review system and a compensation philosophy that
rewards teamwork. We were ranked number 12 in Fortune magazine's 1998 "The 100
Best Companies to Work for in America" and were ranked number two in Fortune
magazine's 1998 "The Top 50 MBA Dream Companies", the highest-ranked investment
banking and securities firm in each case.
GLOBAL REACH
Over the past decade, we have made a significant commitment to building a
worldwide franchise. We have achieved leading positions in major international
markets by capitalizing on our product knowledge and global research, as well as
by building a local presence where appropriate. In doing so, we have become one
of the few truly global investment banking and securities firms with the ability
to execute large and complex cross-border financial advisory and underwriting
assignments. We had the number one market share of 22.1% in cross-border mergers
and acquisitions for the period January 1, 1993 to June 30, 1998. More recently,
in the first six calendar months of 1998, we had the leading market share in the
newly developing European non-dollar high-yield debt underwriting market,
according to MCM
CorporateWatch Data Services. Furthermore, as of July 31, 1998, we were the
largest non-Japanese mutual fund manager in Japan, according to the Investment
Trust Association.
ABILITY TO MANAGE AND BENEFIT FROM RISK
We assume diversified risks in our business and devote substantial
resources to identify, analyze and benefit from these exposures. We believe our
willingness and ability to take risk distinguishes us and substantially enhances
our client relationships. By combining our strong fundamental research, access
to information, analytic capabilities, experience, judgment and risk
diversification skills, we have generated attractive returns through various
economic cycles and market conditions.
STRATEGY
LEVERAGE THE FRANCHISE
We believe our various businesses are generally stronger and more
successful because they are part of the Goldman Sachs franchise. Our culture of
teamwork fosters cooperation among our businesses, which allows us to leverage
our broad-based capabilities to provide our clients with an integrated,
full-service product. We also create multiple points of contact with our clients
to further enhance our relationships. For example, our merchant banking area
sources investment opportunities from our global network of client
relationships. Moreover, major selling shareholders of our investment banking
clients often become substantial asset management clients.
EXPAND LEADERSHIP POSITION IN HIGH GROWTH, HIGH VALUE-ADDED BUSINESSES
We focus our human and capital resources to better serve our clients
through high value-added activities. Our growth strategy is based on leveraging
our leadership positions to pursue growth opportunities in both existing and new
markets where we believe we can earn high returns. For example, we have
substantially increased our headcount in Investment Banking in order to better
execute mergers and acquisitions, initial public offerings and high-yield
financings. Similarly, in trading, we have strategically deployed professionals
and capital to the areas of greatest opportunity and importance to our clients.
In asset management, we have demonstrated our ability to build a leading
business rapidly and have grown assets
8
<PAGE> 10
under supervision from $87 billion as of November 1993 to $305 billion as of May
1998, representing a CAGR of 32%.
PURSUE INTERNATIONAL OPPORTUNITIES
We believe that our global reach will allow us to take advantage of growth
in international markets. In Europe, the establishment of the Economic and
Monetary Union ("EMU") in 1999 will create, over time, a large pan-European
market rivaling the U.S. capital markets in size and liquidity. This is expected
to generate increased activity across our principal business lines. In Asia, we
expect increased trading opportunities as we meet the liquidity needs of our
clients and increased mergers and acquisitions advisory opportunities as a
result of corporate restructurings. In the longer term, we anticipate additional
opportunities in these markets for merchant banking as well as increases in
asset management activities due to an expected shift towards privatization of
pension systems and changing demographics.
OUR HEADQUARTERS
Our principal executive offices are located at 85 Broad Street, New York,
New York 10004, telephone (212) 902-1000.
9
<PAGE> 11
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock:
Offered by the Company............................. shares
Offered by the Selling Shareholders................ shares
-------------
Total........................................... shares
=============
U.S. Offering...................................... shares
International Offering............................. shares
Asia/Pacific Offering.............................. shares
-------------
Total(1)........................................ shares
=============
Common Shares to be outstanding after the
Offerings(2)....................................... shares
</TABLE>
- ---------------
(1) The offerings of Common Stock are collectively referred to as the
"Offerings".
(2) Excludes shares issuable upon exercise of the underwriters'
options to purchase additional shares, which are described under
"Underwriting". Includes shares of Common Stock deliverable pursuant to
the Formula RSUs and shares of Common Stock irrevocably contributed to a
nonqualified defined contribution plan and shares of Nonvoting
Common Stock that upon transfer automatically convert into shares of Common
Stock on a one-for-one basis. See "Description of Capital Stock -- Nonvoting
Common Stock". Excludes shares of Common Stock deliverable pursuant to
the Discretionary RSUs and Discretionary Options. The Formula RSUs, the
Discretionary RSUs, the nonqualified defined contribution plan and the
Discretionary Options are defined and described under "Management -- The
Employee IPO Awards".
------------------------
Voting Rights................. Holders of Common Stock will have one vote per
share.
Dividend Policy............... The holders of Common Stock (as well as the
Nonvoting Common Stock) will share ratably on a
per share basis in all dividends and other
distributions declared by our Board of
Directors. Our Board of Directors currently
intends to declare quarterly dividends on all
Common Shares and expects that the first
quarterly dividend will be $ per share,
and that it will be declared during the first
fiscal quarter of 1999. For a discussion of the
factors that affect the determination by the
Board of Directors to declare dividends, as
well as certain other matters concerning our
dividend policy, see "Dividend Policy" and
"Business -- Regulation".
Use of Proceeds............... The Firm will receive net proceeds from sales
of Common Stock by it in the Offerings of
approximately $ . We expect to use the
net proceeds for general corporate purposes.
The Firm will not receive any of the proceeds
from sales of Common Stock by the Selling
Shareholders in the Offerings.
Risk Factors.................. For a discussion of certain factors you should
consider before buying shares of Common Stock,
see "Risk Factors".
Proposed New York Stock
Exchange Symbol............. GS
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<PAGE> 12
INCORPORATION AND RELATED TRANSACTIONS
Simultaneously with the consummation of the Offerings, we will complete a
number of transactions in order to convert from partnership to corporate form.
We will also make substantial equity-based awards to our employees. For a more
detailed description of these transactions, see "Certain Relationships and
Related Transactions -- Incorporation and Related Transactions",
"Management -- The Employee IPO Awards" and "Pro Forma Consolidated Financial
Information".
The principal incorporation transactions (the "Incorporation Transactions")
and the related transactions (the "Related Transactions") are summarized below:
INCORPORATION TRANSACTIONS
- - The PLPs will exchange their interests in Group L.P. for shares of
Common Stock;
- - The RLPs will exchange their interests in Group L.P. for an aggregate of
approximately $ in cash, $ in principal amount of 12% junior
subordinated debentures of GS Inc. (the "Junior Subordinated Debentures") and
shares of Common Stock;
- - Sumitomo Bank Capital Markets, Inc. ("SBCM") will exchange its interests in
Group L.P. for shares of Common Stock and shares of Nonvoting Common
Stock; and
- - Kamehameha Activities Association ("KAA") will exchange its interest in Group
L.P. for shares of Common Stock.
RELATED TRANSACTIONS
- - Equity awards will be granted to employees other than PLPs in the form of (i)
restricted stock units (the "Formula RSUs") with a value of
$ , (ii) an initial irrevocable contribution of up to
shares of Common Stock with a value of $ to a nonqualified defined
contribution plan (the "DCP"), (iii) restricted stock units (the
"Discretionary RSUs") with a value of $ and (iv) options to purchase
shares of Common Stock at the initial public offering price for the
Offerings (the "Discretionary Options"). The indicated values of these awards
are based on the midpoint of the range of initial public offering prices set
forth on the cover page of this Prospectus;
- - After the closing of the Offerings, we will make a $ contribution to
a Goldman Sachs charitable foundation (the "Charitable Contribution"); and
- - In addition to the Offerings, we plan to raise capital through an offering of
mandatorily redeemable preferred securities ("QUIPS"(SM)*). At or about the
time of the Offerings, we plan to issue through a special purpose trust up to
$ of QUIPS in an underwritten public offering (the "QUIPS Offering").
The proceeds from the QUIPS Offering will be used for general corporate
purposes. The closing of the Offerings is not conditioned on the closing of
the QUIPS Offering, and we can give no assurance that the QUIPS Offering will
be completed or, if completed, as to the amount or final terms of the QUIPS
that will be sold. See "Description of Capital Securities".
PARTNERSHIP CAPITAL ADJUSTMENTS
Prior to our conversion to corporate form, we will adjust our partners'
capital (the "Partnership Capital Adjustments") by, among other things, making a
cash distribution of $ . This distribution is not conditioned on the
incorporation of the Firm or the completion of the Offerings.
- ---------------
* QUIPS is a registered servicemark of GS&Co.
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<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated income statement and balance sheet data
set forth below have been derived from the Firm's consolidated financial
statements and the notes thereto. The Firm's consolidated financial statements
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
as of November 1996 and November 1997 and for the years ended 1995, 1996 and
1997, and as of and for the six months ended May 1998. These financial
statements are included elsewhere in this Prospectus, together with the report
thereon of PricewaterhouseCoopers LLP.
The summary historical consolidated income statement and balance sheet data
set forth below as of November 1993, November 1994 and November 1995 and for the
years ended 1993 and 1994 have been derived from audited consolidated financial
statements of the Firm not included in this Prospectus.
The summary historical consolidated income statement and balance sheet data
set forth below as of and for the six months ended May 1997 have been derived
from the Firm's unaudited interim consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The interim results
set forth below for the six-month period ended May 1998 may not be indicative
of the results for the full year.
The pro forma data set forth below for the year ended November 1997 and as
of and for the six months ended May 1998 have been derived from the pro forma
data set forth in "Pro Forma Consolidated Financial Information".
The summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Pro Forma Consolidated Financial Information" and the consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
AS OF OR FOR
SIX MONTHS
AS OF OR FOR YEAR ENDED NOVEMBER ENDED MAY
--------------------------------------------------- ----------------------
1993 1994(8) 1995 1996 1997 1997 1998
---- ------- ---- ---- ---- ---- ----
(unaudited)
($ in millions, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............................... $ 5,764 $3,537 $ 4,483 $ 6,129 $ 7,447 $ 3,631 $ 5,461
Compensation and benefits expense(1)....... 2,126 1,789 2,005 2,421 3,097 1,528 2,589
Other operating expenses................... 980 1,240 1,110 1,102 1,336 588 813
-------- ------- -------- -------- -------- -------- --------
Pre-tax earnings(1)........................ $ 2,658 $ 508 $ 1,368 $ 2,606 $ 3,014 $ 1,515 $ 2,059
======== ======= ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(2)............................ $115,900 $95,296 $100,066 $152,046 $178,401 $169,200 $241,852
Adjusted assets (unaudited)(3)............. 84,569 75,772 73,552 93,279 119,883 102,989 153,355
Long-term borrowings....................... 10,241 14,418 13,358 12,376 15,667 12,782 20,275
Total liabilities(2)....................... 110,073 89,981 94,686 145,753 171,864 163,045 234,648
Partners' capital.......................... 5,008 4,771 4,905 5,309 6,107 5,609 6,638
PRO FORMA DATA:
Pro forma net earnings(4).................. -- -- -- -- --
Pro forma net earnings per share(4)(5)..... -- -- -- -- --
Pro forma net earnings per share as
adjusted for the Offerings(4)(6)......... -- -- -- -- --
Pro forma Common Shares as adjusted for the
Offerings(6)............................. -- -- -- -- --
Pro forma stockholders' equity as adjusted
for the Offerings(4)..................... -- -- -- -- -- --
Pro forma book value per share as adjusted
for the Offerings(6)..................... -- -- -- -- -- --
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
AS OF OR FOR
SIX MONTHS
AS OF OR FOR YEAR ENDED NOVEMBER ENDED MAY
-------------------------------------------------- -------------------
1993 1994(8) 1995 1996 1997 1997 1998
---- ------- ---- ---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED DATA AND RATIOS (UNAUDITED):
Pre-tax return on average partners'
capital(1).......................... 61% 10% 28% 51% 53% 56%(9) 65%(9)
Ratio of compensation and benefits
expense to net revenues(1).......... 37% 51% 45% 40% 42% 42% 47%
Employees:
United States....................... 5,528 5,822 5,356 5,818 6,879 6,027 7,331
International....................... 2,575 3,176 2,803 3,159 3,743 3,263 4,109
------- ------- -------- -------- -------- -------- --------
Total employees(7).................... 8,103 8,998 8,159 8,977 10,622 9,290 11,440
======= ======= ======== ======== ======== ======== ========
Assets under supervision:
Assets under management............. $41,710 $43,671 $ 52,358 $ 94,599 $135,929 $116,714 $165,226
Other client assets................. 45,663 52,783 62,820 83,362 110,441 94,750 139,689
------- ------- -------- -------- -------- -------- --------
Total assets under supervision........ $87,373 $96,454 $115,178 $177,961 $246,370 $211,464 $304,915
======= ======= ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) The Firm's pre-tax earnings and compensation and benefits expense do not
reflect any payments for services rendered by its partners. Accordingly,
pre-tax earnings understate the expected operating costs to be incurred by
the Firm after the Offerings. See "Pro Forma Consolidated Financial
Information".
(2) Total assets and liabilities as of May 1998 were increased by $17 billion
due to the adoption of the provisions of SFAS No. 125 that were deferred by
SFAS No. 127. See "Accounting Developments" in Note 2 to the consolidated
financial statements.
(3) Adjusted assets represent total assets less (i) securities purchased under
agreements to resell, (ii) certain securities borrowed transactions and
(iii) with respect to May 1998, the increase of $17 billion in total assets
related to the adoption of the provisions of SFAS No. 125 that were
deferred by SFAS No. 127.
(4) Reflects such adjustments as are necessary, in the opinion of management,
for a fair presentation of the results of operations and stockholders'
equity of the Firm on a pro forma basis. See "Pro Forma Consolidated
Financial Information".
(5) Calculated based on Common Shares outstanding after giving effect
to the Pro Forma Adjustments. Common Shares outstanding does not include
shares of Common Stock deliverable pursuant to the Discretionary
RSUs and Discretionary Options. See "Pro Forma Consolidated Financial
Information".
(6) Calculated based on Common Shares outstanding after giving effect
to the Pro Forma Adjustments, as adjusted to reflect the issuance of
shares of Common Stock offered by the Firm at the midpoint of the
range of initial public offering prices set forth on the cover page of this
Prospectus, after deduction of underwriting discounts and estimated
expenses to be paid by the Firm. Common Shares outstanding does not include
shares of Common Stock deliverable pursuant to the Discretionary
RSUs and Discretionary Options. See "Pro Forma Consolidated Financial
Information".
(7) Excludes employees of the Firm's two property management subsidiaries,
Archon Group, L.P. ("Archon") and Gestion d'Actifs Haussmann SCA ("GAH").
Substantially all of the costs of these employees are reimbursed to the
Firm by the real estate investment funds to which the two companies provide
property management services. In addition, as of May 1998, we had
approximately 2,900 temporary staff and consultants. See
"Business -- Employees" and "-- Temporary Staff and Consultants".
(8) See "Business -- Trading and Principal Investments -- Trading Risk
Management -- 1994" for a discussion of the decrease in net revenues in
1994 compared to 1993.
(9) The pre-tax returns on average partners' capital for May 1997 and May 1998
have been annualized. Interim results may not be indicative of the results
for a full year. See "Risk Factors".
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<PAGE> 15
RISK FACTORS
An investment in the Common Stock involves a number of risks, some of
which, including market, liquidity, credit, operational, legal and regulatory
risks, could be substantial and are inherent in the business of the Firm. You
should carefully consider the following information about these risks, together
with the other information in this Prospectus, before buying shares of Common
Stock.
MARKET RISK COULD ADVERSELY AFFECT OUR
BUSINESSES IN MANY WAYS
As an investment banking and securities firm, our businesses are dependent
on conditions in the financial markets and on economic conditions generally,
both in the United States and elsewhere around the world. Over the past several
years, the equity and debt markets in the United States and elsewhere have
achieved record or near record levels, and this favorable business environment
will not continue indefinitely. In the event of a market downturn, our
businesses could be adversely affected in many ways, including those described
below. Our revenues are likely to decline in such circumstances and, if we were
unable to reduce expenses at the same pace, our profit margins would erode. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Operating Expenses" for a description of
our cost structure. Even in the absence of a market downturn, the Firm is
exposed to substantial risk of loss due to market volatility.
LOWER REVENUES FROM INVESTMENT BANKING ACTIVITY
Unfavorable financial or economic conditions would likely reduce the number
and size of transactions in which we provide underwriting, mergers and
acquisitions advisory and other services. Our Investment Banking revenues, in
the form of underwriting discounts and financial advisory fees, are directly
related to the number and value of the transactions in which we participate and
would therefore be adversely affected by a market downturn.
LOSSES FROM TRADING AND INVESTMENT ACTIVITY
The Firm generally maintains large trading and investment positions in the
fixed income, currency, commodity and equity markets. To the extent that the
Firm has long positions (i.e., owns assets) in any of those markets, a downturn
in those markets could result in a decline in the value of those long positions,
resulting in losses and reduced asset values for the Firm. Conversely, to the
extent that the Firm has short positions (i.e., has sold assets it does not own)
in any of those markets, an upturn in those markets could expose the Firm to
potentially unlimited losses as it attempts to cover its short positions by
acquiring assets in a rising market. Often the Firm carries paired long and
short positions whose relative values may change substantially. In addition, the
Firm maintains substantial trading positions that can be adversely affected by
the level of volatility (i.e., the degree to which trading prices fluctuate over
a particular period) in a particular market, regardless of market levels.
LOWER REVENUES FROM COMMISSIONS AND MANAGEMENT FEES
A market downturn is likely to lead to a decline in the volume of trading
transactions that we effect for our customers and, therefore, to a decline in
the revenues we receive from commissions and spreads. In addition, because the
fees that we charge for managing securities and other financial asset portfolios
for our clients are in many cases based on the value of those portfolios, a
market downturn that reduces the value of our clients' portfolios or increases
the amount of withdrawals would reduce the revenue we receive from our asset
management business.
CONCENTRATION OF MARKET RISK
The Firm has committed substantial amounts of capital to its arbitrage,
market-making, block trading, underwriting and lending businesses. These
activities often require the Firm to take large positions in the securities of a
particular issuer, or issuers in a particular industry, country or region. In
the past, concentration of risk has increased the
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<PAGE> 16
losses that we have incurred in these activities. See "Business -- Trading and
Principal Investments -- Trading Risk Management -- 1994". Moreover, the trend
in all major capital markets, for competitive and other reasons, is towards
larger commitments of capital in these activities.
OTHER RISKS INCREASED BY MARKET RISK
In addition to having the potentially adverse effects on our businesses
described above, market risk could exacerbate other risks that we face. For
example, if we incur substantial trading losses, our need for liquidity could
rise sharply while our access to liquidity could be impaired. In addition, in
conjunction with a market downturn, our customers and counterparties could incur
substantial losses of their own, thereby weakening their financial condition and
increasing our credit risk to them. Our liquidity risk and credit risk are
described below.
LIQUIDITY RISK COULD IMPAIR OUR ABILITY TO FUND
OPERATIONS AND JEOPARDIZE OUR
FINANCIAL CONDITION
Liquidity (i.e., ready access to funds) is essential to our business. In
addition to maintaining a cash position, we rely on three principal sources of
liquidity: borrowing in the debt markets, access to certain other funding
sources, such as the repurchase and securities lending markets, and selling
securities and other assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity".
CONTINUOUS BORROWING NEEDS
We depend on continuous access to the debt capital markets to finance our
day-to-day operations. An inability to raise money in the long-term or
short-term debt markets, or to engage in certain other financing activities,
could have a substantial negative effect on our liquidity. Our access to debt in
amounts adequate to finance our activities could be impaired by many factors,
some of which may be specific to the Firm. For example, lenders could develop a
negative perception of our long-term or short-term financial prospects if we
incurred large trading losses, if the level of our business activity decreased
due to a market downturn, if regulatory authorities took significant action
against the Firm, or if we discovered that one of our employees had engaged in
serious unauthorized or illegal activity. Our ability to borrow in the debt
markets also could be impaired by factors that are not specific to the Firm,
such as a severe disruption of the financial markets or negative views about the
prospects for the investment banking, securities or financial services
industries generally.
DEPENDENCE ON ACCESS TO SHORT-TERM DEBT MARKETS
The Firm depends on the issuance of commercial paper and promissory notes
as a principal source of unsecured short-term funding for its operations. As of
May 1998, the Firm had approximately $16.7 billion of outstanding commercial
paper and promissory notes with a weighted average maturity of approximately 100
days. The Firm's liquidity depends to an important degree on its ability to
refinance these borrowings on a continuous basis. Investors who hold the Firm's
outstanding commercial paper and promissory notes have no obligation to purchase
new instruments when the outstanding instruments mature.
DEPENDENCE ON ABILITY TO SELL ASSETS
If we were unable to borrow in the debt capital markets, we would need to
liquidate assets in order to meet our maturing liabilities. In certain market
environments, overall market liquidity may decline. In a time of liquidity
stress we may be unable to sell certain assets, or we may have to sell assets at
depressed prices, which could weaken our financial condition.
DEPENDENCE ON CREDIT RATINGS
Our cost of funds and our access to the debt capital markets depend
significantly on our credit ratings. These ratings are assigned by recognized
rating agencies, which may reduce or withdraw their ratings or place the Firm on
"credit watch" with negative implications at any time. See "Management's
Discussion and Analysis of Financial Condition
15
<PAGE> 17
and Results of Operations -- Liquidity -- Credit Ratings".
CREDIT RISK EXPOSES US TO LOSSES CAUSED
BY FINANCIAL OR OTHER PROBLEMS
EXPERIENCED BY THIRD PARTIES
We are exposed to the risk that third parties that owe us money or have
other obligations to us will not perform. These parties include our trading
counterparties, customers, clearing agents, exchanges, clearing houses and other
financial intermediaries as well as issuers whose securities we hold. These
parties may default on their obligations to us due to bankruptcy, lack of
liquidity, operational failure or other reasons. This risk may arise, for
example, from holding securities of third parties; entering into swap or other
derivative contracts under which counterparties have long-term obligations to
make payments to us; effecting securities, futures, currency or commodity trades
that fail to settle at the required time due to non-delivery by the counterparty
or systems failure by clearing agents, exchanges, clearing houses or other
financial intermediaries; and extending credit to our clients through bridge or
margin loans or other arrangements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management -- Credit
Risk".
INCREASED EXPOSURE IN RECENT YEARS
In recent years, we have significantly expanded our swaps and other
derivatives businesses and placed a greater emphasis on providing credit and
liquidity to our clients. As a result, our credit risks have increased and have
become longer in duration. Further, we have experienced pressure to assume
longer-term credit risk, extend credit against less liquid collateral and price
more aggressively the credit risks that we take.
COUNTRY RISK
Country, regional and political risks are components of credit risk, as
well as market risk. Economic or political pressures in a country or region,
including those arising from local market disruptions or strains on local
currency, may adversely affect the ability of clients or counterparties located
in that country or region to obtain foreign exchange or credit and, therefore,
to perform their obligations to us. See "-- We Are Exposed to Risks in Emerging
and Other Markets".
SYSTEMIC RISK
Credit risk may also arise through a default by one of several large
institutions that are dependent on one another to meet their liquidity or
operational needs, so that a default by one institution causes a series of
defaults by the other institutions. This is sometimes referred to as "systemic
risk" and may adversely affect financial intermediaries, such as clearing
agencies, clearing houses, banks, securities firms and exchanges, with which we
interact on a daily basis.
UNCERTAINTY IN MANAGING CREDIT RISK
Although we regularly review our credit exposure to specific clients and
counterparties and to specific industries, countries and regions that we believe
may present credit concerns, default risk may arise from factors that are not
readily ascertainable, including fraud. In addition, in cases of secured
financing, we may find that we are undersecured, for example, as a result of
sudden declines in market values that reduce the value of collateral.
FIRM AND THIRD-PARTY COMPUTER SYSTEMS
MAY NOT ACHIEVE YEAR 2000 OR
EMU READINESS
YEAR 2000
With the new millennium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors with data functions (including those in non-information
technology equipment and systems) use only two digits to identify a year in the
date field with the assumption that the first two digits of the year are always
"19". Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. Systems that
16
<PAGE> 18
calculate, compare or sort using the incorrect date may malfunction.
Because the Firm is dependent, to a very substantial degree, upon the
proper functioning of its computer systems, a failure of its systems to be Year
2000 compliant could have a material adverse effect on the Firm. Failure of this
kind could, for example, cause settlement of trades to fail, lead to incomplete
or inaccurate accounting, recording or processing of trades in securities,
currencies, commodities and other assets, result in generation of erroneous
results or give rise to uncertainty about our exposure to trading risks and our
need for liquidity. If not remedied, potential risks include business
interruption or shutdown, financial loss, regulatory actions, reputational harm
and legal liability.
In addition, the Firm depends upon the proper functioning of third-party
computer and non-information technology systems. These parties include trading
counterparties, financial intermediaries such as stock and commodities
exchanges, depositories, clearing agencies, clearing houses and commercial banks
and vendors such as providers of telecommunication services and other utilities.
We have initiated communications with counterparties, intermediaries and vendors
with whom we have important financial or operational relationships to determine
the extent to which they are vulnerable to the Year 2000 issue. We have not yet
received sufficient information from all parties about their remediation plans
to predict the outcome of their efforts. In particular, in some international
markets in which we do business, the level of awareness and remediation efforts
relating to the Year 2000 issue is thought to be less advanced than in the
United States.
If third parties with whom we interact have Year 2000 problems that are not
remedied, the following problems could result: (i) in the case of vendors, in
disruption of important services upon which the Firm depends, such as
telecommunications and electrical power; (ii) in the case of third-party data
providers, in the receipt of inaccurate or out-of-date information that would
impair our ability to perform critical data functions, such as pricing our
securities or other assets; (iii) in the case of financial intermediaries such
as exchanges and clearing agents, in failed trade settlements, an inability to
trade in certain markets and disruption of funding flows; (iv) in the case of
banks and other lenders, in the disruption of capital flows potentially
resulting in liquidity stress; and (v) in the case of counterparties and
customers, in financial and accounting difficulties for those parties that
expose the Firm to increased credit risk and lost business. Disruption or
suspension of activity in the world's financial markets is also possible. In
addition, uncertainty about the success of remediation efforts generally may
cause many market participants to reduce the level of their market activities
temporarily as they assess the effectiveness of these efforts during a "phase-
in" period beginning in late 1999. This in turn could result in a general
reduction in trading and other market activities (and lost revenues) as well as
reduced funding availability in late 1999 and early 2000. We cannot predict the
impact that such reduction would have on our business.
The Firm is implementing a worldwide plan to prepare its computer systems
to be Year 2000 compliant and expects to complete this process with respect to
its mission-critical systems in advance of an industry-wide systems test to be
sponsored by the Securities Industry Association in the first half of 1999. We
currently estimate that the total cost of implementing our Year 2000 program
will be between $120 million and $150 million. We can give no assurance that the
Firm's Year 2000 program will be effective or that our estimates about the
timing and cost of completing our program will be accurate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Management -- Operational, Year 2000 and EMU Risks -- Year 2000".
EMU
Commencing on January 1, 1999, 11 European countries will enter into the
EMU and replace their local currencies with a single currency, the Euro. During
a three-year
17
<PAGE> 19
transition period, the national currencies will continue to circulate but only
as fixed denominations of the Euro. Commencing on January 1, 1999, the Euro will
be the predominant currency to settle wholesale (non-cash) transactions
previously denominated in the participating national currencies.
The Firm is implementing a worldwide EMU conversion and testing plan. The
Euro conversion presents systems issues that are unprecedented in three
respects. First, we will need to convert an exceptionally large amount of the
data in our systems. Second, we have had to make system changes based on
numerous technical decisions that were made by the participating countries only
recently, thus making advanced planning difficult. Moreover, the participating
countries were under no obligation to reach a consensus on how these technical
issues were to be resolved and the protocols they adopted differ. Third, unlike
the systems changes that will be required by the Year 2000 issue, those required
by the adoption of the Euro must all be implemented successfully over a single
weekend, beginning when markets close on December 31, 1998.
The changes to our data and computer systems will affect our clearance,
settlement and financial reporting activities, among other key operations of the
Firm. If not properly implemented, these changes could lead to failed trade
settlements, inability to reconcile trading positions and funding disruptions.
These changes could also lead to erroneous entries in our books and records.
These events could result in misstatement of our financial condition and results
of operations, impair our ability to manage our risks and result in a material
loss, regulatory actions, reputational harm and legal liability.
The Firm is also dependent for proper transaction clearance and reporting
on many third parties, including counterparties, clearing agents, banks,
exchanges, clearing houses and providers of information. If these third parties'
systems do not appropriately reflect the introduction of the Euro, the Firm's
clearance, settlement and reporting activities could be adversely affected in
the manner described above.
We can give no assurance that the Firm or third parties on whom we depend
will have in place in a timely manner the systems necessary to process
Euro-denominated transactions. Moreover, disruption of activity in European
markets because of the conversion to the Euro could hurt our businesses in those
markets, resulting in lost revenues.
OTHER OPERATIONAL RISKS MAY DISRUPT OUR
BUSINESS, RESULT IN REGULATORY ACTION
AGAINST US OR LIMIT OUR GROWTH
We face operational risk arising from mistakes made in the confirmation or
settlement of transactions or from transactions not being properly booked,
evaluated or accounted for. Our business is highly dependent on our ability to
process, on a daily basis, a large number of transactions across numerous and
diverse markets in many currencies, and the transactions we process have become
increasingly complex. Consequently, we rely heavily on our financial, accounting
and other data processing systems. If any of these systems do not operate
properly or are unavailable due to problems with our physical infrastructure, we
could suffer financial loss, a disruption of our business, liability to clients,
regulatory intervention or reputational damage. The inability of our systems to
accommodate an increasing volume of transactions could also constrain our
ability to expand our businesses. In recent years, we have substantially
upgraded and expanded the capabilities of our data systems and other operating
technology, and we expect that we will need to continue to upgrade and expand in
the future to avoid disruption of or constraints on our operations.
LEGAL AND REGULATORY RISKS ARE INHERENT AND
SUBSTANTIAL IN OUR BUSINESSES
Substantial legal liability or a significant regulatory action against the
Firm could have a material financial effect on the Firm. Perhaps of equal
importance, such a development could also cause significant reputational harm to
the Firm, which in turn could seriously harm our business prospects.
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<PAGE> 20
EXPOSURE TO LEGAL LIABILITY; RISING LITIGATION COSTS
We face significant legal risk in our business, and the volume and amount
of damages claimed in litigation against financial intermediaries are
increasing. These risks include potential liability under securities or other
laws for materially false or misleading statements made in connection with
securities and other transactions, potential liability for the "fairness
opinions" and other advice we provide to participants in corporate transactions
and disputes over the terms and conditions of complex trading arrangements. We
also face the possibility that counterparties in complex or risky trading
transactions will claim that we improperly failed to apprise them of the risks
or that they were not authorized or permitted under applicable corporate or
regulatory requirements to enter into these transactions with us and that their
obligations to the Firm are not enforceable. Particularly in our rapidly growing
business focused on high net worth individuals, we are increasingly exposed to
potential liability for violations of customer suitability requirements and
anti-churning rules and for the exercise of unauthorized trading discretion. We
are also subject to potential liability arising from disputes with employees for
alleged discrimination or harassment, among other things. These risks often may
be difficult to assess or quantify and their existence and magnitude often
remain unknown for substantial periods of time. We incur significant legal
expenses every year in defending against litigation, and we expect to continue
to do so in the future. See "Business -- Legal Matters".
EXTENSIVE REGULATION OF THE FIRM
The financial services industry is subject to extensive regulation. In the
United States alone, our business is regulated by the Securities and Exchange
Commission ("SEC"), the Commodity Futures Trading Commission ("CFTC") and
various other federal and state governmental authorities. In addition, the Firm
is subject to regulation by various self-regulatory organizations such as the
National Association of Securities Dealers, Inc. ("NASD"), the New York Stock
Exchange, Inc. ("NYSE") and other exchanges. The Firm is also subject to
regulation by governmental and self-regulatory organizations in virtually all
other jurisdictions in which it operates around the world.
These regulatory regimes are designed to ensure the integrity of the
financial markets and to protect customers and other third parties who deal with
the Firm and are not designed to protect shareholders of the Firm. Consequently,
these regulations often serve to limit the Firm's activities, including through
net capital, customer protection and market conduct requirements. We face the
risk of significant intervention by regulatory authorities, including extended
investigation and surveillance activity, adoption of costly or restrictive new
regulations and judicial or administrative proceedings that may result in
substantial penalties to the Firm. Among other things, the Firm could be fined
or enjoined from engaging in certain business activities and could have its
registration as a broker-dealer, investment advisor or other regulated entity
suspended or terminated. See "Business -- Regulation".
LEGAL RESTRICTIONS ON OUR CLIENTS
New laws or regulations or changes in enforcement of existing laws or
regulations applicable to the Firm's clients may also adversely affect our
business. For example, changes in antitrust enforcement could affect the level
of mergers and acquisitions activity and changes in the regulation of certain
industries could restrict the activities of the Firm's clients engaged in those
industries and, therefore, the Firm's services on their behalf.
EMPLOYEE MISCONDUCT COULD HARM THE FIRM
AND IS DIFFICULT TO DETECT AND DETER
There have been a number of highly publicized cases involving fraud or
other misconduct by employees in the financial services industry in recent
years, and we run the risk that employee misconduct could occur. Misconduct by
employees could include binding the Firm to transactions that exceed authorized
limits or present unacceptable risks, or hiding from the Firm unauthorized or
unsuccessful activities, which, in either case,
19
<PAGE> 21
may result in unknown and unmanaged risks or losses. Employee misconduct could
also involve the improper use of confidential information, which could result in
regulatory sanctions and serious reputational harm. It is not always possible to
deter employee misconduct and the precautions we take to prevent and detect this
activity may not be effective in all cases.
OUR RISK MANAGEMENT POLICIES AND
PROCEDURES MAY LEAVE US EXPOSED TO
UNIDENTIFIED OR UNANTICIPATED RISK
We have devoted significant resources to developing our risk management
policies and procedures and expect to continue to do so in the future.
Nonetheless, our policies and procedures to identify, monitor and manage our
risks may not be fully effective. Certain of our methods to manage risk are
based on historical measures of market behavior or stress and are not
necessarily predictive of future risk exposures, which could be greater than the
historical measures and correlations indicate. Other risk management methods
depend upon evaluation of information regarding markets, clients or other
matters that is publicly available or otherwise accessible by the Firm. Such
information may not in all cases be accurate, complete, up-to-date or properly
evaluated. Management of operational, legal and regulatory risk requires, among
other things, policies and procedures to record properly and verify a large
number of transactions and events, and we can give no assurance that those
policies and procedures will be fully effective.
THE FINANCIAL SERVICES INDUSTRY IS INTENSELY
COMPETITIVE AND RAPIDLY CONSOLIDATING
The financial services industry -- and all of our businesses -- are
intensely competitive, and we expect them to remain so. We compete on the basis
of a number of factors, including execution, depth of product and service
offerings, innovation, reputation and price. We have experienced intense price
competition in certain areas of our business in recent years and believe we may
experience pricing pressures in these and other areas in the future as some of
our competitors seek to obtain market share by reducing fees or spreads.
TREND TOWARD CONSOLIDATION AND INCREASING COMPETITION
In recent years, there has been substantial consolidation and convergence
among participants in the financial services industry. In particular, a number
of large commercial banks, insurance companies and other broad-based financial
services firms have established or acquired broker-dealer affiliates. These
firms have the ability to offer a wide range of products, from loans,
deposit-taking and insurance to brokerage, asset management and investment
banking services, which may enhance their competitive position. They also have
the ability to support investment banking and securities products with
commercial banking, insurance and other financial services product revenues in
an effort to gain market share, which could result in pricing pressure in our
businesses.
INCREASED NEED FOR CAPITAL
This trend toward consolidation and convergence has significantly increased
the capital base and geographic reach of our competitors. This trend has also
hastened the globalization of the securities and other financial services
markets. As a result, our businesses now require increased amounts of capital.
COMPETITION IN NON-U.S. MARKETS
We believe that some of our most significant opportunities for growth will
arise outside the United States. See "Industry and Economic Outlook". In order
to take advantage of these opportunities, we will have to compete successfully
with financial institutions based in important non-U.S. markets, particularly in
Europe. Certain of these institutions are larger, better capitalized and have a
stronger local presence and a longer operating history in these markets.
COMPETITION FROM ALTERNATIVE TRADING SYSTEMS
Securities and futures transactions are now being conducted through the
Internet and
20
<PAGE> 22
other alternative, non-traditional trading systems, and it appears that the
trend toward alternative trading systems will continue and perhaps accelerate. A
dramatic increase in computer-based trading may adversely affect the Firm's
commission and trading revenues, reduce the Firm's participation in the trading
markets and associated access to market information and lead to the creation of
new competitors.
WE ARE EXPOSED TO RISKS IN
EMERGING AND OTHER MARKETS
We conduct business in major markets around the world, including many
developing markets in Asia, Latin America and Eastern Europe. Our non-U.S.
operations are subject to political, economic, legal, operational and other
risks that are inherent in operating in these countries and range from
difficulties in settling transactions in emerging markets to possible
nationalization, expropriation, price controls and other restrictive
governmental actions. We also face the risk that exchange controls or similar
restrictions imposed by foreign governmental authorities may restrict our
ability to convert local currency received or held by us in their countries into
U.S. dollars or other currencies, or to take those dollars or other currencies
out of those countries.
In the last several years, various emerging market countries, including
most recently those in Asia and Eastern Europe, have experienced severe economic
and financial disruptions, including significant devaluations of their
currencies and low or negative growth rates in their economies. The possible
effects of these conditions include an adverse impact on multinational companies
and increased volatility in financial markets generally. Moreover, economic
problems in a single emerging market country are increasingly having contagion
effects in other economies and affecting emerging and other markets generally. A
continuation of these situations could adversely affect global economic
conditions and world markets and, in turn, could adversely affect the Firm's
business. Among the risks are regional or global market downturns and, as noted
above, increasing liquidity and credit risks, particularly in Japan where the
economy continues to be weak and we have significant exposure.
Moreover, in many developing countries, the laws and regulations applicable
to the securities and financial services industries are uncertain and evolving,
and it may be difficult for us to determine the exact requirements of local laws
in every market. Our inability to remain in compliance with local laws in a
particular foreign market could have a significant and negative effect not only
on our business in that market but also on the Firm's reputation generally.
These uncertainties may also make it difficult for us to structure our
transactions in such a way that the results we expect to achieve are legally
enforceable in all cases. See "-- Legal and Regulatory Risks Are Inherent and
Substantial in Our Businesses -- Exposure to Legal Liability; Rising Litigation
Costs" and "Business -- Regulation".
OUR CONVERSION TO CORPORATE FORM
MAY ADVERSELY AFFECT OUR ABILITY TO RECRUIT,
RETAIN AND MOTIVATE KEY EMPLOYEES
The Firm's performance is largely dependent on the talents and efforts of
highly skilled individuals. Competition in the financial services industry for
qualified employees is intense. Our continued ability to compete effectively in
our businesses depends on our ability to attract new employees and to retain and
motivate our existing employees.
In connection with the Offerings and the Firm's conversion from partnership
to corporate form, the PLPs will receive substantial amounts of Common Stock in
exchange for their interests in the Firm. Upon the closing of the Offerings,
this stock will be owned outright and these individuals will be permitted to
sell their shares beginning after the third anniversary of the Offerings or
earlier if the transfer restrictions are waived. See "Certain Relationships and
Related Transactions -- Shareholders' Agreement -- Transfer Restrictions". We
can give no assurance that steps taken by the Firm to encourage the continued
service of these individuals in the Firm's businesses after the Offerings will
be effective. See "Management -- The Employee IPO Awards -- The Partner Pool"
and "Certain
21
<PAGE> 23
Relationships and Related Transactions -- Incorporation and Related
Transactions".
In connection with the Offerings and the Firm's conversion from partnership
to corporate form, employees other than the PLPs will receive equity-based
awards. We can give no assurance that the incentives to attract, retain and
motivate employees provided by these awards, or that future arrangements,
including equity-based arrangements, will be as effective as those that existed
prior to conversion. See "Management -- The Employee IPO Awards".
THE FIRM WILL BE CONTROLLED BY ITS PRINCIPAL SHAREHOLDERS AND WILL BE SUBJECT TO
ANTI-TAKEOVER PROVISIONS
Upon consummation of the Offerings, the PLPs and other Managing Directors
will collectively own approximately shares of Common Stock. These shares
will be subject to the Shareholders' Agreement, which will provide for
coordinated voting by the parties. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement".
As a result of the arrangement described above, the Managing Directors will
be able to elect the entire Board of Directors, control the management and
policies of the Company and, in general, determine (without the consent of the
Company's other shareholders) the outcome of any corporate transaction or other
matter submitted to the shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company's assets.
The Managing Directors will be able to prevent or cause a change in control of
the Company.
In addition, our Amended and Restated Certificate of Incorporation and
By-Laws contain provisions, and our Board of Directors has adopted a "poison
pill" rights plan, that will prevent or impede the removal of directors and may
discourage a third party from making a proposal to acquire us. See "Description
of Capital Stock -- Certain Anti-Takeover Matters".
OUR SHARE PRICE MAY DECLINE DUE TO SHARES
ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, there will be Common Shares
outstanding. Of these shares, the shares of Common Stock expected to
be sold in the Offerings (excluding the Directed Offering described below) will
be freely transferable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except for shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act ("Rule 144").
Of the remaining Common Shares outstanding, up to
shares of Common Stock will be sold in the Offerings to the Firm's employees and
certain other purchasers (the "Directed Offering").
RLPs will hold shares, which, subject to the 180-day lockup
described below, will be freely transferable commencing December 1, 1998. PLPs
will hold restricted shares, which will not be transferable until
after the third anniversary of the date of this Prospectus, unless these
restrictions are waived. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement".
These shares held by RLPs and PLPs, as well as the shares sold in the
Directed Offering, will be subject to the 180-day Underwriters' lockup described
under "Underwriting".
Shares underlying Formula RSUs are deliverable beginning on the first
anniversary of the date of grant; shares underlying the Discretionary RSUs or
held by the DCP will be deliverable beginning on the third anniversary of the
date of grant; and Discretionary Options will be exercisable beginning on the
third anniversary of the date of grant, in each case if relevant conditions are
satisfied. See "Management -- The Employee IPO Awards".
Sales of substantial amounts of Common Stock, or the possibility of such
sales, pursuant to Rule 144 or otherwise, may adversely affect the price of the
Common Stock and
22
<PAGE> 24
impede the Firm's ability to raise capital through the issuance of equity
securities. See "Certain Relationships and Related Transactions" and "Shares
Eligible for Future Sale".
THERE HAS BEEN NO PRIOR MARKET FOR THE
COMMON STOCK AND THE MARKET PRICE OF
THE SHARES WILL FLUCTUATE
Prior to the Offerings, there has been no market for the Common Stock. The
initial public offering price of the Common Stock will be determined by
negotiations among the Company and the representatives of the Underwriters.
Because of the relationship between GS&Co. and the issuer of the Common Stock,
the NASD requires that a third party or "qualified independent underwriter"
determine that the initial public offering price is not too high. are
acting as these third-party underwriters. See "Underwriting".
The price of the Common Stock after the Offerings may fluctuate widely,
depending upon many factors, including the perceived prospects of the Firm and
the securities or financial services industries in general, differences between
our actual financial and operating results and those expected by investors and
analysts, changes in analysts' recommendations or projections, changes in
general economic or market conditions and broad market fluctuations. The Common
Stock may trade at prices significantly below the initial public offering price.
We will apply to list the Common Stock on the NYSE. The NYSE listing does
not, however, guarantee that a trading market for the Common Stock will develop
or, if a market does develop, the depth of the trading market for the Common
Stock.
After the Offerings, because GS&Co. is a member of the NYSE and because of
GS&Co.'s relationship to the Firm, it will not be permitted under the rules of
the NYSE to make markets in, or recommendations regarding the purchase or sale
of, the Common Stock. This may adversely affect the trading market for the
Common Stock.
INVESTORS IN THE OFFERINGS WILL EXPERIENCE
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in the Offerings will experience immediate and substantial
dilution in the net tangible book value of $ per share based on an assumed
initial public offering price of $ (the midpoint of the range of initial
public offering prices set forth on the cover page of this Prospectus). See
"Dilution".
23
<PAGE> 25
USE OF PROCEEDS
Based upon an initial public offering price of $ per share (the
midpoint of the range of initial public offering prices set forth on the cover
page of this Prospectus), the Company estimates that it will receive net
proceeds from the Offerings of $ (or $ if the underwriters'
options to purchase additional shares are exercised in full), after deducting
the underwriting discounts and estimated expenses that are payable by the
Company in the Offerings. The above amounts do not give effect to underwriting
discounts that will be realized by GS&Co., Goldman Sachs International ("GSI")
and Goldman Sachs (Asia) L.L.C. as underwriters in the Offerings. The Company
intends to use the net proceeds from the Offerings for general corporate
purposes.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders.
We plan to complete the QUIPS Offering at or about the time of the
Offerings. We estimate that the net proceeds from the QUIPS Offering will be
approximately $ and we will use those proceeds for general corporate
purposes. The closing of the Offerings is not conditioned on the closing of the
QUIPS Offering, and we can give no assurance that the QUIPS Offering will be
completed or, if completed, as to the amount or final terms of QUIPS that will
be sold. See "Description of Capital Securities".
DIVIDEND POLICY
The holders of Common Shares will share ratably on a per share basis in all
dividends and other distributions declared by our Board of Directors. Our Board
of Directors currently intends to declare quarterly dividends on all Common
Shares and expects that the first quarterly dividend will be $ per share, and
that it will be declared during the first fiscal quarter of 1999.
The declaration of dividends by the Company is subject to the discretion of
the Board of Directors. The Board of Directors will take into account such
matters as general business conditions, the Firm's financial results, capital
requirements, contractual, legal and regulatory restrictions on the payment of
dividends by the Company to its shareholders or by the Company's subsidiaries to
the Company, the effect on debt ratings of the Company and such other factors as
the Board of Directors may deem relevant. See "Business -- Regulation" and
"Description of Capital Securities".
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<PAGE> 26
DILUTION
As of August 1998, the pro forma net tangible book value of the Firm (after
giving effect to the Pro Forma Adjustments that are defined and described under
Pro Forma Consolidated Financial Information) was approximately $ , or
approximately $ per Common Share (which includes Common Stock and Nonvoting
Common Stock). "Pro forma net tangible book value" per Common Share represents
the amount of the Company's total consolidated tangible assets minus total
consolidated liabilities, divided by the Common Shares outstanding on a pro
forma basis after giving effect to the Pro Forma Adjustments. After giving
effect to the sale by the Company of shares of Common Stock in the
Offerings at an assumed initial public offering price of $ per share (the
midpoint of the range of initial public offering prices set forth on the cover
page of this Prospectus) and after deducting the underwriting discounts and
estimated expenses payable by the Company in the Offerings, the pro forma net
tangible book value of the Company as of August 1998 would have been
approximately $ , or approximately $ per Common Share. This represents
an immediate increase in net tangible book value of $ per Common Share to
existing shareholders and an immediate dilution in net tangible book value of
$ per share to new investors purchasing shares of Common Stock at the
assumed initial public offering price.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of
Common Stock.............................................. $
--------
Pro forma net tangible book value per Common Share before
giving effect to the Offerings(1)...................... $
--------
Increase in net tangible book value per Common Share
attributable to the sale of Common Stock in the
Offerings(2)........................................... $
--------
Pro forma net tangible book value per Common Share after
giving effect to the Offerings............................ $
--------
Dilution in net tangible book value per Common Share to new
investors(3).............................................. $
--------
</TABLE>
- ---------------
(1) The Firm's intangible assets as of August 1998 were $ , comprised
primarily of goodwill, equivalent to $ per Common Share (after giving
effect to the Pro Forma Adjustments).
(2) After deducting the underwriting discounts and estimated expenses payable by
the Company in the Offerings.
(3) Dilution is determined by subtracting pro forma net tangible book value per
share after giving effect to the Offerings from the assumed initial public
offering price paid by a new investor.
------------------------
The foregoing table does not assume the exercise of the underwriters'
options to purchase additional shares that are described under "Underwriting".
Common Shares outstanding includes shares of Common Stock deliverable
pursuant to the Formula RSUs and shares of Common Stock contributed to the
DCP. Common Shares outstanding does not include shares of Common Stock
deliverable pursuant to the Discretionary RSUs and Discretionary Options. See
"Management -- The Employee IPO Awards".
25
<PAGE> 27
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Firm
as of August 1998: (i) on a pro forma basis after giving effect to the Pro Forma
Adjustments and (ii) as adjusted for the sale of shares of Common
Stock by the Company in the Offerings at an assumed initial public offering
price of $ per share (the midpoint of the range of the initial public
offering prices set forth on the cover page of this Prospectus) and after
deduction of the underwriting discounts and estimated expenses payable by the
Company in the Offerings.
This table should be read in conjunction with the consolidated financial
statements and the notes thereto.
<TABLE>
<CAPTION>
AS OF AUGUST 1998
----------------------------
PRO FORMA
AS ADJUSTED
PRO FORMA(5) FOR OFFERINGS
------------ -------------
(in millions)
<S> <C> <C>
Short-term borrowings (including commercial paper)(1)....... $ $
====== ======
Long-term borrowings(2):
Senior debt(3)............................................ $ $
Junior Subordinated Debentures(4).........................
------ ------
Total long-term borrowings........................ $ $
Mandatorily redeemable preferred securities (QUIPS).........
Stockholders' equity:
Preferred Stock, par value $.01 per share;
shares authorized, no shares issued and outstanding....
Common Stock, par value $.01 per share; shares
authorized, shares issued and outstanding
( shares issued and outstanding as
adjusted(5))...........................................
Nonvoting Common Stock, par value $.01 per share;
shares authorized and shares issued and
outstanding............................................
Additional paid-in capital................................
Retained earnings.........................................
------ ------
Total stockholders' equity........................ $ $
------ ------
Total capitalization............................ $ $
====== ======
</TABLE>
- ---------------
(1) Includes current portion of long-term borrowings of $ .
(2) See Note 5 to the consolidated financial statements. The Company anticipates
that shortly after the Offerings it may effect one or more offerings of
long-term debt securities.
(3) Includes subordinated debt of GS&Co. of $ .
(4) Consists of the Junior Subordinated Debentures issued to the RLPs. See
"Certain Relationships and Related Transactions -- Incorporation and Related
Transactions".
(5) The foregoing table does not assume the exercise of the underwriters'
options to purchase additional shares that are described under
"Underwriting". Common Stock outstanding includes shares of Common
Stock deliverable pursuant to the Formula RSUs and shares of
Common Stock contributed to the DCP. Common Stock outstanding does not
include shares of Common Stock deliverable pursuant to the
Discretionary RSUs and Discretionary Options. See "Management -- The
Employee IPO Awards".
26
<PAGE> 28
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Information is based upon
the historical consolidated financial statements of the Firm and reflects the
pro forma effects of (i) the Partnership Capital Adjustments, the Incorporation
Transactions and the Related Transactions; (ii) compensation to Managing
Directors who were former PLPs; (iii) equity-based compensation; (iv) the
provision for corporate income taxes; and (v) the effect of recognition of net
deferred tax assets as a result of the conversion of Group L.P. to corporate
form (collectively, the "Pro Forma Adjustments").
The Pro Forma Consolidated Income Statement Information does not give
effect to certain items because of their non-recurring nature. These are (i) the
award of the Formula RSUs; (ii) the initial irrevocable contribution of shares
of Common Stock to the DCP; (iii) the effect of recognition of net deferred tax
assets as a result of the conversion of Group L.P. to corporate form; and (iv)
the Charitable Contribution. The Pro Forma Consolidated Balance Sheet
Information, however, does give effect to these items.
The Pro Forma Adjustments are based upon available information and certain
assumptions that management believes are reasonable. The Pro Forma Consolidated
Financial Information and accompanying notes should be read in conjunction with
the consolidated financial statements and notes thereto.
THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION PRESENTED IS NOT
NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL POSITION THAT
MIGHT HAVE OCCURRED HAD THE PRO FORMA ADJUSTMENTS ACTUALLY TAKEN PLACE AT THE
DATES SPECIFIED, OR THAT MAY BE EXPECTED TO OCCUR IN THE FUTURE.
27
<PAGE> 29
PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION
($ in millions, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1997
-----------------------------------------------------------------------
PRO FORMA
PRO FORMA ADJUSTMENT AS ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS
---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Total revenues......................
Interest expense, principally on
short-term funding................ (a)(b)
----- ----- ----- ----- -----
Revenues, net of interest expense...
Compensation and benefits, excluding
Employee IPO Awards............... (c)
Employee IPO Awards................. (d)
Other operating expenses............
----- ----- ----- ----- -----
Total operating expenses............
Pre-tax earnings....................
Provision for taxes................. (e)
----- ----- ----- ----- -----
Net earnings........................
===== ===== ===== ===== =====
Common Shares outstanding........... (f) (f) (g) (g)
Earnings per share..................
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 1998
-----------------------------------------------------------------------
PRO FORMA
PRO FORMA ADJUSTMENT AS ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS
---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Total revenues......................
Interest expense, principally on
short-term funding................ (a)(b)
----- ----- ----- ----- -----
Revenues, net of interest expense...
Compensation and benefits, excluding
Employee IPO Awards............... (c)
Employee IPO Awards................. (d)
Other operating expenses............
----- ----- ----- ----- -----
Total operating expenses............
Pre-tax earnings....................
Provision for taxes................. (e)
----- ----- ----- ----- -----
Net earnings........................
===== ===== ===== ===== =====
Common Shares outstanding........... (f) (f) (g) (g)
Earnings per share..................
</TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION
($ in millions, except share and per share data)
<TABLE>
<CAPTION>
AS OF AUGUST 1998
-----------------------------------------------------------------------
PRO FORMA
PRO FORMA ADJUSTMENT AS ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS
---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Total assets........................ (b)(i)(j)(l) (g)
Long-term borrowings................ (a)
Total liabilities................... (h)
Mandatorily redeemable preferred
securities (QUIPS)................ (b)
Partners' capital................... (a)(i)(j)(k)
Stockholders' equity................ (h)(k)(l) (g) (g)
Common Shares outstanding........... (f) (f) (g) (g)
Book value per share................
</TABLE>
28
<PAGE> 30
NOTE 1: BASIS OF PRESENTATION
The Pro Forma Balance Sheet Information was prepared as if the Pro Forma
Adjustments had occurred as of August 28, 1998. The Pro Forma Income Statement
Information for the fiscal year ended November 1997 and for the nine months
ended August 28, 1998, was prepared as if the Pro Forma Adjustments had taken
place at the beginning of 1997.
NOTE 2: PRO FORMA ADJUSTMENTS
(a) RLP EXCHANGE FOR DEBENTURES. Adjustment to reflect the issuance of
$ principal amount of the Junior Subordinated Debentures to the RLPs in
exchange for their interests in Group L.P. and certain affiliates.
(b) QUIPS. Adjustment to reflect the issuance of $ of QUIPS, with an
assumed distribution rate of % per annum.
(c) COMPENSATION AND BENEFITS, EXCLUDING EMPLOYEE IPO AWARDS. Adjustment
to reflect (i) total compensation that would have been paid to the former PLPs
of the Firm for services rendered, and (ii) equity-based compensation in the
form of restricted stock units, % of which will vest immediately, and
% of which will vest ratably over the next years. Equity-based
compensation in the form of stock options will be accounted for pursuant to APB
No. 25, as permitted by paragraph 5 of SFAS No. 123.
(d) EMPLOYEE IPO AWARDS. Adjustment to reflect (i) the amortization of the
Discretionary RSUs. Discretionary RSUs with a value of $ will be amortized
as a non-cash expense over the vesting period (i.e., over the years
following the date of grant); and (ii) the addition to equity, net of tax,
associated with the Formula RSUs and the contribution to the DCP. See
"Management -- The Employee IPO Awards".
(e) PRO FORMA PROVISION FOR INCOME TAXES. Adjustment to reflect a pro
forma provision for income taxes at a 41% income tax rate applied to pro forma
results of operations.
(f) PRO FORMA COMMON SHARES. Calculated based on Common Shares
outstanding after giving effect to the Pro Forma Adjustments. Common Shares
outstanding does not include shares of Common Stock deliverable pursuant
to the Discretionary RSUs and Discretionary Options.
(g) ADJUSTMENT FOR THE OFFERINGS. Common shares as adjusted to reflect the
issuance of shares of Common Stock offered by the Firm at the midpoint of
the range of initial public offering prices set forth on the cover page of this
Prospectus. Common Shares outstanding does not include shares of Common
Stock deliverable pursuant to the Discretionary RSUs and Discretionary Options.
Net proceeds to the Firm from the Offerings are after the deduction of
underwriting discounts and estimated expenses to be paid by the Firm.
(h) CHARITABLE CONTRIBUTION. Adjustment to reflect the Charitable
Contribution of $ .
(i) RLP EXCHANGE FOR CASH. Adjustment to reflect the exchange of RLP
interests in Group L.P. and certain affiliates for cash.
(j) CASH DISTRIBUTIONS. Adjustment to reflect cash distribution of
$ prior to the Incorporation Transactions.
(k) PLP, RLP, SBCM AND KAA EXCHANGE FOR COMMON SHARES. Adjustment to
reflect the issuance of shares of Common Stock to PLPs, shares of
Common Stock to RLPs, shares of Common Stock and shares of
Nonvoting Common Stock to SBCM and shares of Common Stock to KAA,
in exchange for their respective interests in Group L.P. and certain affiliates.
(l) DEFERRED TAXES. Adjustment to reflect the recognition of net deferred
tax assets associated with the conversion of Group L.P. to corporate form.
29
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated income statement and balance sheet
data set forth below have been derived from the Firm's consolidated financial
statements and the notes thereto. The Firm's consolidated financial statements
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
as of November 1996 and November 1997 and for the years ended 1995, 1996 and
1997, and as of and for the six months ended May 1998. These financial
statements are included elsewhere in this Prospectus, together with the report
thereon of PricewaterhouseCoopers LLP.
The selected historical consolidated income statement and balance sheet
data set forth below as of November 1993, November 1994 and November 1995 and
for the years ended 1993 and 1994 have been derived from audited consolidated
financial statements of the Firm not included in this Prospectus.
The selected historical consolidated income statement and balance sheet
data set forth below as of and for the six months ended May 1997 have been
derived from the Firm's unaudited interim consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The interim results
set forth below for the six-month period ended May 1998 may not be indicative of
the results for the full year.
The pro forma data set forth below for the year ended November 1997 and as
of and for the six months ended May 1998 have been derived from the pro forma
data set forth in "Pro Forma Consolidated Financial Information".
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Pro Forma Consolidated Financial Information" and the consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
AS OF OR FOR
SIX MONTHS
AS OF OR FOR YEAR ENDED NOVEMBER ENDED MAY
--------------------------------------------------- ----------------------
1993 1994(8) 1995 1996 1997 1997 1998
---- ------- ---- ---- ---- ---- ----
(unaudited)
($ in millions, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $ 14,848 $12,452 $ 14,324 $ 17,289 $ 20,433 $ 9,540 $ 12,466
Interest expense.......................... 9,084 8,915 9,841 11,160 12,986 5,909 7,005
-------- ------- -------- -------- -------- -------- --------
Net revenues.............................. 5,764 3,537 4,483 6,129 7,447 3,631 5,461
Compensation and benefits expense(1)...... 2,126 1,789 2,005 2,421 3,097 1,528 2,589
Other operating expenses.................. 980 1,240 1,110 1,102 1,336 588 813
-------- ------- -------- -------- -------- -------- --------
Pre-tax earnings(1)....................... $ 2,658 $ 508 $ 1,368 $ 2,606 $ 3,014 $ 1,515 $ 2,059
======== ======= ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(2)........................... $115,900 $95,296 $100,066 $152,046 $178,401 $169,200 $241,852
Adjusted assets (unaudited)(3)............ 84,569 75,772 73,552 93,279 119,883 102,989 153,355
Long-term borrowings...................... 10,241 14,418 13,358 12,376 15,667 12,782 20,275
Total liabilities(2)...................... 110,073 89,981 94,686 145,753 171,864 163,045 234,648
Partners' capital......................... 5,008 4,771 4,905 5,309 6,107 5,609 6,638
PRO FORMA DATA:
Pro forma net earnings(4)................. -- -- -- -- --
Pro forma net earnings per share(4)(5).... -- -- -- -- --
Pro forma net earnings per share as
adjusted for the Offerings(4)(6)........ -- -- -- -- --
Pro forma Common Shares as adjusted for
the Offerings(6)........................ -- -- -- -- --
Pro forma stockholders' equity as adjusted
for the Offerings(4).................... -- -- -- -- -- --
Pro forma book value per share as adjusted
for the Offerings(6).................... -- -- -- -- -- --
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
AS OF OR FOR
SIX MONTHS
AS OF OR FOR YEAR ENDED NOVEMBER ENDED MAY
--------------------------------------------------- -------------------
1993 1994(8) 1995 1996 1997 1997 1998
---- ------- ---- ---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED DATA AND RATIOS (UNAUDITED):
Pre-tax return on average partners'
capital(1).............................. 61% 10% 28% 51% 53% 56%(9) 65%(9)
Ratio of compensation and benefits expense
to net revenues(1)...................... 37% 51% 45% 40% 42% 42% 47%
Employees:
United States........................... 5,528 5,822 5,356 5,818 6,879 6,027 7,331
International........................... 2,575 3,176 2,803 3,159 3,743 3,263 4,109
-------- ------- -------- -------- -------- -------- --------
Total employees(7)........................ 8,103 8,998 8,159 8,977 10,622 9,290 11,440
======== ======= ======== ======== ======== ======== ========
Assets under supervision:
Assets under management................. $ 41,710 $43,671 $ 52,358 $ 94,599 $135,929 $116,714 $165,226
Other client assets..................... 45,663 52,783 62,820 83,362 110,441 94,750 139,689
-------- ------- -------- -------- -------- -------- --------
Total assets under supervision............ $ 87,373 $96,454 $115,178 $177,961 $246,370 $211,464 $304,915
======== ======= ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) The Firm's pre-tax earnings and compensation and benefits expense do not
reflect any payments for services rendered by its partners. Accordingly,
pre-tax earnings understate the expected operating costs to be incurred by
the Firm after the Offerings. See "Pro Forma Consolidated Financial
Information".
(2) Total assets and liabilities as of May 1998 were increased by $17 billion
due to the adoption of the provisions of SFAS No. 125 that were deferred by
SFAS No. 127. See "Accounting Developments" in Note 2 to the consolidated
financial statements.
(3) Adjusted assets represent total assets less (i) securities purchased under
agreements to resell, (ii) certain securities borrowed transactions and
(iii) with respect to May 1998, the increase of $17 billion in total assets
related to the adoption of the provisions of SFAS No. 125 that were deferred
by SFAS No. 127.
(4) Reflects such adjustments as are necessary, in the opinion of management,
for a fair presentation of the results of operations and stockholders'
equity of the Firm on a pro forma basis. See "Pro Forma Consolidated
Financial Information".
(5) Calculated based on Common Shares outstanding after giving effect to
the Pro Forma Adjustments. Common Shares outstanding does not include
shares of Common Stock deliverable pursuant to the Discretionary
RSUs and Discretionary Options. See "Pro Forma Consolidated Financial
Information".
(6) Calculated based on Common Shares outstanding after giving effect to
the Pro Forma Adjustments, as adjusted to reflect the issuance of
shares of Common Stock offered by the Firm at the midpoint of
the range of initial public offering prices set forth on the cover page of
this Prospectus, after deduction of underwriting discounts and estimated
expenses to be paid by the Firm. Common Shares outstanding does not include
shares of Common Stock deliverable pursuant to the Discretionary
RSUs and Discretionary Options. See "Pro Forma Consolidated Financial
Information".
(7) Excludes employees of the Firm's two property management subsidiaries,
Archon and GAH. Substantially all of the costs of these employees are
reimbursed to the Firm by the real estate investment funds to which the two
companies provide property management services. In addition, as of May 1998,
we had approximately 2,900 temporary staff and consultants. See
"Business -- Employees" and "-- Temporary Staff and Consultants".
(8) See "Business -- Trading and Principal Investments -- Trading Risk
Management -- 1994" for a discussion of the decrease in net revenues in 1994
compared to 1993.
(9) The pre-tax returns on average partners' capital for May 1997 and May 1998
have been annualized. Interim results may not be indicative of the results
for a full year. See "Risk Factors".
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Firm is a preeminent global investment banking and securities firm that
provides a wide range of services worldwide to a substantial and diversified
client base.
The Firm's activities are divided into three principal business lines:
- - Investment Banking, which includes financial advisory services and
underwriting;
- - Trading and Principal Investments, which includes fixed income, currency and
commodities ("FICC"), equities and principal investments; and
- - Asset Management and Securities Services, which includes asset management,
securities services and commissions.
RESULTS OF OPERATIONS
Management believes that the best measure by which to assess the Firm's
historical profitability is pre-tax earnings because, as a partnership, the Firm
generally was not subject to U.S. federal or state income taxes. See
"-- Provision for Taxes" below and Note 2 to the consolidated financial
statements.
The Firm's compensation and benefits expense does not reflect any payments
for services rendered by its partners and therefore understates the expected
operating costs to be incurred by the Firm after the Offerings. Moreover, in
connection with the Offerings, the Firm will record the effect of certain non-
recurring items in the fourth quarter of 1998. These non-recurring items are:
(i) the award of the Formula RSUs; (ii) the initial irrevocable contribution of
shares of Common Stock to the DCP; (iii) the effect of recognition of net
deferred tax assets as a result of the conversion of Group L.P. to corporate
form; and (iv) the Charitable Contribution. See "Pro Forma Consolidated
Financial Information".
The composition of the Firm's historical revenues has varied over time as
financial markets and the scope of the Firm's operations have changed. As a
result, period-to-period comparisons may not be meaningful and interim period
operating results may not be indicative of the operating results for a full
year. See "Risk Factors".
OVERVIEW
The following table sets forth the Firm's net revenues and pre-tax
earnings:
FINANCIAL OVERVIEW
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $4,483 $6,129 $7,447 $3,631 $5,461
Pre-tax earnings................... 1,368 2,606 3,014 1,515 2,059
</TABLE>
------------------------
MAY 1998 VERSUS MAY 1997. The Firm's net revenues were $5.46 billion for
the six-month period ended May 1998, an increase of 50% compared to the same
period in 1997. Net revenue growth was strong in all of the Firm's principal
business lines. Pre-tax earnings increased 36% to $2.06 billion for the period.
1997 VERSUS 1996. The Firm's net revenues were $7.45 billion in 1997, an
increase of 22% compared to 1996. Net revenue growth was strong in Asset
Management and Securities Services and in Investment Banking, which increased
46% and 22%, respectively, primarily due to higher customer balances in
securities services, increased asset management fees and higher levels of
mergers and acquisitions and debt underwriting activity. Net revenues in Trading
and Principal Investments increased 9% over the prior year. Pre-tax earnings
increased 16% to $3.01 billion over the prior year.
1996 VERSUS 1995. The Firm's net revenues were $6.13 billion in 1996, an
increase
32
<PAGE> 34
of 37% compared to 1995. Net revenue growth was strong in all of the Firm's
principal business lines, particularly in Trading and Principal Investments and
Investment Banking, which experienced net revenue increases of 54% and 32%,
respectively, primarily due to increased customer activity and trading in the
fixed income, currency and commodities mar- kets and higher levels of equity
underwriting activity. Net revenues in Asset Management and Securities Services
increased 16% compared to 1995. Pre-tax earnings nearly doubled to $2.61
billion.
The following table sets forth the net revenues of the Firm's principal
business lines:
NET REVENUES BY PRINCIPAL BUSINESS LINES
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment Banking................. $1,595 $2,113 $2,587 $1,094 $1,587
Trading and Principal
Investments...................... 1,744 2,693 2,926 1,660 2,578
Asset Management and Securities
Services......................... 1,144 1,323 1,934 877 1,296
------ ------ ------ ------ ------
Total net revenues................. $4,483 $6,129 $7,447 $3,631 $5,461
====== ====== ====== ====== ======
</TABLE>
------------------------
Net revenues in the Firm's principal business lines reflect allocations of
interest expense to specific securities, commodities and other positions in
relation to the level of financing incurred by each position. Interest expense
is allocated to Trading and Principal Investments and the securities services
component of Asset Management and Securities Services. Net revenues may not be
indicative of the relative profitability of any principal business line.
INVESTMENT BANKING
The Firm provides a broad range of investment banking services to a diverse
group of corporations, financial institutions, governments and individuals. The
Firm's investment banking activities are divided into two categories:
- - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense
activities, restructurings and spin-offs; and
- - UNDERWRITING. Underwriting includes public offerings and private placements of
equity and debt securities.
The following table sets forth the net revenues generated by Investment
Banking:
INVESTMENT BANKING NET REVENUES
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Financial advisory................. $ 793 $ 931 $1,184 $ 516 $ 799
Underwriting....................... 802 1,182 1,403 578 788
------ ------ ------ ------ ------
Total Investment Banking........... $1,595 $2,113 $2,587 $1,094 $1,587
====== ====== ====== ====== ======
</TABLE>
33
<PAGE> 35
MAY 1998 VERSUS MAY 1997. The Investment Banking business achieved net
revenues of $1.59 billion in the six-month period ended May 1998, an increase of
45% compared to the same period in 1997. Net revenue growth was strong in both
financial advisory and underwriting as the Firm's global presence and strong
client base enabled it to capitalize on higher levels of financial advisory and
underwriting activity in many industries, including communications, media and
entertainment, financial institutions, general industrials and real estate. The
Firm's Investment Banking business was particularly strong in the United States
and Europe during this period.
Financial advisory revenues increased 55% compared to the May 1997 period
primarily due to a significant increase in mergers and acquisitions advisory
assignments, which principally resulted from consolidations within certain
industries and favorable U.S. and European stock markets. Underwriting revenues
increased 36% as U.S. and European stock price appreciation and stable interest
rates contributed to increased levels of equity and high-yield corporate debt
underwriting.
1997 VERSUS 1996. The Investment Banking business achieved net revenues of
$2.59 billion in 1997, an increase of 22% compared to 1996. Net revenue growth
was strong in both financial advisory and underwriting, particularly in the
general industrials, retail, financial institutions and real estate industries.
Financial advisory revenues increased 27% compared to 1996 primarily due to
higher levels of mergers and acquisitions activity in the market as a whole.
Underwriting revenues increased 19% primarily due to increased levels of
investment grade and high-yield debt underwriting, which resulted from lower
interest rates. Revenues from equity underwriting increased modestly over 1996
levels.
1996 VERSUS 1995. The Investment Banking business achieved net revenues of
$2.11 billion in 1996, an increase of 32% compared to 1995. Underwriting and
financial advisory revenues increased 47% and 17%, respectively, compared to
1995, reflecting increased activity in the communications, media and
entertainment, financial institutions and healthcare industries. Revenue growth
was strong in all major regions.
Underwriting revenues reflected continued strength in global equity
markets, strong investor demand for initial public offerings and a declining
interest rate environment in the United States, which led to an increase in
corporate debt refinancing. The increase in financial advisory revenues was
primarily related to a higher volume of mergers and acquisitions transactions.
TRADING AND PRINCIPAL INVESTMENTS
The Firm's Trading and Principal Investments business facilitates customer
transactions and takes proprietary positions through market making in and
trading of fixed income and equity products, currencies, commodities, swaps and
other derivatives. In order to meet the needs of its clients, the Firm's Trading
and Principal Investments business is diversified across a wide range of
products. The Trading and Principal Investments business includes the following:
- - FICC. The Firm makes markets in and trades fixed income products, currencies
and commodities, structures and enters into a wide variety of derivative
transactions and engages in proprietary trading and arbitrage activities;
- - EQUITIES. The Firm makes markets in and trades equities and equity-related
products, structures and enters into equity derivative transactions and
engages in proprietary trading and equity arbitrage; and
- - PRINCIPAL INVESTMENTS. Principal investments represents the Firm's net
revenues from its investments in its merchant banking funds.
Substantially all of the Firm's inventory is marked-to-market daily and,
therefore, its value is subject to fluctuations based on market movements. In
addition, net revenues derived from the Firm's principal investments in
privately held concerns and in real estate may fluctuate significantly depending
on the revaluation or sale of these investments in any given period.
34
<PAGE> 36
The following table sets forth the net revenues of the Firm's Trading and
Principal Investments business:
TRADING AND PRINCIPAL INVESTMENTS NET REVENUES
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FICC............................... $ 822 $1,749 $2,055 $1,194 $1,675
Equities........................... 731 730 573 423 659
Principal investments.............. 191 214 298 43 244
------ ------ ------ ------ ------
Total Trading and Principal
Investments...................... $1,744 $2,693 $2,926 $1,660 $2,578
====== ====== ====== ====== ======
</TABLE>
------------------------
MAY 1998 VERSUS MAY 1997. The Trading and Principal Investments business
achieved net revenues of $2.58 billion in the six-month period ended May 1998,
an increase of 55% compared to the same period in 1997. All major components of
the business line exhibited strong net revenue growth.
Net revenues in FICC increased 40% compared to the May 1997 period
primarily due to higher net revenues from market making in and trading of
derivatives, government securities, currencies, commodities and high-yield debt
securities partially offset by lower net revenues from emerging market debt and
corporate bond trading activities.
Net revenues in equities increased 56% compared to the May 1997 period as
the Firm's equity derivatives business rebounded sharply from a reduction in net
revenues in the fourth quarter of 1997. Strong customer over-the-counter ("OTC")
transaction volume, particularly in European equities, also contributed to the
increase.
Net revenues from principal investments increased significantly primarily
due to gains recognized on the disposition of certain privately held investments
and increases in the value of certain investments in publicly held concerns.
1997 VERSUS 1996. The Trading and Principal Investments business achieved
net revenues of $2.93 billion in 1997, an increase of 9% compared to 1996.
Strong performances in FICC and principal investments more than offset a net
revenue reduction in equities.
Net revenues in FICC increased 17% compared to 1996 due, in part, to higher
volatility in the currency markets and increased customer demand for fixed
income derivative and commodity products. Arbitrage activities also contributed
to net revenue growth in FICC. Market making in and trading of corporate bonds
and emerging market securities declined in 1997 compared to 1996.
Net revenues in equities decreased 22% in 1997 compared to 1996 due
principally to reductions in derivatives and convertibles resulting from
volatility in the global equity markets in October and November 1997 and
declining asset values in Japan in late November 1997. This reduction was
partially offset by increased net revenues from higher OTC customer trading
volume in certain European markets.
Net revenues from principal investments increased 39% in 1997 compared to
1996 as certain companies in which the Firm invested through its merchant
banking funds completed initial public offerings and other publicly held
concerns increased in value.
1996 VERSUS 1995. The Trading and Principal Investments business achieved
net revenues of $2.69 billion in 1996, an increase of 54% compared to 1995. In
1996, FICC net revenues more than doubled compared to the prior year. Net
revenues from principal invest-
35
<PAGE> 37
ments increased modestly while net revenues in equities were virtually
unchanged.
Net revenues in FICC increased compared to 1995 primarily due to higher net
revenues in currencies, global governments and emerging markets. Net revenue
growth in derivatives, commodities and mortgage-backed products also contributed
to the increase.
Net revenues in equities remained stable in 1996 as increased net revenues
from arbitrage activities and increased market-making revenues due to strong OTC
customer transaction volume were offset by lower net revenues in the Firm's
equity derivatives business, primarily in the fourth quarter of 1996.
Net revenues in principal investments increased 12% in 1996 reflecting an
increase in the value of the Firm's investments in its merchant banking funds.
ASSET MANAGEMENT AND SECURITIES SERVICES
Asset Management and Securities Services is comprised of the following:
- - ASSET MANAGEMENT. Asset management generates management fees by providing
investment advisory services to a diverse and rapidly growing client base of
institutions and individuals;
- - SECURITIES SERVICES. Securities services includes prime brokerage, financing
services and securities lending and the Firm's matched book businesses, all of
which generate revenue primarily in the form of fees or interest rate spreads;
and
- - COMMISSIONS. Commission-based businesses include agency transactions for
clients on major stock and futures exchanges. Overrides derived from the
Firm's merchant banking funds are also included.
The following table sets forth the net revenues of the Firm's Asset
Management and Securities Services business:
ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- --------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Asset management..................... $ 167 $ 242 $ 458 $185 $ 284
Securities services.................. 330 354 487 237 344
Commissions.......................... 647 727 989 455 668
------ ------ ------ ---- ------
Total Asset Management and Securities
Services........................... $1,144 $1,323 $1,934 $877 $1,296
====== ====== ====== ==== ======
</TABLE>
------------------------
The Firm's assets under supervision are comprised of assets under
management and other client assets. Assets under management typically generate
fees based on a percentage of their value and include the Firm's mutual funds,
separate accounts managed for institutional and individual investors, the Firm's
merchant banking funds and other alternative investment funds. Other client
assets are comprised of assets in brokerage accounts of high net worth
individuals on which the Firm earns primarily commissions.
The following table sets forth the amount of the Firm's assets under
supervision:
36
<PAGE> 38
ASSETS UNDER SUPERVISION
(in millions)
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
------------------------------ -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets under management........ $ 52,358 $ 94,599 $135,929 $116,714 $165,226
Other client assets............ 62,820 83,362 110,441 94,750 139,689
-------- -------- -------- -------- --------
Total assets under
supervision.................. $115,178 $177,961 $246,370 $211,464 $304,915
======== ======== ======== ======== ========
</TABLE>
------------------------
MAY 1998 VERSUS MAY 1997. The Asset Management and Securities Services
business achieved net revenues of $1.30 billion in the six-month period ended
May 1998, an increase of 48% compared to the same period in 1997. All major
components of the business line exhibited strong net revenue growth.
Asset management revenues increased 54% during this period, primarily
reflecting a 42% increase in assets under management over the same period in
1997, primarily due to strong net asset inflows and net asset appreciation. Net
revenues from securities services increased 45% primarily due to growth in the
Firm's securities borrowing and lending business. Commission revenues increased
47% as continued strength in the U.S. equity markets increased transaction
volumes in equity securities. Merchant banking overrides also contributed
significantly to this increase.
1997 VERSUS 1996. The Asset Management and Securities Services business
achieved net revenues of $1.93 billion in 1997, an increase of 46% compared to
1996. All major components of the business line exhibited strong net revenue
growth.
Asset management revenues increased 89% during this period, reflecting a
44% increase in assets under management due to strong net asset inflows, net
asset appreciation and assets added through the acquisitions of Liberty
Investment Management in January 1997 and Commodities Corporation in June 1997.
Net revenue growth in securities services was 38%, principally reflecting growth
in the Firm's securities borrowing and lending business. Commission revenues
increased 36% as customer trading volumes increased significantly on many of the
world's principal stock exchanges, including in the United States where
industry-wide volumes increased substantially in the third and fourth quarters
of 1997. Increased merchant banking overrides also contributed to the revenue
growth in commissions.
1996 VERSUS 1995. The Asset Management and Securities Services business
achieved net revenues of $1.32 billion in 1996, an increase of 16% compared to
1995. Net revenue growth was particularly strong in asset management, which
increased 45%. Net revenues from commissions and securities services increased
12% and 7%, respectively.
Asset management revenues increased compared to 1995, primarily due to
higher assets under management, which increased to $95 billion from $52 billion,
primarily as a result of strong net asset inflows and approximately $25 billion
of assets acquired in connection with the Firm's purchase of CIN Management
Limited, a U.K. pension manager, in August 1996. Increases in commissions
revenue reflected increased transaction volume by investors globally.
OPERATING EXPENSES
In recent years, the Firm's operating expenses have increased as a result
of numerous factors, including (i) higher levels of compensation, (ii) expansion
of the Firm's asset management business, (iii) expansion of the Firm's global
operations, (iv) greater levels of business activity and complexity and (v)
additional systems and consulting costs relating to various technology
initiatives. The Firm's compensation and benefits expense does not reflect any
payments for services rendered by its partners. Accordingly, compensation and
benefits, the principal component of operating expenses, will increase
37
<PAGE> 39
significantly after the Offerings. See "Pro Forma Consolidated Financial
Information".
The following table sets forth the Firm's operating expenses and number of
employees:
OPERATING EXPENSES AND EMPLOYEES
($ in millions)
<TABLE>
<CAPTION>
AS OF OR FOR
AS OF OR FOR SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Compensation and benefits............. $2,005 $2,421 $ 3,097 $1,528 $ 2,589
Brokerage, clearing and exchange
fees................................ 246 278 357 154 194
Market development.................... 97 137 206 78 134
Communications and technology......... 173 173 208 93 121
Depreciation and amortization......... 186 172 178 81 104
Occupancy............................. 175 154 168 78 93
Professional services and other....... 233 188 219 104 167
------ ------ ------- ------ -------
Total operating expenses.............. $3,115 $3,523 $ 4,433 $2,116 $ 3,402
====== ====== ======= ====== =======
Employees(1).......................... 8,159 8,977 10,622 9,290 11,440
</TABLE>
- ---------------
(1) Excludes employees of the Firm's two property management subsidiaries,
Archon and GAH. Substantially all of the costs of these employees are
reimbursed to the Firm by the real estate investment funds to which the two
companies provide property management services. In addition, as of May 1998,
the Firm had approximately 2,900 temporary staff and consultants. See
"Business -- Employees" and "-- Temporary Staff and Consultants".
------------------------
MAY 1998 VERSUS MAY 1997. Operating expenses were $3.40 billion for the
six months ended May 1998, an increase of 61% over the same period in 1997.
Compensation and benefits increased as a percentage of net revenues to 47% from
42% in the comparable period in 1997. This increase reflected, in part, an
increase of $70 million in compensation and benefits expense in connection with
a new compensation plan for senior professionals. The increase in compensation
and benefits expense as a percentage of net revenues is also due to costs
associated with an increase in Firmwide employment levels of 23%, particularly
in asset management where the Firm continues to spend substantially all
incremental revenues on the hiring of additional professionals required to
expand the business. Other elements of compensation, primarily employee bonuses,
increased at a rate higher than that of net revenues.
Expenses associated with the Firm's temporary staff and consultant
populations are included in compensation and benefits. These expenses were $135
million for the six months ended May 1998, an increase of 78%, reflecting
greater business activity, the Firm's global expansion and consulting costs
associated with various technology initiatives.
Market development expenses increased 72% and professional services and
other expenses increased 61%, primarily due to higher levels of business
activity and the Firm's global expansion. Brokerage, clearing and exchange fees
increased 26% due to higher transaction volume in certain product areas,
including European equities, U.S. listed shares and currencies. Communications
and technology costs increased 30%, reflecting higher telecommunications and
market data costs associated with higher employment levels and additional
spending on technology
38
<PAGE> 40
initiatives. Depreciation and amortization increased 28% principally due to
capital expenditures on telecommunications and technology-related equipment,
hardware, software and leasehold improvements. Occupancy expenses increased 19%,
reflecting additional office space needed to accommodate higher employment
levels.
1997 VERSUS 1996. Operating expenses were $4.43 billion in 1997, an
increase of 26% over 1996. Compensation and benefits were $3.10 billion,
reflecting higher compensation primarily due to higher profit levels.
Compensation and benefits were also affected by an 18% increase in employment
levels across the Firm due to higher levels of business activity and complexity,
and the Firm's global expansion into new businesses and markets. Higher sales
compensation due to increased customer transaction volume also contributed to
the increase in compensation and benefits. As a result, compensation and
benefits increased slightly as a percentage of net revenues to 42% from 40% in
1996.
Expenses associated with the Firm's temporary staff and consultant
populations were $178 million in 1997, an increase of 55%, reflecting greater
business activity, the Firm's global expansion and consulting costs associated
with various technology initiatives.
Brokerage, clearing and exchange fees increased 28% due to higher
transaction volumes in global equities, derivatives and currencies. Market
development expenses and professional services and other expenses increased
primarily due to greater levels of business activity and the Firm's global
expansion. Communications and technology costs increased 20%, reflecting
telecommunications and market data costs associated with higher employment
levels and additional spending on technology initiatives. Occupancy expenses
increased 9%, reflecting an increase in office space needed to accommodate
higher employment levels. Depreciation and amortization increased 3%.
1996 VERSUS 1995. Operating expenses were $3.52 billion in 1996, an
increase of 13% over 1995. Compensation and benefits were $2.42 billion,
reflecting higher compensation primarily due to higher profit levels and profit
sharing associated with the Firm's profit participation plan. Compensation and
benefits were also affected by an increase in employment levels across the Firm
due to higher levels of business activity and complexity and the Firm's global
expansion into new businesses and markets. Compensation and benefits decreased
as a percentage of net revenues to 40% from 45%.
Expenses associated with the Firm's temporary staff and consultant
populations were $115 million in 1996, an increase of 2%, reflecting various
technology initiatives.
Market development expenses increased 41%, primarily due to higher levels
of business activity and the Firm's global expansion. Brokerage, clearing and
exchange fees increased 13% primarily due to higher transaction volumes in
certain product areas including fixed income derivatives, Asian shares and U.S.
listed shares. Professional services and other expenses decreased 19% primarily
due to lower legal fees and reduced expenses associated with investment banking
transactions that were not consummated. Occupancy expenses decreased 12%,
reflecting higher space abandonment charges in 1995 that did not recur in 1996.
Depreciation and amortization decreased 8% primarily due to equipment write-offs
in 1995 that did not recur in 1996.
PROVISION FOR TAXES
The Firm, as a partnership, generally is not subject to U.S. federal and
state income taxes. Certain of the Firm's income is subject to the 4% New York
City unincorporated business tax. In addition, certain of the Firm's non-U.S.
subsidiaries are subject to income taxes in their local jurisdictions. The
amount of the Firm's provision for income and unincorporated business taxes
varies significantly from year to year depending on the earnings of the Firm's
subsidiaries. For a discussion of the pro forma effective tax rate of the Firm
as if its business was conducted as a corporation, see "Pro Forma Consolidated
Financial Information".
39
<PAGE> 41
GEOGRAPHIC DATA
For a summary of the Firm's total revenues, net revenues, pre-tax earnings
and identifiable assets of the Firm's subsidiaries by geographic region, see
Note 9 to the consolidated financial statements.
CASH FLOWS
The Firm's cash flows are primarily related to the operating and financing
activities undertaken in connection with its trading and market-making
transactions.
SIX MONTHS ENDED MAY 1998
Cash and cash equivalents increased to $2.21 billion as of May 1998. Cash
of $17.25 billion was used for operating activities, primarily to fund higher
net trading assets generated by increased levels of business activity. Cash of
$356 million was used primarily for the purchase of telecommunications and
technology-related equipment and certain other assets. Financing activities
provided $18.49 billion of cash, reflecting an increase in net repurchase
agreements and the net issuance of long-term borrowings, partially offset by
distributions to partners and cash outflows related to partners' capital
reserved for income taxes and potential withdrawals.
YEAR ENDED NOVEMBER 1997
Cash and cash equivalents decreased to $1.33 billion in 1997. Operating
activities provided cash of $70 million. Cash of $693 million was used primarily
for the purchase of technology-related equipment and certain other assets. Cash
of $258 million was used for financing activities principally due to a decrease
in net repurchase agreements, distributions to partners and cash outflows
related to partners' capital reserved for income taxes and potential
withdrawals, partially offset by the net issuance of long-term borrowings.
YEAR ENDED NOVEMBER 1996
Cash and cash equivalents increased to $2.21 billion in 1996. Cash of
$14.63 billion was used for operating activities, primarily to fund higher net
trading assets due to increased levels of business activity. Cash of $218
million was used primarily for the purchase of technology-related equipment and
leasehold improvements. Financing activities provided $16.10 billion of cash,
reflecting an increase in net repurchase agreements and the net issuance of
long-term borrowings, partially offset by distributions to partners and cash
outflows related to partners' capital reserved for income taxes and potential
withdrawals.
LIQUIDITY
MANAGEMENT OVERSIGHT OF LIQUIDITY
Management believes that one of the most important issues for a company in
the financial services sector is access to liquidity. Accordingly, the Firm has
established a comprehensive structure to oversee its liquidity and funding
policies.
The Finance Committee has been delegated responsibility by the Executive
Committee for establishing and assuring compliance with the Firm's asset and
liability management policies and has oversight responsibility for managing
liquidity risk, the size and composition of the balance sheet and the credit
ratings of the Firm (see the description of the Firm's committee structure in
"-- Risk Management" below). This committee meets monthly, and more often when
necessary, to evaluate the Firm's liquidity position and funding requirements.
The Firm's Treasury Department manages the capital structure, funding,
liquidity and relationships with creditors, trading counterparties and rating
agencies on a global basis. The Treasury Department works jointly with the
Firm's global funding desk in managing the Firm's borrowings. The global funding
desk is primarily responsible for the transactional short-term funding activity
of the Firm.
LIQUIDITY POLICIES
In order to maintain an appropriate level of liquidity, management has
implemented several liquidity policies as outlined below.
DIVERSIFICATION OF FUNDING SOURCES AND LIQUIDITY PLANNING. The Firm
maintains diver-
40
<PAGE> 42
sified funding sources with both banks and non-bank lenders globally. Management
believes that the Firm's relationships with its lenders are critical to its
liquidity. The Firm maintains close contact with its primary lenders to keep
them advised of significant developments affecting the Firm.
The Firm also has access to diversified funding sources with over 800
creditors, including banks, insurance companies, mutual funds, bank trust
departments and other asset managers. The Firm monitors its creditors to
maintain broad and diversified credit, and no single creditor represented more
than 4% of the Firm's uncollateralized funding sources as of May 1998.
Uncollateralized funding sources principally include the Firm's short-term and
long-term borrowings and letters of credit.
The Firm accesses liquidity in a variety of markets in the United States as
well as in Europe and Asia. In addition, the Firm makes extensive use of the
repurchase agreement market and has raised debt in the private placement, Rule
144A and commercial paper markets, as well as through Eurobonds, moneybroker
loans, commodity-based financings, letters of credit and promissory notes. The
Firm structures its liabilities to avoid significant concentrations of debt
coming due on any one day or during any single week or year. In addition, the
Firm maintains and updates annually a liquidity crisis manual that provides
guidance in the event of a liquidity crisis. The annual update of this manual is
reviewed and approved by the Finance Committee.
ASSET LIQUIDITY. The Firm maintains a highly liquid balance sheet. Many of
the Firm's assets are readily funded in the repurchase agreement markets, which
generally have proven to be a consistent source of funding, even in periods of
market stress. Substantially all of the Firm's inventory turns over rapidly and
is marked-to-market daily. The Firm maintains long-term borrowings and partners'
capital substantially in excess of its less liquid assets.
DYNAMIC LIQUIDITY MANAGEMENT. The Firm manages the composition of its
asset base and the maturity profile of its funding to ensure that it can
liquidate its assets prior to its liabilities coming due, even in times of
liquidity stress. The Firm has traditionally been able to fund its liquidity
needs through collateralized funding, such as repurchase transactions and
securities lending, short-term borrowings, long-term debt and partners' capital.
To further evaluate the adequacy of its liquidity management policies and
guidelines, the Firm performs weekly "stress funding" simulations of disruptions
to the Firm's access to unsecured credit. The Firm attempts to ensure that the
maturity structure of its debt is substantially longer than the time required to
liquidate the Firm's assets.
EXCESS LIQUIDITY. In addition to maintaining a highly liquid balance sheet
and a significant portion of longer-term liabilities to assure liquidity even
during adverse conditions, the Firm seeks to maintain a liquidity cushion that
consists principally of unencumbered U.S. government and agency obligations to
ensure the availability of immediate liquidity. This pool of highly liquid
assets averaged approximately $11.80 billion during the six months ended May
1998 and approximately $12.54 billion during 1997.
LIQUIDITY RATIO MAINTENANCE. It is the Firm's policy further to manage its
liquidity by maintaining a "liquidity ratio" of at least 100%. This ratio
measures the relationship between the loan value of the Firm's unencumbered
assets and its short-term unsecured liabilities. The maintenance of this
liquidity ratio is intended to ensure that the Firm could fund its positions on
a fully secured basis in the event that the Firm were unable to replace its
unsecured debt maturing within one year. Under this policy, the Firm seeks to
maintain unencumbered assets in an amount that, if pledged or sold, would
provide the funds necessary to replace unsecured obligations that are scheduled
to mature (or where holders have the option to redeem) within the coming year.
INTERCOMPANY FUNDING. Most of the liquidity of the Firm is raised by Group
L.P., which then lends the necessary funds to its subsidiaries and affiliates.
The Firm carefully manages its intercompany exposure by generally requiring
intercompany loans to have maturities equal to or shorter than the maturi-
41
<PAGE> 43
ties of the aggregate borrowings of Group L.P. This policy ensures that the
subsidiaries' obligations to Group L.P. will generally mature in advance of
Group L.P.'s third-party long-term borrowings. In addition, many of the advances
made to the Firm's subsidiaries and affiliates are secured by marketable
securities or other liquid collateral. The Firm generally funds its equity
investments in subsidiaries with partners' capital.
THE BALANCE SHEET
In assessing the size of the Firm's balance sheet, it is important to
recognize that the Firm maintains a highly liquid balance sheet that fluctuates
significantly between statement dates. The Firm's total assets increased to
$241.85 billion as of May 1998 compared to $178.40 billion as of November 1997,
primarily due to growth in securities borrowed, securities purchased under
agreements to resell and U.S. government securities. Over the same period, the
Firm's adjusted assets increased to $153.36 billion from $119.88 billion. The
Firm's balance sheet size as of May 1998 increased by $17.33 billion due to the
adoption of the provisions of SFAS No. 125 that were deferred by SFAS No. 127.
See "-- Accounting Developments" below and Note 2 to the consolidated financial
statements.
CREDIT RATINGS
The Firm relies upon the debt capital markets to fund a significant portion
of its day-to-day operations. The cost and availability of debt financing is
influenced by the Firm's credit ratings. Credit ratings are also important to
the Firm when competing in certain markets and when seeking to engage in
longer-term transactions, including OTC derivatives. A reduction in the Firm's
credit ratings could adversely affect the Firm's ability to obtain funding in
the debt capital markets, impair the Firm's margins by increasing the cost of
doing business and reduce the Firm's ability to compete effectively in certain
markets.
The following table sets forth the Firm's credit ratings as of May 1998:
<TABLE>
<CAPTION>
SHORT-TERM DEBT LONG-TERM DEBT
--------------- --------------
<S> <C> <C>
Moody's Investors Service..................... P-1 A1
Standard & Poor's Ratings Services............ A-1+ A+
Fitch IBCA, Inc. ............................. F1+ AA-
Canadian Bond Rating Service Inc. ............ A-1+ A+
</TABLE>
------------------------
LONG-TERM DEBT
As of May 1998, the Firm's consolidated long-term borrowings were $20.28
billion. Substantially all of these borrowings were unsecured and consisted
principally of senior borrowings with maturities extending to 2024. See Note 5
to the consolidated financial statements. The weighted average maturity of the
Firm's long-term borrowings as of May 1998 was approximately four and a half
years. Substantially all of the Firm's long-term borrowings are swapped into
short-term floating-rate U.S. dollar obligations in order to minimize the Firm's
exposure to interest rates and foreign exchange movements.
REGULATED SUBSIDIARIES
Many of the Firm's principal subsidiaries are subject to extensive
regulation in the United States and elsewhere. GS&Co., a registered U.S.
broker-dealer, is regulated by the SEC, the CFTC, the Chicago Board of Trade
("CBT"), the NYSE and the NASD. GSI, a registered U.K. broker-dealer, is subject
to regulation by the Securities and Futures Authority Limited ("SFA") and the
Financial Services Authority ("FSA"). Goldman Sachs (Japan) Ltd., a Tokyo-based
broker-dealer, is subject to regulation by the Japanese Ministry of Finance, the
Financial Supervisory Agency, the Tokyo Stock Exchange and the Japan Securities
Dealers Association. Several other subsidiaries of the Firm are regulated by
securities, investment advisory, banking and other regulators and
42
<PAGE> 44
authorities around the world. Compliance with the rules of these regulators may
prevent the Firm from receiving distributions, advances or repayment of
liabilities from these subsidiaries. See Note 8 to the consolidated financial
statements.
RISK MANAGEMENT
The Firm has a comprehensive risk management process to monitor, evaluate
and manage the principal risks assumed in conducting its activities. These risks
include market, credit, liquidity, operational, legal and reputational
exposures.
RISK MANAGEMENT STRUCTURE
The Firm seeks to monitor and control its risk exposure through a variety
of separate but complementary financial, credit, operational and legal reporting
systems. The Firm believes that it has effective procedures for evaluating and
managing the market, credit and other risks to which it is exposed.
The Firm has established risk control procedures at several levels
throughout the organization. Trading desk managers have the first line of
responsibility for managing risk within limits prescribed by the relevant Risk
Committees as described in the table below. These managers have in-depth
knowledge of the primary sources of risk in their individual markets and the
instruments available to hedge the Firm's exposures. In addition, a number of
committees described below are responsible for establishing trading limits,
monitoring adherence to these limits and for general oversight of the risk
management process.
43
<PAGE> 45
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMMITTEE FUNCTION
- ---------------------------------------------------------------------------------------------------
<S> <C>
Executive Committee All risk control functions ultimately report to the
Executive Committee. Through both direct and delegated
authority, the Executive Committee approves all of the
Firm's:
- operating activities;
- trading risk parameters; and
- customer review guidelines.
- ---------------------------------------------------------------------------------------------------
Risk Committees The Firmwide Risk Committee:
- periodically reviews (together, in most cases, with the
Global Compliance and Control Committee described below)
the activities of existing businesses;
- approves new businesses and products;
- approves Value-at-Risk ("VaR") market risk limits at the
divisional level;
- approves market risk limits for selected country
exposures and business units; and
- approves sovereign credit risk limits and credit risk
limits by ratings group.
The FICC Risk Committee sets VaR market risk limits for
individual business units and sets issuer-specific net
inventory position limits.
The Equities Risk Committee sets market risk limits for
individual business units that consist of gross and net
inventory position limits and, for equity derivatives,
limits based on market move scenario analysis.
The Asset Management Control, Oversight and Risk
Committees oversee various operational, credit, pricing
and business practices issues.
- ---------------------------------------------------------------------------------------------------
Global Compliance and Control The GCC provides oversight of the Firm's compliance and
Committee ("GCC") control functions, including internal audit, and reviews
the Firm's legal, reputational, operational and control
risks.
- ---------------------------------------------------------------------------------------------------
Commitments Committee The Commitments Committee approves:
- equity and non-investment grade debt underwriting
commitments;
- loans extended by the Firm; and
- unusual financing structures and transactions that
involve, among other risks, significant capital exposure.
The Commitments Committee has delegated to the Credit
Department the authority to approve underwriting
commitments for investment grade debt and certain other
products.
- ---------------------------------------------------------------------------------------------------
Credit Policy Committee The Credit Policy Committee establishes and reviews broad
credit policies and parameters that are implemented by the
Credit Department.
- ---------------------------------------------------------------------------------------------------
Finance Committee The Finance Committee is responsible for oversight of the
Firm's capital, liquidity and funding needs and for
setting certain inventory position limits, as appropriate.
- ---------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 46
Segregation of duties and management oversight are fundamental elements of
the Firm's risk management process. Accordingly, departments that are
independent of the revenue producing units, such as the Firmwide Risk, Credit,
Controllers, Global Operations, Compliance, Management Controls and Legal
Departments, perform risk management functions, which include monitoring,
analyzing and evaluating risk.
RISK LIMITS
Business unit risk limits are established by the Risk Committees and may be
further segmented by the business unit managers to individual trading desks.
Risk limits are monitored on a daily basis by the Firmwide Risk Department and
are reviewed regularly by the appropriate Risk Committee. Limit violations are
reported to the appropriate Risk Committee and the appropriate business unit
managers. Aggregate VaR risk limits, as well as market risk limits for selected
country exposures and business units, are monitored by the Firmwide Risk
Department and violations are reported to the Firmwide Risk Committee. Inventory
position limits are monitored by the Controllers Department and position limit
violations are reported to the appropriate business unit managers and the
Finance Committee. When inventory position limits are used to monitor market
risk, they are also monitored by the Firmwide Risk Department and violations are
reported to the appropriate Risk Committee.
MARKET RISK
The potential for changes in the market value of the Firm's trading
positions is referred to as "market risk". The Firm's trading positions result
from underwriting, market making and proprietary trading activities.
The broadly defined categories of market risk include exposures to interest
rates, currency rates, equity prices and commodity prices.
- - Interest rate risks primarily result from exposures to changes in the level,
slope and curvature of the yield curve, the volatility of interest rates,
mortgage prepayment speeds and credit spreads.
- - Currency rate risks result from exposures to changes in spot prices, forward
prices and volatilities of currency rates.
- - Equity price risks result from exposures to changes in prices and volatilities
of individual equities, equity baskets and equity indices.
- - Commodity price risks result from exposures to changes in spot prices, forward
prices and volatilities of commodities, such as electricity, natural gas,
crude oil, petroleum products and precious and base metals.
These risk exposures are managed through diversifying exposures,
controlling position sizes and establishing offsetting hedges in related
securities or derivatives. For example, the Firm may hedge a portfolio of common
stock by taking an offsetting position in a related equity-index futures
contract. The ability to manage these exposures may, however, be limited by the
liquidity of the security or the related hedge instrument.
VaR. The Firm uses a summary measure of its risk exposure referred to as
Value-at-Risk or "VaR" as one tool to help manage the market risk of its trading
positions. VaR is the potential loss in value of the Firm's trading positions
due to adverse movements in markets over a defined time horizon with a set
confidence level.
For the VaR numbers reported below, a one-day time horizon and a 95%
confidence level were used. This means that there is a one in 20 chance that
daily trading net revenues will fall below the expected daily trading net
revenues by an amount at least as large as the reported VaR. Thus, shortfalls
from expected trading net revenues greater than the reported VaR would be
anticipated by the method about once a month. Of course, much larger and more
frequent shortfalls are possible. The VaR numbers are shown separately for
interest rate, currency, equity and commodity products, as well as for the
Firm's overall trading positions.
These VaR numbers include the underlying product positions and related
hedges, which may include positions in other product areas. For example, the
hedge of a foreign
45
<PAGE> 47
exchange forward may include an interest rate futures position and the hedge of
a long corporate bond position may include a short position in the related
equity.
VaR METHODOLOGY, ASSUMPTIONS AND LIMITATIONS. The modeling of the risk
characteristics of the Firm's trading positions involves a number of assumptions
and approximations. While the Firm feels that these assumptions and
approximations are reasonable, there is no uniform industry methodology for
estimating VaR, and different assumptions and/or approximations could produce
materially different VaR estimates.
The Firm uses historical return data to estimate its VaR and, to better
reflect market volatilities, these historical data are weighted to give greater
importance to more recent observations. Past changes in market risk factors,
even when weighted toward more recent observations, may not, however, produce
accurate predictions of future market risk. VaR should also be evaluated in
light of the methodology's other limitations. For example, when calculating the
VaR numbers shown below, the Firm assumes that asset returns are normally
distributed. Non-linear risk exposures on options and the potentially mitigating
impact of intra-day changes in related hedges would likely produce non-normal
asset returns. Different distributional assumptions could produce a materially
different VaR. Moreover, VaR calculated for a one-day time horizon does not
fully capture the market risk of positions that cannot be liquidated or hedged
within one day.
The following table sets forth the Firm's daily VaR for substantially all
of its trading positions:
DAILY VaR
(in millions)
<TABLE>
<CAPTION>
AS OF
RISK CATEGORIES MAY 1998
--------------- --------
<S> <C>
Interest rates............................................ $ 33
Currency rates............................................ 11
Equity prices............................................. 22
Commodity prices.......................................... 7
Diversification effect(1)................................. (26)
----
Firmwide.................................................. $ 47
====
</TABLE>
- ---------------
(1) Equals the difference between Firmwide VaR and the sum of the VaRs for the
four risk categories. This effect arises because the four market risk
categories are not perfectly correlated.
------------------------
The Firm supplements VaR measures with a variety of scenario analyses. In
addition to providing senior management with estimates of how the Firm's trading
net revenues would be affected by large market moves, these scenario analyses
seek to estimate the potential impact of sustained market declines on the Firm's
investment banking and merchant banking activities.
VALUATION OF TRADING INVENTORY
Substantially all of the Firm's inventory positions are marked-to-market on
a daily basis and the changes are recorded in net revenues. The individual
business units are responsible for pricing the positions they manage. The
Controllers Department, in conjunction with the Firmwide Risk Department,
regularly performs pricing reviews.
TRADING NET REVENUES DISTRIBUTION
The following chart sets forth the frequency distribution of the Firm's
trading net revenues for substantially all of the Firm's trading positions for
the nine months ended August 1998:
46
<PAGE> 48
TRADING NET REVENUES -- NINE MONTHS ENDED AUGUST 1998
(in millions)
[CHART TO BE PROVIDED]
------------------------
CREDIT RISK
Credit risk represents the loss that the Firm would incur if a counterparty
or issuer of securities or other instruments it holds fails to perform its
contractual obligations to the Firm. To reduce its credit exposures, the Firm
seeks to enter into netting agreements with counterparties that permit the Firm
to offset receivables and payables with such counterparties. The Firm does not
take into account any such agreements when calculating credit risk, however,
unless it has received reasonable assurance that the agreement will permit
netting of the counterparty's exposure under applicable law.
For most businesses, credit limits are established by the Credit
Department, which is independent of the revenue-producing departments, based on
guidelines set by the Firmwide Risk and Credit Policy Committees. The Firm's
global credit management systems capture current and potential credit exposure
to individual counterparties and on an aggregate basis to counterparties and
their affiliates. The systems also provide the Firm's management with
information regarding overall credit risk by product, industry sector, country
and region.
DERIVATIVE INSTRUMENTS
Derivatives contracts are financial instruments that derive their value
from underlying assets, indices, reference rates or a combination of these
factors. Derivative instruments may be entered into by the Firm in privately
negotiated contracts ("OTC derivatives"), or they may be listed and traded on an
exchange.
The Firm uses derivatives in its trading activities to facilitate customer
transactions, to take proprietary positions and as a means of risk management.
Derivatives are used in many of the Firm's businesses, and the Firm believes
that the associated market risk can only be understood relative to the
underlying assets or risks being hedged, or as part of a broader trading
strategy. Accordingly, the market risk of derivative positions is managed with
all of the Firm's other non-derivative risk. In addition, the Credit Department
sets and monitors limits for the amount of credit risk the Firm is willing to
take for each counterparty or sets required margin levels for certain customers
and products. Derivatives used for trading purposes are recorded at fair value
on the consolidated statements of financial condition. These values are reported
on a net-by-counterparty basis where management has received reasonable
assurance that netting of the counterparty's exposure will be permitted under
applicable law.
For an OTC derivative contract, the Firm's credit exposure is directly with
its counterparty and continues until the maturity or termination of such
contract.
47
<PAGE> 49
The following table sets forth the distribution, by credit rating, of
substantially all of the Firm's exposure with respect to OTC derivatives as of
May 1998, after taking into consideration the effect of netting agreements. The
categories shown reflect the internally determined public rating agency
equivalents used by the Firm:
OTC DERIVATIVES CREDIT EXPOSURE
($ in millions)
<TABLE>
<CAPTION>
CREDIT RATING EQUIVALENT AMOUNT PERCENTAGE
- ------------------------ ------ ----------
<S> <C> <C>
AAA/Aaa..................................... $ 1,660 12%
AA/Aa2...................................... 4,251 30
A/A2........................................ 3,839 27
BBB/Baa2.................................... 2,504 17
BB/Ba2 or lower............................. 1,351 9
Unrated(1).................................. 663 5
------- ----
$14,268 100%
======= ====
</TABLE>
- ---------------
(1) The Firm has determined, in lieu of making an individual assessment of such
counterparties' credit, that the collateral held in respect of such
obligations is sufficient (taking into account various factors including
legal uncertainties and market volatility) to cover the Firm's exposure.
------------------------
As of May 1998, the Firm held approximately $2.22 billion in collateral
against these OTC derivatives exposures. This collateral consists predominantly
of cash, U.S. government and agency securities and is usually received by the
Firm pursuant to agreements entitling the Firm to require additional collateral
upon certain increases in exposure or the occurrence of negative credit events.
In addition to obtaining collateral and seeking netting agreements, the
Firm attempts to mitigate default risk on derivatives by entering into
agreements that enable the Firm to terminate or reset the terms of transactions
after certain time periods or upon the occurrence of credit-related events, and
by seeking third-party guaranties of the obligations of some counterparties.
Derivatives transactions may also involve the legal risk that they are not
authorized or appropriate for a counterparty, that documentation has not been
properly executed or that executed agreements may not be enforceable against the
counterparty. The Firm attempts to minimize these risks by obtaining, where
appropriate, advice of counsel on the enforceability of agreements as well as
the authority of a counterparty to effect the derivative transaction.
OPERATIONAL, YEAR 2000 AND EMU RISKS
OPERATIONAL RISK. The Firm may face reputational damage, financial loss or
regulatory risk in the event of an operational failure or error. A systems
failure or failure to enter a trade properly into the Firm's records may result
in an inability to settle transactions in a timely manner or a breach of
regulatory requirements. Settlement errors or delays may cause losses due to
damages owed to counterparties or movements in prices. These operational and
systems risks may arise in connection with the Firm's own systems or as a result
of the failure of an agent acting on the Firm's behalf.
The Global Operations Department is responsible for establishing,
maintaining and improving policies and controls with respect to the accurate
inputting and processing of transactions, clearance and settlement of
transactions, the custody of securities and other instruments and the detection
and prevention of employee errors or improper or fraudulent activities. Its
personnel work closely with the Information Technology Department in creating
systems to enable appropriate supervision and management of its policies. The
Global Operations Department is also responsible, together with other areas of
the Firm, including the Legal and Compliance
48
<PAGE> 50
Departments, for ensuring compliance with applicable regulations with respect to
the clearance and settlement of transactions and the margining of positions. The
Network Management Department oversees the Firm's relationships with its
clearance and settlement agents, regularly reviews agents' performance and meets
with these agents to review operational issues.
YEAR 2000. The Firm has determined that it will be required to modify or
replace portions of its information technology systems, both hardware and
software, and its non-information technology systems so that they will properly
recognize and utilize dates beyond December 31, 1999. The Firm presently
believes that with modifications to existing software, conversions to new
software and replacement of some hardware, the Year 2000 issue will be
satisfactorily resolved in its own systems worldwide. However, if such
modifications and conversions are not made or are not completed on a timely
basis, the Year 2000 issue could have a material adverse effect on the Firm.
Moreover, even if these changes are successful, failure of third parties to
which the Firm is financially or operationally linked to address their own
system problems could have a material adverse effect on the Firm. For a
description of the Year 2000 issue and some of the related risks, including
possible "worst-case" scenarios, see "Risk Factors -- Firm and Third-Party
Computer Systems May Not Achieve Year 2000 or EMU Readiness".
The Firm has undertaken a Firmwide initiative to address the Year 2000
issue and has developed a plan to review and, as appropriate, modify or replace
the software (and replace some hardware) in its computer systems in its offices
around the world. The Firm's business and multi-disciplinary teams have
completed an education initiative (i.e., an awareness phase) and a global
inventory of the Firm's computer systems and non-information technology systems
and applications (i.e., an assessment phase) with regard to the Year 2000 issue.
The Firm participated in preliminary industry-wide, external systems tests
conducted by the Securities Industry Association in July 1998 and is in the
process of conducting its own internal tests to prepare for Year 2000
compliance. The Firm achieved successful results in each of the preliminary
industry-wide tests in which it participated.
As part of the plan, the Firm is continuing to renovate and test its
internal technologies and applications in partnership with an external
consulting organization. The Firm has established an internal auditing process
to track and verify the results of its plan and tests. Management believes the
Firm is currently on schedule to substantially complete the renovation,
validation and implementation phases of its plan with respect to its mission-
critical systems by year-end 1998. In addition, management expects the Firm to
participate in proposed industry-wide testing involving global market
participants throughout the first half of 1999. This external testing is
expected to involve major market participants that conduct business globally,
including competing firms and financial intermediaries, such as stock exchanges,
clearing agencies and commercial banks, that are prominent in the U.S. and major
foreign markets.
The Firm is also working with key external parties, including major
clients, counterparties, exchanges, clearing agencies, clearing houses,
commercial banks, utilities and other vendors to assess the remediation efforts
made by these parties with respect to their own systems. Accordingly, the Firm
has initiated communications with counterparties, intermediaries and vendors
with whom it has important financial and operational relationships to determine
the extent to which they are vulnerable to the Year 2000 issue. The Firm has not
yet received sufficient information from these parties about their remediation
plans to predict the outcome of their efforts. In addition, the Firm's Credit
Department is undertaking a comprehensive review of credit risks posed by Year
2000 problems at major third parties to which the Firm is financially or
operationally linked. The Firm is also developing a contingency plan that is
expected to address financial and operational problems that might arise on and
around January 1, 2000. This contingency plan would include establishing
additional sources of liquidity that could be drawn upon in the event of systems
disruption and identifying alterna-
49
<PAGE> 51
tive vendors and back-up processes that do not rely on computers, whenever
possible.
The Firm has incurred and expects to continue to incur expenses allocable
to internal staff, as well as costs for outside consultants, computer systems'
remediation and replacement and non-information technology systems' remediation
and replacement (including validation) in order to achieve Year 2000 compliance.
The Firm currently estimates that these costs will total between $120 million
and $150 million, the majority of which will have been spent by the end of 1998.
The remaining cost of the Firm's Year 2000 program is expected to be incurred in
1999. The Year 2000 program costs will continue to be funded through operating
cash flow. These costs are expensed as incurred.
The costs of the Year 2000 program and the date on which the Firm plans to
complete the Year 2000 modifications are based on current estimates, which
reflect numerous assumptions about future events, including the continued
availability of certain resources, the timing and effectiveness of third-party
remediation plans and other factors. The Firm can give no assurance that these
estimates will be achieved, and actual results could differ materially from the
Firm's plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct relevant computer source codes
and embedded technology, the results of internal and external testing and the
timeliness and effectiveness of remediation efforts of third parties.
EMU. Commencing on January 1, 1999, 11 European countries will enter into
the EMU and replace their local currencies with a single currency, the Euro.
During a three-year transition period, the national currencies will continue to
circulate but only as fixed denominations of the Euro. Commencing on January 1,
1999, the Euro will be the predominant currency to settle wholesale (non-cash)
transactions previously denominated in the participating national currencies.
In order to address the issues associated with the introduction of the
Euro, the Firm is implementing a worldwide EMU conversion and testing plan. The
Firm's plan is currently on schedule, and integrated enterprise testing has
commenced. The Euro conversion presents systems issues that are unprecedented in
three respects. First, the Firm must convert an exceptionally large amount of
the data in its systems. Second, the Firm has had to make system changes based
on numerous technical decisions that were made by the participating countries
only recently, thus making advanced planning difficult. Moreover, the
participating countries were under no obligation to reach a consensus on how
these technical issues were to be resolved, and the protocols they adopted
differ. Third, unlike the systems changes that will be required by the Year 2000
issue, those required by the adoption of the Euro must all be implemented
successfully over a single weekend, beginning when markets close on December 31,
1998. The Firm has incurred and expects to continue to incur expenses for
internal technology staff, as well as costs for outside consultants, in order to
implement its EMU conversion plan. Management currently estimates that the cost
of its EMU conversion program will be approximately $30 million.
The changes to the Firm's data and computer systems will affect its
clearance, settlement and financial reporting activities, among other key
operations of the Firm. If not properly implemented, these changes could lead to
failed trade settlements, inability to reconcile trading positions and funding
disruptions. These changes could also lead to erroneous entries in the Firm's
books and records. These events could result in misstatement of the Firm's
financial condition and results of operations and could impair its ability to
manage our risks.
The Firm is also dependent for proper transaction clearance and reporting
on many third parties, including counterparties, clearing agents, banks,
exchanges, clearing houses and providers of information. If these third parties'
systems do not appropriately reflect the introduction of the Euro, the Firm's
clearance, settlement and reporting activities could be adversely affected in
the manner described above.
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<PAGE> 52
Management can give no assurance that the Firm or third parties on whom it
depends will have the systems necessary to process Euro-denominated
transactions. Moreover, disruption in activity in European markets because of
the conversion to the Euro could hurt the Firm's businesses in those markets,
resulting in lost revenues.
ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", effective for transactions occurring after
December 31, 1996. SFAS No. 125 establishes standards for distinguishing
transfers of financial assets that are accounted for as sales from transfers
that are accounted for as secured borrowings.
The provisions of SFAS No. 125 relating to repurchase agreements,
securities-lending transactions and other similar transactions were deferred by
the provisions of SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", and became effective for transactions
entered into after December 31, 1997. This Statement requires that the
collateral obtained in certain types of secured lending transactions be recorded
on the balance sheet with a corresponding liability reflecting the obligation to
return such collateral to its owner. Effective January 1, 1998, the Firm adopted
the provisions of SFAS No. 125 that were deferred by SFAS No. 127. The adoption
of this standard increased the Firm's total assets and liabilities by $17.33
billion as of May 1998.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("EPS"), effective for periods ending after December 15, 1997, with restatement
required for all prior periods. SFAS No. 128 establishes new standards for
computing and presenting EPS. This Statement replaces primary and fully diluted
EPS with "basic EPS" which excludes dilution and "diluted EPS" which includes
the effect of all potentially dilutive common shares and other dilutive
securities. Because the Firm has not historically reported EPS, this Statement
will have no impact on the Firm's historical financial statements. This
Statement will, however, apply to financial statements of the Firm prepared
after the Offerings. See "Pro Forma Consolidated Financial Information".
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997, with
reclassification of earlier periods required for comparative purposes. SFAS No.
130 establishes standards for the reporting and presentation of comprehensive
income and its components in the financial statements. The Firm intends to adopt
this standard beginning in fiscal year 1999. This Statement is limited to issues
of reporting and presentation and, therefore, will not affect the Firm's results
of operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997, with reclassification of earlier periods required for
comparative purposes. SFAS No. 131 establishes the criteria for determining an
operating segment and establishes the disclosure requirements for reporting
information about operating segments. The Firm intends to adopt this standard
beginning in fiscal year 1999. This Statement is limited to issues of reporting
and presentation and, therefore, will not affect the Firm's results of
operations or financial condition.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", effective for fiscal years
beginning after December 15, 1997, with restatement of disclosures for earlier
periods required for comparative purposes. SFAS No. 132 revises certain
employers' disclosures about pension and other post-retirement benefit plans.
The Firm intends to adopt this standard beginning in fiscal year 1999. This
Statement is limited to issues of reporting and presentation and, therefore,
will not affect the Firm's results of operations or financial condition.
In March 1998, the Accounting Standards Executive Committee of the American
Institute
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<PAGE> 53
of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", effective for fiscal years beginning after December 15, 1998. SOP
No. 98-1 requires that certain costs of computer software developed or obtained
for internal use be capitalized and amortized over the useful life of the
related software. The Firm currently expenses the cost of all software
development in the period in which it is incurred. The Firm intends to adopt
this Statement beginning in fiscal year 2000 and is currently assessing its
effect.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This Statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative instrument depends on its intended use and the resulting
designation. The Firm intends to adopt this standard beginning in fiscal year
2000 and is currently assessing its effect.
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<PAGE> 54
INDUSTRY AND ECONOMIC OUTLOOK
As a global provider of financial services, the Firm is affected by overall
macroeconomic and market conditions in various regions around the world. Over
the past few years, we have operated in a generally favorable macroeconomic
environment characterized by low inflation, low interest rates and strong equity
markets. In particular, the U.S. economy, the largest in the world and an
important influence on overall world economic activity, has been undergoing one
of the longest periods of post-war economic expansion. As of June 1998, the
current U.S. expansion had lasted 87 months compared to a post-war average
period of expansion of 46 months.
Recognizing that the favorable macroeconomic environment will be subject to
periodic reversals, we believe that significant long-term growth and profit
opportunities exist for financial intermediaries in the United States and
abroad. These opportunities derive from several long-term trends that have had,
and we believe should continue to have, a profound impact on the world markets
and financial services activity. These trends include the following:
- - DEREGULATION. Financial market deregulation has resulted in the creation of
new and broader sources of credit, which have reduced the variability and the
cyclicality in the supply of credit. This, in turn, has in the past reduced
volatility in economic activity, leading to longer economic expansions with
increased investment spending, thereby resulting in higher levels of capital
raising;
- - GLOBALIZATION. Heightened global competition has created a need for
cross-border capabilities and economies of scale, resulting in increased joint
venture and mergers and acquisitions activity;
- - FOCUS ON SHAREHOLDER VALUE. Increasing focus on shareholder value has fueled
an increase in restructuring and strategic initiatives, thereby yielding
additional financial advisory and capital-raising opportunities;
- - CONSOLIDATION. Moderate growth, limited pricing flexibility and the need for
economies of scale have substantially increased consolidation opportunities in
certain industries, and record levels of profit have provided companies with
the resources to pursue strategic combinations, thereby creating substantial
demand for mergers and acquisitions advisory services and subsequent capital
raising;
- - DEMOGRAPHICS. Changing demographics in the United States and other developed
economies have increased the pool of savings available for private investment
and the need for increased funding of pension plans due to the aging of the
population, creating substantial demand for investment products and services;
and
- - FINANCIAL PRODUCT INNOVATION. Technology and financial expertise have led to
the development of new financial products better tailored to the risk/reward
requirements of investors, thereby increasing trading flows and proprietary
investment opportunities.
As the table below demonstrates, over the last 15 years these trends have
contributed to a substantially higher rate of growth in activity in the
financial services industry than the overall growth in economic activity. We
believe that these long-term trends should continue to affect growth in the
financial services industry positively. See "Risk Factors -- Market Risk Could
Adversely Affect Our Businesses in Many Ways".
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<PAGE> 55
KEY INDUSTRY INDICATORS
($ in billions, except GDP)
(volume in millions of shares)
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31,
-------------------------------------- CAGR
1982 1987 1992 1997 '82-'97
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
GENERAL ECONOMIC ACTIVITY:
($ in trillions)
Worldwide GDP(1).......................... $ 11 $ 16 $ 23 $ 29 7%
U.S. GDP(2)............................... 3 5 6 8 7
ADVISORY ACTIVITIES/FINANCING:
Worldwide mergers and acquisitions........ 56 327 353 1,579 25
Worldwide equity issued................... 22 89 131 285 19
Worldwide debt issued..................... 73 492 1,165 2,086 25
WORLD EQUITY MARKETS:
Worldwide equity market
capitalization(3)....................... 2,737 7,896 10,922 23,541 15
U.S. market capitalization(3)............. 1,520 2,589 4,485 11,309 14
FT/S&P Actuaries World Indices(TM) -- The
World Index(4).......................... NA 101 148 299 11
Dow Jones Industrial Average.............. 1,047 1,939 3,301 7,908 14
S&P 500................................... 141 247 436 970 14
NYSE average daily volume................. 65 189 202 527 15
INVESTED FUNDS:
Worldwide pension assets(5)............... $1,175 $3,407 $ 5,956 $ 9,694 15
Number of U.S. mutual funds(6)............ 857 2,317 3,850 6,778 15
U.S. mutual fund assets(6)................ $ 297 $ 770 $ 1,646 $ 4,490 20
</TABLE>
- ---------------
(1) Gross domestic product. Source: The Economist Intelligence Unit, 1998.
(2) Source: U.S. Department of Commerce, Bureau of Economic Analysis.
(3) Source: Emerging Stock Markets Factbook, International Finance Corporation.
(4) Index is calculated on a local currency basis based on total returns. CAGR
is based on 1987-1997 data. The FT/S&P Actuaries World Indices are owned by
FTSE International Limited, GS & Co. and Standard & Poor's. The Indices are
compiled by FTSE International and Standard & Poor's in conjunction with the
Faculty of Actuaries and the Institute of Actuaries.
(5) Source: InterSec Research Corp.
(6) Source: Mutual Fund Factbook, Investment Company Institute.
------------------
We believe scale, global resources and leading market positions are
important competitive advantages for financial intermediaries in this
environment. As a result, we believe the Firm is well positioned to capitalize
on the worldwide opportunities created by these long-term trends.
In addition, we believe that circumstances unique to certain regions should
provide additional opportunities for the Firm.
- - EUROPE. The advent of the EMU is expected to change the economic face of
Europe and yield substantial opportunities for each of our core businesses.
The EMU is scheduled to commence on January 1, 1999 and will create a monetary
union in Europe with a single currency. As a result, we believe that over time
a pan-European capital market will develop that will rival that of the United
States in size and liquidity. Financial intermediaries are expected to benefit
from a number of anticipated developments including: (i) pan-European
consolidation and financial restructuring yielding an increase in mergers and
acquisitions activity; (ii) an increase in third-party assets under management
and a major shift towards investments in equity securities due to an expected
move to private pension fund systems, changing demographics and the
elimination of intra-
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<PAGE> 56
EMU currency risk; (iii) a reallocation of equity portfolios to reflect
pan-European indices; (iv) the establishment of a European high-yield market
to fund the growth of emerging high-growth industries and to satisfy
investors' demands for higher yield; and (v) increased equity issuance and
higher equity trading volumes. See "Business -- Competition";
- - ASIA. For most of 1997 and 1998, the currency weakness and disruptions, the
deterioration in certain of the region's banking systems, the weakness in the
property sector in many of these countries, as well as slowing consumer
income growth led to a significant and continuing weakening of these
economies and their stock markets. We believe that financial intermediaries
will have significant opportunities in this region as stability is expected
to improve and the economies, representing approximately 60% of the world's
population, resume their expected growth. In the near-term, these
opportunities are expected to include: (i) an increase in mergers and
acquisitions and other financial advisory services in connection with
corporate restructurings; (ii) an increase in trading opportunities as we
meet the liquidity needs of our clients; and (iii) an increase in capital
raising as Asian corporations and governments access the international
capital markets rather than the regional banking system to refinance and to
fund future growth. In the longer term, these opportunities are expected to
include: (i) the emergence of corporate and real estate principal investment
opportunities as a result of corporate and government restructurings, and
(ii) an increase in third-party assets under management and a major shift
towards investments in equity securities due to an anticipated move to
private pension fund systems, changing demographics and the relaxation of
foreign exchange restrictions; and
- - LATIN AMERICA AND EASTERN EUROPE. Weakness in the Asian economies and stock
markets has negatively affected other emerging markets including Latin
America and Eastern Europe. These two regions have experienced a weaker
market environment due to the decline in commodity prices, to which these
economies are particularly sensitive, and investor concerns about emerging
markets in general. Ultimately, we expect opportunities similar to those
anticipated for Asia to develop for financial intermediaries in Latin America
and Eastern Europe.
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<PAGE> 57
BUSINESS
OVERVIEW
Our mission is to be the preeminent global investment banking and
securities firm -- the advisor of choice for our clients and a leading
participant in global financial flows. We are a market leader in each of our
three principal business lines: (i) Investment Banking, (ii) Trading and
Principal Investments and (iii) Asset Management and Securities Services. We
provide services worldwide to a substantial and diversified client base, which
includes corporations, financial institutions, governments and high net worth
individuals. Our net revenues and pre-tax earnings for 1997 were $7.4 billion
and $3.0 billion, respectively, and for the six months ended May 1998 were $5.5
billion and $2.1 billion, respectively. As of May 1998, our total assets were
$241.9 billion and our partners' capital was $6.6 billion.
We have produced strong earnings growth and attractive returns on partners'
capital through various economic cycles and market conditions. Over the last 15
years, our pre-tax earnings have grown from $364 million in 1982 to $3.0 billion
in 1997, representing a CAGR of 15%. We have achieved this growth, which has
been almost exclusively organically generated, by maintaining an intense
commitment to our clients, focusing on our core businesses and key opportunities
and operating as a highly integrated, global franchise.
Because we believe that the needs of our clients are global and that
international markets have high growth potential, we have aggressively leveraged
our U.S. market leadership into leading positions in other parts of the world.
Today, the Firm has a strong global presence as evidenced by the geographic
breadth of our transactions, leadership in our core products and the scale of
our international operations. As of May 1998, we operated offices in 22
countries and had over 4,100 employees (representing 36% of total employees)
based outside the United States.
We are committed to a distinctive culture and set of core values. Our core
values are reflected in our Business Principles, which emphasize (i) placing our
clients' interests first, (ii) integrity, (iii) commitment to excellence and
innovation and (iv) teamwork.
The Firm is managed by its principal owners. Simultaneously with the
Offerings, we will make equity-based awards that will total over $ in
aggregate value, to substantially all of our employees. Following the Offerings,
our employees will own approximately % of the Company on a fully diluted
basis. None of our employees are selling shares in the Offerings.
PRINCIPAL BUSINESS LINES
Our business lines are comprised of various product and service offerings
that are set forth in the following chart:
PRIMARY PRODUCTS AND ACTIVITIES BY BUSINESS LINE
<TABLE>
<CAPTION>
TRADING AND PRINCIPAL ASSET MANAGEMENT AND
INVESTMENT BANKING INVESTMENTS SECURITIES SERVICES
------------------ --------------------- --------------------
<S> <C> <C>
- -- Equity and debt -- Bank loans -- Commissions
underwriting -- Commodities -- Institutional and
- -- Financial restructuring -- Currencies high net worth asset
advisory services -- Equity and fixed income management
- -- Mergers and acquisitions derivatives -- Margin lending
advisory services -- Equity and fixed income -- Matched book
- -- Real estate advisory securities -- Merchant banking fees
services -- Principal investments and overrides
-- Proprietary arbitrage -- Mutual funds
-- Prime brokerage
-- Securities lending
</TABLE>
56
<PAGE> 58
INVESTMENT BANKING
Investment Banking represented 35% of 1997 net revenues. We are a market
leader in both our financial advisory and underwriting businesses, serving over
3,000 clients worldwide. For the period January 1, 1993 to June 30, 1998, in
worldwide mergers and acquisitions advisory services, we had the
industry-leading market share of 23.8%, having advised on over $1.4 trillion of
transactions. Over the same period, we also achieved the number one market share
in underwriting worldwide initial public offerings and all common stock issues
with market shares of 15.2% and 14.1%, respectively.
TRADING AND PRINCIPAL INVESTMENTS
Trading and Principal Investments represented 39% of 1997 net revenues. We
make markets in equity and fixed income products, currencies and commodities;
enter into swaps and other derivative transactions; engage in proprietary
trading and arbitrage; and make principal investments. In trading, we focus on
building lasting relationships with our most active clients while maintaining
leadership positions in our key markets. We believe our value-added research,
market-making roles and proprietary activities enhance our understanding of
markets and ability to serve our clients. Principal investments includes the net
revenues from the Firm's investments in its merchant banking funds.
ASSET MANAGEMENT AND SECURITIES SERVICES
Asset Management and Securities Services represented 26% of 1997 net
revenues. We provide global investment management and advisory services; earn
commissions on agency transactions; earn management fees and derive overrides
from our merchant banking funds; and provide prime brokerage, securities lending
and financing services. As of May 1998, the Firm had approximately $305 billion
of assets under supervision, of which $165 billion represented assets under
management. Our asset management business is rapidly growing with current net
asset inflows averaging over $115 million per business day. We manage one of the
largest private equity pools for corporate and real estate investments, having
raised over $13.2 billion of committed equity capital as of June 1998.
The following table sets forth net revenues for each of our three principal
business lines and for the Firm as a whole:
SUMMARY FINANCIAL DATA
($ in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------------- CAGR ---------------- INCREASE
1995 1996 1997 '95-'97 1997 1998 '97-'98
---- ---- ---- ------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Investment Banking.... $1,595 $2,113 $2,587 27% $1,094 $1,587 45%
Trading and Principal
Investments........ 1,744 2,693 2,926 30 1,660 2,578 55
Asset Management and
Securities
Services........... 1,144 1,323 1,934 30 877 1,296 48
------ ------ ------ ------ ------
Total net revenues...... $4,483 $6,129 $7,447 29 $3,631 $5,461 50
====== ====== ====== ====== ======
</TABLE>
------------------------
COMPETITIVE STRENGTHS
STRONG CLIENT RELATIONSHIPS
We endeavor to treat each client relationship as a valued asset that we
develop over time. In 1997, over 75% of our Investment Banking revenues
represented business from existing clients of the Firm. We also aggressively
pursue new client relationships as evidenced by the over 400 investment banking
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<PAGE> 59
transactions we completed for first-time clients in 1997. In our trading
businesses, we focus on building lasting relationships with our clients, for
whom we structure and execute transactions across a wide array of markets and
countries. In our asset management business, we manage assets for three of the
five largest pension pools in the United States as ranked by Pension and
Investments, have 14 clients for which we manage at least $1 billion each and
maintain accounts for over 40% of the Forbes "Four Hundred".
DISTINCTIVE PEOPLE AND CULTURE
Our most important asset is our people. We seek to reinforce our employees'
commitment to our culture and values through recruiting, training, a
comprehensive 360-degree review system and a compensation philosophy that
rewards teamwork. We were ranked number 12 in Fortune magazine's 1998 "The 100
Best Companies to Work for in America" and were ranked number two in Fortune
magazine's 1998 "The Top 50 MBA Dream Companies", the highest-ranked investment
banking and securities firm in each case.
GLOBAL REACH
Over the past decade, we have made a significant commitment to building a
worldwide franchise. We have achieved leading positions in major international
markets by capitalizing on our product knowledge and global research, as well as
by building local presence where appropriate. In doing so, we have become one of
the few truly global investment banking and securities firms with the ability to
execute large and complex cross-border financial advisory and underwriting
assignments. We had the number one market share of 22.1% in cross-border mergers
and acquisitions for the period January 1, 1993 to June 30, 1998. More recently,
in the first six calendar months of 1998, we had the leading market share in the
newly developing European non-dollar high-yield debt underwriting markets,
according to MCM CorporateWatch Data Services. Furthermore, as of July 31, 1998,
we were the largest non-Japanese mutual fund manager in Japan, according to the
Investment Trust Association.
ABILITY TO MANAGE AND BENEFIT FROM RISK
We assume diversified risks in our business and devote substantial
resources to identify, analyze and benefit from these exposures. We believe our
willingness and ability to take risk distinguishes us and substantially enhances
our client relationships. By combining our strong fundamental research, access
to information, analytic capabilities, experience, judgment and risk
diversification skills, we have generated attractive returns through various
economic cycles and market conditions.
STRATEGY
LEVERAGE THE FRANCHISE
We believe our various businesses are generally stronger and more
successful because they are part of the Goldman Sachs franchise. Our culture of
teamwork fosters cooperation among our businesses, which allows us to leverage
our broad-based capabilities to provide our clients with an integrated,
full-service product. We also create multiple points of contact with our clients
to further enhance our relationships. For example, our merchant banking area
sources investment opportunities from our global network of client
relationships. Moreover, major selling shareholders of our investment banking
clients often become substantial asset management clients.
EXPAND LEADERSHIP POSITION IN HIGH
GROWTH, HIGH VALUE-ADDED BUSINESSES
We focus our human and capital resources to better serve our clients
through high value-added activities. Our growth strategy is based on leveraging
our leadership positions to pursue growth opportunities in both existing and new
markets where we believe we can earn high returns. For example, we have
substantially increased our headcount in Investment Banking in order to better
execute mergers and acquisitions, initial public offerings and high-yield
financings. Similarly, in trading, we have strategically deployed professionals
and capital to the
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<PAGE> 60
areas of greatest opportunity and importance to our clients. In asset
management, we have demonstrated our ability to build a leading business rapidly
and have grown assets under supervision from $87 billion as of November 1993 to
$305 billion as of May 1998, representing a CAGR of 32%.
PURSUE INTERNATIONAL OPPORTUNITIES
We believe that our global reach will allow us to take advantage of growth
in international markets. In Europe, the establishment of the EMU in 1999 will
create, over time, a large pan-European market rivaling the U.S. capital markets
in size and liquidity. This is expected to generate increased activity across
our principal business lines. In Asia, we expect increased trading opportunities
as we meet the liquidity needs of our clients and increased mergers and
acquisitions advisory opportunities as a result of corporate restructurings. In
the longer-term, we anticipate additional opportunities in these markets for
merchant banking, as well as increases in asset management activities due to an
expected shift towards privatization of pension systems and changing
demographics.
INVESTMENT BANKING
The Firm provides a broad range of investment banking services to a diverse
group of over 3,000 clients worldwide, including corporations, financial
institutions, governments and individuals. Our investment banking activities are
divided into two categories:
- - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense
activities, restructurings and spin-offs; and
- - UNDERWRITING. Underwriting includes public offerings and private placements
of equity and debt securities.
The following table sets forth the net revenues generated by Investment
Banking:
INVESTMENT BANKING NET REVENUES
($ in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------ CAGR --------------- INCREASE
1995 1996 1997 '95-'97 1997 1998 '97-'98
---- ---- ---- ------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial advisory.......... $ 793 $ 931 $1,184 22% $ 516 $ 799 55%
Underwriting................ 802 1,182 1,403 32 578 788 36
------ ------ ------ ------ ------
Total Investment Banking.... $1,595 $2,113 $2,587 27 $1,094 $1,587 45
====== ====== ====== ====== ======
</TABLE>
------------------------
As a recognized leader in investment banking, we provide our clients with
quality advice and execution as part of our effort to develop and maintain
long-term relationships as our clients' lead investment bank. With over 75% of
Investment Banking revenues in 1997 generated from our existing clients, we are
committed to developing and maintaining long-term client relationships. We also
aggressively pursue new client relationships as evidenced by over 400 investment
banking transactions we completed for first-time clients in 1997.
ORGANIZATION
We have continuously adapted our organizational structure to meet changing
market dynamics and our clients' needs. Our current structure, which is
organized along regional, execution and industry groups, seeks to combine
client-focused investment bankers with execution and industry expertise. Through
our commitment to teamwork, we believe that we provide these services in an
integrated fashion for the benefit of our clients.
We believe an important competitive advantage in our marketing effort is
Investment Banking Services ("IBS"), a core group of professionals who focus on
developing and maintaining strong client relationships. These bankers, who are
organized regionally and/or by industry group, work with senior executives of
our clients to identify areas where
59
<PAGE> 61
Goldman Sachs can provide capital-raising, financial advisory or other products
and services. The broad base of experience and knowledge of our IBS
professionals enables them to analyze our clients' objectives efficiently and to
bring to bear the appropriate resources of the Firm to satisfy those objectives.
Execution groups, such as Corporate Finance, Debt and Equity Capital
Markets, Leveraged Finance and Mergers and Acquisitions, bring sophisticated
product expertise and innovation to clients in a variety of industries. These
groups are also instrumental in the coverage of clients through their strong
relationships which are usually built over the course of specific client
transactions. We also try to maintain consistency in our client teams over
multiple transactions in order to enhance our relationships.
In a further effort to focus our investment banking effort around our
clients' needs and penetrate targeted industries, we have established several
industry focus groups. These include: Communications, Media and Entertainment;
Energy and Power; Financial Institutions; Healthcare; High Technology; Real
Estate; Retailing; and Transportation. Drawing on specialized knowledge of
industry-specific trends and leveraging the relevant investment research team,
these groups provide the full range of investment banking products and services
to our clients. An indicator of the success of these focus group initiatives is
our significant transaction volume. In the first six months of calendar 1998,
the Communications, Media and Entertainment group participated in 27 mergers and
acquisitions transactions, totaling $194 billion, and the Financial Institutions
group participated in 45 mergers and acquisitions transactions, totaling $238
billion. As a result, each of these groups achieved a number one market share
for this period.
Reflecting our commitment to innovation, Investment Banking has established
a New Products group whose professionals focus on creating new financial
products. These professionals have particular expertise in integrating finance
with accounting, tax and securities laws and work closely with other investment
banking teams to provide innovative solutions to difficult client problems. Our
structuring expertise has proven to be particularly valuable in addressing
client needs in areas such as complex cross-border mergers and acquisitions and
convertible and other hybrid equity financings.
FINANCIAL ADVISORY
Financial advisory includes a broad range of advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense activities,
restructurings and spin-offs. Goldman Sachs is a preeminent investment bank in
worldwide mergers and acquisitions. During calendar 1997, we advised on 343
mergers and acquisitions transactions with a combined value of $338 billion and,
during the first six months of calendar 1998, Goldman Sachs advised on 177
mergers and acquisitions transactions with a combined value of $594 billion.
The Firm's mergers and acquisitions capabilities are evidenced by our
significant share of assignments in large, complex transactions where we bring
multiple resources to bear on a variety of areas, including "one-stop"
acquisition financing, currency hedging and cross-border structuring expertise.
Of the 12 announced mergers and acquisitions transactions in the United States
with a value in excess of $20 billion as of June 30, 1998, Goldman Sachs has
been an advisor in eight. Internationally, we have achieved substantial success,
even in intra-country transactions, and we are a leading mergers and
acquisitions advisor in France and Germany.
The following table illustrates the Firm's leadership in the mergers and
acquisitions advisory market:
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<PAGE> 62
GOLDMAN SACHS' MERGERS AND ACQUISITIONS MARKET DATA
For the period January 1, 1993 through June 30, 1998
($ in billions)
<TABLE>
<CAPTION>
MARKET NUMBER OF
CATEGORY RANK SHARE VOLUME TRANSACTIONS
-------- ---- ------ ------ ------------
<S> <C> <C> <C> <C>
Worldwide.................................... 1 23.8% $1,405 1,334
Worldwide, transactions over $500 million.... 1 33.1 1,287 420
Worldwide, transactions over $1 billion...... 1 36.5 1,172 259
United States................................ 1 30.7 1,098 932
United States, transactions over $500
million.................................... 1 39.2 1,009 304
United States, transactions over $1
billion.................................... 1 41.9 929 194
</TABLE>
------------------------
Mergers and acquisitions is an excellent example of how one activity can
generate cross-selling opportunities for other activities and thereby increase
the Firm's revenue potential from a particular transaction. For example, a
client we are advising in a purchase transaction often will seek our assistance
in obtaining financing and in hedging interest rate or foreign currency risks
associated with the acquisition. In the case of dispositions, owners and senior
executives of the acquired company often will seek asset management services. In
these cases, our high net worth relationship managers are well prepared to
provide comprehensive advice on a range of investment alternatives and to
execute the client's desired strategy.
UNDERWRITING
Since January 1, 1993, Goldman Sachs has served as lead manager in
transactions that have raised approximately $1 trillion of capital for clients
worldwide. The Firm underwrites a wide range of securities and other
instruments, including common and preferred stock, convertible securities,
investment grade debt, high-yield debt, sovereign and emerging markets debt,
municipal debt, bank loans, asset-backed securities and real estate-related
securities, such as mortgage-backed securities and the securities of real estate
investment trusts.
EQUITY UNDERWRITING. Equity underwriting has been a long-term core
strength of the Firm. The Firm has ranked number one in worldwide initial public
offerings ("IPOs") based on total proceeds raised in every calendar year since
January 1, 1994.
The following table illustrates the Firm's leadership position in equity
underwriting:
GOLDMAN SACHS' EQUITY UNDERWRITING MARKET DATA
For the period January 1, 1993 through June 30, 1998
($ in billions)
<TABLE>
<CAPTION>
TOTAL
MARKET PROCEEDS NUMBER OF
CATEGORY RANK SHARE RAISED ISSUES(1)
-------- ---- ------ -------- ---------
<S> <C> <C> <C> <C>
Worldwide IPOs............................... 1 15.2% $ 47 320
Worldwide IPOs, proceeds over $500 million... 1 27.0 26 61
Worldwide common stock offerings............. 1 14.1 103 698
U.S. IPOs.................................... 1 15.1 36 199
U.S. IPOs, proceeds over $500 million........ 1 38.2 15 19
U.S. common stock offerings.................. 2 14.0 78 432
</TABLE>
- ---------------
(1) The number of issues reflects the number of tranches; an offering by a
single issuer could have multiple tranches.
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<PAGE> 63
As with mergers and acquisitions, the Firm has been particularly successful
in winning mandates for the largest, most complex equity underwritings. As
evidenced in the chart above, our market share of IPOs with total proceeds over
$500 million is substantially higher than our market share of all IPOs. We
believe our leadership in large IPOs reflects our expertise in complex
transactions, research strengths, track record and distribution capabilities. In
the international arena, we have also acted as lead manager on many of the
largest IPOs. We were named both the U.S. Equity House of the Year and the Asian
Equity House of the Year by International Financing Review ("IFR") in 1997.
We believe that a key factor in our equity underwriting success is the
close working relationship between the investment bankers, research analysts and
sales force as coordinated by our Equity Capital Markets group. Goldman Sachs'
equities sales force is one of the most experienced and effective sales
organizations in the industry. With over 700 institutional sales professionals
and high net worth relationship managers located in every major market around
the world, Goldman Sachs has relationships with a large and diverse group of
investors.
Our Global Investment Research professionals are critical to our ability to
succeed in the equity underwriting business. We believe that the quality of
equity research is an important factor that issuers consider when selecting an
investment bank to lead manage an offering. In this regard, Goldman Sachs'
research has been consistently ranked among the industry's global leaders. See
"-- Global Investment Research".
DEBT UNDERWRITING. We engage in the underwriting and origination of
various types of debt instruments that we broadly categorize as follows: (i)
investment grade debt for corporations, governments, municipalities and
agencies; (ii) high-yield debt and bank loans for non-investment grade issuers;
(iii) emerging market debt, which includes corporate and sovereign issues; and
(iv) asset-backed securities.
We have employed a focused approach in debt underwriting, emphasizing high
value-added areas in servicing our clients. Consistent with this approach, we
have targeted specific sectors such as debt issuance for industrial companies.
The table below sets forth our market position, our total proceeds raised
and the number of debt transactions in which we have acted as underwriter in the
following areas:
GOLDMAN SACHS' DEBT UNDERWRITING MARKET DATA
For the period January 1, 1993 through June 30, 1998
($ in billions)
<TABLE>
<CAPTION>
TOTAL
MARKET PROCEEDS NUMBER OF
CATEGORY(1) RANK SHARE RAISED ISSUES(5)
----------- ---- ------ -------- ---------
<S> <C> <C> <C> <C>
Worldwide debt(2)............................ 3 8.6% $739 5,167
Worldwide straight debt(3)................... 2 8.9 578 4,547
U.S. investment grade straight debt(3)....... 2 12.7 428 3,865
U.S. investment grade industrial straight
debt(3).................................... 1 19.6 84 553
U.S. high-yield debt(4)...................... 5 7.9 33 191
</TABLE>
- ---------------
(1) All categories include publicly registered and Rule 144A issues.
(2) Includes non-convertible preferred stock, mortgage-backed securities,
asset-backed securities and municipal debt.
(3) "Straight debt" excludes non-convertible preferred stock, mortgage-backed
securities and asset-backed securities.
(4) Excludes issues with both investment grade and non-investment grade ratings
("split-rated issues").
(5) The number of issues reflects the number of tranches; an offering by a
single issuer could have multiple tranches.
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<PAGE> 64
We believe that the leveraged finance market is a key growth opportunity
for our debt underwriting business. Over the last three years, we have more than
doubled the number of professionals devoted to this area and have increased
expertise throughout our Firm.
Total U.S. high-yield issuance has increased from $61 billion in 1993 to
$119 billion in 1997, representing a CAGR of 18%. U.S. leveraged loan volume has
increased from $28 billion in 1993 to $194 billion in 1997, representing a CAGR
of 62%, according to Loan Pricing Corporation. In Europe, where the high-yield
market is newly developing, issuance of non-dollar high-yield securities
increased from $1.1 billion in 1997 to $3.3 billion in the first six calendar
months of 1998, according to MCM CorporateWatch Data Services.
To date, we have increased our high-yield business from $4.3 billion of
lead-managed issuances in calendar 1993 to $6.4 billion in 1997 and $7.4 billion
in the first six months of 1998. In the European non-dollar high-yield market,
we had the number one market share in the first six calendar months of 1998,
according to MCM CorporateWatch Data Services. Finally, in the leveraged loan
market, we have increased our ranking from 34 in 1995 to nine in 1997 and were
the only non-commercial bank ranked in the top 10 originators of leveraged loans
in terms of total volume, according to Loan Pricing Corporation.
TRADING AND PRINCIPAL INVESTMENTS
The Firm's Trading and Principal Investments business facilitates customer
transactions and takes proprietary positions through market making in and
trading of fixed income and equity products, currencies, commodities, swaps and
other derivatives. In order to meet the needs of its clients, the Firm's Trading
and Principal Investments business is diversified across a wide range of
products. For example, we make markets in traditional investment grade debt
securities, structure complex derivatives and securitize mortgages and insurance
risk. A fundamental tenet of our approach is that we believe our willingness and
ability to take risk distinguishes us and substantially enhances our client
relationships. Our Trading and Principal Investments business includes the
following:
- - FIXED INCOME, CURRENCY AND COMMODITIES. The Firm makes markets in and trades
fixed income products, currencies and commodities, structures and enters into
a wide variety of derivative transactions and engages in proprietary trading
and arbitrage activities;
- - EQUITIES. The Firm makes markets in and trades equities and equity-related
products, structures and enters into equity derivative transactions and
engages in proprietary trading and equity arbitrage; and
- - PRINCIPAL INVESTMENTS. Principal investments represents the Firm's net
revenues from its investments in its merchant banking funds.
The following table sets forth the net revenues of the Firm's Trading and
Principal Investments business:
TRADING AND PRINCIPAL INVESTMENTS NET REVENUES
($ in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------ CAGR --------------- INCREASE
1995 1996 1997 '95-'97 1997 1998 '97-'98
---- ---- ---- ------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FICC........................... $ 822 $1,749 $2,055 58% $1,194 $1,675 40%
Equities....................... 731 730 573 (11) 423 659 56
Principal investments.......... 191 214 298 25 43 244 467
------ ------ ------ ------ ------
Total Trading and Principal
Investments.................. $1,744 $2,693 $2,926 30 $1,660 $2,578 55
====== ====== ====== ====== ======
</TABLE>
63
<PAGE> 65
FIXED INCOME, CURRENCY AND COMMODITIES
FICC is an integral part of the Firm's growth and profitability. It is a
large and diversified operation through which we engage in a variety of
customer-driven market making and proprietary trading and arbitrage activities.
The principal products of FICC are the following:
- - Bank loans
- - Commodities
- - Currencies
- - Derivatives
- - Emerging market debt
- - Global government securities
- - High-yield securities
- - Investment grade corporate securities
- - Money market instruments
- - Mortgage securities and loans
- - Municipal securities
We generate trading net revenues from our customer-driven business and our
proprietary activities in three ways. First, in large, highly liquid markets we
undertake a high volume of transactions for modest spreads. Second, by
capitalizing on our strong market relationships and capital position, we also
undertake transactions in less liquid markets where spreads are generally
larger. Finally, we generate net revenues from structuring and executing
transactions that address complex client needs.
FICC has established itself as a leading market participant by using a
three-part approach to deliver high quality service to its
clients. First, we offer broad market making, research and market knowledge to
our clients on a global basis. Second, we create innovative solutions to complex
client problems by drawing upon our structuring and trading expertise. Third, we
use our expertise to take positions in markets when we believe the return is at
least commensurate with the risk.
A core activity in FICC is market making in a broad array of securities and
products. For example, we are a primary dealer in the largest government bond
markets around the world including the United States, Japan, the United Kingdom,
Germany, Canada, Italy and France; the Firm is a member of the major futures
exchanges; and we have interbank dealer status in the currency markets in New
York and London. The Firm's willingness to make markets in a broad range of
fixed income, currency, and commodity products and their derivatives is crucial
both to the Firm's client relationships and to support our underwriting business
by providing secondary market liquidity. Our clients value counterparties that
are active in the marketplace and are willing to provide liquidity and
research-based points of view. In addition, we believe that our significant
investment in research capabilities and proprietary analytical models are
critical to our ability to provide advice to our clients. Our research
capabilities include quantitative and qualitative analyses of global economic,
currency and financial market trends, as well as credit analyses of corporate
and sovereign fixed income securities.
64
<PAGE> 66
Our clients often confront complex problems that require creative
approaches. We assist our clients who seek to hedge, reallocate their risks and
profit from expected price movements. To do this we bring to bear the ability of
our experienced professionals to understand the needs of our clients and our
ability to manage the risks associated with complex solutions to problems. In
recognition of our ability to meet these client needs, we were named by IFR as
the 1997 Derivatives House of the Year.
In our proprietary activities, we assume a variety of risks and devote
substantial resources to identify, analyze and benefit from these exposures. We
leverage our strong research capabilities and capitalize on our proprietary
analytical models to quickly analyze information and make informed trading
judgments. We seek to benefit from perceived disparities in the value of assets
in the trading markets and rely on our research and judgment to benefit from
certain macroeconomic and company-specific trends.
EQUITIES
The Firm makes markets in and trades equity securities and equity-related
products (such as convertible securities and equity derivative instruments) for
a wide range of clients on a global basis and undertakes proprietary activities.
Goldman Sachs makes markets and positions blocks of stock to facilitate
customers' transactions and to provide liquidity in the marketplace. The Firm is
a member of most of the major stock exchanges, including the New York, London,
Frankfurt, Tokyo and Hong Kong stock exchanges. In the Nasdaq National Market,
we were the leading market maker by aggregate volume of the top 100 most
actively traded stocks in calendar 1997.
The Firm trades and makes markets in equity securities of U.S., European,
U.K., Japanese, Canadian, Latin American, Southeast Asian and other issuers. As
agent, the Firm executes brokerage transactions in equity securities for
institutional and individual customers that generate commission revenues.
Commissions earned on agency transactions are recorded in Asset Management and
Securities Services.
In equity trading, as in FICC, the Firm generates net revenues in three
ways. First, in large, highly liquid markets, such as the OTC market for equity
securities, we undertake a high volume of transactions for modest spreads.
Second, by capitalizing on our strong market relationships and capital position,
we also undertake large transactions, such as block trades and positions in
securities, in which we benefit from spreads that are generally larger. Finally,
the Firm also benefits from structuring complex transactions.
Goldman Sachs was a pioneer and is a leader in the execution of large block
trades (trades of 50,000 or more shares) in the United States and abroad. In the
first half of 1998, we executed over 35 block trades of at least $100 million
each. The Firm has been able to capitalize on its expertise in block trading,
its global distribution network and its willingness to commit capital to effect
increasingly complex customer transactions. As corporate consolidation and
restructuring around the world continues, the Firm expects that the sales of
large blocks of stock will become more common (due to, among other factors,
monetizations of large holdings resulting from stock-for-stock combinations) and
that it will be able to benefit from this trend.
The Firm is active in the listed options and futures markets and
structures, distributes and executes OTC derivatives on market indices, industry
groups and individual company stocks to facilitate customer transactions and its
proprietary activities. The Firm develops quantitative strategies and renders
advice with respect to portfolio hedging and restructuring and asset allocation
transactions. The Firm also creates specially tailored instruments to enable
sophisticated investors to undertake hedging strategies and establish or
liquidate investment positions. The Firm is one of the leading participants in
the trading and development of equity derivative instruments. The Firm is an
active participant in the trading of futures and options on most of the major
exchanges in Europe, Asia and the United States.
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<PAGE> 67
Equity arbitrage has long been an important part of our equity franchise.
Our strategy is based on making investments on a global basis through a
diversified portfolio across different markets and event categories. This
business focuses on: (i) event-oriented special situations where the Firm is not
acting as an advisor, such as mergers and acquisitions, corporate
restructurings, recapitalizations, legal and regulatory events, as well as other
special situations and (ii) relative value trades. Equity arbitrage leverages
the Firm's global infrastructure and network of research analysts to analyze
carefully a broad range of trading and investment strategies across a wide
variety of markets. Investment decisions are the product of rigorous
fundamental, situational and, frequently, regulatory and legal analysis.
TRADING RISK MANAGEMENT
1994
In 1993, the Firm enjoyed then record net revenues, due, in large part, to
substantial and concentrated FICC positions that benefitted from declining
interest rates and the decline in relative value of certain European currencies.
In 1994, the Federal Reserve Board raised short-term interest rates six times in
ten months, contributing to a substantial decline in global bond prices and a
readjustment of relative currency values. These changes led to a corresponding
decline in the value of the Firm's positions. As a result, in 1994 the Firm
suffered a significant decline in net revenues.
ENHANCED RISK MANAGEMENT
In response to these adverse developments, the Firm significantly reduced
the size and concentration of positions, strengthened risk management policies
and accelerated the development of new, more sophisticated risk management
programs. For example, the Firm reconstituted and broadened representation in
its Firmwide Risk Committee and created several other committees to help monitor
and evaluate risk. These Committees substantially changed the Firm's approach to
risk management by making the risk management process more transparent to a
broader group through the implementation of more stringent policies and
procedures that now include the following:
- - REPORTING OF RISK VIOLATIONS. Any violation of a market risk limit is
required to be reported to the appropriate Risk Committee and the appropriate
business unit managers;
- - ACTIVE RISK MANAGEMENT. The FICC and Equities Risk Committees typically meet
twice every week and review all significant exposures across a variety of
dimensions, including risk concentrations by market, geography, credit and
product;
- - RISK ANALYSIS. The Firm's proprietary risk management software breaks down
the Firm's risks into their components. This "dissection" of the Firm's risks
permits the Firm more accurately to assess and hedge its risks; and
- - REGULAR DESK REPORTS. Each desk head is required to deliver regular risk
reports to the members of the appropriate Risk Committee.
In addition, the Firm substantially enhanced its risk management
infrastructure and technology and substantially increased the number of
professionals dedicated to this area.
Today the Firm measures VaR more comprehensively and maintains lower VaR
levels than in 1994. This reduction in VaR levels has occurred despite an
increase in the Firm's total assets from $116 billion at November 1993 to $242
billion at May 1998.
The Firm's enhanced risk management policies and procedures have allowed us
to increase FICC's net revenues while significantly reducing market risk as
measured by VaR. FICC's daily VaR, based on a 95% confidence level, peaked at
$94 million in January 1994 as measured over the six FICC businesses for which
VaR was then calculated.
As shown in the chart below, as of May 1998, the VaR for the same six
businesses had been reduced to $14 million and the VaR for substantially all of
the Firm's trading positions was $47 million.
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<PAGE> 68
COMPARATIVE VAR
(in millions)
Six FICC Businesses Measured in 1994
January 1994 $94
May 1998 $14
Total FICC
May 1998 $37
Firmwide
May 1998 $47
- ---------------
Note: For a description of VaR methodology, assumptions and limitations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Management".
------------------------
Notwithstanding these reductions in VaR, the Firm continues to hold trading
positions that are substantial in both number and size, and is subject to
significant market risk. See "Risk Factors -- Market Risk Could Adversely Affect
Our Businesses in Many Ways" and "-- Our Risk Management Policies and Procedures
May Leave Us Exposed to Unidentified or Unanticipated Risk".
PRINCIPAL INVESTMENTS
In connection with its merchant banking activities, the Firm invests with
its clients by making principal investments in funds that it raises and manages.
As of June 30, 1998, the Firm has provided $2.4 billion of the $13.2 billion
total equity capital committed for its merchant banking funds, of which
approximately $860 million has not yet been funded. The funds' investments
generate capital appreciation or depreciation and, upon disposition, realized
gains or losses. See "-- Asset Management and Securities Services -- Merchant
Banking". As of May 1998, the Firm's aggregate carrying value of its principal
investments held directly or through its merchant banking funds was
approximately $1.4 billion, which was comprised of corporate principal
investments with an aggregate carrying value of approximately $715 million and
real estate investments with an aggregate carrying value of approximately $682
million.
ASSET MANAGEMENT AND SECURITIES SERVICES
Asset Management and Securities Services is comprised of the following:
- - ASSET MANAGEMENT. Asset management generates management fees by providing
investment advisory services to a diverse and rapidly growing client base of
institutions and individuals;
- - SECURITIES SERVICES. Securities services includes prime brokerage, financing
services and securities lending and the Firm's matched book businesses, all of
which generate revenue primarily in the form of fees or interest rate spreads;
and
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<PAGE> 69
- - COMMISSIONS. Commission-based businesses include agency transactions for
clients on major stock and futures exchanges. Overrides derived from the
Firm's merchant banking funds are also included.
The following table sets forth the net revenues of the Firm's Asset
Management and Securities Services business:
ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES
($ in millions)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------ CAGR ------------- INCREASE
1995 1996 1997 '95-'97 1997 1998 '97-'98
---- ---- ---- ------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset management................. $ 167 $ 242 $ 458 66% $185 $ 284 54%
Securities services.............. 330 354 487 21 237 344 45
Commissions...................... 647 727 989 24 455 668 47
------ ------ ------ ---- ------
Total Asset Management and
Securities Services............ $1,144 $1,323 $1,934 30 $877 $1,296 48
====== ====== ====== ==== ======
</TABLE>
------------------------
ASSET MANAGEMENT
The Firm is seeking to build a premier global asset management business. We
offer a broad array of investment strategies and advice across all major asset
classes: global equity, fixed income (including money markets), currency and
alternative investment products (i.e., investment vehicles with non-traditional
investment objectives and/or strategies). Our assets under supervision are
comprised of assets under management and other client assets. Assets under
management typically generate fees based on a percentage of their value and
include our mutual funds, separate accounts managed for institutional and
individual investors, our merchant banking funds and other alternative
investment funds. Other client assets are comprised of assets in brokerage
accounts of high net worth individuals on which we earn primarily brokerage
commissions.
Over the last five years, the Firm has rapidly grown its assets under
supervision, as set forth in the graph below:
ASSETS UNDER SUPERVISION
(in billions)
<TABLE>
<CAPTION>
Measurement Period Assets under Assets under
(Fiscal Year Covered) management Other client assets supervision
<S> <C> <C> <C>
1993 $41 $46 $87
1994 43 53 96
1995 52 63 115
1996 95 83 178
1997 136 110 246
May-98 165 140 305
</TABLE>
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<PAGE> 70
As of May 1998, equities and alternative investments represented 53% of our
total assets under management. Since 1995, these two asset classes have been the
primary drivers of our growth in assets under management. During the first half
of 1998, the Firm had net asset inflows averaging over $115 million per business
day, excluding market appreciation.
The following table sets forth the amount of assets under management by
asset class:
ASSETS UNDER MANAGEMENT BY ASSET CLASS
($ in billions)
<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------------ AS OF MAY CAGR
1995 1996 1997 1998 '95-'98
---- ---- ---- --------- -------
<S> <C> <C> <C> <C> <C>
ASSET CLASS
Equity........................................ $ 9 $ 34 $ 52 $ 66 122%
Fixed income and currency..................... 19 26 36 43 39
Money markets................................. 20 27 31 34 24
Alternative investment(1)..................... 4 8 17 22 98
----- ----- ------ ------
Total......................................... $ 52 $ 95 $ 136 $ 165 59
===== ===== ====== ======
</TABLE>
- ---------------
(1) Includes private equity, real estate, quantitative asset allocation and
other funds that are managed by the Firm.
------------------------
Since the beginning of 1996, we have increased the resources devoted to the
asset management business, including adding over 675 employees. In addition,
over the past three years, the Firm made three asset management acquisitions, in
order to expand our geographic reach and to broaden our global equity and
alternative investment portfolio management capabilities.
The global reach of the Firm has been important in growing assets under
management. The percentage of our assets under management, excluding our
merchant banking funds, sourced from outside the United States increased from
12% as of November 1995 to 38% as of May 1998. Currently, we manage
approximately $40 billion sourced from Europe and approximately $12 billion
sourced from Japan.
CLIENTS. Our primary clients are institutions, high net worth individuals
and retail investors. We access clients through both direct and third-party
channels.
The table below sets forth the amount of assets under supervision by
distribution channel and client category as of May 1998:
ASSETS UNDER SUPERVISION BY DISTRIBUTION CHANNEL
(in billions)
<TABLE>
<CAPTION>
ASSETS UNDER
SUPERVISION(1) PRIMARY INVESTMENT VEHICLES
-------------- ---------------------------
<S> <C> <C>
- - Directly distributed
-- Institutional.............. $ 117 Separate managed accounts
Commingled vehicles
-- High net worth
individuals................ 142 Brokerage accounts
Limited partnerships
Separate managed accounts
- - Third-party distributed
-- Institutional and retail... 36 Mutual funds
------
Total........................... $ 295
======
</TABLE>
- ---------------
(1) Excludes $10 billion in our merchant banking funds.
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<PAGE> 71
Our institutional clients include corporations, insurance companies,
pension funds, foundations and endowments. We manage assets for three of the
five largest pension pools in the U.S. as ranked by Pensions and Investments as
of January 31, 1998 and we have 14 clients for whom we manage at least $1
billion each.
In the individual high net worth area, we have established approximately
9,000 high net worth accounts worldwide, including accounts with over 40% of the
Forbes "Four Hundred". We believe this is a high growth opportunity because this
market (defined as the market for individual investors with a net worth in
excess of $5 million) is highly fragmented, growing rapidly, and accounts for
approximately $10 trillion of investable assets according to a recent study by
McKinsey & Co. At the center of our effort is a team of over 350 relationship
managers, located in 11 U.S. and six international offices. These professionals
have an average of over eight years of experience at the Firm and have exhibited
low turnover and superior productivity relative to the industry average.
In the third-party distribution channel, we distribute our mutual funds on
a worldwide basis through banks, brokerage firms, insurance companies and other
financial intermediaries. As of May 1998, we were the third largest manager in
the U.S. institutional money market sector according to information compiled by
Strategic Insight. In Japan, by utilizing a network of third parties,
principally the largest Japanese brokerage firms, we have become the largest
non-Japanese Investment Trust Manager based on mutual fund assets according to
the Investment Trust Association. In the aggregate, we had $11.8 billion in
mutual fund and institutional assets under management in Japan as of May 1998.
INVESTMENT CAPABILITIES. The Firm seeks to provide to its clients a broad
and deep product line with consistent above-average returns across all asset
classes. For 1996, we were ranked number one in the Barron's/ Lipper fund family
performance survey and for 1997 were again ranked in the top 20%.
MERCHANT BANKING
Goldman Sachs has an established and successful record in the corporate and
real estate merchant banking business, having raised $13.2 billion of committed
equity capital for 14 private investment funds as of June 30, 1998 of which $8.2
billion had been funded. The Firm has committed $2.4 billion and funded $1.5
billion of these amounts; clients of the Firm including pension plans,
endowments, charitable institutions and high net worth individuals have provided
the remainder. Some of these investment funds pursue, on a global basis,
long-term investments in equity and debt securities in privately negotiated
transactions, leveraged buyouts and acquisitions. As of June 30, 1998, these
funds had total committed capital of $7.7 billion, which includes two funds with
$1.0 billion of committed capital that are in the process of being wound down.
Other funds, with total committed capital of $5.5 billion as of June 30, 1998,
invest in real estate operating companies and debt and equity interests in real
estate assets.
Our strategy with respect to each merchant banking fund is to invest
opportunistically to build a portfolio of investments that is diversified by
industry, product type, geographic region and transaction structure and type.
Our merchant banking funds leverage the Firm's long-standing relationships with
companies, investors, entrepreneurs and financial intermediaries around the
world to source potential investment opportunities. In addition, our merchant
banking funds and their portfolio companies have generated business for other
areas of the Firm, including equity underwriting, leveraged and other financing
fees and merger advisory fees.
Located in eight offices around the world, our investment professionals
identify, manage and sell investments on behalf of our merchant banking funds.
The Firm has two majority-owned real estate asset management companies which
manage real estate assets. In addition, our merchant banking professionals work
closely with other parts of the Firm and benefit from the expertise of
specialists in debt and equity research, investment bank-
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ing, leveraged and mortgage finance and equity capital markets.
Merchant banking activities generate three revenue streams. First, the Firm
receives a management fee that is generally a percentage of a fund's committed
capital, invested capital, total gross acquisition cost or asset value. These
annual management fees, which are included in our asset management revenues,
have historically been a recurring source of revenue. Second, the Firm receives
from each fund, after that fund has achieved a minimum return for fund
investors, an increased share of the fund's income and gains ("override") which
is a percentage, typically 20%, of the capital appreciation and gains from the
fund's investments. Revenues from overrides are included in commissions. Third,
the Firm, as a substantial investor in these funds, is allocated its
proportionate share of the funds' unrealized appreciation or depreciation
arising from changes in fair value as well as gains and losses upon realization.
These items are included in Trading and Principal Investments.
SECURITIES SERVICES
Securities services consists predominantly of Global Securities Services
("GSS"), which provides prime brokerage, financing services and securities
lending to a diversified U.S. and international customer base, including hedge
funds, pension funds and high net worth individuals. Securities services also
includes the Firm's matched book business.
We offer prime brokerage services to our clients, allowing them the
flexibility to trade with most brokers while maintaining a single source for
financing and portfolio reports. Our prime brokerage activities provide
multi-product clearing and custody in 50 countries, consolidated multi-currency
accounting and reporting and offshore fund administration and servicing for our
most active clients. Additionally, we provide financing to our clients through
margin loans collateralized by securities held in the client's account. In
recent years, the Firm has significantly increased its prime brokerage client
base.
Securities lending activities principally involve the borrowing and lending
of equity securities to cover customer and Firm short sales and to finance the
Firm's long positions. In addition, we are an active participant in the
securities lending broker-to-broker business and the third-party agency lending
business. Trading desks in New York, Boston, London, Tokyo and Hong Kong provide
24-hour coverage in equity markets worldwide. We believe the rapidly developing
international stock lending market presents a significant growth opportunity.
Lenders of securities include pension plan sponsors, mutual funds,
insurance companies, investment advisors, endowments, bank trust departments and
individuals. We have entered into exclusive relationships with certain lenders
that have given us access to large pools of securities, certain of which are
often hard to locate in the general lender market, thereby providing us with a
competitive advantage. The Firm believes that a significant driver in the growth
in short sales, which require the borrowing of securities, has been the rapid
increase in complex trading strategies such as index arbitrage, convertible bond
and warrant arbitrage, option strategies, and sector and market neutral
strategies where shares are sold short to hedge exposure from derivative
instruments.
In each of the past five years, GSS has posted significant increases in net
revenues and has substantially increased the resources devoted to this growing
market.
COMMISSIONS
The Firm generates commissions by executing agency transactions on major
stock and futures exchanges worldwide. The Firm effects agency transactions for
clients located throughout the world. In recent years, aggregate commissions
have increased as a result of growth in transaction volume on the major
exchanges. As discussed above, commissions also include overrides from merchant
banking funds and commissions earned from brokerage transactions for high net
worth individuals. With respect to overrides, see "-- Merchant Banking" above,
and with respect to high net worth individuals, see "-- Asset
Management -- Clients" above.
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In anticipation of continued growth in online trading, the Firm has made
strategic investments in alternative trading systems to gain experience and
participate in the development of this market. See "Risk Factors -- The
Financial Services Industry Is Intensely Competitive and Rapidly Consolidating".
GLOBAL INVESTMENT RESEARCH
The Global Investment Research Department provides fundamental research on
economies, debt and equity markets, industries, and companies on a worldwide
basis. The Department provides a significant competitive advantage to many of
the Firm's important revenue generating activities. For over two decades, the
Firm has committed the resources on a global scale to develop an
industry-leading position for its investment research products. Major investors
worldwide recognize the Firm for its value-added research products, which are
highly rated in client polls across the Americas, Europe and Asia. The Firm's
Research Department is the only one to rank in the top three in each of the last
ten calendar years in Institutional Investor's "All-America Research Team"
survey. In Europe, based on the Institutional Investor "1998 All-Europe Research
Team" survey, the Research Department ranked number one for coverage of
continental sectors and number three in European Strategy and Economics.
The Firm believes that the prominence of the Global Investment Research
Department is also a significant factor in the Firm's strong competitive
position in debt and equity underwritings and in its generation of commission
revenues. The Department is recognized for a highly integrated team approach
that provides equity research coverage of approximately 2,200 companies
worldwide, 53 economies, and 25 stock markets. This is accomplished through
three groups: (i) the Economic Research group, which formulates macroeconomic
forecasts for economic activity, foreign exchange, and interest rates based on
the globally coordinated views of its regional economists; (ii) the Portfolio
Strategy group, which forecasts equity market returns and provides
recommendations on both asset allocation and industry representation; and (iii)
the Company/Industry group, which provides fundamental analysis, forecasts and
investment recommendations for companies and industries worldwide. Equity
research analysts are organized regionally by sector and globally into more than
20 industry teams, which allows for extensive collaboration and knowledge
sharing on important investment themes.
INFORMATION TECHNOLOGY
Technology is fundamental to our overall business strategy. The Firm is
committed to the ongoing development, maintenance and use of technology
throughout the organization, with expenditures, including employee costs, of
approximately $710 million in 1997 and a budget of $950 million in 1998. The
Firm has developed significant proprietary software and systems over the past
several years. Our technology initiatives can be broadly categorized into three
efforts: (i) enhancing client service through increased connectivity and the
provision of high value-added, tailored services; (ii) sophisticated risk
management; and (iii) overall efficiency and control.
We have tailored our services to our clients by providing them with
electronic access to our products and services. An example of this is the
development of the Financial Workbench, an Internet web site that clients and
employees can use to download research reports, access earnings and valuation
models, submit trades, monitor accounts, build and view presentations, calculate
derivative prices and view market data. First made available in early 1995, the
Financial Workbench represents a joint effort among all of our business areas to
create one comprehensive site for clients and employees to access the Firm's
products and services.
The Firm also has developed proprietary software that enables us to monitor
and analyze our market and credit risks. This risk management software not only
analyzes market risk on Firmwide, divisional and trading desk levels, but also
breaks down the Firm's risk into its underlying exposures, thereby permitting
management to evaluate exposures on the basis of specific interest rate,
currency
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rate, equity price or commodity price changes. To further assist in the
management of the Firm's credit exposures, data from many sources are aggregated
daily into credit management systems that give senior management and
professionals in the Credit and Controllers Departments the ability to receive
timely information with respect to credit exposures worldwide, including netting
information, and the ability to manage complex risk situations effectively.
Proprietary software accesses these data, allows for quick analysis at the level
of individual trades and interacts with other systems in the Firm.
Technology has been a significant factor in improving the overall
efficiency of many areas of the Firm. By automating many trading procedures, we
have substantially increased our efficiency and accuracy.
The Firm currently has projects under way to ensure that the Firm's
technology is Year 2000 compliant and that it is prepared for the introduction
of the EMU. See "Risk Factors -- Firm and Third-Party Computer Systems May Not
Achieve Year 2000 or EMU Readiness" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management -- Operational,
Year 2000 and EMU Risks".
EMPLOYEES
Management believes that one of the strengths and principal reasons for the
success of Goldman Sachs is the quality and dedication of its people and the
shared sense of being part of a team. The Firm was ranked number 12 in Fortune
magazine's 1998 "The 100 Best Companies to Work for in America" and was ranked
number two in Fortune magazine's 1998 "The Top 50 MBA Dream Companies", the
highest ranking investment banking and securities firm in each case. The Firm
strives to maintain a work environment that fosters professionalism, excellence,
diversity and cooperation among its employees worldwide.
Instilling the Goldman Sachs culture in all employees is a continuous
process, of which training is an essential part. To facilitate the training of
its employees, the Firm recently opened a 34,000 square foot training center in
New York City, near its world headquarters. All employees are offered the
opportunity to participate in Firm-sponsored education and periodic seminars
that are held at various locations throughout the world. The Firm also sponsors
off-site meetings for the various business units that are designed to promote
collaboration among co-workers.
Another important part of instilling the Goldman Sachs culture in all
employees is the Firm's employee review process. Employees are reviewed by
supervisors, co-workers and employees they supervise in a 360-degree review
process that is integral to the Firm's team approach. In 1997, approximately
150,000 reviews were completed, evidencing the comprehensive nature of this
process.
The Firm also believes that good citizenship is an important part of being
a member of the Goldman Sachs team. To that end, the Firm established its
Community TeamWorks initiative. As part of Community TeamWorks, all employees
are offered the opportunity to spend a day working at a charitable organization
of their choice while continuing to receive their full salary for that day. In
1998, approximately two-thirds of the Firm's employees participated in Community
TeamWorks.
As of May 1998, we had approximately 11,400 employees. In addition, the
Firm owns a majority of the interests in both Archon and GAH, which provide real
estate services for the Firm's real estate investment funds and had
approximately 920 and 140 employees, respectively, as of May 1998. The Firm is
reimbursed for substantially all of the costs of these employees by these funds.
See "Risk Factors -- Our Conversion to Corporate Form May Adversely Affect
Our Ability to Recruit, Retain and Motivate Key Employees".
TEMPORARY STAFF AND CONSULTANTS
We use temporary staff and consultants to supplement our employees during
periods of high activity and for specific projects in areas such as information
technology and word-processing. As of May 1998, we had approximately 2,900
temporary staff and consultants. We believe our use of a significant
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temporary and consultant staff gives us greater flexibility to match our
workforce to our business needs.
COMPETITION
All aspects of the financial services industry -- and all our
businesses -- are intensely competitive. Our competitors are other brokers and
dealers, investment banking firms, insurance companies, investment advisors,
mutual funds, hedge funds, commercial banks and merchant banks. We compete with
some of our competitors globally and with some others on a regional, product or
niche basis. We compete on the basis of a number of factors, including
execution, depth of product and service offerings, innovation, reputation and
price.
Competition is also intense for the attraction and retention of qualified
employees. Our ability to continue to compete effectively in our businesses will
depend upon our ability to attract new employees and retain and motivate our
existing employees. See "-- Employees".
In recent years there has been a significant consolidation and convergence
among participants in the financial services industry. In particular, a number
of large commercial banks, insurance companies and other broad-based financial
services firms have acquired or established broker-dealer affiliates. These
firms have the ability to offer a wide range of products, from loans,
deposit-taking and insurance to brokerage, investment management and investment
banking services, which may enhance their competitive position. They also have
the ability to support investment banking and securities products with
commercial banking, insurance and other financial services revenues in an effort
to gain market share, which could result in pricing pressure in our businesses.
This trend toward consolidation and convergence has significantly increased
the capital base and geographic reach of our competitors. This trend has also
hastened the globalization of the securities and other finan-cial services
markets. As a result, our businesses now require substantial amounts of capital.
We believe that some of our most significant opportunities for growth will
arise outside the United States. See "Industry and Economic Outlook". In order
to take advantage of these opportunities, we will have to compete successfully
with financial institutions based in important non-U.S. markets, especially
Europe and Asia. Certain of these institutions are larger, better capitalized
and have a stronger local presence and a longer operating history in these
markets.
We have experienced intense price competition in certain areas of our
business in recent years. For example, equity and debt underwriting discounts
have been under pressure for a number of years and the ability to execute trades
electronically, through the Internet and other alternative trading systems may
increase the pressure on trading commissions. It appears that this trend toward
alternative trading systems will continue and perhaps accelerate. Similarly,
underwriting spreads in Latin American and other privatizations have been
subject to considerable pressure in the last year. We expect that we may see
pricing pressures in other areas of our business as some of our competitors seek
to obtain market share by reducing fees or spreads.
We believe that we compete most effectively in value-added businesses where
timeliness, innovation and execution are important. We believe that in large
part, as a result of the quality and dedication of our employees, we are
generally perceived as a value-added firm. We also compete by allocating
resources to those businesses where we see the greatest potential for growth.
The appropriate allocation of our resources is critical to our being an
effective competitor.
REGULATION
Goldman Sachs' business is, and the securities and commodity futures and
options industries generally are, subject to extensive regulation in the United
States and elsewhere. As a matter of public policy, regulatory bodies in the
United States and the rest of the world are charged with safeguarding the
integrity of the securities and other financial markets and with protecting the
interests of customers
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participating in those markets, not with protecting the interests of Goldman
Sachs' shareholders or creditors. In the United States, the SEC is the federal
agency responsible for the administration of the federal securities laws. GS&Co.
is registered as a broker-dealer with the SEC and in all 50 states and the
District of Columbia and as an investment advisor with the SEC. Certain self-
regulatory organizations, such as the NYSE, adopt rules and examine
broker-dealers, such as GS&Co. In addition, state securities and certain other
regulators also have regulatory or oversight authority over GS&Co. Similarly,
Goldman Sachs' business is also subject to regulation by various non-U.S.
governmental and regulatory bodies and self-regulatory authorities in virtually
all countries where the Firm has offices.
Broker-dealers are subject to regulations that cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure, record-keeping, the financing of customers' purchases and the conduct
of directors, officers and employees. In December 1997, the SEC proposed a
revision of its Rule 15c3-1, the "Uniform Net Capital Rule", and related
regulations which, if adopted, would establish a second form of broker-dealer
registrant permitted to conduct a business in OTC derivatives. The capital
requirements applicable to this second form of registrant would be based upon
proprietary models for estimating market exposures. Goldman Sachs intends to
apply to the SEC to form such a broker-dealer should the SEC adopt its proposal.
Additional legislation, changes in rules promulgated by self-regulatory
organizations or changes in the interpretation or enforcement of existing laws
and rules, either in the United States or elsewhere, may directly affect the
mode of operation and profitability of Goldman Sachs.
The U.S. and non-U.S. government agencies and self-regulatory
organizations, as well as state securities commissions in the United States, are
empowered to conduct administrative proceedings that can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer or its directors, officers or employees. Occasionally, the
Firm's subsidiaries have been subject to investigations and proceedings, and
sanctions have been imposed for infractions of various regulations relating to
the Firm's activities, none of which has had a material adverse effect on
Goldman Sachs or its business.
The commodity futures and options industry in the United States is subject
to regulation under the Commodity Exchange Act, as amended ("CEA"). The CFTC is
the federal agency charged with the administration of the CEA and the
regulations thereunder and GS&Co. is registered with the CFTC as a futures
commission merchant, commodity pool operator and commodity trading advisor.
As a registered broker-dealer and member of various self-regulatory
organizations, GS&Co. is subject to the SEC's Uniform Net Capital Rule. The
Uniform Net Capital Rule specifies the minimum level of net capital a
broker-dealer must maintain and also requires that at least a minimum part of
its assets be kept in relatively liquid form. GS&Co. is also subject to the net
capital requirements of the CFTC and various securities and commodity exchanges.
See Note 8 to the consolidated financial statements for a discussion of the
Firm's net capital.
The SEC and various self-regulatory organizations impose rules that require
notification when net capital falls below certain predefined criteria, dictate
the ratio of subordinated debt to equity in the regulatory capital composition
of a broker-dealer and constrain the ability of a broker-dealer to expand its
business under certain circumstances. Additionally, the Uniform Net Capital Rule
imposes certain requirements that may have the effect of prohibiting a
broker-dealer from distributing or withdrawing capital and requiring prior
notice to the SEC for certain withdrawals of capital.
Goldman Sachs is an active participant in the international fixed income
and equity markets. Many of the Firm's affiliates that participate in those
markets are subject to comprehensive regulations that include some form of
capital adequacy rule and other
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customer protection rules. For example, Goldman Sachs provides investment
services in and from the United Kingdom under a regulatory regime that is
undergoing comprehensive restructuring. The principal lines of business
conducted from London primarily are and will be regulated by the FSA, and by the
London Stock Exchange and other U.K. securities and commodities exchanges of
which it is a member. However, until the FSA is fully operational, relevant
Goldman Sachs entities also continue to be subject to the rules of the SFA (in
respect of their investment banking, individual asset management and principal
trading activities) and the Investment Management Regulatory Organisation (in
respect of their institutional asset management and fund management activities).
The investment services that are subject to oversight by U.K. regulators are
regulated in accordance with European Union directives requiring, among other
things, compliance with certain capital adequacy standards, customer protection
requirements and conduct of business rules. These standards, requirements and
rules are similarly implemented (under the same directives) throughout the
European Union and are broadly comparable in scope and purpose to the regulatory
capital and customer protection requirements imposed under the SEC and CFTC
rules. European Union directives also permit local regulation in each
jurisdiction, including those in which the Firm operates, to be more restrictive
than the requirements of such directives outside the European Union and these
local requirements can result in certain competitive disadvantages to the Firm.
In addition, the Japanese Ministry of Finance, the Financial Supervisory Agency
in Japan as well as U.K., German, French and Swiss banking authorities, among
others, regulate various of the Firm's subsidiaries and also have capital
standards and other requirements comparable to the rules of the SEC.
Compliance with net capital requirements of these and other regulators
could limit those operations of the Firm's subsidiaries that require the
intensive use of capital, such as underwriting and trading activities and the
financing of customer account balances, and also could restrict the Firm's
ability to withdraw capital from its regulated subsidiaries, which in turn could
limit the Firm's ability to repay debt or pay dividends on the Common Stock.
LEGAL MATTERS
We are involved in a number of judicial, regulatory and arbitration
proceedings (including those described below) concerning matters arising in
connection with the conduct of our businesses. We believe, based on currently
available information, that the results of such proceedings will not have a
material adverse effect on our financial condition, but might be material to our
operating results for any particular period, depending, in part, upon the
operating results for such period.
MOBILEMEDIA SECURITIES LITIGATION
GS&Co. has been named as a defendant in a purported class action lawsuit
commenced in December 1996 and pending in federal court in New Jersey brought on
behalf of (i) purchasers of common stock of MobileMedia Corporation
("MobileMedia") in an underwritten offering in 1995 and (ii) purchasers of
senior subordinated notes of MobileMedia Communications Inc. in a concurrent
underwritten offering. Defendants are MobileMedia, certain of its officers and
directors, and the lead underwriters, including GS&Co. MobileMedia is currently
reorganizing in bankruptcy.
GS&Co. underwrote 2,242,500 shares of common stock, for a total price of
approximately $53 million, and GSI underwrote 718,750 shares, for a total price
of approximately $17 million. GS&Co. underwrote approximately $38 million in
principal amount of the senior subordinated notes.
The consolidated class action complaint alleges violations of the
disclosure requirements of the federal securities laws and seeks compensatory
and/or rescissory damages. In light of MobileMedia's bankruptcy, the action
against it has been stayed. Defendants filed a motion to dismiss in January
1998, which is still pending.
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INVESTORS EQUITY LIFE LITIGATION
Investors Equity Life Insurance Company of Hawaii, Ltd. ("IEL") and its
statutory liquidator (the "Liquidator") commenced in March 1996 an action in
Hawaii state court against GS&Co., alleging claims for negligence, breach of
duty, conversion and fraud arising out of GS&Co.'s execution of certain cash and
futures trades for IEL. The complaint also alleges that GS&Co. conspired with,
aided and abetted, and otherwise assisted several former IEL representatives in
breaching duties they owed to IEL. The other named defendants in the lawsuit are
Gary Vose, IEL's former chairman; Kenneth Fong, IEL's former president; and
Investors Equity Life Holding Company ("IELH"), IEL's parent company, which was
wholly owned by Mr. Vose.
Plaintiffs have alleged damages of approximately $24 million (plus
interest). IELH, Mr. Vose, and Mr. Fong have asserted crossclaims against
GS&Co.; GS&Co. has asserted crossclaims against IELH and Mr. Vose, counterclaims
against IEL and the Liquidator, and third-party claims against the State of
Hawaii and the Commissioner of the Hawaii Department of Insurance. The court has
dismissed GS&Co.'s counterclaims, ruling that they may be properly asserted as
affirmative defenses rather than claims. Trial is currently scheduled for
January 1999.
ROCKEFELLER CENTER PROPERTIES, INC. LITIGATION
Several former shareholders of Rockefeller Center Properties, Inc. ("RCPI")
brought purported class actions in the federal and state courts in Delaware
arising from the acquisition of RCPI by an investor group in July 1996. The
defendants in the actions include, among others, GS&Co., certain other
subsidiaries of the Firm, Whitehall Real Estate Partnership V (a fund advised by
GS&Co.), a GS&Co. Managing Director and other members of the investor group. The
federal court actions, which have since been consolidated, were filed beginning
in November 1996, and the state court action was filed in June 1998.
The complaints generally allege that the proxy statement disseminated to
former RCPI stockholders in connection with the transaction was deficient, in
violation of the disclosure requirements of the federal securities laws. The
plaintiffs are seeking, among other things, unspecified damages, rescission of
the acquisition, and/or disgorgement.
In a series of decisions, the federal court has granted summary judgment
dismissing all the claims in the federal action. Plaintiffs have filed a notice
of appeal.
The state action has been stayed pending disposition of the federal action.
OCTA/OCLTA LITIGATION
The Orange County Transportation Authority and the Orange County Local
Transportation Authority (collectively, "OCTA/ OCLTA") have sued GS&Co. in the
California Superior Court for negligence and breach of fiduciary duty in an
action commenced in December 1996. The complaint generally alleges that, in its
capacity as a commercial paper dealer and an underwriter of certain debt
offerings, GS&Co. breached a duty to warn OCTA/OCLTA not to invest the proceeds
of those financings with the Orange County Investment Pool ("OCIP"). OCTA/ OCLTA
seek to recover over $400 million they claim to have lost as a result of OCIP's
publicly reported losses and ensuing bankruptcy in 1994. The California Superior
Court has granted GS&Co.'s motion for summary judgment dismissing all of
OCTA/OCLTA's claims. OCTA/OCLTA are expected to appeal in due course. GS&Co.
believes that any ultimate award would reflect substantial actual and potential
recoveries by OCIP from other parties, portions of which are payable to
OCTA/OCLTA under an agreement with the County of Orange.
GS&Co. has filed a counterclaim based on certain express representations
made during the financings, as well as third-party claims for contribution and
indemnity against the County of Orange and OCTA/OCLTA's financial advisors.
GS&Co. and Orange County are parties in separate proceedings in U.S.
Bankruptcy Court concerning whether GS&Co.'s third-party claims against the
County of Orange are barred by the County's bankruptcy discharge.
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The Bankruptcy Court has so ruled, and GS&Co. has appealed.
REICHHOLD CHEMICALS LITIGATION
Reichhold Chemicals, Inc. and Reichhold Norway ASA (collectively,
"Reichhold") brought a claim in March 1998 in the Commercial Court in London
against GSI in relation to Reichhold's 1997 purchase of the polymer division of
one of GSI's Norwegian clients, Jotun A/S. Reichhold claims that it overpaid by
$40 million based upon misrepresentations concerning the financial performance
of the polymer division.
GSI has applied for a stay of the actions on the ground that the purchase
contract sets forth specific resolution procedures for such claims, which
include arbitration proceedings with Jotun A/S in Norway.
MATTERS RELATING TO MUNICIPAL SECURITIES
GS&Co. (together with a number of other firms active in the municipal
securities area) has received requests beginning in June 1995 for information
from the SEC and certain other federal and state agencies and authorities with
respect to the pricing of escrow securities sold by GS&Co. to certain municipal
bond issuers in connection with the advanced refunding of municipal securities.
GS&Co. understands that certain municipal bond issuers to which GS&Co. sold
escrow securities have also received such inquiries. There have been published
reports that an action under the Federal False Claims Act was filed in February
1995 alleging unlawful and undisclosed overcharges in certain advance refunding
transactions has been filed by a plaintiff who, pursuant to the Federal False
Claims Act, filed an action on behalf of the United States and that
GS&Co. (together with a number of other firms) is a named defendant in that
action. The complaint was reportedly filed under seal while the government
determines whether it will pursue the claims directly.
PROPERTIES
Our principal executive offices are located at 85 Broad Street, New York,
New York and comprise approximately 969,000 square feet of leased space pursuant
to a lease agreement expiring in June 2008 (with an option to renew for up to 20
additional years). We also occupy over 500,000 square feet at each of 1 New York
Plaza and 10 Hanover Square in New York, New York pursuant to lease agreements
expiring in September 2004 (with options to renew for 10 years) and June 2018,
respectively. We have signed a 15 year lease for approximately 665,000 square
feet at 180 Maiden Lane in New York, New York commencing December 1998. The Firm
leases over 3.2 million square feet in the New York area, a 106% increase in
space since the end of fiscal 1996. Efforts are underway to secure additional
space in the New York area to address the Firm's potential future growth. We
have additional offices in the United States and elsewhere in the Americas.
Together, these offices comprise approximately 600,000 square feet of leased
space.
Consistent with the Firm's global approach to its business, we also have
offices in Europe, Asia, Africa and Australia. The Firm's largest presence in
Europe is in London, where we lease approximately 536,000 square feet through
various leases, with the principal one, for Peterborough Court, expiring in
2016. An additional 396,000 square feet of leased space in London is expected to
be occupied during 2001.
In Asia, we have offices that total approximately 300,000 square feet. Our
largest offices in these regions are in Tokyo and Hong Kong, where we have
leased approximately 127,000 and 103,000 square feet, respectively, under leases
that expire in June 2005 and May 1999, respectively. There are significant
expansion efforts underway in Tokyo, Hong Kong and Singapore.
The Firm's space requirements have increased significantly over the last
several years. Currently, the Firm is at or near capacity at most of its
locations. As a result, the Firm has been actively leasing additional space to
support its anticipated growth. Based on the Firm's progress to date, the Firm
believes that it will be able to acquire additional space to meet its
anticipated needs.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company, each of whom has served in the capacity
indicated since August 1998. The Company anticipates appointing at least two
additional directors who are not employees of the Company or affiliated with
management to its Board of Directors shortly after completion of the Offerings.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jon S. Corzine 51 Director, Co-Chairman and Co-Chief Executive Officer
Henry M. Paulson, Jr. 52 Director, Co-Chairman and Co-Chief Executive Officer
Robert J. Hurst 52 Director and Vice Chairman
Roy J. Zuckerberg 62 Director and Vice Chairman
John A. Thain 43 Director and Chief Financial Officer
John L. Thornton 44 Director and Chairman of International Operations
</TABLE>
------------------------
Executive officers are appointed by and serve at the pleasure of the Board
of Directors. A brief biography of each director and executive officer follows.
Mr. Corzine has been Co-Chairman and Co-Chief Executive Officer of Group
L.P. since June 1998 and served as Chairman and Chief Executive Officer of Group
L.P. from December 1994 to June 1998. From December 1988 to November 1994, he
was co-head of Fixed Income. Mr. Corzine is a member of the NASD's Board of
Governors.
Mr. Paulson has been Co-Chairman and Co-Chief Executive Officer of Group
L.P. since June 1998 and served as Chief Operating Officer of Group L.P. from
December 1994 to June 1998. From 1990 to November 1994, he was co-head of
Investment Banking.
Mr. Hurst has been Vice Chairman of Group L.P. since February 1997 and
served as head or co-head of Investment Banking since 1990. He is also a
director of IDB Holding Corporation Ltd. and VF Corporation.
Mr. Zuckerberg has been Vice Chairman of Group L.P. since February 1997 and
has been head or co-head of Equities since 1990. He is Chairman-elect of the
Securities Industry Association.
Mr. Thain has been Chief Financial Officer of Group L.P. and head of
Operations, Technology and Finance since December 1994. From July 1995 to
September 1997, he was also co-chief executive officer for European Operations.
Mr. Thain is a director of The Depository Trust Company.
Mr. Thornton has had oversight responsibility for International Operations
since August 1998. From September 1996 until then he had such oversight
responsibility for Asia, in addition to his senior strategic responsibilities in
Europe. From July 1995 to September 1997, he was co-chief executive officer for
European Operations. From 1994 to 1995, he was co-head of Investment Banking in
Europe and from 1992 to 1994 was head of European Investment Banking Services.
He is also a director of the Ford Motor Company, BSkyB PLC, Laura Ashley PLC and
the Pacific Century Group.
All of the current members of the Board of Directors were members of Group
L.P.'s Executive Committee, which was the Firm's primary governing body. Under
the new corporate structure, Messrs. Corzine, Paulson, Hurst, Thain and Thornton
will constitute the Office of the Chairmen. Mr. Zuckerberg will be an ex-officio
member. The Office of the Chairmen will focus on overall Firm policy and
strategy, culture and operations, relationships with the Firm's clients and
shareholders and the development of senior management.
There are no family relationships between any of the executive officers or
directors of the Company.
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INFORMATION REGARDING THE BOARD OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
for a classified Board of Directors consisting of three classes. The term of the
initial Class I directors will terminate on the date of the 1999 annual meeting
of shareholders, the term of the Class II directors will terminate on the date
of the 2000 annual meeting and the term of the Class III directors will
terminate on the date of the 2001 annual meeting of shareholders. Mr. Zuckerberg
is a member of Class I, Messrs. Hurst, Thain and Thornton are members of Class
II and Messrs. Corzine and Paulson are members of Class III. Beginning in 1999,
at each annual meeting of shareholders, successors to the class of directors
whose term expires at that annual meeting will be elected for a three-year term
and until their respective successors have been elected and qualified. Mr.
Zuckerberg intends not to stand for re-election at the end of his term as a
Class I director in 1999. A director may be removed only for cause by the
affirmative vote of the holders of not less than 66 2/3% of the outstanding
shares of capital stock entitled to vote in the election of directors.
Members of the Board of Directors of the Company (the "Board") who are
employees of the Company or of any of its subsidiaries will not be compensated
for service on the Board of Directors or any committee thereof. It is
anticipated that the Board of Directors will meet at least quarterly.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company will have an Audit Committee, composed of directors who are not
employed by the Company or affiliated with management. The Audit Committee will
review the results and scope of the audit and other services provided by the
Company's independent auditors as well as review the Company's internal
accounting and control procedures and policies.
The Board of Directors will also have a Compensation Committee. The
Compensation Committee will oversee the compensation and benefits of the
management and employees of the Company and will consist entirely of
non-employee directors.
The Board of Directors may from time to time establish other committees to
facilitate the management of the Company.
EXECUTIVE COMPENSATION
Prior to the Offerings, our business was carried on in partnership form. As
a result, meaningful individual compensation information for directors and
executive officers of the Company based on operating in corporate form is not
available for periods prior to the Offerings.
The following table sets forth the salaries that the Company intends to pay
the Company's Co-Chief Executive Officers and the other four most highly
compensated executive officers of the Company (the "Named Executive Officers")
during the fiscal year 1999. The Named Executive Officers will also be entitled
to participate in the Partner Pool and are eligible to receive awards under the
1998 Stock Incentive Plan which are described below.
Because the amounts payable under the Partner Pool will be dependent upon
the Company's operating results and because awards under the 1998 Stock
Incentive Plan will be determined after the Offerings, it is not currently
possible for the Company to estimate the amount of such payments or awards.
However, the amounts payable under the Partner Pool are expected to exceed the
base salaries indicated. See "-- The Partner Pool" below. None of the Named
Executive Officers is receiving a Formula or Discretionary Award or is currently
participating in the DCP.
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SUMMARY SALARY TABLE
<TABLE>
<CAPTION>
NAMES AND PRINCIPAL POSITION YEAR SALARY
---------------------------- ---- ------
<S> <C> <C>
Jon S. Corzine,............................................. 1999 $
Director, Co-Chairman and Co-Chief Executive Officer
Henry M. Paulson, Jr.,...................................... 1999
Director, Co-Chairman and Co-Chief Executive Officer
Robert J. Hurst,............................................ 1999
Director and Vice Chairman
Roy J. Zuckerberg,.......................................... 1999
Director and Vice Chairman
John A. Thain,.............................................. 1999
Director and Chief Financial Officer
John L. Thornton,........................................... 1999
Director and Chairman of International Operations
</TABLE>
------------------------
Aggregate compensation paid to key employees who are not Named Executive
Officers may exceed that paid to the Named Executive Officers.
EMPLOYMENT, NONCOMPETITION AND PLEDGE
AGREEMENTS
The Company is entering into employment agreements with each PLP who
continues as a Managing Director and confidentiality, noncompetition and
nonsolicitation and pledge agreements with all of the PLPs, whether or not they
retire, including, in both cases, each director and executive officer. The Firm
expects to enter into similar employment, confidentiality, noncompetition and
nonsolicitation arrangements (without providing for any type of liquidated
damages remedy) with all other Managing Directors.
The following descriptions of the agreements with the PLPs are not intended
to be complete and are qualified in their entirety by reference to the full text
of such agreements, the form of each of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
EMPLOYMENT AGREEMENTS
Each Employment Agreement has a two-year term, requires the continuing PLP
to devote his or her entire working time to the business and affairs of the Firm
and may be terminated by either the continuing PLP or the Firm on 90 days' prior
written notice.
NONCOMPETITION AGREEMENTS
Each confidentiality, noncompetition and nonsolicitation agreement
("Noncompetition Agreement") provides as follows:
CONFIDENTIALITY. Each PLP is required to protect and use "confidential
information" in accordance with the restrictions placed by the Firm on its use
and disclosure.
NONCOMPETITION. During the Noncompetition Period (as defined below), the
PLP may not (i) form, or acquire a 5% or greater ownership interest in, any
"Competitive Enterprise" (as defined below) or (ii) associate (including, but
not limited to, association as an officer, employee, partner, director,
consultant, agent or advisor) with any Competitive Enterprise and in connection
with such association engage in, or directly or indirectly manage or supervise
personnel engaged in, any activity (for any purpose) (A) which is similar or
substantially related to any activity in which the PLP was engaged, (B) for
which the PLP had direct or indirect managerial or supervisory responsibility at
the Firm or (C) which calls for the application of the same or similar
specialized knowledge or skills as those utilized by the PLP in his or her
activities with the Firm, in each case, at any time during the one-year period
immediately prior to the PLP's termination of employment. "Noncompetition
Period" is the period commencing on the date the Noncompetition Agreement is
entered into and ending 12 months after the later of the date of the
consummation of the Offerings (the "IPO
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Date") and the date the PLP is no longer employed by the Firm. "Competitive
Enterprise" is any business enterprise that engages in an activity, or owns a
significant interest in an entity, that competes with any activity the Firm is
engaged in at the time of termination of the PLP's employment or, if later, the
IPO Date.
NONSOLICITATION. During the Nonsolicitation Period (as defined below), the
PLP is prohibited from (i) soliciting any client or prospective client of the
Firm to whom such PLP provided services, or for whom such PLP transacted
business, or whose identity became known to such PLP in connection with such
PLP's employment with the Firm, to transact business with a Competitive
Enterprise or reduce or refrain from doing any business with the Firm or (ii)
interfering with or damaging any relationship between the Firm and any such
client or prospective client. Also, during the Nonsolicitation Period, the PLP
is prohibited from soliciting any person who is an employee of the Firm to apply
for, or accept employment with, any Competitive Enterprise. "Nonsolicitation
Period" is the period commencing on the date the Noncompetition Agreement is
entered into and ending 18 months after the later of the IPO Date and the date
of termination of the PLP's employment.
LIQUIDATED DAMAGES. In the case of any breach of the noncompetition and
nonsolicitation provisions by the PLP prior to the fifth anniversary of the IPO
Date, such PLP is liable for liquidated damages. The amount of liquidated
damages for each PLP who has been named a director of GS Inc. is $25 million,
$17 million and $8 million through the third, fourth and fifth anniversaries of
the IPO Date, respectively. The minimum amount of liquidated damages for any
other PLP is $10 million, $7 million and $3 million through the third, fourth
and fifth anniversaries of the IPO Date, respectively. These liquidated damages
are in addition to the forfeiture of any future equity-based awards that may
occur as a result of the breach of any noncompetition and nonsolicitation
provisions contained in these awards.
PLEDGE AGREEMENT
In order to secure the payment obligations of each PLP under the liquidated
damage provisions of his or her Noncompetition Agreement, each PLP will enter
into a Pledge Agreement. The Pledge Agreement requires the PLP to pledge Common
Stock (or other collateral acceptable to the Firm) with a market value equal to
125% of such PLP's liquidated damages amount in effect on the IPO Date.
Collateral will be released on the third and fourth anniversaries of the IPO
Date to the extent that the pledged collateral exceeds 125% of the amount of the
then applicable liquidated damages. Substitution of collateral is permitted so
long as the substituted collateral has a value at least equal to the value of
the released collateral and, together with the value of any remaining
collateral, to 125% of the then applicable liquidated damages amount.
Each Pledge Agreement will terminate on the earliest of (i) the PLP's death
or termination of employment due to disability, (ii) the expiration of the
24-month period following the later of (A) termination of the PLP's employment
or (B) the IPO Date, and (iii) the fifth anniversary of the IPO Date. No
collateral, however, will be released from the pledge if there are any pending
disputes between the PLP and the Firm.
NONEXCLUSIVITY AND ARBITRATION
The liquidated damages and pledge arrangements discussed above are not
exclusive of any injunctive relief that the Firm may be entitled to for a breach
of a Noncompetition Agreement, and, after expiration of the liquidated damage
provisions, the Firm will be entitled to all available damage remedies for a
breach of a Noncompetition Agreement.
The Employment, Noncompetition and Pledge Agreements generally provide that
any disputes thereunder will be resolved by binding arbitration.
THE EMPLOYEE IPO AWARDS
The Company intends to provide, on the date of consummation of the
Offerings, equity-based awards to its employees (and a limited
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number of consultants) other than PLPs in one or more of the following forms:
(i) substantially all employees will receive a grant of Formula RSUs, with
respect to which up to an aggregate of shares of Common Stock will
be deliverable, (ii) certain senior employees (principally non-PLP Managing
Directors) will be selected to participate in the DCP described below, to which
the Company will make an initial irrevocable contribution of up to
shares of Common Stock (the "DCP Contribution"), (iii) certain employees will
receive Discretionary RSUs, with respect to which up to an aggregate of
shares of Common Stock will be deliverable and (iv) certain employees
will receive Discretionary Options, with respect to which up to an
aggregate of shares of Common Stock will be deliverable. The Formula
RSUs, Discretionary RSUs and the Discretionary Options will be granted under the
SIP described below. Awards made to employees in certain foreign jurisdictions
may be in a different form but will be designed to confer substantially the same
economic benefit. Recipients of Formula RSUs and Discretionary RSUs described
below will have only the rights of a general unsecured creditor of the Firm and
no rights as a shareholder of GS Inc. Any shares of Common Stock acquired by a
Managing Director pursuant to the awards will be subject to the Shareholders'
Agreement described in "Certain Relationship and Related
Transactions -- Shareholders' Agreement".
THE FOLLOWING DESCRIPTIONS OF THE FORMULA AND DISCRETIONARY AWARDS AND THE
DCP ARE PRELIMINARY AND ARE SUBJECT TO CHANGE.
FORMULA AWARD
The Formula RSUs will be granted to substantially all of our employees and
will be determined based on a formula that takes into account each employee's
1998 compensation and years of service to the Firm. The Common Stock underlying
the Formula RSUs generally will be deliverable in equal installments on the
first, second and third anniversaries of the date of grant. While no additional
service will be required to obtain delivery of the underlying Common Stock
(i.e., the award is "vested"), such delivery will be conditioned on the
grantee's satisfying certain requirements, including (i) not being terminated
for cause (as defined in the award agreement) prior to delivery and (ii) not
violating any Firm policy (including in respect of hedging) or otherwise acting
in a manner detrimental to the Firm, including violating confidentiality,
non-competition and non-solicitation provisions of the award. Amounts equal to
dividends that would be paid on the Common Stock underlying the Formula RSUs (as
if the Common Stock had been actually issued) will be paid in cash at the same
time that the dividends are paid generally to the shareholders.
DISCRETIONARY AWARDS
CONTRIBUTION TO DCP. On the date of the consummation of the Offerings, the
Company will make an initial irrevocable contribution of up to shares
of Common Stock to the DCP. Certain senior employees (principally non-PLP
Managing Directors) will be selected to participate in the DCP. The right to
receive such shares will vest and the underlying Common Stock will be
deliverable to participants in the DCP in equal installments on the third,
fourth and fifth anniversaries of the initial contribution if the grantee has
satisfied certain conditions and is still employed with the Firm on each
applicable vesting date with certain exceptions for terminations of employment
due to death, retirement or disability. Dividends paid on such shares will be
distributed currently.
DISCRETIONARY RSUS. The Discretionary RSUs will vest (and the underlying
Common Stock will be delivered) in equal installments on the third, fourth and
fifth anniversaries of the date of grant if the grantee has satisfied certain
conditions and is still employed with the Firm on each applicable vesting date
with certain exceptions for terminations of employment due to death, retirement
or disability. Amounts equal to dividends that would be paid on the Common Stock
underlying the Discretionary RSUs (as if the Common Stock had been actually
issued) will be paid in cash at the same time that the dividends are paid
generally to the shareholders.
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DISCRETIONARY OPTIONS. The Discretionary Options will be granted with an
exercise price generally equal to the initial public offering price set forth on
the cover page of this Prospectus although in certain jurisdictions certain
employees may be granted Discretionary Options with a lower exercise price. The
Discretionary Options will generally be exercisable in equal installments
commencing on the third, fourth and fifth anniversaries of the date of grant if
the grantee has satisfied certain conditions and is still employed with the Firm
on each applicable vesting date with certain exceptions for terminations of
employment due to death, retirement or disability. Discretionary Options will
thereafter generally remain exercisable until the tenth anniversary of the date
of grant.
THE 1998 STOCK INCENTIVE PLAN
The following description of The Goldman Sachs 1998 Stock Incentive Plan
(the "SIP") does not purport to be complete and is qualified in its entirety by
reference to the full text of the SIP, which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
TYPES OF AWARDS. The SIP provides for grants of incentive stock options
("ISOs") (within the meaning of section 422 of the Internal Revenue Code of
1986, as amended (the "Code")), nonqualified stock options, stock appreciation
rights ("SARs"), dividend equivalent rights, restricted stock, restricted stock
units ("RSUs"), performance shares, performance share units and other equity-
based and equity-related awards (collectively, "Awards").
SHARES SUBJECT TO THE SIP; OTHER LIMITATIONS ON AWARDS. The total number
of shares of Common Stock of the Company which may be issued under the SIP may
not exceed shares. These shares may be authorized but unissued
Common Stock or authorized and issued Common Stock held in the Company's
treasury. If any Award is forfeited or otherwise terminates or is canceled
without the delivery of shares of Common Stock, shares of Common Stock are
surrendered or withheld from any Award to satisfy a grantee's income tax
withholding obligations, or shares of Common Stock owned by a grantee are
tendered to pay the exercise price of Awards, then the shares covered by any
forfeited, terminated or canceled Award or the shares so surrendered, withheld
or tendered, will again become available under the SIP.
The SIP Committee (as defined below) has the authority to adjust the terms
of any outstanding Awards and the number of shares of Common Stock issuable
under the SIP for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock dividend,
spin-off, combination or reclassification of the Common Stock, or any other
event that the SIP Committee determines affects the Firm's capitalization.
ELIGIBILITY. Awards may be made to any director, officer or employee of
the Firm (including any prospective employee) and to any consultant to the Firm
selected by the Committee (collectively, "key persons").
ADMINISTRATION. The SIP will be administered by the Board of Directors or
a committee appointed by the Board (the "SIP Committee").
The SIP Committee will have the authority to construe, interpret and
implement the SIP, and prescribe, amend and rescind rules and regulations
relating to the SIP. The SIP Committee may accelerate the date on which any
Award becomes exercisable or fully vested, declare that any Award will terminate
as of a specified date and otherwise amend any Award agreement in any respect.
The determination of the SIP Committee on all matters relating to the SIP
or any Award agreement will be final and binding.
STOCK OPTIONS AND SARS. The SIP Committee may grant ISOs and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company, and SARs in such amounts, and subject to such terms and conditions,
as the SIP Committee may determine. The grantee of an SAR will have the right to
receive from the Company an amount equal to (i) the excess of the fair market
value of a share of Common Stock on the date of exercise of the SAR
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over (ii) the exercise price of such right as set forth in the Award agreement,
multiplied by (iii) the number of shares with respect to which the SAR is
exercised.
No grantee of an option or SAR (or other person having the right to
exercise such Award) will have any of the rights of a shareholder of GS Inc.
with respect to shares subject to such Award until the issuance of a stock
certificate to such person for such shares. In general, a person exercising an
option or SAR will not be entitled to any dividends or distributions on the
Common Stock for which the record date is prior to the date the stock
certificate is issued.
The SIP Committee may in its discretion include in any Award agreement with
respect to an option (the "original option") a provision that an additional
option (the "additional option") may be granted to any grantee who delivers
shares of Common Stock in partial or full payment of the exercise price of the
original option. The additional option will be for a number of shares of Common
Stock equal to the number delivered, will have an exercise price equal to the
fair market value of a share of Common Stock on the date of exercise of the
original option and will have an expiration date no later than the expiration
date of the original option.
RESTRICTED STOCK. The SIP Committee may grant restricted shares of Common
Stock, in such amounts, and subject to such terms and conditions, as the SIP
Committee may determine. The grantee will have the rights of a shareholder with
respect to the restricted stock, subject to any restrictions and conditions as
the SIP Committee may include in the Award agreement. The SIP Committee at the
time of grant will specify the date or dates (which may depend upon or be
related to the attainment of performance goals and other conditions) on which
the nontransferability of the restricted stock will lapse.
RESTRICTED STOCK UNITS. The SIP Committee may grant RSUs in such amounts,
and subject to such terms and conditions, as the SIP Committee may determine.
Recipients of RSUs have only the rights of a general unsecured creditor of the
Firm and no rights as a shareholder of GS Inc. The SIP Committee will specify
the conditions on which the RSUs will become non-forfeitable and the underlying
Common Stock will be deliverable.
PERFORMANCE SHARES AND SHARE UNITS. The SIP Committee may grant performance
shares in the form of actual shares of Common Stock or share units having a
value equal to an identical number of shares of Common Stock in such amounts,
and subject to such terms and conditions, as the SIP Committee may determine.
OTHER STOCK-BASED AWARDS. The SIP Committee may grant other types of
equity-based or equity-related Awards (including the grant of unrestricted
shares) in such amounts, and subject to such terms and conditions, as the SIP
Committee may determine. These Awards may entail the transfer of actual shares
of Common Stock, or payment in cash or otherwise of amounts based on the value
of shares of Common Stock and may include awards designed to comply with, or
take advantage of certain benefits of, the local laws of non-U.S. jurisdictions.
CHANGE OF CONTROL. The SIP Committee may provide in any Award agreement
for provisions relating to a "change in control" of the Company or any of its
subsidiaries or affiliates, including, without limitation, the acceleration of
the exercisability of, or the lapse of restrictions with respect to, any
outstanding Awards.
DIVIDEND EQUIVALENT RIGHTS. The SIP Committee may in its discretion
include in the Award agreement a dividend equivalent right entitling the grantee
to receive amounts equal to the dividends that would be paid, during the time
such Award is outstanding, on the shares of Common Stock covered by such Award
as if such shares were then outstanding.
NONASSIGNABILITY. Except to the extent otherwise provided in the Award
agreement or approved by the SIP Committee, no Award or right granted to any
person under the SIP will be assignable or transferable other than by will or by
the laws of descent and distribution, and all Awards and rights will be
exercisable during the life of the grantee only by
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the grantee or the grantee's legal representative.
AMENDMENT AND TERMINATION. The Board may from time to time suspend,
discontinue, revise or amend the SIP in any respect whatsoever.
U.S. FEDERAL INCOME TAX IMPLICATIONS OF THE SIP. The following is a brief
description of the U.S. federal income tax consequences generally arising with
respect to Awards.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not recognize taxable income upon
exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant will generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and nonforfeitable shares acquired on
the date of exercise. Upon exercising an SAR, the participant will generally
recognize ordinary income equal to the cash or the fair market value of the
freely transferable and nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant will generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price, or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount recognized as ordinary income in connection with the exercise of the
option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in
connection with an option or SAR. The Company generally is not entitled to a tax
deduction relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with respect
to an ISO if the participant holds the shares for the ISO holding periods prior
to disposition of the shares.
With respect to Awards that result in the payment or issuance of cash or
shares or other property that is either not restricted as to transferability or
not subject to a substantial risk of forfeiture (e.g., RSUs), the participant
will generally recognize ordinary income equal to the cash or the fair market
value of shares or other property delivered. The Company generally will be
entitled to a deduction coincident with the employee's recognition of income in
an amount equal to the ordinary income recognized by the participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability or subject to a substantial risk of
forfeiture (e.g., restricted stock), the participant will generally recognize
ordinary income equal to the fair market value of the shares or other property
at the first time the shares or other property becomes transferable or is not
subject to a substantial risk of forfeiture, whichever occurs earlier. Subject
to the consent of the Company, a participant may elect to be taxed at the time
of receipt of shares or other property rather than upon lapse of restrictions on
transferability or substantial risk of forfeiture, but if the participant
subsequently forfeits such shares or property, the participant would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he or she previously paid tax. The participant must
file such election with the Internal Revenue Service within 30 days of receipt
of the shares or other property. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant. Because an RSU is a mere contractual right to receive Common Stock,
the grantee of an RSU is not eligible to make the election described above.
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THE DEFINED CONTRIBUTION PLAN
The Goldman Sachs Defined Contribution Plan (the "DCP") is not intended to
be qualified under Section 401(a) of the Code and is not subject to the Employee
Retirement Income Security Act of 1974, as amended.
The following description of the DCP does not purport to be complete and is
qualified in its entirety by reference to the full text of the DCP, which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
ELIGIBILITY AND PARTICIPATION. Each employee designated by the Board of
Directors or a committee appointed by the Board (the "DCP Committee") will be a
participant in the DCP from the date on which he or she is so designated until
the earlier of (i) his or her termination of employment or (ii) the date he or
she receives a distribution of all of the Common Stock credited to his or her
account ("Account") under the DCP.
CONTRIBUTIONS. The Company will make an initial irrevocable contribution
to the trust underlying the DCP (the "Trust") of shares of Common
Stock simultaneously with the closing of the Offerings. The Company may
contribute additional shares of Common Stock or cash to the Trust from time to
time in its sole discretion. The Company currently intends to make ongoing
contributions to the DCP and to reallocate forfeitures under the DCP to
participants according to a formula as determined by the DCP Committee.
ALLOCATION OF CONTRIBUTIONS. There will be established an Account in the
name of each participant and a separate account (the "Unallocated Account") to
which any forfeitures of Common Stock will be credited pending allocation to
participants. The DCP Committee will designate the number of shares of Common
Stock allocable to the Account of each participant. Unless otherwise determined
by the DCP Committee, any Common Stock remaining in the Unallocated Account as
of the last day of each plan year (due to forfeitures and any distributions
received on Common Stock credited to the Unallocated Account) will be allocated
among the Accounts of each participant who is an employee on the last day of
such plan year in the proportion that each such employee's allocation in respect
of the Company contributions for such plan year bears to the allocation of such
contributions for all such employees.
VOTING OF COMMON STOCK. Each participant will be entitled to direct the
trustee of the Trust, on a confidential basis, as to the manner in which the
shares of Common Stock allocated to his or her Account will be voted.
Participants who are parties to the Shareholders' Agreement will appoint an
attorney-in-fact to make such directions on their behalf and such shares will be
voted in accordance with the Shareholders' Agreement. See "Certain Relationships
and Related Transactions -- Shareholders' Agreement". Any shares of Common Stock
with respect to which the trustee of the Trust does not receive voting
directions will not be voted.
DIVIDENDS. Any cash dividends on shares of Common Stock allocated to a
participant's Account will be distributed to each participant no later than the
end of the calendar quarter in which such dividend is received.
VESTING AND DELIVERY. With respect to the initial contribution by the
Company of Common Stock to the DCP, the right to receive shares of Common Stock
allocated to a participant's Account generally will be vested and the Common
Stock generally will be distributable ratably on the third, fourth and fifth
anniversaries of the date of such contribution if the participant satisfies
certain conditions and is still employed by the Firm on each applicable
anniversary. With respect to contributions to the DCP (other than such initial
contribution), the DCP Committee may determine the dates on which the right to
receive Common Stock allocated to a participant's account will vest and the
Common Stock will be delivered.
ADMINISTRATION OF THE DCP. The DCP will be administered by the DCP
Committee. The Board may, however, determine allocations of contributions or
resolve to otherwise administer the DCP.
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AMENDMENTS. The Board reserves the right to modify, alter, amend or
terminate the DCP or the Trust. No modification or amendment of the DCP may be
made which would cause or permit any part of the assets of the Trust to be used
for, or diverted to, purposes other than for the exclusive benefit of
participants or their beneficiaries, or which would cause any part of the assets
of the Trust to revert to or become the property of the Firm.
LIMIT ON LIABILITY. All distributions under the DCP will be paid or
provided solely from the assets of the Trust. After the initial contribution of
shares of Common Stock to the DCP, the Company will have no responsibility or
liability for the obligations of the Trust. The agreement establishing the Trust
will provide that no creditor of the Company will have any rights to the assets
of the Trust.
U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description
of the material U.S. federal income tax consequences generally arising with
respect to participation in the DCP. A participant in the DCP will recognize
ordinary income upon the vesting and delivery of shares of Common Stock
allocated to such participant's Account in an amount equal to the fair market
value of the number of shares of Common Stock so delivered. The Company will
generally be entitled to a deduction equal to the fair market value of the
shares at the time of the contribution in the taxable year in which the
participant recognizes income under the DCP in respect of the vesting and
delivery of shares of Common Stock.
THE PARTNER POOL
OVERVIEW. To perpetuate the sense of partnership and teamwork which exists
among the Firm's senior professionals, and to reinforce the alignment of
employee and shareholder interests, the Board of Directors has adopted The
Goldman Sachs Partner Pool (the "Partner Pool") for the purpose of compensating
senior professionals. The Partner Pool will be administered by the Board or a
committee appointed by the Board (the "Partner Pool Committee").
Consistent with the Firm's historical practice of partnership elections,
participants will be elected to the Partner Pool every two years, for two-year
terms. Upon selection to the Partner Pool, participants will be allocated a
percentage interest in a pool for annual bonus payments in addition to base
salaries. The size of the pool will be established by the Partner Pool Committee
annually, taking into account the Firm's results of operations and other
measures of financial performance. The Partner Pool Committee may also retain an
unallocated percentage of the Pool that it may allocate in its discretion. By
linking the Partner Pool participant's annual bonus payments to the Firm's
results as a whole, as opposed to the results of any participant's individual
business unit, the Firm believes it will provide additional incentives for
teamwork. Further, the Firm believes that the tying of the bonus payments to
overall financial results will more closely align the interests of the
participants with the Firm's shareholders.
The following description of the Partner Pool does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Partner Pool, which has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
ELIGIBILITY AND PARTICIPATION. Although the employees who will participate
in the Partner Pool during the 1999 fiscal year have not yet been designated, it
is estimated that there will be approximately 210 initial participants,
including all executive officers, in the Partner Pool. Prior to the
two-fiscal-year period ("Partner Pool Cycle") commencing with the 1999 fiscal
year, and on or before each succeeding Partner Pool Cycle, the Partner Pool
Committee will determine the participants in the Partner Pool. Individual
participants may also be added from time to time outside the biennial selection
process.
DETERMINATION OF AWARDS. The aggregate amount of compensation to be
included in the Partner Pool for each fiscal year will be determined by the
Partner Pool Committee taking into account such measures of the Company's
financial performance as it deems appropriate, including but not limited to,
earnings per share, return on average common equity, pre-tax income, pre-tax
operating income, net revenues, net income, profits
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before taxes, book value per share, stock price and earnings available to common
shareholders.
Prior to the commencement of the first fiscal year in any Partner Pool
Cycle, the Partner Pool Committee will determine the percentage of the Partner
Pool that may be allocable to any particular participant (the "Allocation
Percentage"). The Allocation Percentage so determined will be applicable for
each fiscal year within a Partner Pool Cycle. Any remaining portion of the
Partner Pool not so allocated with respect to any fiscal year will be allocated
to individual participants at the end of such fiscal year as determined by the
Partner Pool Committee.
PAYMENT OF AWARDS. Any bonus amount payable to a participant in respect of
any fiscal year will be paid to such participant within 2 1/2 months following
the end of such fiscal year. If a participant dies or becomes disabled during
the fiscal year, such participant (or his beneficiary or estate, as applicable)
may receive a portion of the bonus otherwise payable to such participant as
determined by the Partner Pool Committee. Unless otherwise provided by the
Partner Pool Committee, if a participant terminates employment other than as a
result of death or disability before the end of the Firm's then current fiscal
year, the participant will not receive any bonus under the Partner Pool. Amounts
payable under the Partner Pool will be satisfied in cash or as Awards under the
SIP, as determined by the Partner Pool Committee and recommended to the SIP
Committee.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares (i) immediately prior to the
consummation of the Offerings, but after giving effect to the Incorporation
Transactions and (ii) as adjusted to reflect the sale of the shares of Common
Stock pursuant to the Offerings by (a) each person who is known to the Company
to be the beneficial owner of more than five percent of the Company's Common
Shares after the Offerings, (b) each director and Named Executive Officer of the
Company and (c) all directors and executive officers of the Company as a group.
Except as otherwise indicated, the persons or entities listed below have sole
voting and investment power with respect to Common Shares beneficially owned by
them. None of our employees is selling shares in the Offerings.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERINGS(2) NUMBER OF OFFERINGS(2)
------------------- SHARES -------------------
NAME NUMBER PERCENT(3) OFFERED(2) NUMBER PERCENT(3)
- ---- ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
5% Shareholders:
Directors and Executive Officers:
Jon S. Corzine(1).........................
Henry M. Paulson, Jr.(1)..................
Robert J. Hurst(1)........................
Roy J. Zuckerberg(1)......................
John A. Thain(1)..........................
John L. Thornton(1).......................
All Directors and Executive Officers as a
group ( persons).................
</TABLE>
- ---------------
(1) c/o The Goldman Sachs Group, Inc., 85 Broad Street, New York, New York
10004. Excludes any shares of Common Stock subject to the Shareholders'
Agreement that are owned by other Parties to the Shareholders' Agreement.
While each of Messrs. Corzine, Paulson, Hurst, Zuckerberg, Thain and
Thornton is a party to the Shareholders' Agreement and a member of the
Shareholders' Committee, each disclaims beneficial ownership of the shares
of Common Stock subject to the Shareholders' Agreement other than those
specified above for each such person individually. See "Certain
Relationships and Related Transactions -- Shareholders' Agreement".
(2) For purposes of this table, information as to the shares of Common Stock
assumes that the Underwriters' options to purchase additional shares are not
exercised. For purposes of this table, "beneficial ownership" is determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, pursuant to which a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date of this Prospectus. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any shares which such
person or persons has the right to acquire within 60 days after the date of
this Prospectus are deemed to be outstanding but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Based on shares of Common Stock outstanding prior to the
consummation of the Offerings and shares of Common Stock outstanding
after the consummation of the Offerings.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The description of certain provisions of the agreements or other documents
set forth below in this section does not purport to be complete and is qualified
in its entirety by reference to the form of such agreements or other documents,
each of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
INCORPORATION AND RELATED TRANSACTIONS
Simultaneously with the consummation of the Offerings, we will complete a
number of transactions in order to have the Company succeed to the business of
Group L.P.
The principal incorporation transactions (the "Incorporation Transactions")
and related transactions (the "Related Transactions") are summarized below:
INCORPORATION TRANSACTIONS
- - The Goldman Sachs Corporation ("GS Corp."), which is the general partner of
Group L.P., will merge into GS Inc. In this transaction, the PLPs who are
shareholders of GS Corp. will receive Common Stock of GS Inc. and the other
shareholders in GS Corp. will receive Common Stock of GS Inc., Junior
Subordinated Debentures or cash (or a combination thereof). It is expected
that this transaction will result in the issuance of shares of Common
Stock, $ principal amount of Junior Subordinated Debentures and the
payment of $ ;
- - The PLPs will exchange their interests in Group L.P. and certain affiliates
for shares of Common Stock of GS Inc.;
- - The RLPs will exchange their interests in Group, L.P. and certain affiliates
for Common Stock of GS Inc., Junior Subordinated Debentures or cash (or a
combination thereof). It is expected that these transactions will result in
the issuance of approximately shares of Common Stock of GS Inc., $
principal amount of Junior Subordinated Debentures and the payment of
approximately $ million;
- - SBCM will exchange its interests in Group L.P. and GS&Co. for shares
of Common Stock and shares of Nonvoting Common Stock;
- - KAA will exchange its interests in Group L.P. for shares of Common
Stock; and
- - After all the interests of Group L.P. have been transferred to GS Inc., Group
L.P. will be merged into GS Inc.
RELATED TRANSACTIONS
- - The Formula RSUs, Discretionary RSUs and Discretionary Options will be
granted, the initial irrevocable contribution of shares of Common Stock to the
DCP will be made and employees will be selected to participate in the DCP;
- - After the closing of the Offerings, we will make a $ contribution to
a Goldman Sachs charitable foundation; and
- - At or about the time of the Offerings, we plan to make the QUIPS Offering. See
"Description of Capital Securities".
PARTNERSHIP CAPITAL ADJUSTMENTS
Prior to our conversion to corporate form, we will adjust our partners'
capital by, among other things, making a cash distribution of $ . This
distribution is not conditioned on the incorporation of the Firm or the
completion of the Offerings.
SHAREHOLDERS' AGREEMENT
PERSONS AND SHARES COVERED
Each PLP and each other person who is a Managing Director on the IPO Date
or becomes a Managing Director thereafter will be a party to the Shareholders'
Agreement (collectively, the "Parties"). After completion of the Offerings,
approximately shares of Common Stock will be subject to the
Shareholders' Agreement.
The shares covered by the Shareholders' Agreement (the "Covered Shares")
include (i) all of the shares of Common Stock
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received by the PLPs in the Incorporation Transactions (with certain limited
exceptions that aggregate less than shares), (ii) all shares of Common
Stock held for Parties in, or received by Parties from, the DCP, (iii) all
shares of Common Stock received by Parties pursuant to the Formula or
Discretionary Awards and (iv) all shares of Common Stock received by the Parties
from the Company through any employee compensation, benefit or similar plan. See
"Management -- The Employee IPO Awards" for a description of the terms of the
Formula and Discretionary RSUs, the Discretionary Options and the DCP. Covered
Shares do not include any shares of Common Stock purchased by a Party in the
Directed Offering or in the open market.
TRANSFER RESTRICTIONS
Covered Shares held by Parties to the Shareholders' Agreement are subject
to transfer restrictions. The Shareholders' Agreement requires each Party for so
long as such Party is an employee of the Company to beneficially own a number of
shares of Common Stock at least equal to 25% of the total number of Covered
Shares ever owned by such Party while a Party to the Shareholders' Agreement
(the "General Transfer Restriction").
Each Party also agrees in the Shareholders' Agreement to comply with the
Underwriters' 180-day lockup arrangement described under "Underwriting" and with
the Company's hedging policies. In addition, each Party who is an employee of
the Firm agrees to comply with certain "black-out" restrictions relating to
future offerings of the Firm, with the trading restrictions imposed by the
Company as part of its internal trading policies and with reasonable
restrictions that may be imposed by the Company from time to time to the extent
required to enable the Company to account for a business combination using the
pooling-of-interests method of accounting.
The PLPs will also be subject to significant limitations on their ability
to transfer shares of Common Stock received in connection with the Incorporation
Transactions. Under these restrictions, each PLP has agreed that such PLP will
not transfer the shares acquired in exchange for the PLP's interests in Group
L.P. and certain of its affiliates until the third anniversary of the date of
this Prospectus (the "PLP Transfer Restriction" and, together with the General
Transfer Restriction, the "Transfer Restrictions"). The PLP Transfer Restriction
will lapse as to such Covered Shares in equal instalments on each of the third,
fourth and fifth anniversaries of the date of this Prospectus.
The PLP Transfer Restriction may be waived or amended only with the
approval of the Shareholders' Committee and the affirmative vote of 60% of the
votes cast by the Voting Interests (as defined below), except in the case of a
third-party tender or exchange offer or an Extraordinary Transaction, in which
case it may be waived or amended by the affirmative vote of 60% of the votes
cast by the Voting Interests alone. The Shareholders' Committee also has the
power to waive the Transfer Restrictions in particular circumstances as
discussed below under "-- Administration". The Transfer Restrictions applicable
to a Party terminate upon the death or permanent disability of such Party. If
the Shareholders' Agreement is terminated prior to the expiration or termination
of the PLP Transfer Restriction, the PLP Transfer Restriction will continue to
apply unless waived or amended by the Board of Directors of the Company.
The term "transfer" for purposes of the restrictions described above,
includes any sale, transfer, pledge or other disposition, including hedging
arrangements.
VOTING
Prior to any vote of the shareholders of the Company, the Shareholders'
Agreement requires a separate, preliminary vote on each matter upon which a vote
of the shareholders of the Company is proposed to be taken (the "Preliminary
Vote"). In general, each Covered Share held by Parties who are employees of the
Firm and other Covered Shares subject to the Transfer Restrictions will be voted
in accordance with the majority of the votes cast by the Voting Interests in the
Preliminary Vote. In elections of directors,
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each such Covered Share will be voted in accordance with the plurality of the
votes cast by the Voting Interests in the Preliminary Vote. In the case of a
proposal relating to an Extraordinary Transaction, each such Covered Share will
be voted against such proposal unless such proposal is approved by the
affirmative vote of not less than 60% of the votes cast by the Voting Interests.
"Voting Interests" are Covered Shares of all Parties until January 1, 2000 and
thereafter are Covered Shares beneficially owned by Parties who are employees of
the Firm. "Extraordinary Transactions" include mergers, consolidations,
mandatory share exchanges, a sale of all or substantially all of the Firm's
assets and similar events upon which a vote of the shareholders is to be taken.
OTHER RESTRICTIONS
The Shareholders' Agreement also prevents the Parties from engaging in
certain activities with persons who are not Parties to the Shareholders'
Agreement ("Non-Parties"). Among other things, a Party may not solicit a proxy
from any Non-Party other than pursuant to the recommendation of the Board of
Directors; deposit any Covered Shares in a voting trust or subject any Covered
Shares to any voting agreement or arrangement that includes any Non-Party; or
form, join or in any way participate in a "group" with any Non-Party.
TERM, AMENDMENT AND TERMINATION
The Shareholders' Agreement is to continue in effect until the earlier of
January 1, 2050 and the date on which 60% of the votes cast by the Voting
Interests agree to terminate it. The Shareholders' Agreement can generally be
amended by a majority of the votes cast by the Voting Interests except that (i)
60% of the votes cast by the Voting Interests are required to waive the Transfer
Restrictions in connection with tender and exchange offers and the approval of
Extraordinary Transactions and (ii) 60% of the votes cast by the Voting
Interests and the consent of the Shareholders' Committee are required to waive
the PLP Transfer Restriction in circumstances other than those described in
clause (i). In the event of any transaction in which a third party succeeds to
the business of the Company and in which the parties to the Shareholders'
Agreement hold securities of such third party, the Shareholders' Agreement will
remain in full force and effect as to the securities of such third party, and
such third party shall succeed to the rights and obligations of the Company
under the Shareholders' Agreement.
ADMINISTRATION
A Shareholders' Committee will be formed to administer the terms and
provisions of the Shareholders' Agreement, and a majority of its members will
have the power to waive the Transfer Restrictions to permit Parties to (i)
participate as sellers in underwritten offerings, self tender offers and share
repurchase programs by the Company, (ii) transfer Covered Shares to charities,
including charitable foundations, and (iii) transfer Covered Shares in specific
transactions (for example, to immediate family members and trusts). The
Shareholders' Committee will consist of those Parties who are employees of the
Firm and members of the Board of Directors of the Company. Thus, the
Shareholders' Committee will initially consist of Messrs. Corzine, Paulson,
Hurst, Zuckerberg, Thain and Thornton.
INSTRUMENT OF INDEMNIFICATION
In connection with the Offerings, the Company will enter into an Instrument
of Indemnification (the "Instrument of Indemnification"). The Instrument of
Indemnification will cover certain former partners of the Firm, including the
PLPs, including each current director and executive officer of GS Inc., the
RLPs, SBCM and KAA (each an "Indemnitee"). Under the Instrument of
Indemnification, in the event any Indemnitee is, or is threatened to be, made a
party to an action, suit or proceeding by reason of the fact that such
Indemnitee was (i) a general or limited partner, shareholder, member, director,
officer, employee or agent (each, a "Designated Capacity") of Group L.P. or
certain of its affiliates or (ii) serving or served, at the request of Group
L.P. or certain of its affiliates, in a Designated Capacity in another
enterprise, the Company is, subject to certain
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exceptions, obligated to indemnify and hold such Indemnitee harmless from any
losses, damages or expenses incurred by such Indemnitee in such action, suit or
proceeding. The Instrument of Indemnification does not duplicate the obligations
of the Company under the Tax Indemnification Agreement described below. The
indemnification obligation of the Company under the Instrument of
Indemnification also extends to the indemnification obligations that certain
Indemnitees, including each current director and executive officer of GS Inc.,
may have to other Indemnitees.
The Instrument of Indemnification also provides that the Company will,
subject to certain exceptions, release each Indemnitee from all actions, suits
or other claims which the Company, as a successor to Group L.P., may have
arising out of an Indemnitee's partnership or other interest in Group L.P. or
certain of its affiliates or arising out of the conduct of such Indemnitee in
connection with such Indemnitee's duties in the conduct of the business of Group
L.P. or such affiliates.
TAX INDEMNIFICATION AGREEMENT
An entity that has historically operated in corporate form generally is
liable for any adjustments to the corporation's taxes for periods prior to its
initial public offering. In contrast, the partners of Group L.P., rather than
the Company, will be liable for any adjustments to many taxes (including U.S.
federal and state income taxes) attributable to the operations of Group L.P. and
its affiliates prior to the Offerings. In connection with the Offerings, the
Company will enter into an agreement (the "Tax Indemnification Agreement") to
indemnify certain former limited partners of Group L.P., including the PLPs,
each current director and executive officer of GS Inc., the RLPs, SBCM and KAA
(collectively, the "Tax Indemnitees"), against certain increases in each such
Tax Indemnitee's taxes that relate to activities of Group L.P. or certain of its
affiliates in respect of periods prior to the Offerings ("Increased Taxes"). The
Company will be required to make additional payments to offset any taxes payable
by a Tax Indemnitee in respect of payments made pursuant to the Tax
Indemnification Agreement only to the extent the payments made to that Tax
Indemnitee exceed a fixed amount. Any payment of Increased Taxes by the Company
will be offset by any tax benefit received by the Tax Indemnitee.
The Tax Indemnification Agreement includes provisions that permit the
Company to control any tax proceeding or contest which might result in the
Company being required to make a payment under the Tax Indemnification
Agreement.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Company's authorized capital stock consists of
shares, of which (i) shares of par value of $.01
per share are a separate class designated as preferred stock ("Preferred
Stock"), (ii) shares of par value of $.01 per share are a
separate class designated as common stock ("Common Stock"), approximately
shares of which will be outstanding as of the closing of the
Offerings, and (iii) shares of par value $.01 per share are a
separate class designated as nonvoting common stock ("Nonvoting Common Stock"),
approximately shares of which will be outstanding as of the
closing of the Offerings. All outstanding Common Shares are, and the shares of
Common Stock offered hereby will be, when issued and sold, validly issued, fully
paid and nonassessable.
The Shareholders' Agreement contains provisions relating to the voting and
disposition of certain shares of Common Stock owned by the parties thereto. See
"Certain Relationships and Related Transactions -- Shareholders' Agreement".
PREFERRED STOCK
The authorized capital stock of the Company includes shares
of Preferred Stock, of which shares have been designated as
Series A Participating Preferred Stock and reserved for issuance upon exercise
of the Rights. See "-- Shareholder Protection Rights" below. The Company's Board
of Directors is authorized to divide the Preferred Stock into series and, with
respect to each series, to determine the powers, preferences and rights and the
qualifications, limitations and restrictions thereof, including the dividend
rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. The Board of
Directors could, without shareholder approval, issue Preferred Stock with voting
and other rights that could adversely affect the voting power of the holders of
Common Stock and which could have certain anti-takeover effects.
Subject to the rights of the holders of any series of Preferred Stock, the
number of authorized shares of any series of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
resolution adopted by the Board of Directors of the Company and approved by the
affirmative vote of the holders of a majority of the voting power of all
outstanding shares of capital stock entitled to vote on the matter, voting as a
single class.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters submitted to a vote of shareholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
of Common Stock voting for the election of directors can elect all the directors
if they choose to do so, subject to any voting rights of holders of Preferred
Stock to elect directors. See "Risk Factors -- The Firm Will Be Controlled by
Its Principal Shareholders and Will Be Subject to Anti-Takeover Provisions".
Subject to the preferential rights of any outstanding series of Preferred Stock,
the holders of Common Stock, together with the holders of the Nonvoting Common
Stock, will be entitled to such dividends as may be declared from time to time
by the Board of Directors from funds legally available therefor, and will be
entitled, after payment of all prior claims, to receive pro rata all assets of
the Company upon the liquidation, dissolution or winding up of the Company (with
the shares of the Common Stock and the Nonvoting Common Stock being considered
as a single class for this purpose). Any dividend in shares of Common Stock paid
on or with respect to shares of Common Stock may be paid only with shares of
Common Stock. Other than the Shareholder Protection Rights discussed below,
holders of Common Stock have no redemption or conversion rights or
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preemptive rights to purchase or subscribe for securities of the Company.
NONVOTING COMMON STOCK
The Nonvoting Common Stock will have the same rights and privileges as, and
will rank equally and share ratably with, and be identical in all respects as to
all matters to, the Common Stock, except that the Nonvoting Common Stock will
have no voting rights other than such rights as may be required by law.
The Board of Directors will not declare or pay dividends, and no dividend
will be paid, with respect to any outstanding share of Common Stock or Nonvoting
Common Stock, unless, simultaneously, the same dividend is paid with respect to
each share of Common Stock and Nonvoting Common Stock, except that in the case
of any dividend in the form of capital stock of a subsidiary of the Company, the
capital stock of the subsidiary distributed to holders of Common Stock may
differ from the capital stock of the subsidiary distributed to holders of the
Nonvoting Common Stock to the extent and only to the extent that the Common
Stock and the Nonvoting Common Stock differ as provided in the Amended and
Restated Certificate of Incorporation. Any dividend in shares of Nonvoting
Common Stock paid on or with respect to Nonvoting Common Stock may be paid only
with shares of Nonvoting Common Stock.
All of the outstanding shares of Nonvoting Common Stock will be
beneficially owned by SBCM. The shares of Nonvoting Common Stock will
automatically convert into shares of Common Stock on a one-for-one basis upon
any transfer by SBCM of the shares of Nonvoting Common Stock to a third party.
SHAREHOLDER PROTECTION RIGHTS
Attached to each Common Share is a Shareholder Protection Right (the
"Right"). Until it is announced that a person or group has acquired 15% or more
of the Company's Common Stock (exclusive of (i) Parties to the Shareholders'
Agreement in their capacities as such and (ii) certain other persons) (an
"Acquiring Person") or ten days after a person or group commences a tender offer
that will result in such person or group owning 15% or more of the Common Stock,
the Rights will be evidenced by the certificates for the Common Shares, will
automatically trade with the Common Shares and will not be exercisable.
Thereafter, separate Rights certificates will be distributed and each Right will
entitle its holder to purchase 1/100 of a share of Series A Participating
Preferred Stock having economic and voting terms similar to those of one Common
Share for an exercise price of $ .
Upon announcement by the Company that any person or group has become an
Acquiring Person (the "Flip-in Date") each Right (other than Rights beneficially
owned by any Acquiring Person or transferees thereof, which Rights become void)
will entitle its holder to purchase, for the exercise price, a number of Common
Shares having a market value of twice the exercise price. Also, if after an
Acquiring Person controls the Company's Board of Directors, the Company is
involved in a merger or sells more than 50% of its assets or earning power or is
involved with an Acquiring Person in certain "self-dealing" transactions (or has
entered an agreement to do any of the foregoing) and, in the case of a merger
where the Acquiring Person will receive different treatment than all other
shareholders, each Right will entitle its holder to purchase, for the exercise
price, a number of shares of common stock of the Acquiring Person having a
market value of twice the exercise price. If any person or group acquires
between 15% and 50% of the Common Stock, the Company's Board of Directors may,
at its option, exchange one Common Share for each Right.
The Rights may be redeemed by the Board of Directors for $0.001 per Right
prior to the Flip-in Date.
The Rights will not prevent a takeover of the Company. However, the Rights
may cause substantial dilution to a person or group that acquires 15% or more of
the Common Stock unless the Rights are first redeemed by the Board of Directors
of the Company. Nevertheless, the Rights should not interfere with a transaction
that the Board of Directors believes is in the best interests of
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the Company and its shareholders because the Rights can be redeemed on or prior
to the close of business on the Flip-in Date, before the consummation of such
transaction.
LIMITATION OF LIABILITY AND
INDEMNIFICATION MATTERS
The Amended and Restated Certificate of Incorporation of the Company
provides that a director of the Company will not be liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except in certain cases where liability is mandated by the Delaware General
Corporation Law (the "DGCL"). The By-Laws of the Company provide for
indemnification, to the fullest extent permitted by law, of any person made or
threatened to be made a party to any action, suit or proceeding by reason of the
fact that such person is or was a director or officer (as such term is defined
in the Company's By-Laws) of the Company, or is or was a director of a
Subsidiary (as such term is defined in the Company's By-Laws) of the Company, is
or was a member of the Shareholders' Committee acting pursuant to the
Shareholders' Agreement or, at the request of the Company, serves or served as a
director or officer of or in any other capacity for any other enterprise,
against all expenses, liabilities, losses and claims actually incurred or
suffered by such person in connection with the action, suit or proceeding. The
By-Laws of the Company also provide that, to the extent authorized from time to
time by the Board of Directors, the Company may provide to any one or more
employees and other agents of the Company or any Subsidiary or other enterprise,
rights of indemnification and to receive payment or reimbursement of expenses,
including attorneys' fees, that are similar to the rights conferred by the
By-Laws on directors and officers of the Company or any Subsidiary or other
enterprise.
SECTION 203 OF THE DGCL
Upon completion of the Offering, the Company will be subject to the
provisions of section 203 ("Section 203") of the DGCL. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
in certain cases, within three years prior, did own) 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
the Company and an interested stockholder is prohibited unless it satisfies one
of the following conditions: (i) the Company's Board of Directors must have
previously approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder or (ii) on
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding, for purposes of determining the number of shares outstanding, shares
owned by (a) persons who are directors and also officers and (b) employee stock
plans, in certain instances) or (iii) the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of the
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Prior to the
execution of the Shareholders' Agreement, the Board of Directors will approve
the Shareholders' Agreement for purposes of Section 203.
CERTAIN ANTI-TAKEOVER MATTERS
The Amended and Restated Certificate of Incorporation and By-Laws of the
Company will, upon consummation of the Offerings, include a number of provisions
that may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with the Board of
Directors rather than pursue non-
97
<PAGE> 99
negotiated takeover attempts. These provisions include:
CLASSIFIED BOARD OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company
provides for a Board of Directors divided into three classes, with one class to
be elected each year to serve for a three-year term (except that the terms of
the initial classes of directors will expire at the annual meetings of
shareholders in 1999, 2000 and 2001). As a result, at least two annual meetings
of shareholders may be required for the shareholders to change a majority of the
Board of Directors. In addition, the shareholders of the Company can only remove
directors for cause by the affirmative vote of the holders of not less than
66 2/3% of the outstanding shares of capital stock of the Company entitled to
vote in the election of directors and only the Board of Directors may fill
vacancies on the Board. The classification of directors and the inability of
shareholders to remove directors without cause and to fill vacancies on the
Board will make it more difficult to change the composition of the Board of
Directors, but will promote a continuity of existing management.
CONSTITUENCY PROVISION
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, a director of the Company may (but is not required to), in taking
any action (including action that may involve or relate to a change or potential
change in control of the Company), consider the effects that the Company's
actions may have on other interests or persons (including employees) in addition
to the shareholders of the Company.
ADVANCE NOTICE REQUIREMENTS
The By-Laws establish advance notice procedures with regard to shareholder
proposals relating to the nomination of candidates for election as directors or
new business to be brought before meetings of shareholders of the Company. These
procedures provide that notice of such shareholder proposals must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the action is to be taken. Generally, to be timely, notice must be received at
the principal executive offices of the Company not less than 75 days nor more
than 100 days prior to the first anniversary date of the annual meeting for the
preceding year. The notice must contain certain information specified in the
By-Laws. The Company anticipates that its 1999 annual meeting will be held in
April 1999.
SPECIAL MEETINGS OF SHAREHOLDERS
The Amended and Restated Certificate of Incorporation and By-Laws of the
Company deny shareholders the right to call a special meeting of shareholders.
The Amended and Restated Certificate of Incorporation and By-Laws provide that
special meetings of the shareholders may be called only by a majority of the
Company's Board of Directors.
NO WRITTEN CONSENT OF SHAREHOLDERS
The Amended and Restated Certificate of Incorporation of the Company
requires all shareholder actions to be taken by a vote of the shareholders at an
annual or special meeting, and denies the power of shareholders of the Company
to consent in writing, without a meeting, to the taking of any action.
MAJORITY VOTE NEEDED FOR SHAREHOLDER PROPOSALS
The By-Laws of the Company require that any shareholder proposal be
approved by a majority of all of the outstanding shares of Common Stock and not
only a majority of the shares present at the meeting and entitled to vote. This
requirement may make it more difficult to approve shareholder resolutions.
AMENDMENT OF BY-LAWS AND CHARTER
The Amended and Restated Certificate of Incorporation of the Company
requires the approval of not less than 85% of the voting power of all
outstanding shares of the Company's capital stock entitled to vote to amend any
By-Law by shareholder action or those provisions of the Amended and Restated
Certificate of Incorporation described in this section. These provisions will
make it more difficult to dilute the anti-takeover effects of
98
<PAGE> 100
the By-Laws and the Amended and Restated Certificate of Incorporation.
BLANK CHECK PREFERRED STOCK
The Amended and Restated Certificate of Incorporation of the Company
provides for authorized shares of Preferred Stock, of which none
is outstanding and shares have been designated as the Series A
Participating Preferred Stock for delivery upon exercise of the Rights. The
existence of authorized but unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy contest or otherwise.
For example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without shareholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquiror or insurgent shareholder or shareholder group. In this regard, the
Amended and Restated Certificate of Incorporation grants the Board of Directors
broad power to establish the rights and preferences of authorized and unissued
Preferred Stock. The issuance of shares of Preferred Stock pursuant to the Board
of Directors' authority described above could decrease the amount of earnings
and assets available for distribution to holders of Common Shares and adversely
affect the rights and powers, including voting rights, of such holders and may
have the effect of delaying, deterring or preventing a change in control of the
Company. The Board of Directors currently does not intend to seek shareholder
approval prior to any issuance of Preferred Stock, unless otherwise required by
law.
LISTING
The Company intends to list the Common Stock on the NYSE.
TRANSFER AGENT
The transfer agent for the Common Stock will be ChaseMellon Shareholder
Services, L.L.C.
99
<PAGE> 101
DESCRIPTION OF CAPITAL SECURITIES
At or about the time of the Offerings, the Firm plans to issue and sell up
to $ in aggregate liquidation amount of Cumulative Quarterly
Income Preferred Securities. The Firm expects to use the net proceeds from the
QUIPS Offering for general corporate purposes. See "Use of Proceeds" and "Pro
Forma Consolidated Financial Information".
The QUIPS will represent preferred beneficial interests in a special
purpose trust. All of the common beneficial interests of the trust will be owned
by the Firm. The holders of the QUIPS will be entitled to receive from the trust
cumulative cash distributions that will accrue on the liquidation amount of the
QUIPS at a specified annual rate (to be determined at the pricing for the
offering) and will be payable periodically. The Firm will be entitled to defer
payment of these distributions at any time and from time to time, for certain
periods, but not beyond the maturity of the QUIPS. During any deferral period,
or after certain defaults, the Firm will not be permitted to declare or pay any
cash dividends on the Common Stock or to repurchase any Common Stock for cash.
Deferred distributions will continue to accrue and be payable when the relevant
deferral period ends. Upon the occurrence of specified events of default, the
holders of the QUIPS will be entitled to exercise creditor rights.
The trust will use the net proceeds from the sale of QUIPS, together with
certain other proceeds, to purchase $ principal amount of
subordinated debentures to be issued by GS Inc. The payment terms of the
debentures will match those of the QUIPS and amounts paid on the debentures will
be used by the trust to fund amounts payable on the QUIPS. Through the
debentures and related agreements, GS Inc. will effectively guarantee all the
trust's obligations under the QUIPS. The obligations of GS Inc. in respect of
the debentures and the QUIPS will be subordinated in right of payment to
substantially all of its debt but will rank senior in right of payment to the
Common Shares.
100
<PAGE> 102
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offerings,
there will be shares of Common Stock outstanding. Of these
shares, shares of Common Stock expected to be sold in the
Offerings (excluding the Directed Offering) will be freely transferable without
restriction or further registration under the Securities Act, except for shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144.
Of the remaining shares of Common Stock outstanding up to
shares of Common Stock will be sold in the Directed Offering and
shares will be "restricted securities", as that term is defined in Rule 144. Of
these restricted shares:
- - shares will be held by the PLPs will not be transferrable until
the third, fourth and fifth anniversaries of the date of this Prospectus,
unless these restrictions are waived. See "Certain Relationships and Related
Transactions--Shareholders' Agreement";
- - shares held by the RLPs will be freely transferrable pursuant
to Rule 144(k) commencing December 1, 1998; and
- - shares held by the DCP will not be deliverable to the plan
participants until the third, fourth and fifth anniversaries of the date of
this Prospectus, assuming the relevant conditions are satisfied. See
"Management--The Employee IPO Award".
All the restricted shares described above, as well as the shares sold in
the Directed Offering, will be subject to the 180-day Underwriters' lockup
described below.
The Firm, the Selling Shareholders, the parties to the Shareholders'
Agreement, including all of the directors and executive officers of GS Inc., the
RLPs and the purchasers in the Directed Offering have agreed with the
Underwriters not to dispose of or hedge any of their Common Stock or securities
convertible into or exchangeable for shares of Common Stock during the period
from the date of this Prospectus continuing through the date 180 days after the
date of this Prospectus, except with the prior written consent of GS&Co.
Shares of Common Stock underlying the Formula RSUs and Discretionary RSUs
will be deliverable beginning on the first and third anniversaries of the date
of grant, respectively, assuming the relevant conditions are satisfied. The
Discretionary Options will be exercisable beginning on the third anniversary of
the date of grant, assuming the relevant conditions are satisfied. See
"Management--The Employee IPO Awards" for a discussion of the terms of the
Formula and Discretionary RSUs and the Discretionary Options.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
"restricted securities" for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) 1% of the number of shares of Common Stock then outstanding (which will
equal approximately shares immediately after the Offerings) or
(ii) the average weekly trading volume of the Common Stock on the NYSE during
the four calendar weeks preceding the filing of a notice of Form 144 with
respect to such sale with the SEC. Sales under Rule 144 are also subject to
certain other requirements regarding the manner of sale, notice and availability
of current public information about the Company. Under Rule 144(k), a person who
is not, and has not been at any time during the 90 days preceding a sale, an
affiliate of the Company and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
101
<PAGE> 103
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company by Sullivan & Cromwell, New York, New York, and for the Underwriters by
Cleary, Gottlieb, Steen & Hamilton, New York, New York. Certain legal matters
will be passed upon by one of the Company's Co-General Counsels, Robert J. Katz
or Gregory K. Palm. Sullivan & Cromwell has in the past represented and
continues to represent one or more of the Underwriters and their affiliates in a
variety of matters. Cleary, Gottlieb, Steen & Hamilton has in the past
represented and continues to represent the Company in a variety of matters.
EXPERTS
The financial statements of the Firm as of November 29, 1996 and November
28, 1997 and for each of the three fiscal years in the fiscal period ended
November 28, 1997 and, as of and for the six months ended May 29, 1998, included
in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The income statement data and balance sheet data (excluding adjusted
assets) set forth in "Selected Consolidated Financial Data" for each of the five
fiscal years ended November 28, 1997 and the six months ended May 29, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
With respect to the unaudited interim financial information as of May 30,
1997 and for the period ended May 30, 1997 included in this Prospectus,
PricewaterhouseCoopers LLP have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report included herein states that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act for their report on the unaudited interim
financial information because this report is not a "report" or a "part" of the
Registration Statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
AVAILABLE INFORMATION
Upon completion of the Offerings, the Company will be required to file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any documents filed by the Company at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The Company's filings with the SEC are also available to the
public through the SEC's Internet site at http://www. sec.gov and through the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on
which the Common Stock is listed. After the Offerings, we expect to provide
annual reports to our shareholders that include financial information reported
on by our independent public accountants.
The Company has filed a Registration Statement on Form S-1 with the SEC.
This Prospectus is a part of the Registration Statement and does not contain all
of the information in the Registration Statement. Whenever a reference is made
in this Prospectus to a contract or other document of the Company, please be
aware that such reference is not necessarily complete and that you should refer
to the exhibits that are a part of the Registration Statement for a copy of the
contract or other document. You may review a copy of the Registration Statement
at the SEC's public reference room in Washington, D.C. as well as through the
SEC's Internet site.
102
<PAGE> 104
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Review Report of Independent Accountants.................... F-3
Consolidated Statements of Earnings for the fiscal years
ended November 24, 1995, November 29, 1996 and November
28, 1997 and the six-month fiscal periods ended May 30,
1997 (unaudited) and May 29, 1998......................... F-4
Consolidated Statements of Financial Condition as of
November 29, 1996 and November 28, 1997 and May 30, 1997
(unaudited) and May 29, 1998.............................. F-5
Consolidated Statements of Changes in Partners' Capital for
the fiscal years ended November 24, 1995, November 29,
1996 and November 28, 1997 and the six-month fiscal
periods ended May 30, 1997 (unaudited) and May 29, 1998... F-6
Consolidated Statements of Cash Flows for the fiscal years
ended November 24, 1995, November 29, 1996 and November
28, 1997 and the six-month fiscal periods ended May 30,
1997 (unaudited) and May 29, 1998......................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
------------------------
To the Partners,
The Goldman Sachs Group, L.P.:
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of earnings, changes in partners'
capital and cash flows (included on pages F-4 to F-24 of this Prospectus)
present fairly, in all material respects, the consolidated financial position of
The Goldman Sachs Group, L.P. and Subsidiaries at May 29, 1998, November 28,
1997 and November 29, 1996, and the results of their consolidated operations and
their consolidated cash flows for the six-month fiscal period ended May 29, 1998
and the three fiscal years in the period ended November 28, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Firm's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated statements of financial condition as of November 24,
1995, November 25, 1994 and November 26, 1993, and the related consolidated
statements of earnings, changes in partners' capital and cash flows for the
fiscal years ended November 25, 1994 and November 26, 1993 (none of which are
presented herein); and we expressed unqualified opinions on those consolidated
financial statements. In our opinion, the information set forth in the selected
historical income statement and balance sheet data (excluding adjusted assets)
for each of the five fiscal years in the period ended November 28, 1997 and the
six-month fiscal period ended May 29, 1998 (included on pages 30-31 of this
Prospectus) is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
August 3, 1998.
F-2
<PAGE> 106
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
------------------------
To the Partners,
The Goldman Sachs Group, L.P.:
We have reviewed the consolidated statement of financial condition of The
Goldman Sachs Group, L.P. and Subsidiaries, as of May 30, 1997, and the related
consolidated statements of earnings, changes in partners' capital and cash flows
for the six-month fiscal period ended May 30, 1997. These financial statements
are the responsibility of the Firm's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytic procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
July 14, 1997.
F-3
<PAGE> 107
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
----------------------------- ----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
REVENUES:
Investment banking................. $ 1,595 $ 2,113 $ 2,587 $1,094 $ 1,587
Trading and principal
investments...................... 1,916 2,496 2,303 1,362 2,426
Asset management and securities
services......................... 827 981 1,456 655 981
Interest income.................... 9,986 11,699 14,087 6,429 7,472
------- ------- ------- ------ -------
Total revenues........... 14,324 17,289 20,433 9,540 12,466
Interest expense, principally on
short-term funding............... 9,841 11,160 12,986 5,909 7,005
------- ------- ------- ------ -------
Revenues, net of interest
expense................ 4,483 6,129 7,447 3,631 5,461
OPERATING EXPENSES:
Compensation and benefits.......... 2,005 2,421 3,097 1,528 2,589
Brokerage, clearing and exchange
fees............................. 246 278 357 154 194
Market development................. 97 137 206 78 134
Communications and technology...... 173 173 208 93 121
Depreciation and amortization...... 186 172 178 81 104
Occupancy.......................... 175 154 168 78 93
Professional services and other.... 233 188 219 104 167
------- ------- ------- ------ -------
Total operating
expenses............... 3,115 3,523 4,433 2,116 3,402
Pre-tax earnings................... 1,368 2,606 3,014 1,515 2,059
Provision for taxes................ 20 207 268 143 328
------- ------- ------- ------ -------
Net earnings....................... $ 1,348 $ 2,399 $ 2,746 $1,372 $ 1,731
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 108
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
------------------- ----------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents..................... $ 2,209 $ 1,328 $ 1,540 $ 2,210
Cash and securities segregated in compliance
with U.S. federal and other regulations
(principally U.S. government obligations)... 4,232 4,903 3,833 6,042
Receivables from brokers, dealers and clearing
organizations............................... 2,422 3,754 2,465 3,773
Receivables from customers and
counterparties.............................. 5,777 10,060 7,061 13,855
Securities borrowed........................... 36,654 51,058 45,253 67,343
Securities purchased under agreements to
resell...................................... 40,614 39,376 46,365 47,584
Right to receive securities................... -- -- -- 13,204
Financial instruments owned, at fair value:
Commercial paper, certificates of deposit
and time deposits........................ 1,053 1,477 1,275 1,864
U.S. government, federal agency and
sovereign obligations.................... 27,592 25,736 27,089 38,068
Corporate debt.............................. 9,414 11,321 11,115 12,342
Equities and convertible debentures......... 9,424 11,870 10,778 14,984
State, municipal and provincial
obligations.............................. 1,340 1,105 831 1,046
Derivative contracts........................ 8,769 13,788 9,474 17,020
Physical commodities........................ 1,206 1,092 646 416
Other assets.................................. 1,340 1,533 1,475 2,101
-------- -------- -------- --------
$152,046 $178,401 $169,200 $241,852
======== ======== ======== ========
LIABILITIES AND NET WORTH:
Short-term borrowings, including commercial
paper....................................... $ 17,337 $ 21,008 $ 20,668 $ 23,722
Payable to brokers, dealers and clearing
organizations............................... 1,220 952 959 1,023
Payable to customers and counterparties....... 16,547 22,995 21,075 30,047
Securities loaned............................. 11,347 17,627 15,426 22,075
Securities sold under agreements to
repurchase.................................. 50,012 44,057 50,058 64,499
Obligation to return securities............... -- -- -- 25,386
Financial instruments sold, but not yet
purchased, at fair value:
U.S. government, federal agency and
sovereign obligations.................... 19,938 22,371 23,444 15,894
Corporate debt.............................. 1,821 1,708 1,811 1,345
Equities and convertible debentures......... 2,957 6,357 4,100 6,619
Derivative contracts........................ 9,982 15,964 10,593 19,253
Physical commodities........................ 86 78 278 551
Other liabilities and accrued expenses........ 2,130 3,080 1,851 3,959
Long-term borrowings.......................... 12,376 15,667 12,782 20,275
-------- -------- -------- --------
145,753 171,864 163,045 234,648
Commitments and contingencies
Partners' capital reserved for income taxes
and potential withdrawals................... 984 430 546 566
Partners' capital............................. 5,309 6,107 5,609 6,638
-------- -------- -------- --------
$152,046 $178,401 $169,200 $241,852
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 109
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------------ ----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
Partners' capital, beginning of
period........................... $ 4,771 $ 4,905 $ 5,309 $ 5,309 $ 6,107
Additions:
Net earnings..................... 1,348 2,399 2,746 1,372 1,731
Capital contributions............ 276 4 89 75 6
------- ------- ------- ------- -------
Total additions.......... 1,624 2,403 2,835 1,447 1,737
Deductions:
Returns on capital and certain
distributions to partners..... (449) (473) (557) (288) (311)
Redemption of institutional
limited partners.............. (275) -- -- -- --
Transfers to partners' capital
reserved for income taxes and
potential withdrawals, net.... (766) (1,526) (1,480) (859) (895)
------- ------- ------- ------- -------
Total deductions......... (1,490) (1,999) (2,037) (1,147) (1,206)
------- ------- ------- ------- -------
Partners' capital, end of period... $ 4,905 $ 5,309 $ 6,107 $ 5,609 $ 6,638
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 110
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
------------------------------ ----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................ $ 1,348 $ 2,399 $ 2,746 $ 1,372 $ 1,731
Non-cash items included in net earnings:
Depreciation and amortization..................... 186 172 178 81 104
Deferred income taxes............................. (53) 85 32 32 24
Decreases/(increases) in operating assets and
liabilities:
Cash and securities segregated in compliance with
U.S. federal and other regulations.............. 1,056 (1,445) (670) 399 (1,140)
Net receivables from brokers, dealers and clearing
organizations................................... 1 169 (1,599) (304) 52
Net payables to customers and counterparties...... (322) 4,279 2,339 3,300 3,083
Securities borrowed, net.......................... 2,308 (17,075) (8,124) (4,520) (11,837)
Financial instruments owned, at fair value........ (3,118) (9,415) (7,439) (2,383) (14,897)
Financial instruments sold, but not yet purchased,
at fair value................................... 2,179 5,276 11,702 5,451 5,243
Other............................................. (164) 926 905 (322) 383
------- -------- ------- ------- --------
Net cash provided by/(used for) operating
activities................................... 3,421 (14,629) 70 3,106 (17,254)
------- -------- ------- ------- --------
Cash flows from investing activities:
Property, leasehold improvements and equipment...... (118) (258) (259) (125) (197)
Financial instruments owned, at fair value.......... 4 115 (360) (110) (159)
Acquisitions, net of cash acquired.................. -- (75) (74) (62) --
------- -------- ------- ------- --------
Net cash used for investing activities.......... (114) (218) (693) (297) (356)
------- -------- ------- ------- --------
Cash flows from financing activities:
Short-term borrowings............................... (4,705) 391 1,082 1,645 (863)
Securities sold under agreements to repurchase,
net............................................... (5,099) 16,012 (4,717) (5,705) 12,234
Issuance of long-term borrowings.................... 5,934 5,172 7,734 3,171 9,210
Repayment of long-term borrowings................... (3,624) (3,986) (1,855) (1,080) (1,025)
Capital contributions............................... 276 4 89 75 6
Returns on capital and certain distributions to
partners.......................................... (449) (473) (557) (288) (311)
Redemption of institutional limited partners........ (275) -- -- -- --
Partners' capital reserved for income taxes and
potential withdrawals............................. (835) (1,017) (2,034) (1,296) (759)
------- -------- ------- ------- --------
Net cash (used for)/provided by financing
activities................................... (8,777) 16,103 (258) (3,478) 18,492
------- -------- ------- ------- --------
Net (decrease)/increase in cash and cash
equivalents....................................... (5,470) 1,256 (881) (669) 882
Cash and cash equivalents, beginning of period........ 6,423 953 2,209 2,209 1,328
------- -------- ------- ------- --------
Cash and cash equivalents, end of period.............. $ 953 $ 2,209 $ 1,328 $ 1,540 $ 2,210
======= ======== ======= ======= ========
</TABLE>
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest approximated the related expense for each of the
fiscal periods presented. Payments of income taxes were not material.
A zero coupon bond of $32 million representing a portion of the acquisition
price of CIN Management Limited was recorded on the consolidated statement of
financial condition at November 29, 1996 and was excluded from the consolidated
statement of cash flows as it represented a non-cash item.
The adjustment of $17 billion related to the provisions of SFAS No. 125 that
were deferred under SFAS No. 127 was excluded from the consolidated statement of
cash flows for the six months ended May 1998 as it represents a non-cash item.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 111
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group
L.P."), together with its consolidated subsidiaries (collectively, the "Firm"),
is a global investment banking and securities firm that provides a wide range of
services worldwide to a substantial and diversified client base.
The Firm's activities are divided into three principal business lines:
- Investment Banking, which includes financial advisory services and
underwriting;
- Trading and Principal Investments, which includes fixed income, currency
and commodities ("FICC"), equities and principal investments; and
- Asset Management and Securities Services, which includes asset
management, securities services and commissions.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Group L.P.
and its U.S. and international subsidiaries including Goldman, Sachs & Co.
("GS&Co.") and J. Aron & Company ("J. Aron") in New York, Goldman Sachs
International ("GSI") in London and Goldman Sachs (Japan) Ltd. ("GSJL") in
Tokyo. Certain reclassifications have been made to prior year amounts to conform
to the current presentation.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles which require management to make
estimates and assumptions regarding trading inventory valuations, partner
retirements, the outcome of pending litigation and other matters that affect the
consolidated financial statements and related disclosure. These estimates and
assumptions are based on judgment and available information and, consequently,
actual results could be materially different from these estimates.
It is the opinion of management that all adjustments necessary for a fair
statement of the interim results of operations and financial condition for the
six-month fiscal period ended May 30, 1997 have been reflected therein. All such
adjustments were of a normal recurring nature.
Unless otherwise stated herein, all references to 1995, 1996 and 1997 refer
to the Firm's fiscal year ended, or the date, as the context requires, November
24, 1995, November 29, 1996 and November 28, 1997, respectively, and all
references to May 1997 and May 1998 refer to the Firm's six-month fiscal period
ended, or the date, as the context requires, May 30, 1997 and May 29, 1998,
respectively.
FINANCIAL INSTRUMENTS
Gains and losses on financial instruments and commission income and related
expenses are recorded on a trade date basis in the consolidated statements of
earnings. For purposes of the consolidated statements of financial condition
only, purchases and sales of financial instruments, including agency
transactions, are generally recorded on a settlement date basis. Recording such
transactions on a trade date basis would not result in a material adjustment to
the consolidated statements of financial condition.
Substantially all financial instruments used in the Firm's trading and
investment activities are carried at fair value and unrealized gains and losses
are recognized in income. Fair value is
F-8
<PAGE> 112
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based generally on listed market prices or broker or dealer price quotations. To
the extent prices are not readily available, fair value is based on either
internal valuation models or management's estimate of amounts that could be
realized under current market conditions, assuming an orderly liquidation over a
reasonable period of time. Certain over-the-counter ("OTC") derivative
instruments are valued using pricing models that consider current and
contractual market prices, time value and yield curve and/or volatility factors
of the underlying positions. Substantially all other non-trading instruments are
carried at fair value or amounts that approximate fair value.
DERIVATIVES
Derivative contracts are financial instruments that derive their fair value
from underlying assets, indices or reference rates, or any combination thereof,
such as futures, forwards, swaps or option contracts. Derivative financial
instruments exclude certain cash instruments, such as mortgage-backed
securities, interest-only and principal-only obligations and indexed debt
instruments, that derive their values or contractually required cash flows from
the price of some other security or index. Derivatives also exclude option
features that are embedded in cash instruments, such as the conversion features
and call provisions embedded in bonds.
The Firm has elected to include commodity-related contracts in its
derivative disclosures, although not required to do so, as these contracts may
be settled in cash or are readily convertible into cash.
Derivatives used for trading purposes are recorded at fair value and
included in "Derivative contracts" on the consolidated statements of financial
condition. These values are reported on a net-by-counterparty basis where
management believes a legal right of setoff exists under an enforceable master
netting agreement. Gains and losses on derivatives are included in "Trading and
Principal Investments" on the consolidated statements of earnings.
Derivatives used for purposes other than trading include interest rate
futures contracts and interest rate and currency swap agreements, which are
utilized to convert a substantial portion of the Firm's fixed term debt into
U.S. dollar-based floating rate obligations. Gains and losses on these
transactions are generally deferred and recognized as adjustments to interest
expense over the life of the underlying asset or liability.
REPURCHASE AGREEMENTS AND COLLATERALIZED FINANCING ARRANGEMENTS
Securities purchased under agreements to resell and securities sold under
agreements to repurchase, principally U.S. government, federal agency and
investment-grade foreign sovereign obligations, represent short-term
collateralized financing transactions and are carried at their contractual
amounts plus accrued interest, on a net-by-counterparty basis, where management
believes a legal right of setoff exists under an enforceable master netting
agreement. Carrying value approximates fair value for these transactions due to
their short-term nature. The Firm takes possession of securities purchased under
agreements to resell, monitors the market value of the underlying securities on
a daily basis and obtains additional collateral as appropriate.
Securities borrowed and loaned are recorded on the statements of financial
condition based on the amount of cash collateral advanced or received. These
transactions are generally collateralized by either cash, securities or letters
of credit. Carrying value approximates fair value for these transactions due to
their short-term nature. Regardless of the type of collateral, the Firm takes
possession of securities borrowed, monitors the market value of securities
loaned and obtains additional collateral as appropriate. Income or expense is
recognized as interest over the life of the transaction.
F-9
<PAGE> 113
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Depreciation and amortization generally are computed using accelerated cost
recovery methods for all property and equipment and for leasehold improvements
where the term of the lease is greater than the economic useful life of the
asset. All other leasehold improvements are amortized on a straight-line basis
over the life of the lease.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries whose functional currency is other
than the U.S. dollar are translated using currency exchange rates prevailing at
the end of the period presented, while revenues and expenses are translated
using average exchange rates during the period. Gains or losses resulting from
the translation of foreign currency financial statements are recorded as
cumulative translation adjustments, and are included as a component of
"Partners' capital reserved for income taxes and potential withdrawals" on the
consolidated statements of financial condition. Gains or losses resulting from
foreign exchange transactions are recorded in earnings.
GOODWILL
The cost of acquired companies in excess of the fair value of net assets
acquired at acquisition date is recorded as goodwill and amortized over periods
of 15 to 25 years on a straight-line basis.
INVESTMENT BANKING
Underwriting revenues and fees from mergers and acquisitions and other
corporate finance advisory assignments are recorded when the underlying
transaction is completed under the terms of the engagement. Syndicate expenses
related to securities offerings in which the Firm acts as an underwriter or
agent are deferred until the related revenue is recognized.
PRINCIPAL INVESTMENTS
Principal investments are carried at fair value, generally as evidenced by
quoted market prices or by comparable substantial third-party transactions.
Where fair value is not readily ascertainable, principal investments are
recorded at initial cost or management's estimate of the realizable value.
The Firm is entitled to receive overrides when the return on investments
exceeds certain threshold returns to the funds. Overrides are based on
investment performance over the life of each merchant banking fund, and future
investment underperformance may require the return to the funds of amounts
previously distributed to the Firm. Accordingly, overrides are recognized in
income only when the probability of returning them is determined to be remote.
PROVISION FOR TAXES
The Firm accounts for income taxes incurred by its corporate subsidiaries
in accordance with SFAS No. 109, "Accounting for Income Taxes". The consolidated
statements of earnings for the periods presented include a provision for, or
benefit from, income taxes on income earned, or losses incurred, by the Firm and
its subsidiaries including a provision for, or benefit from, unincorporated
business tax on income earned, or losses incurred, by the Firm and its
subsidiaries conducting business in New York City. No additional income tax
provision is required in the consolidated statements of earnings because the
Firm is a partnership and the remaining tax effects accrue directly to its
partners.
F-10
<PAGE> 114
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Firm defines cash equivalents as highly liquid overnight deposits held
in the ordinary course of business.
ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", effective for transactions occurring after
December 31, 1996. Statement of Financial Accounting Standards ("SFAS") No. 125
establishes standards for distinguishing transfers of financial assets that are
accounted for as sales from transfers that are accounted for as secured
borrowings.
The provisions of SFAS No. 125 relating to repurchase agreements,
securities-lending transactions and other similar transactions were deferred by
the provisions of SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", and became effective for transactions
entered into after December 31, 1997. This Statement requires that the
collateral obtained in certain types of secured lending transactions be recorded
on the balance sheet with a corresponding liability reflecting the obligation to
return such collateral to its owner. Effective January 1, 1998, the Firm adopted
the provisions of SFAS No. 125 that were deferred by SFAS No. 127. The adoption
of this standard increased the Firm's total assets and liabilities by $17
billion as of May 1998.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("EPS"), effective for periods ending after December 15, 1997, with restatement
required for all prior periods. SFAS No. 128 establishes new standards for
computing and presenting EPS. This Statement replaces primary and fully diluted
EPS with "basic EPS" which excludes dilution and "diluted EPS" which includes
the effect of all potentially dilutive common shares and other dilutive
securities. Because the Firm has not historically reported EPS, this Statement
will have no impact on the Firm's historical financial statements. This
Statement will, however, apply to financial statements of the Firm prepared
after the Offerings.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997, with
reclassification of earlier periods required for comparative purposes. SFAS No.
130 establishes standards for the reporting and presentation of comprehensive
income and its components in the financial statements. The Firm intends to adopt
this standard beginning in fiscal year 1999. This Statement is limited to issues
of reporting and presentation and, therefore, will not affect the Firm's results
of operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997, with reclassification of earlier periods required for
comparative purposes. SFAS No. 131 establishes the criteria for determining an
operating segment and establishes the disclosure requirements for reporting
information about operating segments. The Firm intends to adopt this standard
beginning in fiscal year 1999. This Statement is limited to issues of reporting
and presentation and, therefore, will not affect the Firm's results of
operations or financial condition.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", effective for fiscal years
beginning after December 15, 1997, with restatement of disclosures for earlier
periods required for comparative purposes. SFAS No. 132 revises certain
employers' disclosures about pension and other post-retirement benefit
F-11
<PAGE> 115
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans. The Firm intends to adopt this standard beginning in fiscal year 1999.
This Statement is limited to issues of reporting and presentation and,
therefore, will not affect the Firm's results of operations or financial
condition.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", effective for fiscal years beginning after December 15, 1998.
SOP No. 98-1 requires that certain costs of computer software developed or
obtained for internal use be capitalized and amortized over the useful life of
the related software. The Firm currently expenses the cost of all software
development in the period in which it is incurred. The Firm intends to adopt
this Statement beginning in fiscal year 2000 and is currently assessing its
effect.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This Statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative instrument depends on its intended use and the resulting
designation. The Firm intends to adopt this standard beginning in fiscal year
2000 and is currently assessing its effect.
NOTE 3. FINANCIAL INSTRUMENTS
Financial instruments, including derivatives, are used to manage market
risk, facilitate customer transactions, engage in trading transactions and meet
financing objectives. These instruments can be executed on an exchange or
negotiated in the OTC market. Derivative financial instruments may involve
future commitments to purchase or sell financial instruments or commodities, or
to exchange currency or interest payment streams. The amounts exchanged are
based on the specific terms of the contract with reference to specified rates,
securities, commodities or indices.
Transactions involving financial instruments sold, but not yet purchased,
entail an obligation to purchase a financial instrument at a future date. The
Firm may incur a loss if the market value of the financial instrument
subsequently increases prior to the purchase of the instrument.
TRADING AND PRINCIPAL INVESTMENTS TRANSACTIONS
The Firm's Trading and Principal Investments businesses facilitate customer
transactions and take proprietary positions in securities, derivatives,
currencies and commodities. Derivative financial instruments are often used to
hedge cash instruments or other derivative financial instruments as an integral
part of the Firm's strategies. As a result, it is necessary to view the results
of any activity on a fully-integrated basis, including cash positions, the
effect of related hedging transactions and the financing of the underlying
positions.
Net revenues reflect allocations of interest expense to the specific
securities, commodities, and other positions in relation to the level of
financing incurred by each.
F-12
<PAGE> 116
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the net revenues of the Firm's Trading and
Principal Investments business line:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER MAY
------------------------------ ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
FICC......................... $ 822 $1,749 $2,055 $1,194 $1,675
Equities..................... 731 730 573 423 659
Principal investments........ 191 214 298 43 244
------ ------ ------ ------ ------
Total Trading & Principal
Investments................ $1,744 $2,693 $2,926 $1,660 $2,578
====== ====== ====== ====== ======
</TABLE>
RISK MANAGEMENT
The Firm seeks to monitor and control its risk exposure through a variety
of separate but complementary financial, credit, operational and legal reporting
systems for individual entities and the Firm as a whole. The Firm believes that
it has effective procedures for evaluating and managing the market, credit and
other risks to which it is exposed. The Executive Committee, the Firm's primary
decision-making body, determines (both directly and through delegated authority)
the types of business in which the Firm engages, approves guidelines for
accepting customers for all product lines, outlines the terms under which
customer business is conducted and establishes the parameters for the risks that
the Firm is willing to undertake in its business.
MARKET RISK
The Firmwide Risk Committee, which reports to the Executive Committee and
meets weekly, is responsible for managing and monitoring all of the Firm's risk
exposures. In addition, the Firm maintains segregation of duties, with credit
review and risk-monitoring functions performed by groups that are independent
from revenue-producing departments.
The potential for changes in the market value of the Firm's trading
positions is referred to as "market risk". The Firm's trading positions result
from underwriting, market making and proprietary trading activities.
The broadly defined categories of market risk include exposures to interest
rates, currency rates, equity prices and commodity prices.
- - Interest rate risks primarily result from exposures to changes in the level,
slope and curvature of the yield curve, the volatility of interest rates,
mortgage prepayment speeds and credit spreads.
- - Currency rate risks result from exposures to changes in spot prices, forward
prices and volatilities of currency rates.
- - Equity price risks result from exposures to changes in prices and volatilities
of individual equities, equity baskets and equity indices.
- - Commodity price risks result from exposures to changes in spot prices, forward
prices and volatilities of commodities, such as electricity, natural gas,
crude oil, petroleum products and precious and base metals.
F-13
<PAGE> 117
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These risk exposures are managed through diversification, by controlling
position sizes and by establishing offsetting hedges in related securities or
derivatives. For example, the Firm may hedge a portfolio of common stock by
taking an offsetting position in a related equity-index futures contract. The
ability to manage these exposures may, however, be limited by the liquidity of
the security or the related hedge instrument.
CREDIT RISK
Credit risk represents the loss that the Firm would incur if a counterparty
or issuer of securities or other instruments it holds fails to perform its
contractual obligations to the Firm. To reduce its credit exposures, the Firm
seeks to enter into netting agreements with counterparties that permit the Firm
to offset receivables and payables with such counterparties. The Firm does not
take into account any such agreements when calculating credit risk, however,
unless it has received reasonable assurance that the agreement will permit
netting of the counterparty's exposure under applicable law.
CONCENTRATION OF CREDIT RISK
Credit concentrations may arise from trading, underwriting and securities
borrowing activities and may be impacted by changes in economic, industry or
political factors. The Firm's concentration of credit risk is monitored actively
by the Credit Policy Committee. As of May 1998, U.S. government and federal
agency obligations represented 11% of the Firm's total assets. In addition, most
of the Firm's securities purchased under agreements to resell are collateralized
by U.S. government, federal agency and sovereign obligations.
DERIVATIVE ACTIVITIES
The Firm uses derivatives in its trading activities to facilitate customer
transactions, to take proprietary positions and as a means of risk management.
The gross notional (or contractual) amounts of derivative financial
instruments are used to express the volume of these transactions and do not
represent the amounts potentially subject to market risk. In addition,
measurement of market risk is meaningful only when all related and
F-14
<PAGE> 118
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
offsetting transactions are taken into consideration. Gross notional (or
contractual) amounts of derivative financial instruments with off-balance-sheet
market risk are set forth below:
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
-------------------- -------------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C>
INTEREST RATE RISK:
Financial futures and forward
settlement contracts........... $216,700 $334,916 $296,175 $456,707
Swap agreements.................. 434,005 925,658 632,416 1,280,825
Written option contracts......... 258,388 351,359 297,282 393,106
EQUITY PRICE RISK:
Financial futures contracts...... 6,583 7,457 8,018 6,882
Swap agreements.................. 1,516 1,993 2,733 1,593
Written option contracts......... 26,029 51,916 26,149 47,529
CURRENCY AND COMMODITY PRICE
RISK:
Financial futures and forward
settlement contracts........... 268,036 355,882 341,662 464,419
Swap agreements.................. 21,924 33,472 27,287 43,955
Written option contracts......... 149,311 179,481 171,016 186,881
</TABLE>
Market risk on purchased option contracts is limited to the market value of
the option; therefore, purchased option contracts have no off-balance-sheet
market risk. The gross notional (or contractual) amounts of purchased option
contracts are set forth below:
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
-------------------- -------------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C>
PURCHASED OPTION CONTRACTS:
Interest rate.................... $196,496 $301,685 $220,724 $342,001
Equity........................... 22,275 24,021 29,452 49,492
Currency and commodity........... 143,568 180,859 148,031 197,336
</TABLE>
The Firm utilizes replacement cost as its measure of derivative credit
risk. Replacement cost, as reported in financial instruments owned, at fair
value on the consolidated statements of financial condition, represents amounts
receivable from various counterparties, net of any unrealized losses owed where
management believes a legal right of setoff exists under an enforceable master
netting agreement. Replacement cost for purchased option contracts is the market
value of the contract. The Firm controls its credit risk through an established
credit approval process, by monitoring counterparty limits, obtaining collateral
where appropriate and, in some cases, using legally enforceable master netting
agreements.
F-15
<PAGE> 119
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of derivative financial instruments, computed in accordance
with the Firm's netting policy, are set forth below:
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
-------------------------------------------- --------------------------------------------
1996 1997 1997 1998
-------------------- --------------------- -------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ ----------- ------ ----------- ------ -----------
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD END:
Forwards................... $2,410 $2,330 $ 3,634 $ 3,436 $2,451 $ 2,671 $ 3,938 $ 3,067
Swaps...................... 3,203 3,932 4,367 5,362 2,860 3,375 6,641 7,039
Options.................... 3,156 3,720 5,787 7,166 4,163 4,547 6,441 9,147
------ ------ ------- ------- ------ ------- ------- -------
Total...................... $8,769 $9,982 $13,788 $15,964 $9,474 $10,593 $17,020 $19,253
====== ====== ======= ======= ====== ======= ======= =======
MONTHLY AVERAGE:
Forwards................... $2,139 $1,904 $ 3,351 $ 3,162 $2,938 $ 2,916 $ 3,949 $ 3,526
Swaps...................... 2,690 2,784 3,507 4,022 3,201 3,621 5,801 6,401
Options.................... 2,956 3,347 4,511 5,059 3,695 4,027 6,085 8,519
------ ------ ------- ------- ------ ------- ------- -------
Total...................... $7,785 $8,035 $11,369 $12,243 $9,834 $10,564 $15,835 $18,446
====== ====== ======= ======= ====== ======= ======= =======
</TABLE>
NOTE 4. SHORT-TERM BORROWINGS
The Firm obtains secured short-term financing principally through the use
of repurchase agreements and securities lending agreements, collateralized
mainly by U.S. government, federal agency, investment grade foreign sovereign
obligations and equity securities. The Firm obtains unsecured short-term
borrowings through issuance of commercial paper, promissory notes and bank
loans. The carrying value of these short-term obligations approximates fair
value due to their short-term nature.
Short-term borrowings are set forth below:
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER MAY
1997 1998
-------- -----
(in millions)
<S> <C> <C>
Commercial paper....................................... $ 4,468 $ 6,486
Promissory notes(1).................................... 10,411 10,227
Bank loans and other(1)................................ 6,129 7,009
------- -------
Total(2)............................................... $21,008 $23,722
======= =======
</TABLE>
- ---------------
(1) As of May 1998 and November 1997, short-term borrowings included $3,081
million and $2,454 million of long-term borrowings maturing within one year,
respectively.
(2) Weighted average interest rates for total short-term borrowings, including
commercial paper, were 5.55% as of May 1998 and 5.43% as of November 1997.
The Firm maintains unencumbered securities with a market value in excess of
all uncollateralized short-term borrowings. The Firm has also arranged committed
standby loan facilities under agreements with numerous banks, primarily on an
unsecured basis. As of May 1998, the aggregate amount of these unused facilities
was approximately $2 billion.
F-16
<PAGE> 120
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LONG-TERM BORROWINGS
The Firm's long-term borrowings are set forth below:
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER MAY
1997 1998
-------- -----
(in millions)
<S> <C> <C>
Fixed-rate obligations(1)
U.S. dollar denominated.............................. $ 5,217 $ 5,759
Non-U.S. dollar denominated.......................... 1,556 2,284
Floating-rate obligations(2)
U.S. dollar denominated.............................. 8,342 11,603
Non-U.S. dollar denominated.......................... 552 629
------- -------
Total long-term borrowings(3).......................... $15,667 $20,275
======= =======
</TABLE>
- ---------------
(1) Interest rate ranges for U.S. dollar and non-U.S. dollar fixed rate
obligations are set forth below:
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER MAY
1997 1998
-------- -----
<S> <C> <C>
U.S. dollar denominated
High...................................................... 10.10% 10.10%
Low....................................................... 5.82 5.74
Non-U.S. dollar denominated
High...................................................... 9.51 9.51
Low....................................................... 1.90 1.90
</TABLE>
(2) Floating interest rates generally are based on LIBOR, the U.S. treasury bill
rate or the federal funds rate. Certain equity-linked and indexed
instruments are included in floating rate obligations.
(3) Long-term borrowings bear fixed or floating interest rates and have
maturities that range from 1 to 30 years from the date of issue.
Long-term borrowings by maturity date are set forth below:
<TABLE>
<CAPTION>
AS OF NOVEMBER 1997 AS OF MAY 1998
------------------------------ ------------------------------
U.S. NON-U.S. U.S. NON-U.S.
DOLLAR DOLLAR TOTAL DOLLAR DOLLAR TOTAL
------ -------- ----- ------ -------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
MATURITY DATES:
1998................. $ 1,159 $ 135 $ 1,294 -- -- --
1999................. 2,436 451 2,887 $ 3,542 $ 371 $ 3,913
2000................. 2,544 263 2,807 3,724 253 3,977
2001................. 971 142 1,113 1,900 137 2,037
2002................. 1,376 281 1,657 1,807 184 1,991
2003................. 941 109 1,050 1,251 511 1,762
2004-24.............. 4,132 727 4,859 5,138 1,457 6,595
------- ------ ------- ------- ------ -------
Total................ $13,559 $2,108 $15,667 $17,362 $2,913 $20,275
======= ====== ======= ======= ====== =======
</TABLE>
The Firm enters into non-trading derivative contracts, such as interest
rate and currency swap agreements, that effectively convert a substantial
portion of its fixed rate long-term borrowings into U.S. dollar-based floating
rate obligations. Accordingly, the aggregate carrying value of these long-term
borrowings and the related hedges approximates fair value for each of
F-17
<PAGE> 121
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the fiscal periods presented. The effective weighted average interest rates for
long-term borrowings, after hedging activities, are set forth below:
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER 1997 MAY 1998
--------------- ---------------
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
($ in millions)
<S> <C> <C> <C> <C>
LONG-TERM BORROWINGS:
Fixed-rate obligations................. $ 291 7.76% $ 226 8.04%
Floating-rate obligations.............. 15,376 5.84 20,049 5.85
------- -------
Total long-term borrowings............. $15,667 5.88 $20,275 5.87
======= =======
</TABLE>
The notional amounts and fair value of the related hedges are set forth
below:
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER MAY
1997 1998
-------- -----
(in millions)
<S> <C> <C>
Notional amount........................................ $8,708 $10,675
Fair value............................................. 208 236
</TABLE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Firm is involved in a number of judicial, regulatory and arbitration
proceedings concerning matters arising in connection with the conduct of its
businesses. Management believes, based on currently available information, that
the results of such proceedings will not have a material adverse effect on the
Firm's financial condition, but might be material to the Firm's operating
results for any particular period, depending, in part, upon the operating
results for such period.
LEASES
The Firm has obligations under long-term lease agreements, principally for
office space, expiring on various dates through 2016. Certain agreements are
subject to periodic escalation charges for increases in real estate taxes and
other charges. Minimum rental commitments, net of minimum sublease rentals,
under non-cancelable leases for the remainder of 1998 and the succeeding four
years and rent charged to operating expense for the last three years and in each
of the six months ended May 1998 and May 1997 are set forth below:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
MINIMUM RENTAL COMMITMENTS:
1998 (remainder).............................. $ 57
1999.......................................... 99
2000.......................................... 97
2001.......................................... 94
2002.......................................... 93
Thereafter.................................... 494
----
Total............................... $934
====
</TABLE>
F-18
<PAGE> 122
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
(in millions)
<S> <C>
NET RENT EXPENSE:
1995.......................................... $ 87
1996.......................................... 83
1997.......................................... 87
May 1997...................................... 42
May 1998...................................... 46
</TABLE>
OTHER COMMITMENTS
The Firm acts as an investor in merchant banking transactions which
includes making long-term investments in equity and debt securities in privately
negotiated transactions, corporate acquisitions and real estate transactions. In
connection with these merchant banking activities, the Firm had commitments to
invest up to $524 million, $591 million, $670 million and $816 million in
merchant banking investment, real estate merchant banking investment and bridge
loan funds as of May 1998, May 1997, November 1997 and November 1996,
respectively.
In June 1998, the Firm increased its commitments to invest in merchant
banking investment and bridge loan funds by $580 million.
As of May 1998, the Firm had pledged securities of $23 billion as
collateral for securities borrowed of approximately equivalent value.
The Firm obtains letters of credit issued to counterparties by various
banks that are used in lieu of securities or cash to satisfy various collateral
and margin deposit requirements. Letters of credit outstanding amounted to $9
billion, $11 billion, $10 billion and $11 billion as of May 1998, May 1997,
November 1997 and November 1996, respectively.
NOTE 7. EMPLOYEE BENEFIT PLANS
The Firm sponsors various pension plans and certain other post-retirement
benefit plans, primarily health care and life insurance, for eligible employees
worldwide. The Firm also provides
F-19
<PAGE> 123
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain benefits to former or inactive employees prior to retirement. The
following summarizes these plans:
PENSION PLANS
The components of pension expense/(income) are set forth below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
----------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
Service cost, benefits earned
during the period............... $ 14 $ 15 $ 15 $ 8 $ 8
Interest cost on projected benefit
obligation...................... 7 8 10 5 5
Return on plan assets............. (19) (24) (18) (10) (12)
Net amortization.................. 10 14 4 3 5
---- ---- ---- ---- ----
Total pension expense... $ 12 $ 13 $ 11 $ 6 $ 6
==== ==== ==== ==== ====
PENSION EXPENSE/(INCOME):
U.S. plans........................ $ (1) $ (1) $ (3) $ (1) $ (1)
International plans............... 13 14 14 7 7
---- ---- ---- ---- ----
Total pension expense... $ 12 $ 13 $ 11 $ 6 $ 6
==== ==== ==== ==== ====
</TABLE>
The following table sets forth the assumptions used in determining the
projected benefit obligation for the U.S. and international plans:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
-------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
U.S. PLANS:
Weighted average discount rate............... 7.25% 7.50% 7.50% 8.00% 7.50%
Rate of increase in future compensation
levels..................................... 5.00 5.00 5.00 5.00 5.00
Expected long-term rate of return on plan
assets..................................... 7.50 7.50 7.50 7.50 7.50
INTERNATIONAL PLANS:
Weighted average discount rate............... 5.70 5.70 5.70 5.70 5.30
Rate of increase in future compensation
levels..................................... 5.30 5.30 5.30 5.30 5.30
Expected long-term rate of return on plan
assets..................................... 7.00 7.00 7.00 7.00 7.00
</TABLE>
F-20
<PAGE> 124
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the qualified plans is set forth below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
NOVEMBER ENDED MAY
-------------- --------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C>
Actuarial present value of vested benefit
obligation............................... $(132) $(149) $(131) $(164)
----- ----- ----- -----
Accumulated benefit obligation............. (134) (151) (133) (167)
Effect of future salary increases.......... (15) (16) (18) (16)
----- ----- ----- -----
Projected benefit obligation............... (149) (167) (151) (183)
Plan assets at fair market value (primarily
listed stocks and bonds)................. 164 187 177 208
----- ----- ----- -----
Projected benefit obligation less than
plan assets.............................. 15 20 26 25
Unrecognized net loss/(gain)............... 3 2 (7) (2)
Unrecognized net transition gain........... (19) (20) (19) (20)
----- ----- ----- -----
(Accrued)/prepaid pension cost at period-
end...................................... $ (1) $ 2 $ -- $ 3
===== ===== ===== =====
(ACCRUED)/PREPAID PENSION COST:
U.S. plans................................. $ (1) $ 2 $ -- $ 3
International plans........................ -- -- -- --
----- ----- ----- -----
(Accrued)/prepaid pension cost at period-
end...................................... $ (1) $ 2 $ -- $ 3
===== ===== ===== =====
</TABLE>
POST-RETIREMENT PLANS
The Firm has unfunded post-retirement benefit plans that provide medical
and life insurance for eligible retirees, employees and dependents. The Firm's
accrued post-retirement benefit liability was $53 million, $48 million, $50
million and $46 million as of May 1998, May 1997, November 1997 and November
1996, respectively. The Firm's expense for these plans was $3 million in each of
the six months ended May 1998 and May 1997, and $7 million, $6 million and $12
million in the years ended 1997, 1996 and 1995, respectively.
POST-EMPLOYMENT PLANS
Post-employment benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits, and continuation of health care and life insurance
coverage provided to former or inactive employees after employment but before
retirement. The accrued but unfunded liability under the plans was $12 million
as of May 1998, May 1997, November 1997 and November 1996. The Firm's expense
for these plans was $1 million in each of the six months ended May 1998 and May
1997, and $2 million, $2 million and $5 million in the fiscal years ended 1997,
1996 and 1995, respectively.
DEFINED CONTRIBUTION PLANS
The Firm contributes to employer sponsored U.S. and international defined
contribution plans. The Firm's contribution to the U.S. plans was $24 million
and $20 million for the six months ended May 1998 and May 1997, and $44 million,
$39 million and $42 million for the years
F-21
<PAGE> 125
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended 1997, 1996 and 1995, respectively. The Firm's contribution to the
international plans was $7 million and $6 million for the six months ended May
1998 and May 1997, and $14 million, $7 million and $7 million for the years
ended 1997, 1996 and 1995, respectively.
NOTE 8. CAPITAL
PARTNERS' CAPITAL
Partners' capital includes both the general partner's and limited partners'
capital and certain employee interests and is subject to certain withdrawal
restrictions. As of May 1998, the Firm had $6,638 million in partners' capital.
Managing directors that are participating limited partners in Group L.P.
("PLPs") who elect to retire are entitled to redeem their capital over a period
of not less than five years following retirement, but often reinvest a
significant portion of their capital as limited partners for longer periods.
Partners' capital reserved for income taxes and potential withdrawals relates
primarily to activity with regard to the capital accounts of PLPs and includes a
foreign currency cumulative translation loss of $87 million.
Sumitomo Bank Capital Markets, Inc. ("SBCM"), a limited partner that had
capital invested of approximately $835 million as of May 1998, may require the
Firm to redeem its capital over a five-year period beginning no earlier than
2007. Kamehameha Activities Association ("KAA"), a limited partner that had
capital invested of approximately $705 million as of May 1998, may require the
Firm to redeem $366 million of its capital over the five-year period beginning
no earlier than 2010 and $339 million of its capital over the five-year period
beginning no earlier than 2013.
Institutional Limited Partners (other than SBCM and KAA) had aggregate
capital invested of $755 million as of May 1998. The Firm must repay these
Institutional Limited Partners' capital as follows: $270 million in six equal
annual installments commencing in December 2001, $257 million in March 2005,
$146 million in November 2013 and $82 million in November 2023.
The Firm may defer any required redemption of capital if the redemption
would cause a subsidiary subject to regulatory authority to be in violation of
the rules of such authority or if the withdrawal of funds to satisfy the
redemption from an unregulated subsidiary would have a material effect on such
subsidiary.
REGULATED SUBSIDIARIES
GS&Co. is a registered U.S. broker-dealer subsidiary, which is subject to
the Securities and Exchange Commission's "Uniform Net Capital Rule", and has
elected to compute its net capital in accordance with the "Alternative Net
Capital Requirement" of that rule. As of May 1998 and November 1997, GS&Co. had
regulatory net capital, as defined, of $2.24 billion and $1.77 billion,
respectively, which exceeded the amounts required by $1.77 billion and $1.37
billion, respectively.
GSI, a registered U.K. broker-dealer and subsidiary of Group L.P., is
subject to the capital requirements of the Securities and Futures Authority
Limited and GSJL, a Tokyo-based broker-dealer, is subject to the capital
requirements of the Japanese Ministry of Finance and the Financial Supervisory
Agency. As of May 1998 and November 1997, GSI and GSJL were in compliance with
their local capital adequacy requirements.
Certain other subsidiaries of the Firm are also subject to capital adequacy
requirements promulgated by authorities of the countries in which they operate.
As of May 1998 and November 1997, these subsidiaries were in compliance with
their local capital adequacy requirements.
F-22
<PAGE> 126
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. GEOGRAPHIC DATA
The Firm's activities as an investment banking and securities firm
constitute a single business segment pursuant to SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise".
Due to the highly integrated nature of international financial markets, the
Firm manages its business based on the profitability of the enterprise as a
whole, not by geographic region. Accordingly, management believes that
profitability by geographic region is not necessarily meaningful.
The total revenues, net revenues, pre-tax earnings and identifiable assets
of Group L.P. and its consolidated subsidiaries by geographic region are
summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
----------------------------- ----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES:
Americas(1)................ $10,565 $12,864 $15,091 $6,964 $ 9,015
Europe..................... 3,069 3,762 4,463 2,223 2,817
Asia....................... 690 663 879 353 634
------- ------- ------- ------ -------
Total...................... $14,324 $17,289 $20,433 $9,540 $12,466
======= ======= ======= ====== =======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Americas(1)................ $ 3,462 $ 4,397 $ 5,104 $2,490 $ 3,644
Europe..................... 742 1,355 1,739 903 1,345
Asia....................... 279 377 604 238 472
------- ------- ------- ------ -------
Total...................... $ 4,483 $ 6,129 $ 7,447 $3,631 $ 5,461
======= ======= ======= ====== =======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PRE-TAX EARNINGS:
Americas(1)................ $ 1,442 $ 1,963 $ 2,061 $ 989 $ 1,113
Europe..................... (15) 536 683 436 694
Asia....................... (59) 107 270 90 252
------- ------- ------- ------ -------
Total...................... $ 1,368 $ 2,606 $ 3,014 $1,515 $ 2,059
======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
------------------------------- -----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
Americas(1)............... $123,195 $171,345 $ 206,312 $ 191,309 $ 250,675
Europe.................... 43,191 62,172 80,551 80,390 108,200
Asia...................... 11,267 6,894 13,240 8,664 13,092
Eliminations.............. (77,587) (88,365) (121,702) (111,163) (130,115)
-------- -------- --------- --------- ---------
Total..................... $100,066 $152,046 $ 178,401 $ 169,200 $ 241,852
======== ======== ========= ========= =========
</TABLE>
- ---------------
(1) Americas principally represents the United States.
F-23
<PAGE> 127
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1996
------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
(in millions)
<S> <C> <C> <C> <C>
Total revenues....................................... $4,030 $4,656 $4,313 $4,290
Interest expense, principally on short-term
funding............................................ 2,566 2,986 2,845 2,763
------ ------ ------ ------
Revenues, net of interest expense.................... 1,464 1,670 1,468 1,527
Operating expenses................................... 899 961 879 784
------ ------ ------ ------
Pre-tax earnings..................................... 565 709 589 743
Provision for taxes.................................. 21 23 31 132
------ ------ ------ ------
Net earnings.................................... $ 544 $ 686 $ 558 $ 611
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1998
--------------------------------- ---------------
1ST 2ND 3RD 4TH 1ST 2ND
--- --- --- --- --- ---
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Total revenues............................ $4,932 $4,608 $5,957 $4,936 $5,903 $6,563
Interest expense, principally on
short-term funding...................... 2,975 2,934 3,727 3,350 3,431 3,574
------ ------ ------ ------ ------ ------
Revenues, net of interest expense......... 1,957 1,674 2,230 1,586 2,472 2,989
Operating expenses........................ 1,052 1,064 1,298 1,019 1,450 1,952
------ ------ ------ ------ ------ ------
Pre-tax earnings.......................... 905 610 932 567 1,022 1,037
Provision for taxes....................... 44 99 60 65 138 190
------ ------ ------ ------ ------ ------
Net earnings......................... $ 861 $ 511 $ 872 $ 502 $ 884 $ 847
====== ====== ====== ====== ====== ======
</TABLE>
F-24
<PAGE> 128
UNDERWRITING
The Firm, the Selling Shareholders and the underwriters for the U.S.
offering (the "U.S. Underwriters") named below have entered into an underwriting
agreement with respect to the shares being offered in the United States. Subject
to certain conditions, each U.S. Underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.
and are the representatives of the U.S. Underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. .......................................
-------
Total.......................................................
=======
</TABLE>
---------------
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional shares from the Firm to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the U.S. Underwriters will severally purchase shares in approximately
the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by the Firm and the Selling
Shareholders. Such amounts are shown assuming both no exercise and full exercise
of the U.S. Underwriters' option to purchase additional shares.
Paid by the Firm
---------------------------
<TABLE>
<CAPTION>
No Full
Exercise Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
Paid by the Selling Shareholders
-------------------------------------
<TABLE>
<CAPTION>
No Full
Exercise Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover page of this
Prospectus. Any shares sold by the Underwriters to securities dealers may be
sold at a discount of up to $ per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
Underwriters to certain other brokers or dealers at a discount of up to $
per share from the initial public offering price. If all of the shares are not
sold at the initial offering price, the representatives may change the offering
price and the other selling terms.
The Firm and the Selling Shareholders have entered into underwriting
agreements with Underwriters for the sale of shares outside of
the United States and the Asia/Pacific region and shares in the
Asia/Pacific region. The terms and conditions of all three Offerings are the
same and the sale of shares in all three Offerings are conditioned on each
other. Goldman Sachs International and are representatives of the
underwriters for the international offering outside the United States and the
Asia/Pacific region (the "International Underwriters") and Goldman Sachs (Asia)
L.L.C. and are representatives of the underwriters for the
Asia/Pacific region offering (the "Asia/Pacific Underwriters"). The Firm has
granted the International and Asia/Pacific Underwriters options similar to that
described above to purchase up to an aggregate of an additional
shares.
The Underwriters for each of the three Offerings have entered into an
agreement in which they agree to restrictions on where and to whom they and any
dealer purchasing from them may offer shares as a part of the
U-1
<PAGE> 129
distribution of the shares. The Underwriters have also agreed that they may sell
shares among each of the underwriting groups.
The Firm, the Selling Shareholders, the parties to the Shareholders'
Agreement, including all of the directors and executive officers of GS Inc., the
RLPs and the purchasers in the Directed Offering have agreed with the
Underwriters not to dispose of or hedge any of their Common Stock or securities
convertible into or exchangeable for shares of Common Stock during the period
from the date of this Prospectus continuing through the date 180 days after the
date of this Prospectus, except with the prior written consent of Goldman, Sachs
& Co. This agreement does not apply to any of the Firm's existing employee
benefit plans. See "Shares Eligible for Future Sale" for a discussion of certain
transfer restrictions.
Prior to the Offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among the Firm and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be the Firm's historical performance, estimates of the business
potential and earnings prospects of the Firm, an assessment of the Firm's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The Common Stock will be listed on the New York Stock Exchange under the
symbol "GS". In order to meet one of the requirements for listing the Common
Stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial holders.
In connection with the Offerings, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the Offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Common
Stock while the Offerings are in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
After the Offerings, because Goldman, Sachs & Co. is a member of the NYSE
and because of its relationship to the Firm, it will not be permitted under the
rules of the NYSE to make markets in or recommendations regarding the purchase
or sale of the Common Stock. This may adversely affect the trading market for
the Common Stock.
Also because of the relationship between Goldman, Sachs & Co. and the Firm,
the Offerings are being conducted in accordance with Rule 2720 of the National
Association of Securities Dealers. That rule requires that the initial public
offering price can be no higher than that recommended by a "qualified
independent underwriter", as defined by the NASD. and
have served in that capacity and performed due diligence
investigations and reviewed and participated in the preparation of the
Registration Statement of which this Prospectus forms a part. Each of
and has received $10,000 from the Firm as
compensation for such role.
The Underwriters may not confirm sales to discretionary accounts without
the prior written approval of the customer.
Goldman, Sachs & Co., Goldman Sachs International and Goldman Sachs (Asia)
U-2
<PAGE> 130
L.L.C. are subsidiaries of the Firm. In aggregate, these three affiliated
Underwriters have severally agreed to purchase % of the shares being
offered in the three Offerings. If any of the shares underwritten by these three
affiliates are sold by them at a price less than the initial public offering
price, the net proceeds from the Offerings to the Firm on a consolidated basis
will be reduced because such affiliates and the Firm are accounted for on a
consolidated basis.
The Firm and the Selling Shareholders estimate that their shares of the
total expenses of the Offerings, excluding underwriting discounts and
commissions, will be approximately $ and $ , respectively.
At the request of the Firm, up to shares have been reserved
for sale by Goldman, Sachs & Co. to employees of the Firm and its affiliates and
certain other purchasers. Such shares will be sold at the initial public
offering price and, to the extent sold, will not otherwise be available for sale
as a part of the Offerings. If any such shares are not sold in this manner they
will be offered by Goldman, Sachs & Co. as a part of the Offerings. Purchasers
in the Directed Offering are subject to the 180-day lockup described above.
The Firm and the Selling Shareholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
This Prospectus may be used by the Underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the Underwriters in the Offerings being made outside of the
United States, to persons located in the United States.
U-3
<PAGE> 131
- -------------------------------------------------------
- -------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell or to buy only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Our Business Principles................ 3
Certain Introductory Matters........... 4
Prospectus Summary..................... 5
Risk Factors........................... 14
Use of Proceeds........................ 24
Dividend Policy........................ 24
Dilution............................... 25
Capitalization......................... 26
Pro Forma Consolidated Financial
Information.......................... 27
Selected Consolidated Financial Data... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 32
Industry and Economic Outlook.......... 53
Business............................... 56
Management............................. 79
Principal and Selling Shareholders..... 90
Certain Relationships and Related
Transactions......................... 91
Description of Capital Stock........... 95
Description of Capital Securities...... 100
Shares Eligible for Future Sale........ 101
Validity of Common Stock............... 102
Experts................................ 102
Available Information.................. 102
Index to Consolidated Financial
Statements........................... F-1
Underwriting........................... U-1
</TABLE>
------------------
Through and including , 1998 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
Shares
THE GOLDMAN SACHS
GROUP, INC.
Common Stock
------------------
[GOLDMAN SACHS LOGO]
------------------
GOLDMAN, SACHS & CO.
Representatives of the Underwriters
-------------------------------------------------------
-------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses, other than
underwriting discounts and commissions, to be incurred in connection with the
distribution of the securities registered under this Registration Statement:
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee......... $ 2,950
NASD fees and expenses...................................... 1,500
Legal fees and expenses..................................... *
Fees and expenses of qualification under state securities
laws (including legal fees)............................... *
NYSE listing fees and expenses.............................. *
Accounting fees and expenses................................ *
Printing and engraving fees................................. *
Registrar and transfer agent's fees......................... *
Miscellaneous............................................... *
-------
Total............................................. $
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Section 6.4 of the
Registrant's By-Laws provides for indemnification by the Registrant of directors
and officers (as such terms are defined in the By-Laws) of the Registrant, who
is or was acting as such, is or was a member of the Shareholders' Committee
acting pursuant to the Shareholders' Agreement or, at the request of the
Registrant, are or were serving as directors or officers of any other
enterprise, to the fullest extent permitted by law. The By-Laws also provide
that the Registrant shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the Registrant. To the extent authorized from time to time by
the Board of Directors of the Registrant, the Registrant may provide to any one
or more employees and other agents of the Registrant or any subsidiary or other
enterprise, rights of indemnification and to receive payment or reimbursement of
expenses, including attorneys' fees, that are similar to the rights conferred in
the By-Laws of the Registrant on directors and officers of the Registrant or any
subsidiary or other enterprise.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally
II-1
<PAGE> 133
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's 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) for payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit. The Registrant's Amended and
Restated Certificate of Incorporation provides for such limitation of liability.
Policies of insurance are maintained by the Registrant under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
Reference is also made to Section of the Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
As part of the Incorporation Transactions (as defined in the Prospectus),
the Registrant has entered into definitive binding agreements to issue: (i)
shares of the Registrant's common stock, par value $.01 per share (the "Common
Stock"), to certain limited partners (the "PLPs") of Group, L.P. ("Group L.P.")
in exchange for all of the PLPs' interests in Group L.P. and certain other
entities; and (ii) shares of Common Stock and 12% junior subordinated debentures
(the "Junior Subordinated Debentures") of the Registrant to certain limited
partners of Group L.P. in exchange for all of such limited partners' interests
in Group L.P. and certain other entities. The Registrant will also make an award
of restricted stock units and stock options to substantially all of its
employees and will make an irrevocable contribution of Common Stock to a
non-qualified deferred contribution plan. These shares of Common Stock and
Junior Subordinated Debentures will be issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act and Rule 506
thereunder, will not be subject to the registration requirements of the
Securities Act because the securities were offered and sold outside the United
States to persons who are not citizens or residents of the United States in
reliance upon the exemption provided by Regulation S under the Securities Act or
will not involve an offer or sale for purposes of Section 2(3) of the Securities
Act.
II-2
<PAGE> 134
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Plan of Incorporation.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.*
3.2 By-Laws of the Company.*
4.1 Specimen of certificate representing the Company's Common
Stock, par value $.01 per share.*
4.2 Rights Agreement, dated as of , 1998, between
The Goldman Sachs Group, L.P. ("Group L.P.") and
, as Rights Agent.*
5.1 Opinion of Sullivan & Cromwell, counsel to the Company.*
10.1 Lease, dated June 11, 1985, between Metropolitan Life
Insurance Company and Goldman, Sachs & Co.
10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank
(National Association) and Group L.P., as amended.*
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and Group L.P.
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and Group L.P.
10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) Goldman Sachs
International ("GSI"), (iii) Restamove Limited, (iv) Group
L.P. and (v) Itochu Corporation.*
10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998,
among (i) JC No. 3 (UK) Limited and Fleet Street Square
Management Limited trading as Fleet Street Partnership, (ii)
GSI, (iii) Restamove Limited, (iv) Group L.P. and (v) Itochu
Corporation (Form of Occupational Lease, dated ,
19 , among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited trading as Fleet Street
Partnership, (ii) GSI and (iii) Group L.P.).*
10.7 Agreement relating to Developer's Fit Out Works to be
carried out at 120 Fleet Street, London, dated April 2,
1998, among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited, (ii) Goldman Sachs Property
Management, (iii) Itochu Corporation and (iv) Group L.P.*
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, GSI,
Group L.P., English Property Corporation plc and MEPC plc.
10.9 Fit Out Works Agreement relating to One Carter Lane, London
EC4, dated March 25, 1998, among Britel Fund Trustees
Limited, GSI, Goldman Sachs Property Management, Group L.P.,
English Property Corporation plc and MEPC plc.
10.10 Form of Underlease of premises known as One Carter Lane,
London EC4, dated , 1998, among Britel Fund Trustees
Limited, GSI and Group L.P.
10.11 Lease, dated March 5, 1994, among Shine Hill Development
Limited, Shine Belt Limited, Fair Page Limited, Panhy
Limited, Maple Court Limited and Goldman Sachs (Asia)
Finance.
10.12 Guarantee, dated November 17, 1993, between Shine Hill
Development Limited and Group L.P.
10.13 Summary of Tokyo Leases.*
10.14 Goldman Sachs 1998 Stock Incentive Plan.*
10.15 The Goldman Sachs Defined Contribution Plan.*
10.16 Trust Agreement.*
10.17 The Goldman Sachs Partner Pool.*
10.18 Form of Employment Agreement.*
10.19 Form of Confidentiality, Noncompetition and Nonsolicitation
Agreement.*
</TABLE>
II-3
<PAGE> 135
<TABLE>
<C> <S>
10.20 Form of Pledge Agreement.*
10.21 Award Agreement (Formula RSUs).*
10.22 Award Agreement (Discretionary RSUs).*
10.23 Form of Option Agreement (Discretionary Options).*
10.24 Form of Tax Indemnification Agreement, dated as of November , 1998, by and among the Schedule I and
Schedule II Limited Partners, and other former partners of Group L.P. who or which have accepted the Plan
of Incorporation, Sumitomo Bank Capital Markets, Inc., Kamehameha Activities Association and The Goldman
Sachs Group, Inc.*
10.25 Shareholders' Agreement, dated as of , 1998, among The Goldman Sachs Group, Inc. and various
parties.*
10.26 Instrument of Indemnification.*
11.1 Statement re computation of per share earnings.*
15.1 Letter of PricewaterhouseCoopers LLP regarding unaudited interim financial information.
21.1 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1 above).*
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Condensed financial information of Group L.P. and report of
PricewaterhouseCoopers LLP thereon.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
II-4
<PAGE> 136
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York on the
24th day of August, 1998.
THE GOLDMAN SACHS GROUP, INC.
By: /s/ JON S. CORZINE
------------------------------------
Name: Jon S. Corzine
Title: Co-Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John A. Thain, Robert J. Katz, Gregory K.
Palm and David A. Viniar and each of them severally, his or her true and lawful
attorney-in-fact with power of substitution and resubstitution to sign in his or
her name, place and stead, in any and all capacities, to do any and all things
and execute any and all instruments that such attorney may deem necessary or
advisable under the Securities Act of 1933 (the "Securities Act"), and any
rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the registration under the Securities Act of the
Common Stock of the Registrant, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign his or her name in
his or her respective capacity as a member of the Board of Directors or officer
of the Registrant, this Registration Statement and/or such other form or forms
as may be appropriate to be filed with the Commission as any of them may deem
appropriate in respect of the Common Stock of the Registrant, to any and all
amendments thereto (including post-effective amendments) to this Registration
Statement, to any related Rule 462(b) Registration Statement and to any other
documents filed with the Securities and Exchange Commission, as fully for all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all said attorneys-in-fact and agents, each acting alone,
and his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 24, 1998:
<TABLE>
<CAPTION>
TITLE SIGNATURE
----- ---------
<S> <C>
Director, Co-Chairman of the Board and
Co-Chief Executive Officer (Principal Executive
Officer) /s/ JON S. CORZINE
----------------------------------------------
Jon S. Corzine
Director, Co-Chairman of the Board and
Co-Chief Executive Officer (Principal Executive
Officer) /s/ HENRY M. PAULSON, JR.
----------------------------------------------
Henry M. Paulson, Jr.
Director and Vice Chairman /s/ ROBERT J. HURST
----------------------------------------------
Robert J. Hurst
Director and Vice Chairman /s/ ROY J. ZUCKERBERG
----------------------------------------------
Roy J. Zuckerberg
</TABLE>
II-6
<PAGE> 138
<TABLE>
<CAPTION>
TITLE SIGNATURE
----- ---------
<S> <C>
Director and Chief Financial Officer (Principal
Financial Officer) /s/ JOHN A. THAIN
----------------------------------------------
John A. Thain
Deputy Chief Financial Officer
(Principal Accounting Officer) /s/ DAVID A. VINIAR
----------------------------------------------
David A. Viniar
Director and Chairman of International Operations /s/ JOHN L. THORNTON
----------------------------------------------
John L. Thornton
</TABLE>
II-7
<PAGE> 139
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners,
The Goldman Sachs Group, L.P.:
In connection with our audits of the consolidated financial statements of The
Goldman Sachs Group, L.P. and Subsidiaries as of May 29, 1998, November 28, 1997
and November 29, 1996, and for the six-month fiscal period ended May 29, 1998
and the three fiscal years in the period ended November 28, 1997, which
financial statements are included on pages F-4 to F-24 of this Form S-1, we have
also audited the financial statement schedules listed in Item 16(b) herein.
In our opinion, these financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
New York, New York
August 3, 1998.
S-1
<PAGE> 140
SCHEDULE IV
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE GOLDMAN SACHS GROUP, L.P.
CONDENSED STATEMENTS OF EARNINGS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
---------------------------- --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
REVENUES:
Equity in earnings of subsidiaries........... $ 746 $2,184 $2,378 $1,310 $1,332
Principal investments........................ 654 208 339 76 433
Interest income, principally from
affiliates................................. 3,008 2,602 2,943 1,348 1,989
------ ------ ------ ------ ------
Total revenues..................... 4,408 4,994 5,660 2,734 3,754
Interest expense, principally on
short-term funding......................... 3,025 2,547 2,858 1,346 1,989
------ ------ ------ ------ ------
Revenues, net of interest expense.......... 1,383 2,447 2,802 1,388 1,765
OPERATING EXPENSES:
Compensation and benefits.................... 7 13 12 1 2
Other........................................ 23 33 29 13 16
------ ------ ------ ------ ------
Total operating expenses........... 30 46 41 14 18
Pre-tax earnings............................. 1,353 2,401 2,761 1,374 1,747
Provision for unincorporated business
taxes...................................... 5 2 15 2 16
------ ------ ------ ------ ------
Net earnings................................. $1,348 $2,399 $2,746 $1,372 $1,731
====== ====== ====== ====== ======
</TABLE>
See note to condensed financial statements.
S-2
<PAGE> 141
THE GOLDMAN SACHS GROUP, L.P.
CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
AS OF NOVEMBER AS OF MAY
------------------ ----------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents...................... $ 116 $ 4 $ 46 $ 14
Financial instruments owned, at fair value..... 1,171 1,896 1,381 2,063
Receivables from affiliates.................... 19,361 23,767 21,819 29,567
Subordinated loan receivables from
affiliates................................... 5,361 6,889 5,751 8,608
Investment in subsidiaries..................... 4,774 5,005 5,036 4,924
Other.......................................... 306 434 469 743
------- ------- ------- -------
$31,089 $37,995 $34,502 $45,919
======= ======= ======= =======
LIABILITIES AND NET WORTH:
Short-term borrowings, including commercial
paper........................................ $13,756 $16,597 $16,763 $19,128
Payable to affiliates.......................... 34 119 12 48
Other.......................................... 93 137 105 135
Long-term borrowings:
With third parties........................... 10,744 14,290 11,324 18,838
With affiliates.............................. 169 315 143 566
------- ------- ------- -------
24,796 31,458 28,347 38,715
Partners' capital reserved for income taxes
and potential withdrawals.................... 984 430 546 566
Partners' capital.............................. 5,309 6,107 5,609 6,638
------- ------- ------- -------
$31,089 $37,995 $34,502 $45,919
======= ======= ======= =======
</TABLE>
See note to condensed financial statements.
S-3
<PAGE> 142
THE GOLDMAN SACHS GROUP, L.P.
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED NOVEMBER ENDED MAY
--------------------------- ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................. $ 1,348 $ 2,399 $ 2,746 $ 1,372 $ 1,731
Non-cash items included in net earnings:
Equity in earnings of subsidiaries.... (746) (2,184) (2,378) (1,310) (1,332)
Depreciation and amortization......... 17 25 19 9 9
(Increases)/decreases in operating assets
and liabilities:
Financial instruments owned, at fair
value................................. (114) (110) (395) (135) 16
Other, net............................... (105) (43) (98) (160) (227)
------- ------- ------- ------- -------
Net cash provided by/(used for)
operating activities................ 400 87 (106) (224) 197
------- ------- ------- ------- -------
Cash flows from investing activities:
Financial instruments owned, at fair
value................................. 111 126 (331) (75) (183)
Receivable from affiliates, net.......... 3,650 (1,476) (4,320) (2,480) (5,871)
Subordinated loan receivables from
affiliates............................ (101) (480) (1,528) (390) (1,719)
Investments in subsidiaries.............. 334 2,031 2,147 1,049 1,412
Property, leasehold improvements and
equipment............................. (34) (1) (4) (1) (93)
------- ------- ------- ------- -------
Net cash provided by/(used for)
investing activities................ 3,960 200 (4,036) (1,897) (6,454)
------- ------- ------- ------- -------
Cash flows from financing activities:
Short-term borrowings, including
commercial paper...................... (5,537) 496 39 1,370 (945)
Issuance of long-term borrowings......... 5,515 4,636 7,498 3,196 9,110
Repayment of long-term borrowings........ (3,067) (3,886) (1,005) (1,005) (834)
Capital contributions.................... 276 4 89 75 6
Returns on capital and certain
distributions to partners............. (449) (473) (557) (288) (311)
Redemption of institutional limited
partners.............................. (275) -- -- -- --
Partners' capital reserved for income
taxes and potential withdrawals,
net................................... (835) (1,017) (2,034) (1,297) (759)
------- ------- ------- ------- -------
Net cash (used for)/provided by
financing activities............. (4,372) (240) 4,030 2,051 6,267
------- ------- ------- ------- -------
Net (decrease)/increase in cash and cash
equivalents.............................. (12) 47 (112) (70) 10
Cash and cash equivalents, beginning
of period................................ 81 69 116 116 4
------- ------- ------- ------- -------
Cash and cash equivalent, end of period.... $ 69 $ 116 $ 4 $ 46 $ 14
======= ======= ======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest approximated the related expense for each of the
fiscal periods presented. Payments of unincorporated businesses taxes were not
material.
See note to condensed financial statements.
S-4
<PAGE> 143
THE GOLDMAN SACHS GROUP, L.P.
NOTE TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed unconsolidated financial statements of The Goldman Sachs
Group, L.P. should be read in conjunction with the consolidated financial
statements of The Goldman Sachs Group, L.P. and Subsidiaries and the footnotes
thereto. Certain reclassifications have been made to prior year amounts to
conform to the current presentation.
Investment in subsidiaries is accounted for using the equity method.
The condensed unconsolidated financial statements have been prepared in
accordance with generally accepted accounting principles which require
management to make estimates and assumptions regarding investment valuations,
partner retirements, the outcome of pending litigation and other matters that
affect the condensed unconsolidated financial statements and related disclosure.
These estimates and assumptions are based on judgment and available information
and, consequently, actual results could be different from these estimates.
S-5
<PAGE> 144
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Plan of Incorporation.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.*
3.2 By-Laws of the Company.*
4.1 Specimen of certificate representing the Company's Common
Stock, par value $.01 per share.*
4.2 Rights Agreement, dated as of , 1998, between
The Goldman Sachs Group, L.P. ("Group L.P.") and
, as Rights Agent.*
5.1 Opinion of Sullivan & Cromwell, counsel to the Company.*
10.1 Lease, dated June 11, 1985, between Metropolitan Life
Insurance Company and Goldman, Sachs & Co.
10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank
(National Association) and Group L.P., as amended.*
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and Group L.P.
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and Group L.P.
10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) Goldman Sachs
International ("GSI"), (iii) Restamove Limited, (iv) Group
L.P. and (v) Itochu Corporation.*
10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998,
among (i) JC No. 3 (UK) Limited and Fleet Street Square
Management Limited trading as Fleet Street Partnership, (ii)
GSI, (iii) Restamove Limited, (iv) Group L.P. and (v) Itochu
Corporation (Form of Occupational Lease, dated ,
19 , among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited trading as Fleet Street
Partnership, (ii) GSI and (iii) Group L.P.).*
10.7 Agreement relating to Developer's Fit Out Works to be
carried out at 120 Fleet Street, London, dated April 2,
1998, among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited, (ii) Goldman Sachs Property
Management, (iii) Itochu Corporation and (iv) Group L.P.*
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, GSI,
Group L.P., English Property Corporation plc and MEPC plc.
10.9 Fit Out Works Agreement, dated March 25, 1998, among Britel
Fund Trustees Limited, GSI, Goldman Sachs Property
Management, Group L.P., English Property Corporation plc and
MEPC plc.
10.10 Form of Underlease, dated , 1998, among Britel Fund
Trustees Limited, GSI and Group L.P.
10.11 Lease, dated March 5, 1994, among Shine Hill Development
Limited, Shine Belt Limited, Fair Page Limited, Panhy
Limited, Maple Court Limited and Goldman Sachs (Asia)
Finance.
10.12 Guarantee, dated November 17, 1993, between Shine Hill
Development Limited and Group L.P.
10.13 Summary of Tokyo Leases.*
10.14 Goldman Sachs 1998 Stock Incentive Plan.*
10.15 The Goldman Sachs Defined Contribution Plan.*
10.16 Trust Agreement.*
10.17 The Goldman Sachs Partner Pool.*
10.18 Form of Employment Agreement.*
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.19 Form of Confidentiality, Noncompetition and Nonsolicitation
Agreement.*
10.20 Form of Pledge Agreement.*
10.21 Award Agreement (Formula RSUs).*
10.22 Award Agreement (Discretionary RSUs).*
10.23 Form of Option Agreement (Discretionary Options).*
10.24 Form of Tax Indemnification Agreement, dated as of November
, 1998, by and among the Schedule I and Schedule II
Limited Partners, and other former partners of Group L.P.
who or which have accepted the Plan of Incorporation,
Sumitomo Bank Capital Markets, Inc., Kamehameha Activities
Association and The Goldman Sachs Group, Inc.*
10.25 Shareholders' Agreement, dated as of , 1998, among
The Goldman Sachs Group, Inc. and various parties.*
10.26 Instrument of Indemnification.*
11.1 Statement re computation of per share earnings.*
15.1 Letter of PricewaterhouseCoopers LLP regarding unaudited
interim financial information.
21.1 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1
above).*
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
GS LEASE
LEASE
dated June 11, 1985
METROPOLITAN LIFE INSURANCE COMPANY
and
GOLDMAN, SACHS & CO.
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Leased Premises; Term of Lease ............................. 1
1.1 Leased Premises ............................................ 1
1.2 Original Term .............................................. 2
1.3 Extended Terms ............................................. 2
2. Basic Rent, etc. ........................................... 4
2.1 Basic Rent ................................................. 4
2.2 Determination of Basic Rent ................................ 5
3. Manner of Payment .......................................... 8
4. Net Lease; No Counterclaim, Abatement ...................... 8
5. Condition and Use of Combined Premises ..................... 9
6. Maintenance; Alterations; Certain
Reimbursements; Etc. ..................................... 10
7. Removal and Replacement of Initial.
Tenant Improvements; Lessee's
Equipment ................................................ 37
8. Utility Services ........................................... 39
9. Indemnification by Lessee .................................. 40
10. Entry by Lessor ............................................ 42
11. Payment of Taxes, Impositions, etc. ........................ 43
11.1 General .................................................... 43
11.2 Exclusions from Impositions ................................ 45
11.3 Permitted Contests ......................................... 46
11.4 Tax Deposits ............................................... 48
12. Compliance with Legal and Insurance
Requirements, Permitted Encumbrances,
Leases ................................................... 50
13. Liens ...................................................... 50
14. Insurance .................................................. 51
14.1 Risks to be Insured ........................................ 51
14.2 Policy Provisions .......................................... 55
14.3 Delivery of Insurance Certificates;
Payment of Premium ........................................ 56
14.4 No Limitation of Damages ................................... 57
15. Damage to or Destruction of Property ....................... 57
15.1 Waiver of ss.227; Lessee to Give Notice .................... 57
15.2 Restoration ................................................ 58
15.3 Application of Insurance Proceeds .......................... 58
15.4 Termination in Lieu of Restoration ......................... 60
16. Taking of Property ......................................... 66
16.1 Notice ..................................................... 66
16.2 Total Taking ............................................... 66
<PAGE> 3
-ii-
16.3 Partial Taking ............................................. 67
16.4 Application of Awards ...................................... 68
16.5 Temporary Taking ........................................... 71
17. Disbursement of Deposited Sums ............................. 72
18. Certificate as to No Default, etc. ......................... 78
19. Right of Lessor to Perform
Lessee's Covenants, etc. ................................. 78
20. Assignments; Subleases ..................................... 82
20.1 Generally .................................................. 82
20.2 Non-disturbance ............................................ 84
20.3 Leasehold Mortgages ........................................ 86
21. Vaults ..................................................... 93
22. Events of Default; Termination ............................. 93
23. Repossession ............................................... 98
24. Reletting .................................................. 99
25. Survival of Lessee's Obligations;
Damages .................................................. 99
25.1 Termination of Lease Not to Relieve
Lessee of Obligations .................................... 99
25.2 Current Damages ............................................ 99
25.3 Final Damages .............................................. 101
26. No Waiver .................................................. 102
27. Remedies Cumulative ........................................ 102
28. Acceptance of Early Termination or Surrender ............... 103
29. No Merger of Title ......................................... 103
30. Exculpation ................................................ 104
31. Definitions ................................................ 106
32. End of Lease Term .......................................... 113
33. Notices .................................................... 113
34. Annual Reports ............................................. 115
35. Miscellaneous .............................................. 115
36. Structural Work ............................................ 117
37. Limitation on Interest ..................................... 120
Signatures ................................................. 120
Acknowledgments
Schedule A - Legal Description of the Land
Schedule B - Permitted Encumbrances;
Existing Leases
Schedule C - Form of non-disturbance agreement
Schedule D - Major Building Equipment
Schedule E - The Deed
Schedule F - Section 10.8 of Contract of Sale
<PAGE> 4
LEASE
THIS LEASE, dated June 11, 1985, between METROPOLITAN LIFE INSURANCE
COMPANY ("Lessor"), a New York corporation having its principal office at One
Madison Avenue, New York, New York 10010, and GOLDMAN, SACHS & CO. ("Lessee"), a
New York limited partnership having its principal office at 85 Broad Street, New
York, New York 10004.
W I T N E S S E T H:
That in consideration of the mutual agreements herein contained,
Lessor and Lessee hereby agree and covenant to and with each other as follows:
1. Leased Premises; Term of Lease.
1.1 Leased Premises. Lessor leases to Lessee, and Lessee rents from
Lessor, the land located in the City, County and State of New York more
particularly described in Schedule A hereto (the "Land"),
TOGETHER WITH the buildings, structures and improvements now or
hereafter appurtenant thereto or located thereon (the "Building"), and all
fixtures and personal property owned by Lessor now or hereafter attached thereto
or used in connection therewith,
TOGETHER WITH all the right, title and interest, if any, of Lessor
in and to:
<PAGE> 5
2
1. Any strips and gores of land adjoining the Land on any side
thereof;
2. Any land lying in the bed of any street or avenue abutting the
Land, to the center line thereof; and
3. Any easements or other rights in adjoining property enuring to
Lessor by reason of ownership of the Land;
EXCLUDING all Lessee's Equipment (as hereinafter defined) and the
Initial Tenant Improvements (as hereinafter defined).
All of the foregoing being herein called the "Leased Premises".
SUBJECT TO the Permitted Encumbrances and the Existing Leases, as
hereinafter defined.
1.2 Original Term. This Lease shall commence on the date hereof (the
"commencement date") and, unless sooner terminated pursuant to law or pursuant
to any of the terms hereof, shall expire at 11:59 p.m. on June 30, 2008.
1.3 Extended Terms. (a) Lessee shall have the right, exercisable as
hereinafter provided, to extend the term of this Lease for four successive
periods of five years each. Each such extended term shall be (except for the
amount of Basic Rent per annum and that there shall be no right to extend the
term of this Lease beyond the expiration of the fourth extended term) upon the
same covenants, terms and conditions as those provided in this Lease for the
<PAGE> 6
3
original term. If Lessee desires to preserve the right to extend the term of
this Lease for any extended term, it shall give Lessor a notice (the
"preservation notice") no earlier than the day 30 months prior to, and no later
than the day 20 months prior to, the expiration of the original term or the then
current extended term (the "then current term"), as the case may be (the "then
current scheduled expiration date"). If Lessee shall fail timely to give the
preservation notice, it shall have no right to extend the term of this Lease.
The Basic Rent per annum applicable to any extended term shall be determined in
accordance with section 2.2, but shall in no event be less than $35,862,435 per
annum. After the determination thereof pursuant to section 2.2, Lessee may, by
notice (the "exercise notice") to Lessor given no later than 30 days after the
date of such determination, exercise its right to extend the term of this Lease
at the Basic Rent so determined, but in no event less than $35,862,435 per
annum.
(b) If the term of this Lease is not extended for any of the four
extended terms, Lessee shall have no right to extend the term hereof for any of
the subsequent extended terms.
(c) Notwithstanding the foregoing provisions of this section 1.3, no
preservation notice shall be effective to preserve, and no exercise notice shall
be effective to exercise, Lessee's right to extend the term of this Lease
<PAGE> 7
4
for any extended term if an Event of Default under section 22(a), (b), (c) or
(d) shall have occurred and be continuing on the date on which Lessee gives such
notice with respect to such extended term.
2. Basic Rent, etc.
2.1 Basic Rent. Lessee shall pay to Lessor during the term of this
Lease a net annual basic rental for the Leased Premises (the "Basic Rent"), in
advance, in equal monthly installments, on the first day of each month computed
at the rate of
(a) $26,169,885 per annum for the period from the commencement date
to and including June 30, 1988;
(b) $31,016,160 per annum for the period from July 1, 1988 to and
including June 30, 1993;
(c) $35,862,435 per annum for the period from July 1, 1993 to and
including June 30, 1998;
(d) for the period from July 1, 1998 to and including June 30, 2003,
the amount per annum determined in accordance with section 2.2, but in no
event less than $35,862,435 per annum;
(e) for the period from July 1, 2003 to and including June 30, 2008,
the amount per annum determined in accordance with section 2.2, but in no
event less than $35,862,435 per annum; and
(f) if Lessee shall exercise its option to extend this Lease as
provided in section 1.3 for one or more
<PAGE> 8
5
extended terms, for such extended term, the amount per annum determined in
accordance with section 2.2.
If this Lease shall commence other than on the first day of a month, rent for
the period from the commencement date to and including the last day of the month
in which the commencement date occurs shall be due on the commencement date.
2.2 Determination of Basic Rent. (a) Each determination of Basic
Rent for the purposes of sections 1.3 and 2.1(d), (e) and (f) shall be made, to
the extent not inconsistent with this section, in accordance with the rules from
time to time in effect of the American Arbitration Association or, if the
American Arbitration Association shall have ceased to function as an arbitration
association, of a successor or comparable organization (the "Rules"). There
shall be three arbitrators: one designated by Lessor; one designated by Lessee;
and one designated in the manner hereinafter described. Each arbitrator shall,
as of the date of his designation, be a real estate broker licensed in the State
of New York doing business in the Borough of Manhattan and having at least 15
years experience in first-class Manhattan office building leases. Lessor shall,
by notice ("Lessor's Designation Notice") to Lessee given not later than the
applicable date indicated below, designate the name and address of its
arbitrator.
<PAGE> 9
6
<TABLE>
<CAPTION>
Arbitration Pursuant to Applicable Date
----------------------- ---------------
<S> <C>
Section 2.1(d) June 15, 1997
Section 2.1(e) June 15, 2002
Section 1.3 30 days after the
day on which Lessor
receives the
preservation notice
</TABLE>
Lessee shall, by notice to Lessor given not later than the applicable date
indicated below, designate the name and address of its arbitrator.
<TABLE>
<CAPTION>
Arbitration Pursuant to Applicable Date
----------------------- ---------------
<S> <C>
Section 2.1(d) July 1, 1997
Section 2.1(e) July 1, 2002
Section 1.3 30 days after the
day on which Lessee
receives Lessor's
Designation Notice
</TABLE>
If either party shall fail timely to designate its arbitrator, and such failure
shall continue for 10 days after receipt by the failing party of notice of such
failure; such other party may designate an arbitrator on behalf of the failing
party. Promptly after the designation of the second of the two arbitrators to be
designated, such two arbitrators shall meet and attempt to mediate between
Lessor and Lessee an agreement upon the Basic Rent in question. If, within 15
days after the designation of the second of the two arbitrators to be
designated, Lessor and Lessee have not agreed upon the Basic Rent in question,
such two arbitrators shall jointly designate a third arbitrator. If, within 30
days after the designation of the second of the two arbitrators to be
designated, no third arbitrator
<PAGE> 10
7
shall have been so jointly designated, such third arbitrator shall be designated
pursuant to the Rules. The arbitrators shall render their decision within 60
days after the designation of the third arbitrator to be designated. Lessor and
Lessee shall each pay the fees and disbursements of the arbitrator designated by
or on behalf of it, and Lessor and Lessee shall share equally the fees and
disbursements of the third arbitrator, if any; provided, however, that with
respect to any arbitration pursuant to section 1.3, if Lessee does not give the
exercise notice, Lessee shall pay (or reimburse Lessor for) all reasonable
out-of-pocket expenses incurred by Lessor in connection with such arbitration,
including attorneys' fees and disbursements and expert witness fees and
disbursements.
(b) The arbitrators shall determine the Basic Rent in question by
establishing the fair market amount thereof as of the date six months prior to
the date as of which such Basic Rent will take effect (in the case of
arbitration pursuant to section 2.1(d) or (e)) or the date six months prior to
the then current scheduled expiration date (in the case of arbitration pursuant
to section 1.3) that would be payable for the Leased Premises by a lessee having
the then creditworthiness of Lessee under a lease on all of the terms and
conditions of this Lease. Each arbitrator shall render as his determination of
the Basic Rent a fixed dollar amount per annum, and shall give a notice to the
other arbitrators
<PAGE> 11
8
and Lessor and Lessee thereof. All notices pursuant to the preceding sentence
shall be given simultaneously at a meeting (called by the third arbitrator on at
least five business days' notice to Lessor and Lessee and the other arbitrators)
at which all three arbitrators and Lessor and Lessee are present. The arithmetic
average of the two determinations closest to one another shall be and constitute
the determination of the arbitration; provided, however, if the highest and
lowest determinations are equidistant from the middle determination, then the
middle determination shall be and constitute the determination of the
arbitration.
3. Manner of Payment. The Basic Rent and all other sums payable by
Lessee to Lessor hereunder shall be payable in lawful money of the United States
of America and shall be paid to Lessor at Lessor's address set forth above or at
such other address of Lessor within the United States as Lessor from time to
time may designate or to such agent or person or persons resident or having an
office at such other address within the United States as Lessor from time to
time may designate.
4. Net Lease; No Counterclaim, Abatement. Lessor shall not be
required to provide any services to the Combined Premises or any part thereof.
Subject to the last sentence of this section 4, this Lease is a net lease, and
Lessee shall pay all costs, charges, taxes, assessments and
<PAGE> 12
9
other expenses of every character, foreseen or unforeseen, ordinary or
extraordinary, for the payment of which Lessor or Lessee is or shall become
liable by reason of its respective estate, right, title or interest in the
Combined Premises or any part thereof, or which are connected with or arise out
of the possession, use, occupancy, maintenance, addition to, repair or
rebuilding of the Combined Premises or any part thereof, including, without
limitation, those specifically referred to in this Lease. Except as provided in
sections 16 and 20.1(a), the Basic Rent and all other sums payable by Lessee
hereunder shall be paid without notice, demand, counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction. The foregoing provisions of this section 4 shall not obligate Lessee
to pay any taxes which are not Impositions or relieve Lessor of its obligation
to make reimbursements to Lessee in accordance with section 6(e).
5. Condition and Use of Combined Premises. LESSOR DOES NOT MAKE, AND
LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT MADE, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THIS LEASE, OR THE PRESENT OR FUTURE
MERCHANTABILITY, HABITABILITY, CONDITION, QUALITY, DURABILITY, FITNESS OR
SUITABILITY OF THE COMBINED PREMISES OR ANY PART THEREOF IN ANY RESPECT OR IN
CONNECTION WITH OR FOR THE PURPOSES AND USES OF LESSEE, OR ANY OTHER
<PAGE> 13
10
REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH
RESPECT THERETO. Lessee accepts the Leased Premises "as-is". Lessee may use the
Leased Premises only as an office building which may include retail facilities
and for purposes reasonably ancillary thereto. Lessee shall not suffer or permit
the Leased Premises or any part thereof to be used by the public in such a
manner as would subject the Leased Premises or any part thereof to a claim of
adverse possession by the public.
6. Maintenance; Alterations; Certain Reimbursements; Etc.
(a) Generally.
(i) Maintenance; Alterations. Subject to the provisions of this
Lease, Lessee:
(x) shall, in accordance with first-class office building
maintenance and operating standards (collectively, the "First-Class
Standard"), keep the Combined Premises in overall first-class order,
condition and repair;
(y) shall promptly make all replacements in and to the
Combined Premises or any part thereof (whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, foreseen or
unforeseen) which are necessary or appropriate in a first-class
office building (collectively, "Required Replacements"); and
<PAGE> 14
11
(z) may make additions, alterations, improvements and
replacements (other than Required Replacements) in and to and
removals from the Combined Premises or any part thereof
(collectively, "Voluntary Alterations"; Required Replacements,
Structural Work [as defined in section 36] and Voluntary Alterations
being collectively called "Alterations").
(ii) Requirements for All Alterations. No Alteration may be
undertaken if such Alteration would (a) result in the Building's not being a
first-class office building or (b) materially and adversely affect any
structural element of the Building or any item of Major Building Equipment (as
defined in section 31). Each Alteration shall be effected with due diligence, in
a good and workmanlike manner, and in compliance with all Legal Requirements,
Insurance Requirements and Permitted Encumbrances. All Structural Work and all
replacements of items of Major Building Equipment shall be of a quality at least
equal to the original installation. Lessor shall not be liable to any
contractors, subcontractors, laborers, materialmen, suppliers or vendors for
services performed or material provided on or in connection with the Combined
Premises or any part thereof. Lessor shall not be required to maintain, alter,
repair, rebuild or replace the Combined Premises or any part thereof. Lessee
waives all rights to
<PAGE> 15
12
make Alterations at Lessor's expense, except that Lessor shall in accordance
with section 6(e) make reimbursements to Lessee on account of Reimbursable
Replacements, Reimbursable Structural Work and Reimbursable Legal Requirement
Alterations (each as defined in section 6(c)). All Alterations shall immediately
become the property of Lessor, shall be a part of the Leased Premises and shall
be subject to this Lease, and Lessee shall, upon demand of Lessor, execute and
deliver an appropriate instrument confirming Lessor's title thereto.
(b) Maintenance Programs.
(i) Initial Maintenance Program. On or before June 30, 1985, Lessee
shall submit to Lessor for its approval a maintenance program (the "Initial
Maintenance Program") for the period ending on May 31, 1986 with respect to the
following (collectively, the "Programmed Maintenance Items"): caulking and
acrylic treatment of the curtain wall and maintenance of the HVAC system, the
life safety system, the roof, the elevators, the escalators and the emergency
generators. Lessee's submission of the Initial Maintenance Program shall be
accompanied by an estimated budget for Reimbursable Replacements and
Reimbursable Structural Work for the period covered by such Program. Lessor
shall give notice to Lessee of Lessor's approval or disapproval of the Initial
Maintenance Program within 20 business days after such Program is received by
Lessor (which notice shall, in
<PAGE> 16
13
the case of a disapproval, be accompanied by a reasonably complete and specific
statement of the reasons for disapproval). Lessor may disapprove any part or
parts of the Initial Maintenance Program only if the same shall not be in
accordance with the First-Class Standard. If Lessee disputes Lessor's right to
disapprove, the part or parts of the Initial Maintenance Program affected by
such dispute shall be determined by the Appropriate Engineer (as defined in
section 6(i)) in accordance with the First-Class Standard.
(ii) Annual Maintenance Programs. On or before April 1, 1986 and on
or before April 1st of each year thereafter during the term of this Lease,
Lessee shall submit to Lessor for its approval a maintenance program with
respect to the Programmed Maintenance Items for the 12-month period commencing
on the next June 1st (an "Annual Maintenance Program"), together with an
estimated budget for Reimbursable Replacements and Reimbursable Structural Work
for the period covered thereby. Lessor shall give notice to Lessee of Lessor's
approval or disapproval of each Annual Maintenance Program within 20 business
days after such Program is received by Lessor (which notice shall, in the case
of a disapproval, be accompanied by a reasonably complete and specific statement
of the reasons for disapproval). Lessor may disapprove any part or parts of an
Annual Maintenance Program only if the same shall not be in
<PAGE> 17
14
accordance with the First-Class Standard. If Lessee disputes Lessor's right to
disapprove, the part or parts of the Annual Maintenance Program affected by such
dispute shall be determined by the Appropriate Engineer in accordance with the
First-Class Standard. Lessee shall not be in default under this Lease if any
estimated budget for Reimbursable Replacements and Reimbursable Structural Work
submitted pursuant to section 6(b)(i) or this section 6(b)(ii) proves to be
inaccurate, and no such budget shall be considered a part of the Initial
Maintenance Program or Annual Maintenance Program with which such budget was
submitted to Lessor.
(iii) Compliance by Lessee. Until the approval of the Initial
Maintenance Program by Lessor or the determination thereof by the Appropriate
Engineer, Lessee shall conduct a maintenance program with respect to the
Programmed Maintenance Items in accordance with the First-Class Standard. Lessee
shall comply with the Initial Maintenance Program for the period covered thereby
and each Annual Maintenance Program (as approved by Lessor or as determined by
the Appropriate Engineer) for the period covered thereby; provided, however,
that if any dispute as to an Annual Maintenance Program shall not be resolved
before the period intended to be covered thereby, Lessee shall be in compliance
with this section 6(b)(iii) if Lessee shall, pending the resolution of such
dispute, comply with
<PAGE> 18
15
the Initial Maintenance Program (if the dispute involves the first Annual
Maintenance Program) or the most recent Annual Maintenance Program in effect (if
the dispute involves any other Annual Maintenance Program).
(c) Certain Definitions. As used herein:
(i) "Legal Requirement Alteration" means any Alteration undertaken
in order to comply with a Legal Requirement.
(ii) "Reimbursable Replacement" means the replacement of an item of
Major Building Equipment in its entirety; provided, however, that:
(x) a replacement of any such item in its entirety shall be a
"Reimbursable Replacement" only if (a) such replacement (solely in light
of the physical condition of the item in question, and without regard to
whether or not such replacement may be necessitated by any Legal
Requirement) is consistent with the First-Class Standard and (b) the
repair of the item in question is inconsistent with the First-Class
Standard; and
(y) no replacement of an item of Major Building Equipment in its
entirety shall be a "Reimbursable Replacement" if such replacement is
necessitated by (a) fire, other casualty or a Taking or (b) the failure by
Lessee to comply with section 6(b)(iii).
(iii) "Reimbursable Legal Requirement Alteration" means any
Alteration undertaken solely in order to comply
<PAGE> 19
16
with a Legal Requirement enacted after the date hereof, other than:
(v) an Alteration (a) in any area designed for tenant occupancy
outside the Building's core (any restroom to be deemed such an area), (b)
to the paving, curbs or sidewalks within the Building's lobby or (c) in
the plaza area surrounding the Building (located outside of the Building's
curtain wall), including the paving and other parts thereof which serve as
the roof for the basement area of the Building;
(w) a Reimbursable Replacement;
(x) Reimbursable Structural Work;
(y) a replacement of an item whose replacement (solely in light of
the physical condition of the item in question, and without regard to
whether or not such replacement may be necessitated by any Legal
Requirement) is consistent with the First-Class Standard and whose repair
is inconsistent with the First-Class Standard; or
(z) an Alteration necessitated by fire, other casualty or a Taking,
or by Lessee's failure to comply with section 6(b)(iii).
(iv) "Reimbursable Structural Work" means any Structural Work which
(solely in light of a physical condition, and without regard to whether or not
such Structural Work may be necessitated by any Legal
<PAGE> 20
17
Requirement) is consistent with the First-Class Standard; provided, however,
that:
(w) Structural Work which is a replacement shall be "Reimbursable
Structural Work" only if (a) such replacement (solely in light of the
physical condition of the item in question, and without regard to whether
or not such replacement may be necessitated by any Legal Requirement) is
consistent with the First-Class Standard and (b) the repair of the item in
question is inconsistent with the First-Class Standard;
(x) no Structural Work shall be Reimbursable Structural Work if
necessitated by (a) fire, other casualty or a Taking or (b) the failure by
Lessee to comply with section 6(b)(iii);
(y) no Structural Work of the type described in clause (a) of
section 36 shall be "Reimbursable Structural Work" unless the Costs
thereof exceed $50,000 in any 12-month period; and
(z) no Structural Work of the type described in clause (b), (c), (d)
or (e) of section 36 shall be "Reimbursable Structural Work" unless the
work under the clause in question involves 5% or more of the curtain wall
windows above the ground floor in any 12-month period.
(v) "Qualified Alteration" means (x) any Alteration (other than the
replacement of an item of Major
<PAGE> 21
18
Building Equipment, any Structural Work or any Legal Requirement Alteration)
which affects any structural element of the Building or any item of Major
Building Equipment and (y) any Restoration (as defined in section 15.2).
If Lessor and Lessee shall disagree as to whether any item is an
item of Major Building Equipment, or as to whether the replacement of any item
of Major Building Equipment is a Reimbursable Replacement, or as to whether any
work is Structural Work, or as to whether any Structural Work is Reimbursable
Structural Work, or as to whether a Legal Requirement requires an Alteration, or
as to whether an Alteration is a Legal Requirement Alteration, or as to whether
any Legal Requirement Alteration is a Reimbursable Legal Requirement Alteration,
or as to whether any Alteration is a Qualified Alteration, the matter shall be
determined by the Appropriate Engineer.
(d) Submission and Approval of Plans and Specifications in Certain
Instances.
(i) Required Submissions. Prior to:
(x) making any Alteration constituting the replacement of any item
of Major Building Equipment (whether or not such replacement is a
Reimbursable Replacement); or
(y) undertaking any Structural Work (whether or not Reimbursable
Structural Work), any Legal Requirement
<PAGE> 22
19
Alteration (whether or not a Reimbursable Legal Requirement Alteration) or
any Qualified Alteration,
Lessee shall (subject to section 6(d)(vi)) submit all of the Plans and
Specifications therefor to Lessor for Lessor's approval, together with, in case
Lessee contends that the work in question is a Reimbursable Replacement,
Reimbursable Structural Work or a Reimbursable Legal Requirement Alteration, a
good faith estimate of the Costs thereof prepared by a reputable architect,
engineer or contractor and a reasonable estimate of the date of substantial
completion of the work in question (the "Estimated Substantial Completion
Date"). Lessor shall give notice (the "Plans and Specifications Notice") to
Lessee of Lessor's approval or disapproval of any Plans and Specifications
within 20 business days after the date upon which the same are received by
Lessor (which Plans and Specifications Notice shall, in the case of a
disapproval, be accompanied by a reasonably complete and specific statement of
the reasons for disapproval); provided, however, that if (a) at least 10
business days before the date upon which Lessee submits all of the Plans and
Specifications for the work in question to Lessor, Lessee gives notice to Lessor
that Lessee intends to make any replacement of an item of Major Building
Equipment or to undertake any Structural Work, Legal Requirement Alteration or
Qualified Alteration (which notice shall specify the
<PAGE> 23
20
general nature of the work and an estimated date for the submission of all of
the Plans and Specifications therefor to Lessor) and (b) Lessee delivers all of
the Plans and Specifications for the work in question to Lessor within 2
business days of the estimated submission date set forth in Lessee's notice,
then Lessor shall give the Plans and Specifications Notice to Lessee within 10
business days after the date upon which all of the Plans and Specifications for
the work in question are received by Lessor.
(ii) Disapproval Only Under Certain Circumstances. Lessor shall not
disapprove any Plans and Specifications unless the work contemplated thereby
would (a) result in the Building's not being a first-class office building or
(b) materially and adversely affect any structural element of the Building or
any item of Major Building Equipment. If Lessee disputes Lessor's right to
disapprove, the matter shall be determined by the Appropriate Engineer.
(iii) Certain Conditions. Subject to sections 6(d)(iv) and (vi), Lessee
shall not make any replacement of an item of Major Building Equipment or
undertake any Structural Work, Legal Requirement Alteration or Qualified
Alteration unless and until (x) Lessor shall approve the Plans and
Specifications therefor in a Plans and Specifications Notice or (y) the
Appropriate Engineer shall
<PAGE> 24
21
determine that Lessor did not have the right to disapprove such Plans and
Specifications pursuant to this Lease.
(iv) Failure to Give Timely Notice. If Lessor shall fail timely to give
Lessee a Plans and Specifications Notice, Lessee may proceed with the work in
question, and if Lessor thereafter disapproves the Plans and Specifications
therefor Lessee may continue such work unless the Appropriate Engineer
determines that Lessor had the right to disapprove pursuant to this Lease. If
the Appropriate Engineer so determines, Lessee shall cease such work, but the
work done by Lessee to the date of the Appropriate Engineer's determination
shall not constitute a default hereunder if Lessee thereupon commences and
thereafter diligently prosecutes to completion such remedial work (including,
without limitation, the removal of the work theretofore done by Lessee and the
restoration of the affected area of the Combined Premises) as Lessor may
reasonably determine to be appropriate in the circumstances (unless Lessee shall
dispute Lessor's determination, in which case the remedial work, if any, to be
done by Lessee shall be determined by the Appropriate Engineer).
(v) Submission of Certain Plans and Specifications Not Requiring Approval.
At the request of Lessor (made not more frequently than once in any 12-month
period), Lessee shall submit to Lessor Plans and Specifications for all
Alterations (other than Plans and Specifications required to
<PAGE> 25
22
be submitted to Lessor pursuant to section 6(d)(i)) to the extent that such
Plans and Specifications have been prepared and have not theretofore been
submitted to Lessor. Lessor shall have no right to approve any Plans and
Specifications submitted by Lessee pursuant to this section 6(d)(v).
(vi) Emergencies. Provided that Lessee shall have given Lessor
prompt telephonic notice (confirmed in writing as soon as reasonably
practicable) of an emergency, Lessee may (without first complying with the
applicable provisions of sections 6(d)(i), (ii), (iii) and (v)) proceed with
such aspects of any Alteration as Lessee may reasonably deem necessary in light
of the emergency, but as promptly as reasonably practicable thereafter Lessee
shall comply with the applicable provisions of said sections. Any dispute as to
Lessee's right to avail itself of this section 6(d)(vi) shall be determined by
the Appropriate Engineer.
(e) Certain Reimbursements.
(i) Submission of Bids. In the case of any Reimbursable Replacement,
Reimbursable Structural Work or Reimbursable Legal Requirement Alteration,
Lessee shall (subject to section 6(e)(vi)), simultaneously with the submission
of all of the Plans and Specifications therefor to Lessor (or as soon thereafter
as reasonably practicable, but in no event later than the date which is 5
business days prior to the date upon which Lessor is required to give the Plans
and Specifications Notice), deliver to Lessor a list
<PAGE> 26
23
of at least 3 reputable contractors (collectively, the "Original Bidders") from
whom Lessee proposes to obtain bids for the work. Lessor shall have the right,
exercisable by notice to Lessee delivered not later than 10 business days after
receipt by Lessor of the list of the Original Bidders, to designate no more than
3 additional reputable contractors (collectively, the "Additional Bidders") from
whom Lessor desires Lessee to obtain bids. Lessee shall, as promptly as
reasonably practicable, obtain bids from at least 2 of the Original Bidders and
solicit bids from all of the Additional Bidders (if any) on a competitive basis
and submit all bids obtained (together with the proposed contracts relating
thereto) to Lessor, and within 5 business days after receipt thereof Lessor
shall give notice to Lessee designating the Original Bidder or the Additional
Bidder (in either case being a Bidder from whom Lessee has obtained a bid) which
in Lessor's judgment should perform the work in question (the Bidder so
designated by Lessor being called "Lessor's Preferred Bidder"). Lessee shall
have the right, exercisable by notice (the "Dispute Notice") given to Lessor
within 5 business days after the date upon which Lessee receives notice of the
identity of Lessor's Preferred Bidder (which Dispute Notice shall specify the
Original Bidder or the Additional Bidder ["Lessee's Selected Bidder"] which
Lessee proposes to select to do the work in question), to dispute Lessor's
designation of Lessor's Preferred Bidder,
<PAGE> 27
24
and if the Dispute Notice shall be timely given, the Appropriate Engineer shall
select either Lessor's Preferred Bidder or Lessee's Selected Bidder as the
Bidder which (in light of the bid, contract terms, reputation and experience of
such Bidder) is most appropriate to do the work in question. Notwithstanding
Lessor's designation of, or the Appropriate Engineer's selection of, Lessor's
Preferred Bidder, Lessee may retain any Original Bidder or Additional Bidder
from whom Lessee has obtained a bid in accordance with this section 6(e)(i) to
do the work in question (the Bidder so retained being called the "Retained
Bidder").
(ii) Reimbursement Amount. Lessor shall, in accordance with section
6(e)(iv) or 6(e)(v), reimburse Lessee on account of any Reimbursable
Replacement, Reimbursable Structural Work or Reimbursable Legal Requirement
Alteration in an amount (the "Reimbursement Amount") equal to:
(x) in the case of any Reimbursable Replacement or Reimbursable
Structural Work, the sum of the following:
(a) the lesser of (i) all Costs reasonably incurred by Lessee
in connection with the work in question (exclusive, however, of the
fees and disbursements of any architect or engineer retained by
Lessee) or (ii) the original contract price of Lessor's Preferred
Bidder or, if Lessee shall have timely given the Dispute Notice and
the Appropriate
<PAGE> 28
25
Engineer shall have selected Lessee's Selected Bidder, the original
contract price of Lessee's Selected Bidder (the amount determined
pursuant to this clause (a) being called the "Base Amount" for the
work in question; the amount determined by subclause (ii) of this
clause (a) being called the "Determined Amount"); plus
(b) the reasonable fees and disbursements of any architect or
engineer retained by Lessee in connection with the work in question;
plus
(c) any Qualified Overruns (as hereinafter defined); or
(y) in the case of any Reimbursable Legal Requirement Alteration,
the sum of the following:
(a) the product of the Measuring Fraction (as hereinafter
defined) multiplied by the sum of (i) the Base Amount for the work
in question, plus (ii) any Qualified Overruns; plus
(b) the reasonable fees and disbursements of any architect or
engineer retained by Lessee in connection with the work in question.
Any dispute as to the reasonableness of the incurrence by Lessee of
any Cost in connection with the work in question, or as to the reasonableness of
the amount of any such Cost, shall be determined by the Appropriate Engineer.
<PAGE> 29
26
"Measuring Fraction" means, in respect of any Reimbursable Legal
Requirement Alteration, the fraction whose numerator is the number of months in
the period from the expiration of the then current term of this Lease to the end
of the expected useful life of such Alteration and whose denominator is the
number of months in the period from the Estimated Substantial Completion Date of
such Alteration to the end of the expected useful life thereof. Any dispute as
to the reasonableness of any Estimated Substantial Completion Date, or as to the
expected useful life of any Reimbursable Legal Requirement Alteration, shall be
determined by the Appropriate Engineer.
(iii) Overruns; Qualified Overruns. At any time during the
performance of any Reimbursable Replacement, Reimbursable Structural Work or
Reimbursable Legal Requirement Alteration, Lessee may give notice (an "Overrun
Notice") to Lessor specifying any cost (an "Overrun") in excess of the original
contract price of Lessee's Selected Bidder which Lessee expects to incur and
which Lessee contends was unforeseeable by Lessee at the time of commencement of
the work (each Overrun Notice to specify the nature of and reasons for the
Overrun in question in reasonably complete and specific detail). Within 10
business days after receipt of an Overrun Notice, Lessor shall notify Lessee as
to whether or not in Lessor's judgment the Overrun in question is reasonable in
amount in
<PAGE> 30
27
the circumstances and was unforeseeable by Lessee at the time of commencement of
the work. If Lessee shall dispute Lessor's judgment, the reasonableness of the
amount of, and the foreseeability by Lessee of, the Overrun in question shall be
determined by the Appropriate Engineer. Any Overrun determined by Lessor or the
Appropriate Engineer to be reasonable in amount in the circumstances and
unforeseeable by Lessee at the time of commencement of the work shall be a
"Qualified Overrun". Lessee shall not be chargeable with the failure by any
Contractor (as defined in section 6(e)(iv)(w)) to foresee any Overrun.
(iv) Reimbursement Upon Full Completion. Except in the case of a
Reimbursable Replacement, Reimbursable Structural Work or a Reimbursable Legal
Requirement Alteration in respect of which an Extended Completion Notice (as
defined in section 6(e)(v)) has been given, Lessor shall upon the full
completion of the work in question and within 10 business days after Lessor's
receipt of Lessee's request therefor remit the Reimbursement Amount to Lessee;
provided, however, that Lessor shall not be obligated to make such remittance
unless:
(w) Lessee's request for remittance shall be accompanied by (a) a
certificate of Lessee (in form reasonably satisfactory to Lessor) stating
that an amount at least equal to the Reimbursement Amount has been paid to
contractors, subcontractors, materialmen,
<PAGE> 31
28
engineers, architects or other persons (whose names and addresses and a
description of the work involved shall be stated) who have furnished
labor, materials, supplies, permits or services for the work in question
(collectively, "Contractors") and that to Lessee's best knowledge (after
due inquiry) there is no outstanding indebtedness due for labor,
materials, supplies, permits or services in any manner connected with the
work in question which if unpaid might be the basis for any type of lien
on the Combined Premises or any part thereof, and (b) a certificate of the
architect or engineer who prepared the related Plans and Specifications
(in form reasonably satisfactory to Lessor) stating that such work has
been fully completed in a good and workmanlike manner and in accordance
with the Plans and Specifications (as approved by Lessor or as determined
by the Appropriate Engineer to have been required to be approved by Lessor
pursuant to this Lease);
(x) Lessor shall have received (a) true copies of all bills paid by
Lessee to Contractors in connection with the work in question, (b) an
instrument in writing from any title company insuring Lessor's estate in
the Leased Premises certifying that there are no undischarged mechanics',
laborers' or materialmen's liens affecting any part of the Combined
Premises (other than liens, if any, in respect of which Lessor has
<PAGE> 32
29
consented to take security pursuant to section 13(a)(ii)) and (c) evidence
reasonably satisfactory to Lessor that Lessee has obtained waivers of
mechanics', laborers' or materialmen's liens or releases of such liens
from all Contractors engaged in the work in question;
(y) no certificate delivered to Lessor by Lessee or any architect or
engineer in connection with the work in question shall have been
materially incorrect at the time of delivery (any dispute pursuant to this
clause (y) to be determined by the Appropriate Engineer); and
(z) no Event of Default (including, without limitation, any Event of
Default specified in section 22(d)) shall have occurred and be continuing.
(v) Reimbursement as Work Proceeds. If at any time prior to or
during the performance of any Reimbursable Replacement, Reimbursable Structural
Work or Reimbursable Legal Requirement Alteration Lessee determines that the
full completion thereof will not occur within six months of its commencement,
Lessee shall give Lessor notice of such determination (an "Extended Completion
Notice") and thereafter Lessor shall from time to time within 10 business days
after Lessor's receipt of Lessee's request therefor (but in no event more
frequently than once during any 30-day period) make advances to Lessee on
account of the
<PAGE> 33
30
Reimbursement Amount for the work in question (collectively, "Reimbursement
Advances"); provided, however, that:
(x) no Reimbursement Advance shall be made until Lessee shall have
delivered to Lessor evidence reasonably acceptable to Lessor that Lessee
has paid Contractors engaged in the work in question an aggregate amount
(the "Benchmark Amount") equal to the positive remainder, if any, obtained
by subtracting the Determined Amount for the work in question from the
original contract price of the Retained Bidder, and Reimbursement Advances
shall be made only for amounts paid by Lessee to such Contractors which
are in excess of the Benchmark Amount;
(y) no Reimbursement Advance (other than the final Reimbursement
Advance) shall be due unless:
(a) Lessee's request for such Reimbursement Advance shall be
accompanied by (i) a certificate of Lessee (in form reasonably
satisfactory to Lessor) stating that the amount of the Reimbursement
Advance then requested has been paid by Lessee to Contractors (whose
names and addresses and a description of the work involved shall be
stated) engaged in the work in question, that the amount of the
Reimbursement Advance then requested (when taken together with the
aggregate amount of all Reimbursement Advances theretofore made by
<PAGE> 34
31
Lessor) exceeds neither 90% of the Reimbursement Amount nor the
product of the Determined Amount multiplied by the percentage (the
"Completed Percentage") of the work called for in the contract of
the Retained Bidder which has actually been installed in the Leased
Premises, and that no part of cost of the work described in any
previous or then pending request for a Reimbursement Advance has
been or is being made the basis for the Reimbursement Advance then
being requested, and (ii) a certificate of the architect or engineer
who prepared the related Plans and Specifications (in form
reasonably satisfactory to Lessor) stating in substance that the
Completed Percentage has been reached and that the work has been
performed in a good and workmanlike manner and in accordance with
the Plans and Specifications (as approved by Lessor or as determined
by the Appropriate Engineer to have been required to be approved by
Lessor pursuant to this Lease);
(b) Lessor shall have received true copies of all bills paid
or payable by Lessee to Contractors which form the basis for the
Reimbursement Advance in question; and
(c) the conditions specified in clauses (y) and (z) of section
6(e)(iv) shall have been
<PAGE> 35
32
fulfilled in respect of such Reimbursement Advance;
and
(z) the final Reimbursement Advance shall not be due unless all of
the conditions specified in clauses (w) through (z) of section 6(e)(iv)
shall have been fulfilled in respect of such Advance.
(vi) Emergencies. Provided that Lessee shall have given Lessor
prompt telephonic notice (confirmed in writing as soon as reasonably
practicable) of an emergency, Lessee may proceed with any Reimbursable
Replacement, Reimbursable Structural Work or Reimbursable Legal Requirement
Alteration without first complying with the applicable provisions of this
section 6(e), and Lessor shall, following full completion of the emergency work
in question and within 10 business days after Lessor's receipt of Lessee's
request therefor, remit the Emergency Reimbursement Amount (as hereinafter
defined) to Lessee; provided, however, that Lessor shall not be obligated to
make such remittance unless all of the conditions specified in clauses (w)
through (z) of section 6(e)(iv) shall have been fulfilled in respect of the work
in question (provided that (a) if no architect or engineer was retained for the
emergency work in question, subclause (b) of section 6(e)(iv)(w) shall be deemed
fulfilled if (x) Lessee shall deliver a certificate to Lessor stating that such
emergency work has been fully completed in a good and workmanlike manner and (y)
such emergency work
<PAGE> 36
33
has been fully completed in a manner consistent with the character of the
Building as a first-class office building [with due regard to the character of
the work as emergency work], and (b) if an architect or engineer was retained
for the emergency work in question but [due to the nature of the emergency] no
Plans and Specifications therefor were prepared, subclause (b) of section
6(e)(iv)(w) shall be deemed fulfilled if (x) Lessee shall deliver to Lessor a
certificate of such architect or engineer stating that such emergency work has
been fully completed in a good and workmanlike manner and (y) such emergency
work has been fully completed in a manner consistent with the character of the
Building as a first-class office building (with due regard to the character of
the work as emergency work]).
"Emergency Reimbursement Amount" means (a) in respect of any
Reimbursable Replacement or Reimbursable Structural Work undertaken in an
emergency, all Costs reasonably incurred by Lessee in connection with the
emergency work in question and (b) in the case of a Reimbursable Legal
Requirement Alteration undertaken in an emergency, the product of the Measuring
Fraction multiplied by an amount equal to all Costs reasonably incurred by
Lessee in connection with the emergency work in question.
Any dispute as to Lessee's right to avail itself of this section
6(d)(vi), or as to the reasonableness of the incurrence by Lessee of any Cost in
connection with the
<PAGE> 37
34
emergency work in question, or as to the reasonableness of the amount of any
such Cost, shall be determined by the Appropriate Engineer.
(f) Overdue Reimbursements. If any sum reimbursable by Lessor to Lessee
pursuant to section 6(e)(iv), 6(e)(v) or 6(e)(vi) shall not be paid to Lessee
within 10 business days after the same becomes due Lessee may give Lessor a
notice (a "Delinquency Notice") of the delinquency and if such sum remains
unpaid for a period of 10 business days after the date Lessor receives the
Delinquency Notice, such sum shall bear interest from the date Lessor receives
the Delinquency Notice until the date of payment at a rate per annum equal to
the prime rate of Morgan Guaranty Trust Company of New York (the "Delinquency
Rate") announced to be in effect as of the date of Lessor's receipt of the
Delinquency Notice.
(g) Inspection by Lessor; Cooperation by Lessee.
(i) Lessor and its representatives shall at all reasonable times and
(except in an emergency) upon reasonable notice have access to the Combined
Premises for the purposes of (x) inspecting the progress of construction of any
Alteration and (y) reviewing the implementation of, and Lessee's compliance
with, the Initial Maintenance Program and each Annual Maintenance Program.
(ii) Upon demand of Lessor, Lessee shall comply in all respects with any
reasonable and timely suggestions made
<PAGE> 38
35
by Lessor with respect to construction matters relating to any Reimbursable
Replacement, Reimbursable Structural Work or Reimbursable Legal Requirement
Alteration, and shall correct any defect in the work in question or any material
departure from the Plans and Specifications for the work in question. Any
dispute pursuant to this clause (ii) shall be determined by the Appropriate
Engineer.
(iii) Lessee shall, within 10 business days after receipt of a
statement therefor (accompanied by true copies of the bills paid by Lessor),
reimburse Lessor for all reasonable out-of-pocket expenses incurred for the
services of an architect or engineer making inspections of any Restoration. If
any sum reimbursable by Lessee to Lessor pursuant to section 2.2(a), section
6(h), section 7(b), section 11.1(c), section 11.3, section 20.2 or this clause
(iii) shall not be paid within 10 business days after the same becomes due,
Lessor may give Lessee a Delinquency Notice and if such sum remains unpaid for a
period of 10 business days after the date Lessee receives the Delinquency
Notice, such sum shall bear interest from the date Lessee receives the
Delinquency Notice to the date of payment at the Delinquency Rate announced to
be in effect as of the date of Lessee's receipt of the Delinquency Notice.
(h) Removal of Special Alterations. If Lessee makes any opening
through the slab of any floor of the Leased Premises or reduces the floor area
of, or lowers the
<PAGE> 39
36
ceiling height of, any part of the Leased Premises designed for tenant occupancy
(any of the foregoing being called a "Special Alteration"), Lessee shall (within
10 business days after request therefor) reimburse Lessor the reasonable
out-of-pocket expenses incurred by Lessor after the expiration or sooner
termination of this Lease in restoring the area affected by such Special
Alteration to its prior condition; provided, however, that Lessee shall not be
required to reimburse Lessor in respect of any Special Alteration unless Lessor
shall notify Lessee of Lessor's desire for reimbursement in respect thereof at
least 6 months prior to the expiration of this Lease or within 30 days following
any earlier termination of this Lease.
(i) Engineer; Appropriate Engineer.
(i) "Engineer" means each of the following:
(t) Syska & Hennessy Inc.;
(u) Meyer Strong & Jones P.C.,
(v) Jaros Baum & Bolles;
(w) Weidlinger Associates;
(x) Purdy & Henderson Associates Inc.;
(y) Weiskopf & Pickworth; and
(z) such other independent engineering firm or firms having at
least 15 years' experience in first-class Manhattan office buildings
as shall from time to time be designated by Lessor or Lessee and
approved by the other party (which approval
<PAGE> 40
37
shall not be unreasonably withheld or delayed; any dispute as to
whether either Lessor or Lessee has unreasonably withheld or delayed
such approval to be determined by arbitration).
(ii) "Appropriate Engineer" means, in respect of any matter required
by this Lease to be determined by an Appropriate Engineer, such Engineer as
Lessee may designate by notice (a "Lessee's Designation Notice") to Lessor;
provided, however, that if Lessee shall fail to give a Lessee's Designation
Notice within 7 business days after Lessee receives Lessor's request for the
same, the "Appropriate Engineer" for the matter in question shall be such
Engineer as Lessor may designate in a notice to Lessee delivered at any time
prior to receipt by Lessor of such Lessee's Designation Notice.
(iii) Each Appropriate Engineer shall make its determination as
promptly as reasonably practicable, but in any event within 30 days after
request therefor by Lessor or Lessee. Each determination made by an Appropriate
Engineer pursuant to this Lease shall be final and binding on Lessor and Lessee.
Lessor and Lessee shall each pay one-half of the fees and expenses of each
Appropriate Engineer which is called upon to act hereunder.
7. Removal and Replacement of Initial Tenant Improvements; Lessee's
Equipment. (a) Lessor acknowledges that Lessee owns the Initial Tenant
Improvements and that
<PAGE> 41
38
the Initial Tenant Improvements are of a quality superior to tenant improvements
ordinarily found in first-class office buildings. Lessee (subject to the
applicable provisions of section 6) may at any time during the term hereof
remove all or any of the Initial Tenant Improvements provided that promptly
following such removal Lessee shall replace the removed Initial Tenant
Improvements with items of a similar general nature to the extent necessary to
maintain the general character of the Combined Premises as that of a first-class
office building. Upon the expiration or sooner termination of this Lease, Lessee
shall be deemed to have abandoned the Initial Tenant Improvements, except to the
extent that Lessee shall have removed the same. At the request of Lessor at any
time after the expiration or earlier termination of this Lease, Lessee shall
execute, acknowledge and deliver to Lessor a quitclaim deed conveying to Lessor
all Initial Tenant Improvements remaining on the Land or in the Building, and if
Lessee shall default in the performance of the foregoing covenant for a period
of 10 days after Lessee's receipt of Lessor's request for the quitclaim deed,
Lessor is hereby appointed Lessee's attorney-in-fact for the purpose of
executing, acknowledging and delivering such deed. The foregoing appointment is
coupled with an interest and is irrevocable.
(b) Lessor shall have no ownership interest in Lessee's Equipment.
Lessee may remove all or any of
<PAGE> 42
39
Lessee's Equipment from the Combined Premises at any time. Any Lessee's
Equipment not removed within five days after the expiration of this Lease or 30
days after the sooner termination of this Lease shall be deemed abandoned and
may be disposed of by Lessor without notice and without obligation to account
therefor, and Lessee shall reimburse Lessor, upon demand, for all costs and
expenses incurred by Lessor in disposing thereof. After the expiration or sooner
termination of this Lease, Lessor may, without awaiting the lapse of the periods
referred to in the previous sentence, relocate and store in the Leased Premises
any Lessee's Equipment not removed. In case of the termination of this Lease
prior to its expiration, Lessee's liability for Basic Rent with respect to any
portion of the Leased Premises in which any Lessee's Equipment remains shall
continue for the period (not in excess of 30 days) ending on the date of the
removal of the same.
(c) Lessee shall immediately repair all damage to the Combined
Premises or any part thereof caused by its removal of any Lessee's Equipment,
Initial Tenant Improvements or Alterations.
8. Utility Services. Lessee shall pay all charges for all public or
private electrical, steam, gas, fuel, power and other utility services at any
time rendered to or in connection with the Combined Premises or any part
thereof.
<PAGE> 43
40
9. Indemnification by Lessee. (a) Lessee shall protect, indemnify and
save harmless Lessor from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, attorneys' fees and expenses) imposed upon or incurred by or
asserted against Lessor or against the Combined Premises or any part thereof by
reason of the occurrence or existence of any of the following during the term
hereof: (1) the conduct, management or possession of the Combined Premises or
any part thereof, (2) any accident, injury to or death of persons or loss of or
damage to property occurring in, on or about the Combined Premises or any part
thereof or the adjoining sidewalks, curbs, vaults and vault space, if any,
streets or ways, (3) any use, non-use or condition of the Combined Premises or
any part thereof or the adjoining sidewalks, curbs, vaults and vault space, if
any, streets or ways, (4) any failure on the part of Lessee to perform or comply
with any of the terms, provisions or conditions of this Lease or with the terms,
provisions or conditions of this Lease or with the terms, provisions and
conditions of the Contract Section (as defined in section 36), (5) performance
of any labor or services or the furnishing of any materials or other property in
respect of the Combined Premises or any part thereof, (6) any negligence or
tortious act or omission on the part of Lessee or any of its partners, agents,
contractors, servants, employees, licensees or invitees, (7)
<PAGE> 44
41
any negligence or tortious act or omission on the part of any sublessee of
Lessee, or of any partners, agents, contractors, servants, employees, licensees
or invitees of any sublessee of Lessee, (8) any contest of any Imposition, Legal
Requirement, Permitted Encumbrance or any provision of an Existing Lease
conducted by Lessee pursuant to section 11.3, (9) any Existing Lease or other
sublease of all or any part of the Combined Premises or (10) any action taken by
Lessor at the request of Lessee pursuant to section 11.1(c) or 11.3.
(b) In case any claim is made against Lessor or in case any action,
suit or proceeding (a "proceeding") is brought against Lessor or the Combined
Premises or any part thereof by reason of any of the foregoing, Lessor shall
give prompt notice to Lessee and Lessee shall cause such claim or proceeding to
be defended by counsel ("Lessee's Counsel") designated by Lessee and approved by
Lessor (which approval shall not be unreasonably withheld). Lessee shall have
the right to control the defense and settlement of any such claim or proceeding
and shall not be required to indemnify Lessor from the costs and expenses of any
settlement agreed to without Lessee's consent; provided, however, that Lessor
shall have the right (a) to require Lessee and Lessee's Counsel to consult with
Lessor and counsel retained and paid by Lessor, (b) to assume control of the
defense and settlement of any such claim or proceeding at any time if
<PAGE> 45
42
Lessor waives its right to be indemnified by Lessee on account thereof and (c)
to make any settlement without Lessee's consent if Lessor pays the amount of
such settlement and waives its right to be indemnified by Lessee on account of
the claim or proceeding to which such settlement relates. Lessor shall cooperate
with Lessee, at Lessee's expense, in the defense of any such claim or
proceeding in such manner as Lessee may from time to time reasonably request.
10. Entry by Lessor. Lessee shall permit Lessor to enter the
Combined Premises or any part thereof at all reasonable times upon reasonable
notice (except in case of emergency) for the purpose of inspecting the same or
doing any work under section 19, and to keep and store all such materials
therein as may be reasonably necessary or appropriate for any such purpose
without the same constituting a partial or complete, constructive or actual
eviction (but nothing contained herein shall create or imply any duty on the
part of Lessor to do any work under section 19). Lessor shall not have any duty
to make any such inspection and shall not incur any liability or obligation by
making or for not making any such inspection. Lessee shall also permit Lessor to
enter the Combined Premises or any part thereof at all reasonable times upon
reasonable notice for the purposes of exhibiting the Leased Premises for sale or
mortgage or, during the last 24 months
<PAGE> 46
43
of the term or any extended term of this Lease, lease. Any entry pursuant to
this section shall be subject to the condition that, except in case of
emergency, if Lessee so desires, any representative of Lessor shall be
accompanied at all times by a representative of Lessee.
11. Payment of Taxes, Impositions, etc.
11.1 General. (a) Subject to the provisions of sections 11.2, 11.3
and 11.4, Lessee shall pay, before any fine, penalty, interest or cost may be
added for non-payment, all real estate taxes, personal property taxes, transit
taxes, occupancy taxes, assessments for public improvements or benefits, whether
or not commenced or completed prior to the date hereof and whether or not to be
completed within the term hereof, water, sewer or other rents, rates and
charges, excises, license fees, permit fees, inspection fees and other
authorization fees and charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all interest and penalties thereon) ("Impositions"), which at any
time during or in respect of the term hereof may be assessed, levied, confirmed
or imposed on or grow or become due and payable out of or in respect of or
become a lien on (a) the Combined Premises or any part thereof, (b) occupancy,
use or possession of or activity conducted in the Combined Premises or any part
thereof by Lessee or anybody else, and/or (c) this Lease or
<PAGE> 47
44
any other document to which Lessee is a party, creating or transferring an
interest or estate in the Combined Premises or any part thereof, provided that
(i) if any Imposition, by law, may at the option of the taxpayer be paid in
installments, Lessee may elect to pay the same in the maximum number of
installments permitted by law and Lessee shall be required to pay only those
installments (together with interest thereon) coming due during the term hereof
(each such installment and interest thereon to be paid by Lessee before any
fine, penalty, interest or cost may be added thereto for non-payment) and (ii)
all Impositions for the fiscal or tax year in which the term shall end shall be
apportioned.
(b) Lessee shall deliver to Lessor upon request an Officer's Certificate
certifying to the payment of all Impositions and shall furnish to Lessor upon
request copies of official receipts or other proof satisfactory to Lessor
evidencing such payment.
(c) Lessor, at Lessee's expense, shall promptly execute such reports,
certificates, instruments, applications and other documents which can be
executed only by the owner of the Leased Premises as Lessee may reasonably
request and shall take such other actions which can be taken only by the owner
of the Leased Premises as Lessee may reasonably request in connection with the
Impositions, any payment thereof or any exemption therefrom now or hereafter
<PAGE> 48
45
in effect or to be applied for. If in connection with any such request Lessor
consults with an engineer, an attorney or another professional, Lessee shall,
within 10 days of Lessee's receipt of demand therefor accompanied by copies of
the bills paid by Lessor, reimburse Lessor for the reasonable out-of-pocket
expenses incurred by Lessor for the services of such professionals. If such
professional advises Lessor in writing that Lessor's executing such document or
taking such action might result in Lessor's becoming criminally liable and
furnishes a reasonably detailed explanation of the liability in question and the
reasons therefor, Lessor shall promptly advise Lessee and furnish Lessee with a
copy of such professional's advice and explanation and Lessor need not execute
such document or take such action.
(d) The certificate or receipt of the department, officer or bureau
charged with the collection of any Imposition, showing that such Imposition is
due and payable or has been paid, shall be prima facie evidence that such
Imposition was due and payable or that it has been paid.
11.2 Exclusions from Impositions. The term "Impositions" shall not
include, and nothing herein contained shall require Lessee to pay, municipal,
state or federal income taxes assessed against Lessor, or municipal, state or
federal capital levy, gift, estate, succession, inheritance or transfer taxes of
Lessor, or corporation
<PAGE> 49
46
excess profits or franchise taxes imposed upon any corporate owner of the Leased
Premises, or any income, profits or revenue tax, assessment or charge imposed
upon Lessor; provided, however, that if, due to a future change in the method of
taxation, a franchise, income, transit, profit or other tax or governmental
imposition shall be levied against Lessor in substitution for any Imposition,
then such franchise, income, transit, profit or other tax or governmental
imposition levied against Lessor shall be deemed to be an Imposition.
11.3 Permitted Contests. Lessee without Lessor's consent may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity or application, in whole or in part, of any Imposition,
Legal Requirement, Permitted Encumbrance or any provision of any Existing Lease,
and may withhold payment or performance of the same pending such contest,
provided that (a) such proceedings shall suspend the collection thereof from
Lessor and the Leased Premises or any part thereof, (b) neither the Leased
Premises nor any part thereof, (b) neither the Leased Premises nor any part
thereof or interest therein would be in any danger of being sold, forfeited or
lost, (c) Lessor shall not be in any danger of any criminal liability by reason
thereof and (d) in the case of a contest involving any Legal Requirement, any
Permitted Encumbrance or any provision of any Existing Lease, if at any time
Lessor determines that Lessor is in danger of any civil
<PAGE> 50
47
liability in an amount in excess of one year's Basic Rent, Lessee shall (within
5 business days after Lessee receives Lessor's request therefor) furnish to
Lessor such security against such civil liability as Lessor may reasonably
request. Lessee shall give prompt notice to Lessor of the commencement of or of
Lessee's desire to commence any contest permitted by the preceding sentence and
Lessor shall, at Lessee's expense, cooperate with Lessee with respect to any
such contest and, if in connection with the commencement, prosecution or
settlement of such contest only Lessor can execute any report, certificate,
instrument, application or other document or take any other action, then, upon
Lessee's request, Lessor shall execute or take the same. If in connection with
any such request Lessor consults with an engineer, an attorney or other
professional, Lessee shall, within 10 days of Lessee's receipt of demand
therefor accompanied by copies of the bills paid by Lessor, reimburse Lessor
for the reasonable out-of-pocket expenses incurred by Lessor for the services
of such professionals. If such professional advises Lessor in writing that
Lessor's executing such document or taking such action might result in Lessor's
becoming criminally liable and furnishes a reasonably detailed explanation of
such liability and the reasons therefor, Lessor shall promptly advise Lessee
and furnish Lessee with a copy of such professional's advice and explanation
and Lessor need
<PAGE> 51
48
not execute such document or take such action. If, while contesting any
Imposition, Lessee withholds payment of the same, Lessee shall maintain the
amount withheld (together with penalties and interest from time to time accruing
thereon) on deposit in a separate interest-bearing account in Lessor's name with
a bank or trust company selected by Lessee having an office in the Borough of
Manhattan and a combined shareholders equity of at least $200 million (or, if
Lessee and Lessor so agree, with Lessor). If any of the conditions set forth in
the proviso to the first sentence of this section 11.3 are violated, Lessor
shall be entitled to withdraw the funds on deposit in said account in order to
make payment of the Imposition being contested. All interest earned on funds in
such an account shall be credited to such account and Lessee shall pay all taxes
thereon. Upon termination or settlement of such contest, any required payment of
the Imposition contested shall be made from such account and the balance
remaining in such account shall be paid to Lessee. If the amount in the account
is insufficient, Lessee shall pay the amount of the deficiency.
11.4 Tax Deposits. Notwithstanding the foregoing provisions of this
section 11, if at any time any Event of Default specified in section 22(d) shall
have occurred due to Lessee's failure to perform its obligations under section
11.1(a), Lessor may at any time thereafter give a notice to
<PAGE> 52
49
Lessee referring to this section 11.4 and if such notice shall be given Lessee
shall be obligated from and after the date which is 10 days after Lessee's
receipt of such notice to pay to Lessor in equal monthly installments, on the
first day of each month during the balance of the term and any extended term of
this Lease, an amount equal to one-twelfth of the annual real estate taxes
imposed upon the Combined Premises for each fiscal tax year (collectively, "Tax
Deposits"). Tax Deposits shall in the first instance be based on the real estate
taxes for the prior fiscal tax year, and when such real estate taxes shall be
ascertained for the current tax year, appropriate adjustments shall be made.
Lessor shall keep all Tax Deposits in a separate interest bearing escrow account
in a New York Clearing House member bank, and the interest thereon shall be
credited to Lessee (Lessee to pay all taxes on such interest). Lessor shall
apply Tax Deposits to the payment of the annual real estate taxes imposed upon
the Combined Premises as they become due and payable. From time to time upon
notice to Lessee by Lessor, Tax Deposits shall be increased to such amounts as
may be necessary from time to time to provide a fund sufficient to meet the
payment of the annual real estate taxes imposed upon the Combined Premises (or
any installment thereof) as and when due and payable, whether on the present
dates of payment or on such other dates as may be fixed by law.
<PAGE> 53
50
12. Compliance with Legal and Insurance Requirements, Permitted
Encumbrances, Leases. Subject to the provisions of sections 6 and 11.3, Lessee
shall promptly comply with all Legal Requirements, Insurance Requirements and
Permitted Encumbrances, whether or not compliance therewith shall require
Alterations or interefere with the use and enjoyment of the Combined Premises or
any part thereof. Subject to the provisions of section 11.3, Lessee shall
observe and perform all of the covenants and obligations, if any, on the part of
Lessor to be observed and performed under the Existing Leases.
13. Liens. (a) Within 60 days after the date on which Lessor gives
Lessee notice, referring to this section 13 and section 19(e), of the existence
of any mechanic's, laborer's or materialman's lien, any lien arising under any
Permitted Encumbrance or any security interest which might be or become a lien,
encumbrance or charge upon the Combined Premises or any part thereof (other than
any such lien, encumbrance or charge caused by Lessor) and directs Lessee to
remove or discharge the same, Lessee shall either (i) remove or discharge the
same, by bonding or otherwise, or (ii) if Lessor shall consent thereto, provide
Lessor with an unconditional and irrevocable letter of credit (issued by a New
York Clearing House member bank satisfactory to Lessor and in form satisfactory
to Lessor) or other security
<PAGE> 54
51
satisfactory to Lessor indemnifying Lessor against such lien or security
interest.
(b) Nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of Lessor, express or implied by
inference or otherwise, to any contractor, sub-contractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to or repair of the Combined Premises
or any part thereof.
14. Insurance.
14.1 Risks to be Insured. (a) Lessee shall maintain or cause to be
maintained with insurers and pursuant to insuring agreements approved by Lessor:
(i) insurance with respect to all buildings, improvements, equipment
and machinery constituting a part of the Combined Premises against loss or
damage by perils customarily included under standard "all-risk" policies
(including specifically damage by water), in amounts sufficient to prevent
Lessor or Lessee from becoming a co-insurer of any partial loss under the
applicable policies, and in any event in amounts not less than 90% of the
then full replacement cost (without deducting depreciation) of such
buildings, improvements, equipment and machinery (exclusive of the costs
of foundations, excavations and footings) (the "full
<PAGE> 55
52
replacement cost") as determined at the request of Lessor, made not sooner
than one year after the previous determination, and at Lessee's expense by
the insurer or insurers or by an expert selected by Lessee and approved by
Lessor;
(ii) boiler and machinery coverage, either, as Lessee shall elect,
as part of the policy referred to in clause (i) of this section 14.1(a)
or, if by a separate policy, in an amount not less than $5,000,000 or such
greater amount as Lessor may reasonably require by notice to Lessee;
(iii) comprehensive general liability insurance, including broad
form bodily injury, personal injury, property damage and blanket
contractual insurance, against claims arising out of or connected with the
possession, use, operation or condition of the Combined Premises with a
combined single limit of not less than $100,000,000 (or, such greater
amount as Lessor may reasonably require by notice to Lessee) for all
claims with respect to bodily injury, property damage and personal injury
with respect to any one occurrence;
(iv) appropriate builder's risk insurance with respect to any
Alterations (including, without limitation, any Restoration) or other work
on or about the Combined Premises or any part thereof;
<PAGE> 56
53
(v) appropriate worker's compensation and employer's liability
insurance with respect to any Alteration (including, without limitation,
any Restoration) or other work on or about the Combined Premises or any
part thereof;
(vi) such other insurance with respect to the Combined Premises or any
part thereof in such amounts and against such insurable casualties as
Lessor from time to time may reasonably require by notice to Lessee; and
(vii) rental value or rental continuation insurance to take effect
upon 50% Untenantability (as defined in section 15.4(a)) ("Rent Insurance")
in an amount sufficient to prevent Lessor and Lessee from becoming
co-insurers, and in any event, in respect of each Required Item (as
hereinafter defined), in an amount not less than the amount of such
Required Item for the Required Period (as hereinafter defined) for such
Required Item.
All insurance required to be maintained under clause (i), (ii) or (iii) of this
section 14.1(a) may be subject to a deductible of not more than the Deductible
Amount. Lessor shall not unreasonably withhold any of the approvals referred to
in this section 14.1(a). Any dispute whether Lessor has unreasonably withheld
such an approval and any dispute regarding the dollar amounts of the limits of
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54
coverage under clause (ii) or (iii) of this section 14.1(a) and any dispute
under clause (iv), (v), (vi) or (vii) above shall be resolved by arbitration.
Pending the outcome of such arbitration, Lessee may act as if the dispute had
been resolved in its favor.
(b) "Required Item" means each of (i) Basic Rent, (ii) all
Impositions and (iii) all premiums on insurance required to be carried pursuant
to section 14.1(a); provided, however, that none of the foregoing shall be a
Required Item unless Rent Insurance therefor shall be available at a reasonable
cost. Rent Insurance shall be deemed available at a reasonable cost in respect
of any Required Item if the annualized premium per $1,000,000 of coverage does
not exceed the product of $1,000 multiplied by a fraction whose numerator is the
Index for the third month immediately preceding the month in which the
determination is made as to whether the item in question is a "Required Item"
and whose denominator is the Index for February, 1985.
(c) "Required Period" means, in respect of any Required Item, the
period following the date of 50% Untenantability for which Rent Insurance for
such Required Item is available at a reasonable cost (provided that in no event
shall the Required Period for any Required Item exceed an 18-month period).
(d) The determination as to whether any item is a "Required Item",
and the determination as to the Required
<PAGE> 58
55
Period, if any, for the item in question, shall be made at the request of Lessor
by Marsh & McLennan (or such other independent insurance firm as may be
reasonably acceptable to Lessor) and at the expense of Lessee, provided that no
such determination shall be required to be made more frequently than once every
6 months; provided, however, that Lessor and Lessee acknowledge that, as of the
date of this Lease, Basic Rent is the only Required Item and that the Required
Period therefor is a 12-month period.
14.2 Policy Provisions. All insurance maintained by Lessee pursuant to
section 14.1(a) shall: (a) except for any worker's compensation insurance and
employer's liability insurance, name as insureds, as their respective interests
may appear, Lessor and Lessee; (b) include a stipulation that premiums will be
paid by and are the responsibility of Lessee; (c) except for any comprehensive
general liability, worker's compensation insurance or employer's liability
insurance, provide that no act or omission of Lessee shall impair or affect the
rights of the insureds to receive and collect the proceeds under the relevant
policy; and (d) provide that no cancellation, reduction in amount or material
change in coverage thereof shall be effective until at least 30 days after
receipt by Lessor of written notice thereof. Lessee shall have the sole
authority to settle claims under insurance policies; provided, however, that,
in case of any damage or destruction affording Lessee the right
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56
to terminate this Lease pursuant to section 15.4(a), Lessee may not settle all
or any of the claims under the policies referred to in clauses (i), (ii), (iv)
or (vi) of section 14.1(a) arising from any damage or destruction unless it
shall waive such right with respect to such damage or destruction. Lessee may
obtain any of the insurance required hereby under blanket or umbrella policies;
provided, however, that any such policy of insurance provided for under clauses
(i), (ii), (iv), (vi) or (vii) of section 14.1(a): (i) shall permit recovery in
the amount required by the clause in question to be carried without regard to
other insured events with respect to other properties, and (ii) shall not
contain any clause which would result in the insured thereunder being required
to carry insurance with respect to the property covered thereby in an amount
equal to a minimum specific percentage of the full insurable value of such
property in order to prevent the insured therein named from becoming a
co-insurer of any loss with the insurer under such policy.
14.3 Delivery of Insurance Certificates; Payment of Premium. On the
date hereof and not less than 7 days prior to each policy expiration Lessee
shall deliver to Lessor certificates of all insurance policies required by this
Lease to be maintained. Lessee shall pay all premiums on each such insurance
policy within the time required under
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57
such policy and furnish Lessor with evidence of payment thereof within 10
business days after payment.
14.4 No Limitation of Damages. Lessor shall not be limited in the
proof of any damages which Lessor may claim against Lessee arising out of or by
reason of Lessee's failure during the term or any extended term of this Lease to
provide and keep in force the insurance required under this Lease to the amount
of the insurance premium or premiums not paid or incurred by Lessee and which
would have been payable upon such insurance, but Lessor shall also be entitled
to recover as damages for such breach the uninsured amount of any loss to the
extent of any deficiency between the insurance required by the provisions of
this Lease and the insurance carried by Lessee, together with all costs and
expenses incurred by Lessor which Lessor would not have incurred if the required
insurance had been maintained by Lessee. However, any such damages so recovered
by Lessor shall be subject to and limited by the provisions of section 25.
15. Damage to or Destruction of Property.
15.1 Waiver of ss.227; Lessee to Give Notice. Lessee hereby waives
the provisions of Section 227 of the Real Property Law and confirms that the
provisions of this section shall govern and control in lieu thereof. In case of
any damage to or destruction of the Combined Premises or any part thereof, if,
in Lessee's reasonable opinion, the
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58
cost to repair or rebuild the same will exceed $1,000,000, Lessee shall promptly
give notice thereof to Lessor, generally describing the nature and extent of
such damage or destruction.
15.2 Restoration. Subject to section 15.4, in case of any damage to
or destruction of the Combined Premises or any part thereof, this Lease shall
continue in full force and effect without abatement of any Basic Rent or other
amounts payable by Lessee hereunder. Lessee, whether or not the insurance
proceeds, if any, on account of such damage or destruction shall be sufficient
for the purpose, shall (subject to the applicable provisions of section 6)
promptly commence and proceed with due diligence to complete the restoration,
replacement or rebuilding of the Combined Premises (which may include demolition
of the remaining portions of the Combined Premises prior to rebuilding) as
nearly as possible to its condition immediately prior to such damage or
destruction with such Voluntary Alterations as Lessee shall (subject to the
applicable provisions of section 6) elect (such restoration, replacement and
rebuilding, together with any temporary repairs and property protection pending
completion of the work, being herein called "Restoration").
15.3 Application of Insurance Proceeds. (a) Promptly after the
occurrence of any damage to or destruction of the Combined Premises or any part
thereof the
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insurance proceeds with respect to which are expected by Lessee to exceed the
Significant Proceeds Amount, Lessee by notice to Lessor and the institution
appointed, shall appoint a depositary of the insurance proceeds under this
section 15.3 (the "Depositary"). Without limiting the foregoing, Lessee may
appoint a Depositary at any other time. The Depositary shall be a bank or trust
company having an office in the Borough of Manhattan and a combined shareholders
equity of at least $200 million. Funds held by the Depositary shall be invested
by the Depositary, upon the instructions of Lessee, in Permitted Investments.
(b) All insurance proceeds on account of any damage to or
destruction of the Combined Premises or any part thereof shall be payable as
follows:
(1) to Lessee, to the extent that such proceeds are equal to or less
than the Significant Proceeds Amount, and
(2) to the Depositary, to the extent that such proceeds are in
excess of the Significant Proceeds Amount;
provided, however, that if an Event of Default shall have occurred and be
continuing, the amounts paid or payable to Lessee in accordance with the
foregoing clause (1) shall be paid to the Depository and shall (without the
necessity of Lessee's compliance with the provisions of section 17) be returned
(together with the interest thereon) to Lessee only
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upon the curing of such Event of Default, but less the portion, if any, applied
and disbursed by the Depositary in accordance with the provisions of section 17.
15.4 Termination in Lieu of Restoration. (a) If:
(i) during the last three years of the then current term (x) the
Combined Premises shall be so damaged or destroyed that the Costs of
Restoration shall exceed the product of $10,000,000 multiplied by a
fraction whose numerator is the Index for the month which is three months
prior to the month in which the damage or destruction occurred and whose
denominator is the Index for February 1985, and (y) Lessee shall not have
exercised its right to extend the term hereof by giving the exercise
notice; or
(ii) at any time the Combined Premises shall be so damaged or
destroyed that 50% or more of the useable area thereof cannot, with the
exercise by Lessee of all due diligence, be rendered tenantable and fit
for the normal conduct of business within 30 days after the date of the
damage or destruction (the condition described in this clause (ii) being
called "50% Untenantability"),
then (subject to the further provisions of this section 15.4) Lessee may, by
notice (the "Damage Termination Notice") to Lessor given within the 180-day
period (the "Election Period") following the date (the "Damage Date") of damage
or destruction, elect to terminate this Lease as of a
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date specified in the Damage Termination Notice (the "Specified Damage
Termination Date"), which Specified Damage Termination Date:
(a) shall, in the case of a Damage Termination Notice given on
or prior to the 90th day following the Damage Date, be the date
which is 12 months (plus the positive remainder, if any, obtained
by subtracting 365 from the number of days in the Required Period
for Basic Rent as most recently determined pursuant to section
14.1(d) prior to the Damage Date) after the Damage Date; or
(b) shall, in the case of a Damage Termination Notice given
after the 90th day following the Damage Date and on or prior to the
180th day following the Damage Date, be the date which is 9 months
(plus the positive remainder, if any, obtained by subtracting 365
from the number of days in the Required Period for Basic Rent as
most recently determined pursuant to section 14.1(d) prior to the
Damage Date) after the date of the Damage Termination Notice.
(b) If Lessee shall timely give the Damage Termination Notice, this
Lease shall terminate on the Specified Damage Termination Date; provided,
however, that if on or prior to the date which is 45 days after Lessor receives
the Damage Termination Notice Lessor shall by
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notice to Lessee dispute Lessee's right to terminate this Lease pursuant to
section 15.4(a), the matter shall be determined by the Appropriate Engineer and
(i) if the Appropriate Engineer's determination is in Lessor's favor, this Lease
shall continue in full force and effect or (ii) if the Appropriate Engineer's
determination is in Lessee's favor, this Lease shall terminate effective as of
the Specified Damage Termination Date. At any time at the request of Lessor or
Lessee, the Appropriate Engineer shall make a determination as to whether Lessee
has the right to terminate this Lease pursuant to this section 15.4.
(c) At all times prior to the giving of the Damage Termination
Notice, Lessee shall prosecute the Restoration with all due diligence and in
accordance with the Plans and Specifications therefor (as approved by Lessor or
as determined by the Appropriate Engineer to have been required to be approved
by Lessor pursuant to this Lease); provided, however, that Lessee shall not be
obligated to expend more than the Significant Proceeds Amount with respect to
the Restoration of such damage or destruction unless (i) Lessee waives its
termination right under this section 15.4 with respect thereto or (ii) Lessee
does not give the Damage Termination Notice on or prior to the end of the
Election Period.
(d) Simultaneously with the giving of the Damage Termination Notice
Lessee shall:
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(i) assign to Lessor (by instruments reasonably satisfactory to Lessor)
all of Lessee's right, title and interest in and to the Plans and
Specifications (if any) for the Restoration and in and to that portion (if any)
of the Significant Proceeds Amount which has not yet been received by Lessee
from the insurer (provided that if and when Lessor receives such portion of the
Significant Proceeds Amount from the insurer, Lessor shall, within 10 business
days after receipt of a request therefor from Lessee, pay to Lessee an amount
equal to the lesser of (x) such portion of the Significant Proceeds Amount
received by Lessor from the insurer or (y) the amount, if any, by which the
aggregate amount expended by Lessee in connection with the Restoration on or
prior to the date of the Damage Termination Notice [exclusive, however, of any
amount expended for the restoration, repair or replacement of the Initial
Tenant Improvements] exceeds the sum of (a) the portion of the Significant
Proceeds Amount (if any) received by Lessee from the insurer on or prior to the
date of the Damage Termination Notice and (b) the Deductible Amount under the
insurance policy required to be maintained by Lessee under section 14.1(a));
(ii) pay to Lessor, in immediately available funds, an amount (the "Damage
Payment") equal to the sum of the positive remainder, if any, obtained by
subtracting the
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aggregate amount theretofore expended by Lessee in connection with the
Restoration (exclusive, however, of any amount expended for the
restoration, repair or replacement of the Initial Tenant Improvements) from
the sum of (a) that portion (if any) of the Significant Proceeds Amount
which Lessee received from the insurer on or prior to the date of the
Damage Termination Notice plus (b) the Deductible Amount under the
insurance policy required to be maintained by Lessee under section 14.1(a);
and
(iii) if the insurance policy required to be maintained by Lessee
under section 14.1(a) was for less than the full replacement cost most
recently determined pursuant to said section, deposit with the Depositary,
in immediately available funds, an amount equal to the excess of the amount
which would have been recoverable from the insurer if such policy had been
for the full replacement cost most recently determined pursuant to said
section over the amount which is recoverable from the insurer under such
policy on account of the damage or destruction.
(e) Subject to section 15.4(f), during the period commencing on the date
of the Damage Termination Notice and ending on the Specified Damage
Termination Date, Lessor shall have full control over the Restoration and may
use the Damage Payment and the amounts on deposit with the
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Depositary to defray the costs of the Restoration. Lessor and Lessee shall
reasonably cooperate with one another to effectuate the Restoration in an
efficient manner, and during the Restoration Lessor shall use reasonable efforts
to minimize interference with Lessee's use of the undamaged portion (if any) of
the Combined Premises. Lessor shall not be liable to Lessee for any matter
relating to or arising out of the Restoration unless due to Lessor's gross
negligence or wilful misfeasance; provided, however, that Lessor shall retain
reputable contractors who carry reasonable and customary public liability
insurance.
(f) If following the giving of the Damage Termination Notice, the
Appropriate Engineer shall determine that Lessee had no right to terminate this
Lease pursuant to section 15.4(a), then:
(i) Lessee shall thereupon assume full control of the Restoration
and shall prosecute the same with all due diligence to completion in
accordance with the requirements of this Lease; and
(ii) within 10 business days after the Appropriate Engineer's
determination, Lessor shall (x) reassign to Lessee that which was assigned
to Lessor pursuant to section 15.4(d)(i) and (y) pay to Lessee in
immediately available funds an amount equal to the positive remainder, if
any, obtained by subtracting the aggregate amount theretofore expended by
Lessor in connection with
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the Restoration (exclusive, however, of any amount disbursed to Lessor by
the Depositary) from the sum of (a) the amount, if any, received by Lessor
from the insurer by reason of the assignment referred to in section
15.4(d)(i) (exclusive, however, of any portion of such amount paid by
Lessor to Lessee pursuant to section 15.4(d)(i)), and (b) the Damage
Payment.
(g) Prior to the termination of this Lease pursuant to this section
15.4 there shall be no abatement of the Basic Rent or any other sum payable by
Lessee hereunder.
16. Taking of Property.
16.1 Notice. Lessor and Lessee shall each notify the other if it
becomes aware of a Taking, or the commencement of any proceedings or
negotiations which might result in a Taking.
16.2 Total Taking. In case of the Taking of the entire Combined
Premises or a Taking of 20% or more of the useable area of the Combined Premises
which renders the remainder thereof, in Lessee's reasonable opinion, not
reasonably susceptible to use as a first-class office building (a "Total
Taking"), this Lease shall terminate on the date of such Taking; provided,
however, that if Lessor shall dispute the reasonableness of Lessee's opinion,
the matter shall be determined by the Appropriate Engineer and (a) if the
Appropriate Engineer's determination is in favor of Lessor, the Taking in
question shall be deemed a Partial
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Taking (as defined in section 16.3) or (b) if the Appropriate Engineer's
determination is in favor of Lessee, this Lease shall terminate on the date of
the determination. Within 10 business days after termination of the Lease in
accordance with section 16.2, Lessor shall return to Lessee all Basic Rent
previously paid which is attributable to the period after such termination.
16.3 Partial Taking. In case of a Taking other than a Total Taking
(hereinafter called a "Partial Taking") (a) this Lease shall remain in full
force and effect; provided, however, that on the date of such Taking this Lease
shall terminate as to the portion of the Leased Premises taken (which portion
shall be deemed excluded from the Leased Premises) and the Basic Rent shall be
reduced by multiplying the same by a fraction, the numerator of which is the
area of the Building taken and the denominator of which is the area of the
Building immediately prior to such Taking, and (b) Lessee, whether or not the
awards or payments, if any, on account of such Taking shall be sufficient for
the purpose shall promptly commence Restoration of the Combined Premises
(exclusive of the taken portion) and thereafter diligently prosecute the same to
completion in accordance with the Plans and Specifications therefor (as approved
by Lessor or as determined by the Appropriate Engineer to be required to have
been approved by Lessor pursuant to this Lease).
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16.4 Application of Awards. (a) In the event of a Total Taking, the
award or awards for such Taking, less the cost of the determination of the
amount thereof (the "Condemnation Proceeds"), shall be paid as follows:
(i) if the Taking occurs at any time on or prior to June 30, 1998,
Lessor shall first be entitled to receive such portion of the Condemnation
Proceeds with interest thereon as shall equal the greater of:
(x) the sum (the "Recoverable Sum") of $310,000,000, plus the
aggregate amount of all reimbursements made by Lessor to Lessee
pursuant to section 6(e); or
(y) an amount equal to the greater of (a) the fair market
value of Lessor's fee estate in the Leased Premises, valued as
encumbered by this Lease, or (b) the fair market value of Lessor's
fee estate in the Land, valued as encumbered by this Lease;
(ii) if the Taking occurs at any time after June 30, 1998, Lessor
shall first be entitled to receive such portion of the Condemnation
Proceeds with interest thereon as shall equal the greater of (x) the fair
market value of Lessor's fee estate in the Leased Premises, valued as if
vacant and unencumbered by this Lease or otherwise, or (y) the fair market
value of
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Lessor's fee estate in the Land, valued as if vacant, unimproved and
unencumbered by this Lease or otherwise;
(iii) Lessee shall then be entitled to receive such portion of the
Condemnation Proceeds with interest thereon as shall equal the value of its
leasehold estate; and
(iv) Lessor shall then be entitled to receive the balance of the
Condemnation Proceeds.
(b) In the event of a Partial Taking, the Condemnation Proceeds
shall be paid as follows:
(i) Lessee shall first be entitled to receive such portion of the
Condemnation Proceeds with interest thereon as shall be awarded for
Restoration and such portion of the Condemnation Proceeds shall be payable
to the Depositary for disbursement in accordance with section 17;
(ii) if the Taking occurs at any time on or prior to June 30, 1998,
Lessor shall then be entitled to receive such portion of the Condemnation
Proceeds with interest thereon as shall equal the greater of:
(x) the Recoverable Sum multiplied by a fraction whose numerator
is the number of square feet in the portion of the Land so taken and
whose denominator is 58,223; or
(y) an amount equal to the greater of (x) the fair market value
of Lessor's fee estate in the
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part of the Leased Premises (if any) so taken, plus consequential damages,
if any, to Lessor's fee estate in the part of the Leased Premises not so
taken, the Leased Premises to be valued as encumbered by this Lease, or
(y) the fair market value of Lessor's fee estate in the part of the Land
(if any) so taken, plus consequential damages, if any, to the portion of
the Land not so taken, the Land to be valued as encumbered by this Lease;
(iii) if the Partial Taking occurs at any time after June 30, 1998, Lessor
shall then be entitled to receive such portion of the Condemnation Proceeds with
interest thereon as shall equal the greater of (x) the fair market value of
Lessor's fee estate in the part of the Leased Premises (if any) so taken, plus
consequential damages, if any, to the part of the Leased Premises not so taken,
the Leased Premises to be valued as if vacant and unencumbered by this Lease or
otherwise, or (y) the fair market value of Lessor's fee estate in the part of
the Land (if any) so taken, plus consequential damages, if any, to the portion
of the Land not so taken, the Land to be valued as if vacant, unimproved and
unencumbered by this Lease or otherwise; and
(iv) Lessor and Lessee shall then share equally in any balance of the
Condemnation Proceeds.
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(c) If the order or decree in any condemnation or similar proceeding
shall fail separately to state the amount to be awarded to Lessor and the amount
to be awarded to Lessee under section 16.4(a) or (b), or the amount of the
compensation for Restoration, and if Lessor and Lessee cannot agree thereon
within 30 days after the final award or awards shall have been fixed and
determined, the dispute shall be determined by arbitration.
(d) Nothing in this Lease shall preclude Lessee from claiming or
receiving from the condemning authority any compensation to which Lessee may
otherwise lawfully be entitled in respect of Lessee's Equipment and the Initial
Tenant Improvements, for moving to a new location, reimbursement for tenant
improvements or for interruption of, or damage to, Lessee's business; provided,
however, that any award made is separate to Lessee and not part of damages
recoverable by Lessor.
16.5 Temporary Taking. Sections 16.2 through 16.4 to the contrary
notwithstanding, the provisions of this section 16.5 shall govern any Taking for
temporary use. In the case of any Taking for temporary use, this Lease shall
remain in effect as to the Leased Premises (including the portion taken) and
there shall be no reduction in Basic Rent or (unless otherwise legally required)
other change in the obligations of Lessee hereunder. If the term of the
temporary Taking shall not extend beyond the term of this
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Lease and any extended term (for which Lessee has given the exercise notice)
the entire award shall be payable to Lessee and Lessee shall make Restoration
of the Leased Premises in accordance with the requirements of this Lease. If
the term of the temporary Taking shall extend beyond the term of this Lease and
any extended term (for which Lessee has given the exercise notice), Lessee need
not make Restoration, the portion of the award applicable to the Restoration
shall be paid to Lessor and the balance of the award shall be apportioned
between Lessee and Lessor by the condemning authority or, if the condemning
authority fails to act, by arbitration.
17. Disbursement of Deposited Sums. (a) Subject to the provisions of
this section 17, the Depositary shall, from time to time as any Restoration
proceeds and within 10 business days after receipt of Lessee's request therefor
(but in no event more frequently than once during any 30-day period), make
disbursements (collectively, "Restoration Advances") to Lessee from the funds
deposited with the Depositary pursuant to section 15.3(b), 15.4(d)(iii) or
16.4(b)(i) (collectively, the "Deposited Sums") for application to the Costs of
the Restoration in question. Simultaneously with the delivery of each such
request to the Depositary, Lessee shall give notice thereof to Lessor (which
notice shall be accompanied by copies of such request and all other papers
delivered to the Depositary).
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(b) No Restoration Advance shall be made on account of any fire or
other casualty until Lessee shall have delivered evidence reasonably
satisfactory to Lessor that an aggregate amount at least equal to the
Significant Proceeds Amount has been expended for Costs in connection with the
Restoration, and Restoration Advances on account of any fire or other casualty
shall be made only for amounts paid or payable by Lessee for Costs which are in
excess of the Significant Proceeds Amount.
(c) No Restoration Advance (other than the final Restoration
Advance) in respect of any fire or other casualty or any Partial Taking shall be
due unless Lessee's request for such Restoration Advance shall be accompanied
by:
(i) a certificate of Lessee addressed to the Depositary and Lessor
(in form reasonably satisfactory to Lessor) stating that the amount of the
Restoration Advance then requested has been paid or is then duly payable
by Lessee to Contractors (whose names and addresses and a description of
the work involved shall be stated), that the amount of the Restoration
Advance then requested (when taken together with the aggregate amount of
all Restoration Advances theretofore made by the Depositary) exceeds
neither 90% of the Deposited Sums (together with interest on such amount)
nor the value (the "Installed Value") of the Restoration work in
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question as actually installed in the Leased Premises (Lessee's
certificate to set forth a calculation of the Installed Value), and that
no part of cost of the work described in any previous or then pending
request for a Restoration Advance has been or is being made the basis for
the Restoration Advance then being requested; and
(ii) a certificate of the architect or engineer who prepared the
related Plans and Specifications addressed to the Depositary and Lessor
(in form reasonably satisfactory to Lessor) stating in substance that (x)
the calculation of Installed Value as set forth in the certificate
referred to in the foregoing clause (i) is correct, (y) the work has been
performed in a good and workmanlike manner and in accordance with the
Plans and Specifications (as approved by Lessor or as determined by the
Appropriate Engineer to have been required to be approved by Lessor
pursuant to this Lease) and (z) the unadvanced portion of the Deposited
Sums in question, together with any additional amount to be available from
the insurer, are at least equal to the Costs of the Restoration which will
remain unpaid after giving effect to the Restoration Advance in question.
(d) No Restoration Advance (including the final Restoration Advance)
in respect of any fire or other casualty or any Partial Taking shall be due
unless:
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75
(i) no certificate delivered to the Depositary or Lessor by Lessee or
by any architect or engineer in connection with the Restoration in question
shall have been materially incorrect at the time of delivery (Lessor to
give notice to Lessee within 10 business days after Lessor's receipt of the
certificate in question if Lessor contends that such certificate was
materially incorrect; any such dispute to be determined by the Appropriate
Engineer);
(ii) in the case of a Restoration Advance to be made on account of a
fire or other casualty, Lessee shall have waived its right to terminate
this Lease pursuant to section 15.4(a) on account of such damage or other
casualty;
(iii) Lessor shall have received true copies of all bills paid or
payable by Lessee to Contractors which form the basis for the Restoration
Advance in question; and
(iv) no Event of Default (including, without limitation, any
Event of Default specified in section 22(d)) shall have occurred and be
continuing.
(e) Neither any final Restoration Advance nor the release of any
remaining balance of Deposited Sums pursuant to section 17(f) shall be made
unless:
(i) Lessee's request for such Advance or such release shall be
accompanied by (x) a certificate of
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76
Lessee addressed to the Depositary and Lessor (in form reasonably
satisfactory to Lessor) stating that to Lessee's best knowledge (after due
inquiry) there shall (after giving effect to such Advance or release) be
no outstanding indebtedness due for labor, materials, supplies, permits or
services in any manner connected with the Restoration which if unpaid
might be the basis for any type of lien on the Combined Premises, or any
part thereof, and that (in the case of a request for a final Restoration
Advance) the amount requested has been paid or is then duly payable to
Contractors (whose names and addresses and a description of the work
involved shall be stated) and (y) a certificate of the architect or
engineer who prepared the related Plans and Specifications addressed to
the Depositary and Lessor (in form reasonably satisfactory to Lessor)
stating that the Restoration work has been fully completed in a good and
workmanlike manner and in accordance with the Plans and Specifications (as
approved by Lessor or as determined by the Appropriate Engineer to have
been required to be approved by Lessor pursuant to this Lease); and
(ii) the Depositary and Lessor shall have received (x) an instrument
in writing from any title company insuring Lessor's estate in the Leased
Premises certifying that there are no undischarged mechanics',
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77
laborers' or materialmen's liens affecting any part of the Combined
Premises (other than liens, if any, in respect of which Lessor has
consented to take security pursuant to section 13(a)(ii)) and (y) evidence
reasonably satisfactory to Lessor that Lessee has obtained waivers of
mechanics', laborers' or materialmen's liens or releases of such liens
from all Contractors engaged in the Restoration.
(f) Subject to section 17(g), any balance of a Deposited Sum
(together with interest thereon) remaining with the Depositary upon the
completion of any Restoration on account of fire or other casualty or any
Partial Taking shall (in the case of fire or other casualty) be remitted to
Lessee promptly upon its request or (in the case of a Partial Taking) be
released to Lessor for application in the manner provided in section 16.4.
(g) Notwithstanding anything to the contrary contained in this
Lease, upon any early termination of this Lease (including, without limitation,
any early termination pursuant to section 15.4(a)), the Depositary shall
forthwith remit to Lessor the balance of all Deposited Sums (together with
accrued interest thereon) held by the Depositary immediately prior to such
termination.
(h) Each Restoration Advance shall be made by the Depositary as soon
as reasonably practicable, but in no event later than the date which is 30 days
after Lessee
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shall have satisfied all of the applicable conditions to such Advance specified
in this section 17.
18. Certificate as to No Default, etc. Lessor and Lessee shall each
deliver to the other within 20 days after request, an Officer's Certificate
stating (i) that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect, as
modified, and stating the modifications), (ii) the dates to which the Basic Rent
has been paid and that, to the best knowledge (after due inquiry) of the party
giving such certificate, no Event of Default has occurred and is continuing
hereunder, or, if any Event of Default has occurred and is continuing specifying
the nature and period of existence thereof, and (iii) that, to the best
knowledge (after due inquiry) of the party giving such certificate, the other
party has fulfilled all of its obligations under this Lease or, if not, stating
in what respects such other party has failed to do so. Any Officer's Certificate
may be relied upon by any prospective purchaser or mortgagee of the Leased
Premises or any part thereof or interest therein or by any prospective assignee
or mortgagee of this Lease or any prospective subtenant.
19. Right of Lessor to Perform Lessee's Covenants, etc. If Lessee
shall fail to make any payment or perform any act required to be made or
performed by it hereunder,
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Lessor may (but shall be under no obligation to) without waiving or releasing
any obligation or default:
(a) in case of emergency, or reasonably foreseeable or actual
criminal liability,
(b) if such failure is under section 11.1(a), 14.1(a), 14.2 or 14.4,
and if Lessor shall give notice to Lessee referring to this section 19(b)
and specifying such failure and requiring it to be remedied and Lessee
shall not remedy such failure within 7 days after Lessee's receipt of such
notice,
(c) if such failure is under section 14.3, and if Lessor shall give
notice to Lessee referring to this section 19(c) and specifying such
failure and requiring it to be remedied and Lessee shall not remedy such
failure within 4 days after Lessee's receipt of such notice,
(d) if such failure is under section 12, and if Lessor shall give
notice to Lessee referring to this section 19(d) and specifying such
failure and requiring it to be remedied and Lessee shall not remedy such
failure within 15 days after Lessee's receipt of such notice; provided,
however, that in case such failure cannot with due diligence be remedied
by Lessee within a period of 15 days, if Lessee proceeds as promptly as
may be reasonably possible after the receipt of such notice and with all
due diligence to remedy such failure and
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thereafter to prosecute the remedying of such failure with all due
diligence, the period of time after the receipt of such notice by Lessee
within which to remedy such failure shall be extended for such period as
may be necessary to remedy the same with all due diligence,
(e) if such failure is under section 13, or
(f) if such failure is under a section of this Lease other than
sections 11.1(a), 12, 13 or 14, subject to the succeeding paragraph, if
Lessor shall give notice to Lessee referring to this section 19(f) and
specifying such failure and requiring it to be remedied and Lessee shall
not remedy such failure within 30 days after Lessee's receipt of such
notice; provided, however, that in case such failure cannot with due
diligence be remedied by Lessee within a period of 30 days, if Lessee
proceeds as promptly as may be reasonably possible after the receipt of
such notice and with all due diligence to remedy such failure and
thereafter to prosecute the remedying of such failure with all due
diligence, the period of time after the receipt of such notice by Lessee
within which to remedy such failure shall be extended for such period as
may be necessary to remedy the same with all due diligence,
make such payment or perform such act for the account and at the expense of
Lessee, and may enter upon the Combined Premises or any part thereof for such
purpose and take all
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such action thereon as, in the opinion of Lessor, may be necessary or
appropriate therefor. All payments so made by Lessor and all costs and expenses
(including, without limitation, attorneys' fees and expenses) incurred in
connection therewith, together with interest thereon at the prime interest rate
of Morgan Guaranty Trust Company of New York from time to time announced to be
in effect, shall be paid by Lessee to Lessor within 10 days of Lessee's receipt
of Lessor's demand therefor referring to this section 19 and section 22(c)
accompanied by copies of all bills therefor.
If within 15 days after the date on which Lessee receives notice from
Lessor under clause (f) above, Lessee shall commence an arbitration seeking a
determination that the matter referred to in Lessor's notice under clause (f)
does not constitute a failure to make a payment or perform an act required to be
made or performed hereunder, then (i) Lessor may not make such payment or
perform such act for the account and at the expense of Lessee and may not enter
upon the Combined Premises or any part thereof for such purpose or take action
thereon prior to the date upon which the determination in arbitration is made
(the "determination date") and (ii) if the action is determined in a manner
adverse to Lessee, the 30 day (or longer) period referred to in clause (f) above
shall be extended to the date 30 days after the determination date (or for such
longer period commencing on the determination date as may reasonably be
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required in order to remedy the matters in question with all due diligence).
20. Assignments; Subleases.
20.1 Generally. (a) Lessee may sublet the Combined Premises or any
part thereof or assign, mortgage, pledge or encumber this Lease or any interest
therein or any part thereof, without the consent of Lessor, provided that
(i) Lessee shall deliver to Lessor a fully executed counterpart of each such
sublease, assignment, mortgage or other relevant instrument and any modification
or amendment of any of the foregoing promptly after execution thereof and shall
notify Lessor of any occupancy no later than the date on which such occupancy is
to be taken, (ii) no assignment, whether by operation of law, consolidation,
merger or otherwise, shall be made unless within 15 days thereafter the assignee
shall execute and deliver to Lessor an instrument assuming all the obligations
of Lessee under this Lease thereafter accruing, (iii) no sublease, assignment,
mortgage or other transaction and no assumption, shall affect or reduce any of
the obligations of Lessee (including the original Lessee and each such assignee)
hereunder but this Lease and all the obligations of Lessee (including the
original Lessee and each such assignee) hereunder shall continue in full force
and effect as the obligations of a principal and not the obligations of a
guarantor or surety and (iv) each sublease, assignment, mortgage or other
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instrument made by Lessee after the date hereof shall be subject and
subordinate to this Lease and the terms and provisions hereof. Each sublease of
all or any part of the Combined Premises made by Lessee after the date hereof
shall provide that if Lessor shall terminate this Lease prior to the scheduled
expiration date of such sublease then, upon Lessor's request, the subtenant
thereunder (and anyone holding by, through or under such subtenant) shall
attorn to Lessor upon all of the terms, covenants and conditions of such
sublease. Lessee hereby assigns to Lessor all rents and other sums due to
Lessee under any sublease of all or any part of the Combined Premises;
provided however, that other than upon the occurrence of and during the
continuance of an Event of Default Lessee may freely modify or terminate all or
any of the subleases or otherwise deal with all or any of the subtenants, may
permit prepayments of rent and may retain all such rents (paid when due or
prepaid) and other sums free of any claim or lien of Lessor; provided, however,
that with respect to any sublease with respect to which Lessor and the
subtenant have executed a non-disturbance agreement (as hereinafter defined)
Lessor shall be bound by prepayments of rent and modifications of such sublease
only to the extent provided in such non-disturbance agreement. All amounts
received by Lessor pursuant to the preceding sentence shall be set-off against
Lessee's obligations hereunder.
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(b) The interest of Lessor in this Lease and/or in and to the Leased
Premises may, at any time, be sold, conveyed, assigned or otherwise transferred,
or mortgaged, pledged or otherwise encumbered, without the consent of Lessee.
Upon any conveyance of the Leased Premises and the assumption by the new owner
of the Leased Premises of the obligations of Lessor hereunder thereafter
accruing, the conveyor shall be completely relieved of and from any and all
obligations of Lessor hereunder thereafter accruing, and Lessee shall thereupon
look only to the new owner of the Leased Premises for the performance of any
obligations of Lessor hereunder thereafter accruing.
20.2 Non-disturbance. With respect to any sublease of the Leased
Premises or any part thereof:
(a) demising at least one full floor;
(b) the term of which does not extend beyond the then current term
of this Lease (unless Lessee gives the appropriate exercise notice);
(c) the rent and additional rent under which (after deducting
therefrom an amount corresponding to the Impositions payable hereunder
with respect to the premises demised thereby and an amount equal to the
expenses payable by Lessee to provide to the premises demised thereby the
services referred to in clause (f) below) shall be no less than the
portion of the Basic
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Rent payable hereunder applicable on a pro-rata basis to the premises
demised thereby;
(d) which provides for occupancy of the premises demised thereby
only for purposes permitted by section 5 and specifically prohibiting use
by any government or governmental agency, personnel agency or school;
(e) the subtenant under which is financially sound and capable of
performing its obligations thereunder;
(f) which shall entitle the subtenant to services (HVAC, elevators,
cleaning, etc.) no more burdensome to provide than the services provided
under typical leases for comparable space in typical office buildings in
downtown New York City comparable in size and age to the Building as of
the date of such sublease; and
(g) which provides that, after termination of this Lease and
attornment by the subtenant to Lessor, the subtenant shall not, without
the prior written consent of Lessor, sublease all or any part of the
premises demised thereby or assign the sublease, except in either case, to
a wholly-owned subsidiary of, or a corporation wholly owning, the
subtenant, or to a successor of the subtenant, by merger, sale of assets
or consolidation,
Lessor shall, upon Lessee's request, enter into with the subtenant thereunder an
agreement in substantially the form attached hereto as Schedule C (a
"non-disturbance
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agreement"). If, after Lessor has executed a non-disturbance agreement with
respect to any sublease, Lessee and the subtenant thereunder propose to amend
such sublease, and if Lessor would, pursuant to the foregoing provisions of this
section 20.2, be required to enter into a non-disturbance agreement with respect
to such sublease as so amended, Lessor shall, upon Lessee's request, consent to
such amendment as contemplated by section 2 of the non-disturbance agreement.
Any dispute under this section 20.2 shall be resolved by arbitration; provided,
however, that the form of the non-disturbance agreement shall not be subject to
arbitration. If the result of such arbitration shall be adverse to Lessor,
Lessor shall not be liable for damages but Lessor shall then execute a
non-disturbance agreement or a consent to amendment. If Lessee shall make any
request under this section 20.2, it shall reimburse Lessor the reasonable
out-of-pocket expenses (including attorneys' fees and disbursements, credit
investigation fees and the fees and disbursements of other professionals)
incurred by Lessor in order to determine if the sublease or the sublease as
amended complies with clauses (a) through (g) above.
20.3 Leasehold Mortgages. If Lessee shall grant a Qualified
Mortgage, then from and after the date on which an executed copy of such
Qualified Mortgage is furnished to
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Lessor so long as such Qualified Mortgage shall remain unsatisfied of record the
following provisions shall apply:
(a) if Lessor shall become entitled to serve a Termination Notice (as
defined in section 22) Lessor shall, before serving such Termination Notice, use
its best efforts to give to the holder of any Qualified Mortgage a notice (the
"Mortgagee Notice") that an Event of Default specified therein remains
unremedied and that Lessor is entitled to serve a Termination Notice, and the
holder of such Qualified Mortgage shall have the right to remedy any Event of
Default under clause (a), (b) or (c) of section 22 within a period of 10 days
after its receipt of the Mortgagee Notice and any other Event of Default within
a period of 30 days after its receipt of the Mortgagee Notice.
(b) In case of the occurrence of an Event of Default (other than an Event
of Default specified in clause (a), (b) or (c) of section 22 or an Event of
Default specified in clause (d) of section 22 arising from the failure by Lessee
to perform its obligations under section 11.1(a)) if, within 30 days after its
receipt of the Mortgagee Notice, such holder shall:
(i) notify Lessor of its election to proceed with due diligence
promptly to acquire possession of the Combined Premises or to foreclose the
Qualified Mortgage or otherwise to extinguish Lessee's interest in this
Lease; and
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(ii) deliver to Lessor an instrument (the "Payment and Performance
Agreement") in writing duly executed and acknowledged wherein such holder
agrees that:
(x) during the period that such holder or its designee or a
receiver of rents and profits appointed upon application of such
holder shall be in possession of the Combined Premises or any part
thereof, or during the pendency of any such foreclosure or other
proceedings and until the interest of Lessee in this Lease shall
terminate, as the case may be, such holder shall pay or cause to be
paid to date and thereafter on a current basis to Lessor the Basic
Rent and all other sums from time to time becoming due to Lessor
under this Lease; and
(y) if delivery of possession of the Combined Premises or any
part thereof shall be made to such holder or its designee or such
receiver, whether voluntarily or pursuant to any foreclosure or
other proceedings or otherwise, such holder shall, promptly
following such delivery of possession, perform or cause such
designee to perform, as the case may be, such of the covenants and
agreements herein contained on Lessee's part to be performed as
Lessee shall have failed to perform to the date of delivery of
possession to the extent that under
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the laws of New York State amounts expended in performance of such
covenants and agreements can be added to the debt and be secured by
the Qualified Mortgage, and to perform or cause to be performed all
other covenants and agreements Lessee shall have failed to perform
promptly after extinguishment of Lessee's interest in this Lease;
then (provided that no default shall have occurred and be continuing under
the Payment and Performance Agreement) Lessor shall postpone the service
of the Termination Notice for such period or periods of time as may be
necessary for such holder, with the exercise of due diligence, to
extinguish Lessee's interest in this Lease and to perform or cause to be
performed all of the covenants and agreements to be performed by Lessee
hereunder. Nothing contained herein shall be deemed to require the holder
of a Qualified Mortgage to continue with any foreclosure or other
proceedings or, in the event such holder or receiver shall acquire
possession of the Combined Premises, to continue such possession, if the
Event of Default in respect of which Lessor shall have given a Mortgagee
Notice shall be remedied. If prior to any sale pursuant to any proceeding
brought to foreclose any Qualified Mortgage, or if prior to the date on
which Lessee's interest in this Lease shall otherwise be extinguished, the
Event of Default in
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respect of which Lessor shall have given a Mortgagee Notice shall have
been remedied and possession of the Combined Premises shall have been
restored to Lessee, then the obligations of the holder of the Qualified
Mortgage pursuant to the Payment and Performance Agreement shall thereupon
be null and void and of no further effect. Nothing contained herein shall
affect the right of Lessor, upon the subsequent occurrence of any Event of
Default, to exercise any right, power or remedy reserved herein to Lessor.
(c) In the event of the termination of this Lease, prior to the
expiration of the term, whether by summary proceedings to dispossess, service of
notice to terminate, or otherwise due to the occurrence of an Event of Default,
Lessor shall use its best efforts to serve upon the holder of such Qualified
Mortgage notice that this Lease has been terminated together with a statement of
any and all sums which would at that time be due under this Lease but for such
termination, and of all other Events of Default, if any, then known to Lessor.
Such holder shall thereupon have the option to obtain a new lease in accordance
with and upon the following terms and conditions:
Upon the written request of the holder of such Qualified Mortgage,
within thirty days after service of such notice that this Lease has been
terminated, Lessor shall enter into a new lease of the Leased Premises
with such holder or with its designee (the "Holder Designee"), as follows:
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91
Such new lease shall be effective as of the date of termination of
this Lease, and shall be for the remainder of the term of this Lease and
at the rent and upon all the agreements, terms, provisions, covenants and
conditions hereof, including any applicable rights of extension;
provided, however, that if such new lease is with the Holder's Designee,
the holder of the related Qualified Mortgage shall guarantee the
obligations of the Holder's Designee under such new lease pursuant to an
instrument reasonably satisfactory to Lessor. Such new lease shall require
the tenant thereunder to perform any unfulfilled obligation of Lessee
under this Lease which is reasonably susceptible of being performed by
such tenant. Upon the execution of such new lease, the tenant thereunder
shall pay any and all sums which would at the time of the execution
thereof be due under this Lease but for such termination, and shall pay
all expenses, including reasonable counsel fees, court costs and
disbursements incurred by Lessor in connection with such termination and
the preparation, execution and delivery of such new lease. Upon the
execution of such new lease, Lessor shall allow to the tenant thereunder
and such tenant shall be entitled to an adjustment in an amount equal to
the net income derived by Lessor from the Leased Premises during the
period from the date of termination of this Lease to the date of execution
of such new lease.
Effective upon the commencement of the term of any new lease Lessor's
interest, if any, in all subleases shall be assigned and transferred
without recourse by Lessor to the tenant thereunder, and all moneys on
deposit with the Depositary under section 17 or on deposit under section
11.3 which Lessee would have been entitled to use but for the termination
or expiration of this Lease may be used by the tenant thereunder for the
purposes of and in accordance with the provisions of such new lease.
Nothing herein contained shall be deemed to obligate Lessor to
deliver possession of the Combined Premises or any part thereof to the
tenant under any new lease.
(d) All Mortgagee Notices or other communication which Lessor shall
desire or be required to use its best efforts to serve upon the holder of a
Qualified Mortgage shall be in writing and be served by registered or
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92
certified mail, return receipt requested, addressed to such holder at his
address as set forth in such Qualified Mortgage, or at such other address as
shall last have been designated by such holder by notice in writing given to
Lessor by registered or certified mail, return receipt requested.
Any notice or other communication which the holder of a Qualified
Mortgage shall desire or is required to give to or serve upon Lessor shall be
deemed to have been duly given or served if sent by registered or certified
mail, return receipt requested, addressed to Lessor at Lessor's addresses as set
forth in section 33 or at such other addresses as shall be designated by Lessor
by notice given to such holder by registered or certified mail, return receipt
requested.
(e) Lessee irrevocably directs that Lessor accept, and Lessor shall
accept, performance and compliance by the holder of any Qualified Mortgagee of
and with any term, covenant, agreement, provision, condition or limitation on
Lessee's part to be kept, observed or performed hereunder with the same force
and effect as though kept, observed or performed by Lessee.
(f) Lessor and Lessee shall not enter into any agreement modifying,
cancelling or surrendering this Lease without the prior consent of the holder of
a Qualified Mortgage.
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93
21. Vaults. Lessor shall have no responsibility for title to or any
other aspect of vaults and areas, if any, now or hereafter built extending
beyond the boundary line of the Land. Lessee may occupy and use the same during
the term of this Lease, subject to this Lease and such laws, permits, orders,
rules and regulations as may be imposed by appropriate governmental authorities
with respect thereto. No revocation on the part of any governmental department
or authority of any license or permit to maintain and use any such vault and
areas shall in any way affect this Lease or the amount of the rent or any other
charge payable by Lessee hereunder. Lessee shall comply with all such licenses
and permits, and if any such license or permit shall be revoked, Lessee shall do
and perform all such work as may be necessary to comply with any order revoking
the same.
22. Events of Default; Termination. Each of the following shall
constitute an Event of Default:
(a) if Lessee shall fail to pay any Basic Rent when and as the same
becomes due and payable and such failure continues for a period of ten days
after notice from Lessor of such failure referring to this section 22(a),
specifying such failure and requiring it to be remedied is received by Lessee;
or
(b) if, in any period of 12 consecutive months, (i) in two separate
instances, Lessee shall fail to pay any Basic Rent when and as the same becomes
due and payable and
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Lessee shall receive notice of such failure under section 22(a) and (ii) in a
third or later instance, Lessee shall fail to pay any Basic Rent coming due when
and as the same becomes due and payable; or
(c) if Lessee shall fail to pay any amount under section 19 when
due; or
(d) if Lessee shall fail to perform or comply with any term of
section 11.1(a), 13 or 14 and such failure continues for a period of 15 days
after notice from Lessor of such failure referring to this section 22(d),
specifying such failure and requiring it to be remedied is received by Lessee;
or
(e) if Lessee shall fail to perform or comply with any term of
section 12 and such failure shall continue for a period of 30 days after notice
from Lessor of such failure referring to this section 22(e), specifying such
failure and requiring it to be remedied is received by Lessee; provided,
however, that, in case such failure cannot with due diligence be remedied by
Lessee within a period of 30 days, if Lessee proceeds as promptly as may be
reasonably possible after the receipt of such notice and with all due diligence
to remedy such failure and thereafter to prosecute the remedying of such failure
with all due diligence, the period of time after the receipt of such notice by
Lessee within which to remedy such failure shall be extended for such period as
may be necessary to remedy the same with all due diligence;
<PAGE> 98
95
(f) if Lessee shall fail to perform or comply with any term of this Lease
(other than any failure referred to in a previous subdivision of this section
22), and such failure shall continue for more than 30 days after notice from
Lessor of such failure referring to this section 22(f), specifying such failure
and requiring it to be remedied is received by Lessee; provided, however, that
in case such failure cannot with due diligence be remedied by Lessee within a
period of 30 days, if Lessee proceeds as promptly as may be reasonably possible
after the receipt of such notice and with all due diligence to remedy such
failure and thereafter to prosecute the remedying of such failure with all due
diligence, the period of time after the receipt of such notice by Lessee within
which to remedy such failure shall be extended for such period as may be
necessary to remedy the same with all due diligence; provided further, that if
Lessee within 15 days after the receipt of such notice of default shall dispute
the existence of such failure the matter shall be determined by arbitration and
if it shall be determined that such failure exists, the time within which Lessee
shall have to remedy the same shall be computed from the date of such
determination;
(g) if Lessee shall fail to perform any covenants contained in Section
10.8 of the Contract and such failure continues for a period of 15 days after
notice of such failure referring to this section 22(g), specifying such
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96
failure and requiring it to be remedied is received by Lessee; provided,
however, that in case such failure cannot with due diligence be remedied by
Lessee within a period of 15 days, if Lessee proceeds as promptly as may be
reasonably possible after the receipt of such notice and with all due diligence
to remedy such failure and thereafter to prosecute the remedying of such failure
with all due diligence, the period of time after the receipt of such notice by
Lessee within which to remedy such failure shall be extended for such period as
may be necessary to remedy the same with all due diligence; provided further,
that if Lessee within 7 days after the receipt of such notice of default shall
dispute the existence of such failure the matter shall be determined by
arbitration and if it shall be determined that such failure exists, the time
within which Lessee shall have to remedy the same shall be computed from the
date of such determination; or
(h) if Lessee shall admit in writing its inability to pay its debts
as they fall due, or shall make a general assignment for the benefit of
creditors, or shall file a petition in bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file an
answer admitting or not contesting the material allegations
<PAGE> 100
97
of a petition filed against it in any such proceeding, or shall seek or consent
to or acquiesce in the appointment of any trustee, custodian, receiver or
liquidator of Lessee or any material part of its properties; or
(i) if, within 90 days after the commencement of any proceeding against
Lessee seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed or stayed (or
if within 90 days after the expiration of any such stay such proceeding shall
not have been dismissed), or if, within 90 days after the appointment without
the consent or acquiescence of Lessee of any trustee, custodian, receiver or
liquidator of Lessee or of any material part of its properties, such appointment
shall not have been vacated or stayed (or if within 90 days after the expiration
of any such stay such appointment shall not have been vacated).
Lessor may at any time during the continuance of an Event of Default,
give a termination notice (a "Termination Notice") to Lessee specifying a date,
not less than five days after the date of such notice, on which specified date
this Lease shall terminate, and on such date, subject to section 25 relating to
the survival of Lessee's obligations, the term of this Lease shall expire and
terminate by limitation and all rights of Lessee under this Lease shall
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cease, unless before such date (i} all arrears of Basic Rent and all other sums
payable by Lessee under this Lease, and all costs and expenses (including,
without limitation, attorneys' fees and expenses) incurred by or on behalf of
Lessor shall have been paid by Lessee, and (ii) all other Events of Default at
the time existing under this Lease shall have been fully remedied. All costs and
expenses incurred by or on behalf of Lessor (including, without limitation,
attorneys' fees and expenses) occasioned by any Event of Default by Lessee under
this Lease shall be payable by Lessee upon demand by Lessor (together with
interest thereon at a rate per annum equal to the prime rate of Morgan Guaranty
Trust Company of New York announced to be in effect from time to time, plus 2%).
As used in this section 22, the term "Lessee" shall mean only the person then
owning the Lessee's interest hereunder, not such person's immediate or remote
assignors.
23. Repossession. If an Event of Default shall have occurred and be
continuing, Lessor, after termination of this Lease pursuant to section 22, may
enter upon and repossess the Combined. Premises or any part thereof by summary
proceedings or other legal proceedings and may remove Lessee and all other
persons and any and all property therefrom. Lessor shall be under no liability
for or by reason of such entry, repossession or removal.
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99
24. Reletting. At any time or from time to time before or after the
repossession of the Combined Premises or any part thereof pursuant to section
23, Lessor may relet the Combined Premises or any part thereof for the account
of Lessee, in the name of Lessee or Lessor or otherwise, without notice to
Lessee, for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the term of this Lease)
and on such conditions (which may include concessions or free rent) and for such
uses as Lessor, in its uncontrolled discretion may determine, and may collect
and receive the rents therefor. Lessor shall not be responsible or liable for
any failure to relet the Combined Premises or any part thereof or for any
failure to collect any rent due upon any such reletting.
25. Survival of Lessee's Obligations; Damages.
25.1 Termination of Lease Not to Relieve Lessee of Obligations. No
expiration or termination of the term of this Lease pursuant to section 22 or
otherwise (other than under section 15 or 16), and no repossession of the
Combined Premises or any part thereof pursuant to section 23 or otherwise, shall
relieve Lessee of its liabilities and obligations hereunder, all of which shall
survive such expiration, termination or repossession.
25.2 Current Damages. In the event of any such expiration,
termination or repossession pursuant to
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section 22 or 23, Lessee shall pay to Lessor the Basic Rent and all other sums
required to be paid by Lessee pursuant to this Lease up to the time of such
expiration, termination or repossession, and thereafter Lessee, until the end
of what would have been the term of this Lease in the absence of such
expiration, termination or repossession (excluding all unexercised options to
extend), and whether or not the Combined Premises or any part thereof shall
have been relet, shall be liable to Lessor for, and shall pay to Lessor, as
liquidated and agreed current damages for Lessee's default, (a) the Basic Rent
and all other sums which would be payable under this Lease by Lessee in the
absence of such expiration, termination or repossession, plus (b) all
reasonable expenses of Lessor in connection with such expiration, termination
and repossession and any reletting effected for the account of Lessee pursuant
to section 24 (including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, employees' expenses, alteration
costs and expenses of preparing for such reletting) less (c) the proceeds, if
any, of such reletting. Lessee shall pay such current damages monthly on the
days on which the Basic Rent would have been payable under this Lease in the
absence of such expiration, termination or repossession, and Lessor shall be
entitled to recover the same from Lessee on each such day.
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101
25.3 Final Damages. At any time after any such expiration, termination or
repossession, whether or not Lessor shall have collected any current damages as
aforesaid, Lessor at its option shall be entitled to recover from Lessee and
Lessee shall pay to Lessor on demand, as and for liquidated and agreed final
damages for Lessee's default and in lieu of all current damages beyond the date
of such demand, an amount equal to the excess, if any, of (a) the then present
value of the Basic Rent and all other sums (computed on the basis of such other
sums paid in the calendar year immediately preceding the date of such
expiration, termination or repossession) which would be payable under this
Lease from the date of such demand (or, if it be earlier, the date to which
Lessee shall have satisfied in full its obligations under section 25.2 to pay
current damages), for what would be the then unexpired term of this Lease in
the absence of such expiration, termination or repossession (excluding all
unexercised options to extend), over (b) the then present value of the then
fair net rental value of the Leased Premises for the same period (as determined
by Lessor, or if Lessee shall object to such determination within 10 business
days after notice thereof is received by Lessee, as determined by arbitration
in the manner provided in section 2.2). Present value shall be determined by
discounting future amounts at the prime interest rate of Morgan Guaranty Trust
Company of New York
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announced and in effect on the date of termination of this Lease. If any statute
or rule of law shall limit the amount of such liquidated final damages to less
than the amount above agreed upon, Lessor shall be entitled to the maximum
amount allowable under such statute or rule of law, but not in excess of the
amount provided by this section 25.3.
26. No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no payment or acceptance of full or
partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of any such term. No waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect, or
the rights of Lessor or Lessee with respect to any other then existing or
subsequent breach.
27. Remedies Cumulative. Each right, power and remedy of Lessor or
Lessee provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise, and
the exercise by Lessor or Lessee of any one or more of the rights, powers or
remedies provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise
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shall not preclude the simultaneous or later exercise by Lessor or Lessee of any
or all such other rights, powers or remedies. All sums payable by Lessee to
Lessor hereunder (other than the Basic Rent) shall be deemed additional rent and
Lessor shall have all of the same rights, powers and remedies in the case of the
failure by Lessee to pay any such sum when due as Lessor would have in the case
of the failure by Lessee to pay Basic Rent when due (provided that the notice
periods in sections 22(a) and (b) shall not be applicable thereto).
28. Acceptance of Early Termination or Surrender. No early termination
of this Lease or surrender to Lessor of this Lease, and no surrender of the
Leased Premises or any part thereof or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor, and no act by
Lessor, other than such a written agreement and acceptance by Lessor, shall
constitute an agreement thereto or acceptance thereof.
29. No Merger of Title. There shall be no merger of this Lease nor of
the leasehold estate created by this Lease with the fee estate or any other
leasehold estate in the Leased Premises or any part thereof by reason of the
fact that the same person, firm, corporation or other entity may acquire or own
or hold, directly or indirectly, (a) this Lease or the leasehold estate created
by this Lease or any interest in this Lease or in any such leasehold estate,
and
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(b) the fee estate or any other leasehold estate in the Leased Premises or any
part thereof or any interest in such fee estate or leasehold estate, and no such
merger shall occur unless and until all persons, firms, corporations and other
entities having an interest in or lien upon (i) this Lease or the leasehold
estate created by this Lease and (ii) the fee estate or any other leasehold
estate in the Leased Premises or any part thereof shall join in a written
instrument effecting such merger and shall duly record the same.
30. Exculpation. (a) Except as provided below, no general or limited
partner of Goldman, Sachs & Co., a New York limited partnership ("GS&Co."), or
of any assignee which is a successor to substantially all the assets and
business of GS&Co. (a "successor-assignee") shall have any personal liability
under this Lease and any judgment taken or rendered against GS&Co. or any
successor-assignee hereunder or related hereto shall be enforceable only against
the property of GS&Co. or such successor-assignee; provided, however, that
(i) if at any time GS&Co. or a successor-assignee (x) shall dissolve
(other than pursuant to, or as a result of, insolvency proceedings) and
(y) shall distribute its assets without adequately providing for any and
all of its obligations and liabilities under this Lease, then all persons
who were general partners
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of GS&Co. or of such successor-assignee immediately prior to the
dissolution shall be personally and jointly and severally liable to GS&Co.
or such successor-assignee for the benefit of Lessor to extent of any
loss, cost, damage or injury which Lessor may suffer as a result of the
failure to make adequate provision for such obligations and liabilities;
and
(ii) this section 30(a) shall not relieve any general or limited
partner of GS&Co. or of a successor-assignee from any obligation to
restore to GS&Co. or such successor-assignee any distributions of cash,
property or other assets by GS&Co. or such successor-assignee made to such
partner which (x) were made at any time when the distributor was insolvent
or (y) resulted in the distributor's becoming insolvent. For purposes of
this Lease, GS&Co. or a successor-assignee shall be "insolvent" if (a) it
is generally unable to pay its debts and other liabilities as they become
due or (b) the sum of its debts is greater than all of its property at a
fair valuation (taking into account this Lease and the liabilities of the
lessee hereunder).
This section 30(a) is for the sole benefit of GS&Co. and each
successor-assignee. Any other party acquiring the leasehold estate created by
this Lease shall have full personal liability hereunder.
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(b) Any judgment taken or rendered against Lessor hereunder or
related hereto shall be enforceable only against the interest of Lessor in the
Combined Premises or, in the event of a sale, financing or other disposition by
Lessor of the Combined Premises or any part thereof, against cash, property or
other assets of Lessor equal in amount to the proceeds of such sale, financing
or other disposition; provided, however, if the foregoing is insufficient to
satisfy such judgment, Lessor shall have personal liability for the unsatisfied
portion of such judgment to the extent (but only to the extent) that such
unsatisfied portion equals or is less than the sum of (i) the aggregate amount
(as of the date Lessee enforces any judgment against Lessor's fee estate) of any
mortgages covering Lessor's fee estate in the Leased Premises and (ii) the
aggregate amount of all other liens (as of the date Lessee enforces any judgment
against Lessor's fee estate) which Lessor has caused or suffered to be placed
against the Leased Premises or any part thereof, except liens which Lessee is
obligated hereunder to remove or cause to be removed.
31. Definitions. As used in this Lease, the following terms have the
following respective meanings:
Basic Rent: as defined in section 2.
business day: any weekday on which the New York Stock Exchange, or
its successor, is open for business.
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107
Combined Premises: the Leased Premises and the Initial Tenant
Improvements.
Costs: with respect to any construction, improvements, alteration,
restoration, replacement, repairs, or rebuilding ("work") shall include the
costs charged by contractors, subcontractors and materialmen for all labor,
materials, machinery and equipment purchased, leased or used in connection with
such work, fees and compensation payable to contractors and subcontractors in
connection with such work, governmental fees and charges assessed or incurred in
connection with such work, fees and expenses of architects and engineers,
whether retained by Lessor or Lessee, for estimates, surveys, preliminary
investigations, plans, drawings, specifications and supervision related to such
work, and the reasonable out-of-pocket expenses of Lessee's administration,
supervision and inspection of such work.
Deductible Amount: with respect to any insurance policy issued in
any month, the product of $500,000 multiplied by the fraction whose numerator is
the Index for the third month preceding the month in which such policy is issued
and whose denominator is the Index for February 1985.
Event of Default: as defined in section 22.
Existing Leases: as set forth in Schedule B.
Index: for any month the "Consumer Price Index" for such month of
all items, U.S. City Average, for all urban consumers, not seasonally adjusted,
published by the
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Bureau of Labor Statistics of the U.S. Department of Labor or a successor or
substitute index appropriately adjusted. In the event that the Index ceases to
use 1967 = 100 as the basis of calculation, or if a substantial change is made
in the terms or number of items contained in the Index, then the Index shall be
adjusted to the figure that would have been arrived at had the manner of
computing the Index in effect at the date of this Lease not been altered. In the
event such Index (or a successor or substitute index) is not available, a
reliable governmental or other impartial publication evaluating the information
theretofore used in determining the Index shall be used. No adjustments or
recomputations, retroactive or otherwise, shall be made because of any revision
which may later be made in the first published figure of the Index for any
month.
Initial Tenant Improvements: those items of property ownership of
which Lessee has retained and not conveyed to Lessor by the deed from Lessee to
Lessor of even date herewith. A copy of said deed is attached hereto as Schedule
E.
Insurance Requirements: all terms of or incorporated by reference
into any insurance policy (including the requirements of the Board of Fire
Underwriters and the Fire Insurance Rating Organization) covering or applicable
to the Combined Premises or any part thereof.
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Leased Premises: as defined in section 1.
Legal Requirements: all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions, health, safety, environmental and other requirements
of all governmental departments, commissions, boards, courts, authorities and
agencies, foreseen or unforeseen, ordinary or extraordinary, which now or at any
time hereafter may be applicable to the Combined Premises or any part thereof or
interest therein.
Lessee: Goldman, Sachs & Co., a New York limited partnership, or any
successor or assign hereunder.
Lessee's Equipment: all furniture, furnishings, office equipment,
computers, telex, telephone and telecommunications equipment, cooking and dining
equipment, and other items of personal property (whether or not attached to the
Combined Premises) used or useful in the conduct of Lessee's business on the
Combined Premises as distinguished from the operation of the Combined Premises.
Lessor: Metropolitan Life Insurance Company, a New York corporation,
or any successor or assign hereunder.
Major Building Equipment: the items of equipment listed on Schedule
D and all replacements thereof.
Officer's Certificate: a certificate signed by a party or a general
partner or corporate officer of a party.
Original Term: as defined in section 1.
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Permitted Encumbrances: as set forth in Schedule B.
Permitted Investment: (i) direct obligations of the United States of
America, or obligations for which the full faith and credit of the United States
of America is pledged, and obligations of any agency or instrumentality of the
United States of America, (ii) obligations of any State of the United States of
American or Canada or any Province of Canada or any political subdivision or
agency or instrumentality of any thereof rated in the third highest grade or
better by two or more of Standard and Poor's Corporation, Moody's Investors
Service Inc. or Fitch Investors Service (or their successors), (iii) any
commercial paper issued by a corporation organized under the laws of the United
States of America or any State thereof or of Canada or any Province thereof or
by any foreign bank having a branch or agency in the United States of America
and rated in the second highest grade or better by two or more of Standard &
Poor's Corporation, Moody's Investors Service Inc. or Fitch Investors Service
(or their successors) and having a maturity not in excess of nine months, (iv)
certificates of deposit of, or drafts or bills of exchange accepted generally
by, any bank or trust company or any savings and loan association incorporated
under the laws of the United States of America or any State thereof or Canada or
any Province thereof or by any foreign bank having
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a branch or agency in the United States of America and, in each case, which has
capital and surplus aggregating at least $200,000,000 as of the date of its most
recent report of condition and (v) such other securities or investments as
Lessor shall from time to time consent to; provided, however, that in no event
shall either of the following be "Permitted Investments": (a) any security of,
or investment in, any person or entity in which Lessee and/or any affiliate of
Lessee have (either directly or indirectly) a 5% or greater equity interest or
(b) a security or investment of any kind whose stated maturity is longer than 3
years.
Plans and Specifications: plans and specifications prepared by a
reputable and licensed architect or engineer regularly involved in first-class
office buildings in the Borough of Manhattan in work of the nature described in
such Plans and Specifications.
Qualified Mortgage: a first mortgage on the leasehold estate created
hereby,
(a) which is held by a commercial bank or trust company or insurance
company organized under the laws of the United States or one of the states
thereof (other than any such bank or company in which Lessee and/or any
affiliate of Lessee have, either directly or indirectly, a 5% or greater
equity interest) having assets (as shown on its audited statement of
condition most recently
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released prior to the date on which such holder acquires such mortgage) of
at least $1 billion;
(b) the principal amount of the indebtedness secured by which (not
including interest and amounts incurred or advanced by the holder for
taxes, insurance, repairs and protection of the leasehold estate) does not
exceed the Qualified Mortgage Amount; and
(c) the principal of the indebtedness secured by which was advanced
to Lessee under an agreement requiring Lessee to use substantially all of
the funds advanced for improvements to the Combined Premises.
Qualified Mortgage Amount: with respect to a mortgage on the
leasehold estate created hereby the product of $25 million multiplied by the
fraction whose numerator is the Index for the third month preceding the month in
which such mortgage becomes a lien on the leasehold estate created hereby and
whose denominator is the Index for February, 1985.
Restoration; Restore: as defined in section 15.
Significant Proceeds Amount: with respect to any damage or
destruction or Taking, the product of $5 million multiplied by the fraction
whose numerator is the Index for the third month preceding the month in which
such damage or destruction or Taking occurs and whose denominator is the Index
for February, 1985.
Special Alteration: as defined in section 6(h).
<PAGE> 116
113
Taking: a taking during the term hereof of all or any part of the
Combined Premises, or any interest therein or right accruing thereto, including,
without limitation, any right of access thereto, as the result of or in lieu of
or in anticipation of the exercise of the right of condemnation or eminent
domain, or a change of grade affecting the Leased Premises or any part thereof.
Total Taking: as defined in section 16.
The words "enter", "re-enter", "entry" and "re-entry" as used in
this lease are not restricted to their technical legal meaning.
32. End of Lease Term. Upon the expiration or earlier termination of
this Lease, Lessee shall quit and surrender to Lessor the Leased Premises free
and clear of all tenancies and occupancies other than those with respect to
which Lessor has executed a non-disturbance agreement and in good order and
condition, ordinary wear and tear and damage which Lessee is not required
hereunder to repair excepted.
33. Notices. All notices, requests, demands, certifications and
other communications hereunder (each a "notice") shall (except in the case of
the telephonic notices referred to in section 6(d)(vi) and 6(e)(vi)) be in
writing and shall be deemed to have been given when (a) deposited in the United
States mail, first class registered or certified, return receipt requested,
postage prepaid,
<PAGE> 117
114
addressed (1) if to Lessee, at 85 Broad Street, New York, New York 10004,
Attention: General Services Department or (2) if to Lessor, at One Madison
Avenue, New York, New York 10010, Attention: Executive Vice President, Real
Estate Investments, or (b) actually delivered by hand and receipted for (1) if
to Lessee, at 85 Broad Street, New York, New York 10004, Attention: General
Services Department, or (2) if to Lessor, at One Madison Avenue, New York, New
York 10010, Attention: Executive Vice President, Real Estate Investments.
Any notice mailed in accordance with this section shall be deemed
received on the date of the return receipt or, if delivery is refused, on the
date of refusal. Any notice actually delivered by hand and receipted for in
accordance with this section shall be deemed received on the date of the
receipt.
Whenever Lessor gives any notice as aforesaid, it shall give a copy
thereof in the same manner to Lessee at 85 Broad Street, New York, New York
10004, Attention: General Counsel.
Whenever Lessee gives any notice as aforesaid, it shall give a copy
thereof in the same manner to Lessor at Room 3122, 200 Park Avenue, New York,
New York 10166-0114, Attention: Vice President.
Lessor or Lessee, by notice given at least 30 days prior to the
effective date thereof, may from time to time
<PAGE> 118
115
change either or both of its above addresses to any other address within the
State of New York.
34. Annual Reports. Within 120 days of the end of each of Lessee's
fiscal years ending during the term hereof, Lessee shall furnish to Lessor a
statement of the income received for such fiscal year under subleases of all or
any part of the Combined Premises and a statement of Building operating expenses
for such fiscal year together with a schedule of subleases of all or any part of
the Combined Premises indicating the premises demised, commencement date,
expiration date, renewal options, base rent and escalation provisions.
35. Miscellaneous. (a) If any term of this Lease or any application
thereof shall be invalid or unenforceable, the remainder of this Lease and any
other application of such term shall not be affected thereby. All covenants and
obligations of Lessor and Lessee hereunder which are not fully performed upon
the expiration or earlier termination of this Lease shall survive such
expiration or earlier termination.
(b) This Lease may be changed or amended only by an instrument in
writing, signed by the party against whom enforcement of such change or
amendment is sought.
(c) Subject to section 20, this Lease shall be binding upon and
inure to the benefit of and be enforceable
<PAGE> 119
116
by the respective successors and assigns of the parties hereto.
(d) This Lease shall be construed and enforced in accordance with
and governed by the laws of the State of New York.
(e) The headings in this Lease are for purposes of reference only
and shall not limit or otherwise affect the meaning hereof. References herein to
sections are, unless otherwise indicated, references to sections hereof.
(f) Lessor and Lessee each represents to the other that it has dealt
with no broker (other than affiliates of Lessee) in connection with the
negotiation and execution of this Lease. Lessee shall pay, and shall indemnify
and defend Lessor against any claims for, any commission with respect to this
Lease due to any such affiliate.
(g) Lessor and Lessee hereby waive trial by jury in any action
arising under this Lease.
(h) No matter concerning this Lease shall be arbitrable unless
arbitration of such matter is specifically provided for herein. Except as
provided in section 2.2 with respect to arbitrations thereunder, in any instance
in this Lease in which arbitration is specifically provided for, such
arbitration shall be conducted pursuant to the rules of the American Arbitration
Association, or if the American Arbitration Association shall have ceased to
function as an arbitration association, of a successor or comparable
<PAGE> 120
117
organization and the arbitrators shall be persons experienced in matters of the
same general nature as the matter subject to arbitration. If, in any
arbitration, the arbitrator or arbitrators shall award any sum to be paid by one
party hereto to the other, the arbitrators shall also award interest thereon,
computed at the prime rate of Morgan Guaranty Trust Company of New York
announced to be in effect from time to time, from the date (prior to such
arbitration) on which, according to the terms hereof, such sum was to have been
paid.
(i) In any instance in this Lease in which Lessor covenants not
unreasonably to withhold its consent or approval, Lessee's sole remedy in case
of such unreasonable withholding is an action for specific performance or
injunction directing such consent or approval and Lessor shall have no liability
for monetary damages.
36. "Structural Work" consists solely of the following:
(a) Curtain Wall. Any replacement (including replacement of windows
above the ground floor constituting a part of the precast concrete panels,
together with the zippers and hard rubber frames of such windows) and/or repair
of the curtain wall in whole or in part, except that Structural Work shall not
include (i) caulking or acrylic treatment of the curtain wall not done in
conjunction with repairs to or replacement of the portion of the curtain wall
<PAGE> 121
118
caulked or treated, (ii) any work ("Contract Work") to be done by Lessee to
comply with Lessee's obligations under Section 10.8 (the "Contract Section") of
the Contract of Sale (the "Contract") pursuant to which Lessor acquired the
Leased Premises (a copy of the Contract Section being annexed as Schedule F),
(iii) any work resulting from Lessee's failure to do the Contract Work in
accordance with the requirements of the Contract Section or (iv) if the Contract
Work is undertaken in accordance with Seller's Recommendation (as defined in the
Contract Section), any work which Lessor reasonably determines, by notice
received by Lessee on or prior to the third anniversary of the date of full
completion of the Contract Work, is necessary because of the failure of the
Contract Work to remedy the Section 10.8 Condition (as defined in the Contract)
wherever it may exist or to prevent its occurrence anywhere else in the
Building's curtain wall (any dispute as to the reasonableness of Lessor's
determination to be determined by the Appropriate Engineer).
(b) Curtain Wall Windows. Replacement (but not repair) of curtain
wall windows above the ground floor in their entirety (inclusive of the glass,
zippers and hard rubber frames in such windows).
(c) Window Glass. Replacement (but not repair) of the glass in
curtain wall windows above the ground floor.
<PAGE> 122
119
(d) Window Zippers. Replacement (but not repair) of the zippers in
curtain wall windows above the ground floor.
(e) Window Hard Rubber Frames. Replacement (but not repair) of the
hard rubber frames in curtain wall windows above the ground floor.
(f) Steel Frame. Replacement and/or repair of the Building's steel
frame, footings, foundations, columns, beams, floors (including concrete floors
and the steel floors supporting each concrete floor) and core walls, except that
Structural Work shall not include any Special Alteration or any waterproofing
of, or repairing of leaks in, the Building's foundation walls.
(g) Roof. Replacement (but not repair) of the Building's roof in its
entirety (but not in part) required in order to preserve the structural
integrity of the Building or the watertightness and airtightness of the
Building.
In no event shall Structural Work include the replacement or repair
in whole or in part of the Building's ground floor plaza or the work and
obligations under the Distinctive Street Improvement Maintenance Agreement
(recorded in the Office of the New York County Clerk in Reel 895, at page 337),
the financial responsibility for which shall be Lessees's in all instances for
so long as this Lease is in effect.
<PAGE> 123
37. Limitation on Interest. Notwithstanding anything to the contrary
contained in this Lease, neither Lessor nor Lessee shall ever be required to
pay interest pursuant to any provision of this Lease in excess of the maximum
interest permitted by applicable law.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
duly executed and delivered, all as of the date and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
/s/ [signature]
By:___________________
GOLDMAN, SACHS & Co.
/s/ [signature]
By:___________________
a General Partner
<PAGE> 124
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of _____________, 1985, before me personally came
[signature] to me known, who being by me duly sworn, did depose and say that he
resides at 45 Commodore Road Chappaqua, NY 10514; that he is a Vice-President of
METROPOLITAN LIFE INSURANCE COMPANY, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
_____________________________
<PAGE> 125
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of _____________, 1985, before me personally came
____________________________, to me known to be the individual described in and
who executed the foregoing instrument and acknowledged that he executed the same
in the firm name as a General Partner and on behalf of GOLDMAN, SACHS & CO., a
limited partnership.
_____________________________
Notary Public
<PAGE> 126
Schedule A
Legal Description of the Land
That certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York.
BEGINNING at the corner formed by the intersection of the northerly side of
Pearl Street with the easterly side of Broad Street;
Running thence northerly, along the easterly line of Broad Street, 68.00 feet to
a point;
Thence easterly, at right angles to the preceding course, 7.50 feet to a point;
Thence northerly, along the easterly line of Broad Street and at right angles to
the preceding course, 40.00 feet to a point;
Thence westerly, at right angles to the preceding course, 7.50 feet to a point;
Thence northerly, along the easterly line of Broad Street and at right angles to
the preceding course, 128.09 feet to a point in the southerly line of South
William Street;
Thence easterly, along the southerly line of South William Street and forming an
angle of 109 degrees 27 minutes 57 seconds on its southerly side with the
preceding course 94.54 feet to an angle point therein;
Thence still easterly, along the southerly line of South William Street and
forming an angle of 187 degrees 20 minutes 55 seconds on its southerly side with
the preceding course, 114.03 feet to a point;
Thence southerly, along a line forming an angle of 91 degrees 14 minutes 00
seconds on its westerly side with the preceding course, 6.10 feet to a point;
Thence still southerly, forming an angle of 175 degrees 24 minutes 30 seconds on
its westerly side with the preceding course, 83.40 feet to a point in the
northerly line of Stone Street;
<PAGE> 127
2
Thence still southerly, along the westerly line of Stone Street and forming an
angle of 153 degrees 30 minutes 16 seconds on its westerly side with the
preceding course, 42.13 feet to a point in the westerly line of Coenties Alley;
Thence still southerly, along the westerly line of Coenties Alley and forming an
angle of 198 degrees 05 minutes 24 seconds on its westerly side with the
preceding course, 37.55 feet to an angle point therein;
Thence still southerly along the westerly line of Coenties Alley and forming an
angle of 187 degrees 59 minutes 20 seconds on its westerly side with the
preceding course, 19.09 feet to an angle point therein;
Thence still southerly, along the westerly line of Coenties Alley and forming an
angle of 187 degrees 17 minutes 25 seconds on its westerly side with the
preceding course, 51.14 feet to a point in the northerly line of Pearl Street;
Thence westerly, along the northerly line of Pearl Street and forming an angle
of 97 degrees 44 minutes 26 seconds on its northerly side with the preceding
course, 84.22 feet to an angle point therein;
Thence still westerly, along the northerly line of Pearl Street and forming an
angle of 154 degrees 33 minutes 55 seconds on its northerly side with the
preceding course, 206.48 feet to the point or place of BEGINNING.
<PAGE> 128
Schedule B
Permitted Encumbrances
1. Easement Agreement dated June 17, 1980 between 85 Broad Street
Associates as Grantor and New York Telephone Company and Empire City Subway
Company Limited as Grantees recorded in Reel 534 Page 271.
2. Consent to Rapid Transit Railroad recorded in Liber 139 Sec. 1, Cp. 459
dated September 9, 1912.
3. Easement Agreement dated October 2, 1980 between 85 Broad Street
Associates and the City of New York, and recorded in Reel 541 Page 1258.
4. Easements as set forth in Easement Agreement dated June 17, 1980
between 85 Broad Street Associates as Grantor and Consolidated Edison Company of
New York, Inc., as Grantee recorded in Reel 563 Page 155.
5. Sidewalk Easement and Sewer, Sidewalk and Roadway Easement contained in
deed and recorded in Reel 540 Page 641 as amended by Correction Deed recorded in
Reel 604 page 728.
6. Distinctive Street Improvement Maintenance Declaration made by Lessee
recorded in Reel 895 p 337.
7. Zoning regulations and ordinances, municipal building restrictions,
environmental quality or land use restrictions or regulations and all other
laws, ordinances, regulations or restrictions which are not violated by the
existing structures or the present use thereof.
8. Rights as of the date hereof to lay, maintain, install, repair and
remove pipes, lines, poles, conduits, cable boxes and related equipment and
facilities on, over and under the Combined Premises in connection with the
provision of utility, telephone, water and sewer services to the Combined
Premises.
9. Easements that affect any land in the bed of any street, road or
avenue, opened or proposed, in front of or adjoining the Combined Premises.
<PAGE> 129
Schedule C
Ground Lessor's
Non-Disturbance Agreement
and
Sub-Lessee's Agreement to Attorn
This Agreement, made as of this __ day of _______, ______, by and between
METROPOLITAN LIFE INSURANCE COMPANY, a corporation organized and existing under
the laws of the State of New York, having its principal office and place of
business located at One Madison Avenue, New York, New York 10010 (hereinafter
referred to as "Ground Lessor") and ___________________________, a ___________
organized and existing under the laws of _____________________________, having
an office and place of business located at ____________, __________, __________
(hereinafter referred to as "Sub-Lessee").
W I T N E S S E T H:
WHEREAS, Ground Lessor is the present holder of the fee estate in the
building located at 85 Broad Street, New York, New York (hereinafter referred to
as "Building"); and
WHEREAS, by indenture of lease (hereinafter referred to as "Ground Lease")
dated _________________ between Ground Lessor, as lessor, and Goldman, Sachs &
Co., as lessee (hereinafter referred to as "Ground Lessee") Ground Lessor leased
the premises and property known as 85
<PAGE> 130
2
Broad Street together with the Building and all other improvements thereon to
Ground Lessee; and
WHEREAS, Ground Lessee, as sub-lessor, and Sub-Lessee, as sub-lessee,
entered into a certain sub-lease of space in the Building dated as of
_______________, which sub-lease is hereinafter referred to as "Sub-Lease" and
the premises demised thereby are hereinafter referred to as "Demised Premises"
and which Demised Premises are more particularly described in the Sub-Lease; and
WHEREAS, Sub-Lessee has requested that Ground Lessor agree not to disturb
Sub-Lessee's possessory rights in the Demised Premises in the event that Ground
Lessor should terminate the Ground Lessee's interest in the Ground Lease or
otherwise cancels the Ground Lease provided that Sub-Lessee is not in default
under the Sub-Lease and further provided the Sub-Lessee attorns to Ground
Lessor; and
WHEREAS, Ground Lessor is willing to so agree on the terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and TEN ($10.00) DOLLARS and other good and valuable
consideration each to the other in hand paid, receipt of which is hereby
acknowledged, Ground Lessor and Sub-Lessee hereby agree as follows:
<PAGE> 131
3
1. The Sub-Lease is and shall be subject and subordinate in all respects
to the Ground Lease and to all renewals, modifications, replacements, amendments
and/or extensions of the same.
2. That, at such time as the term of the Sub-Lease commences, Sub-Lessee
takes occupancy of the Demised Premises and commences payment of the full rents
called for thereunder and provided Sub-Lessee complies with this Agreement and
is not in default under the terms of the Sub-Lease in the payment of the rent or
the additional rents called for under the Sub-Lease (for a period in excess of
the lesser of (i) the applicable period of grace contained in the Sub-Lease or
(ii) 10 days after Sub-Lessee receives a default notice in respect of the
payment in question) nor in the performance of any of the other terms,
conditions, covenants, clauses or agreements on its part to be performed under
the Sub-Lease (for a period in excess of the lesser of (i) the applicable period
of grace contained in the Sub-Lease or (ii) 30 days after Sub-Lessee receives a
default notice in respect of the non-performance in question, provided that such
30-day period shall, in the case of a default which cannot with due diligence be
remedied within a 30-day period, be extended for such period as may be required
to remedy such default with due diligence), as of
<PAGE> 132
4
the date Ground Lessor cancels or terminates the Ground Lease for any reason
before the date provided in the Sub-Lease for the termination of the Sub-Lease,
as the same may have been modified, extended, renewed and/or replaced, no
cancellation or termination of the same will disturb Sub-Lessee's possession
under the Sub-Lease and the Sub-Lease will not be affected or cut off thereby
(except that Sub-Lessee's right to receive or set off any monies or obligations
owed or to be performed by the Ground Lessee or the successors or assigns to the
Ground-Lessee's interest in the Ground Lease shall not be enforceable thereafter
against Ground Lessor or any subsequent fee owner of the Building) and
notwithstanding any such termination or cancellation of the Ground Lease or
other acquisition of the Ground Lessee's interest in the Ground Lease and merger
with the Ground Lessor's fee interest in the Building, the Sub-Lease will be
recognized as a direct lease from Ground Lessor or any subsequent holder of the
fee estate in the Building, except that the Ground Lessor or any subsequent
holder of the fee estate in the Building shall not (a) be liable for any
previous act or omission under the Sub-Lease by the holder of the Ground
Lessee's interest in the Ground Lease, (b) be subject to any offset which shall
theretofore have accrued to Sub-Lessee against the holder of the Ground Lessee's
<PAGE> 133
5
interest in the Ground Lease, (c) have any obligation with respect to any
security deposited under the Sub-Lease unless such security has been physically
delivered to Ground Lessor, or (d) be bound by any previous modification of the
Sub-Lease or by any previous prepayment of rent for a period greater than one
(1) month, unless such modification or prepayment shall have been expressly
approved in writing by the Ground Lessor.
3. That if Ground Lessor elects to accept from the then holder of Ground
Lessee's interest in the Ground Lease a surrender or an assignment of the
leasehold interest in the Ground Lease in lieu of cancelling or terminating the
Ground Lease, Sub-Lessee's right to receive or set off any monies or obligations
owed or to be performed by the then holder of the leasehold interest in the
Ground Lease shall not be enforceable thereafter against Ground Lessor or any
subsequent holder of the fee estate in the Building.
4. That Sub-Lessee will, upon request of the Ground Lessor or any
subsequent holder of the fee estate in the Building, execute a written agreement
whereunder Sub-Lessee confirms this attornment to Ground Lessor or any such
subsequent holder of the fee estate in the Building and affirms Sub-Lessee's
obligations under the Sub-Lease and agrees to pay all rentals and charges then
due or to become
<PAGE> 134
6
due as they become due to Ground Lessor or any such subsequent holder of the fee
estate in the Building.
5. Sub-Lessee from and after the date hereof shall send a copy of any
notice or statement under the Sub-Lease to Ground Lessor at the same time such
notice or statement is sent to the lessor under the Sub-Lease.
6. Sub-Lessee hereby agrees that from and after the date hereof in the
event of any act or omission by the lessor under the Sub-Lease (other than any
such act or omission which is not capable of being remedied by lessor under the
Sub-Lease within a reasonable period) which would give Sub-Lessee the right,
either immediately or after the lapse of the period of time, to terminate the
Sub-Lease, or to claim a partial or total eviction, Sub-Lessee will not exercise
any such right (i) until it has given written notice of such act or omission to
Ground Lessor by delivering such notice of such act or omission, by certified
mail, return receipt requested, addressed to Ground Lessor, at the Ground
Lessor's address as given herein (attention: Vice President, Real Estate
Investments, Northeastern Office), or at the last address of Ground Lessor,
furnished to Sub-Lessee in writing and (ii) until a reasonable period for
remedying such act or omission shall have elapsed following such giving of
notice and following the time when
<PAGE> 135
7
Ground Lessor shall have become entitled under the Ground Lease to remedy the
same; provided, Ground Lessor, at its option shall, following the giving of such
notice, have elected to commence and continue to remedy such act or omission or
to cause the same to be remedied.
7. Sub-Lessee will neither offer nor make prepayment of rent (for a period
in excess of one month) nor further change the terms, covenants, conditions and
agreements of the Sub-Lease in any manner without the express consent in writing
of the Ground Lessor.
8. No modification, amendment, waiver or release of any provision of this
Agreement or of any right, obligation, claim or cause of action arising
hereunder shall be valid, or binding for any purpose whatsoever unless in
writing and duly executed by the party against whom the same is sought to be
asserted.
9. This Agreement shall inure to the benefit of the parties hereto, their
successors and assigns; provided, however, that in the event of the assignment
or transfer of the interest of Ground Lessor, all obligations and liabilities of
Ground Lessor under this Agreement shall terminate, and thereupon all such
obligations and liabilities shall be the responsibility of the party to whom
Ground Lessor's interest is assigned or transferred; and
<PAGE> 136
8
provided further that the interest of Sub-Lessee under this Agreement may not be
assigned or transferred, except in connection with an assignment permitted under
and in accordance with the terms of the Sub-Lease.
10. Sub-Lessee agrees that this Agreement satisfies any condition or
requirements in the Sub-Lease relating to the granting of a non-disturbance
agreement from the fee owner of the real property of which the Demised Premises
are a part.
11. In the event that Ground Lessor notifies Sub-Lessee of an Event of
Default under the Ground Lease and demands that Sub-Lessee pay its rent and all
other sums due under the Sub-Lease to Ground Lessor, Sub-Lessee agrees that it
will honor such demand and pay its rent and all other sums due under the
Sub-Lease directly to the Ground Lessor during the continuance of such default.
12. Ground Lessor shall have no responsibility to provide any additional
space for which Sub-Lessee has any option or right under the Sub-Lease unless
Ground Lessor at its option elects to provide the same and Sub-Lessee hereby
releases Ground Lessor from any obligation to provide the same, if any, and
agrees that it shall have no right to cancel the Sub-Lease or any claim against
Ground Lessor as a result of the failure to provide any additional space.
<PAGE> 137
9
13. Sub-Lessee covenants and acknowledges that it has no right or option
of any nature whatsoever, whether pursuant to the Sub-Lease or otherwise, to
purchase the Demised Premises or the real property of which the Demised Premises
are a part, or any portion thereof or any interest therein and to the extent
that Sub-Lessee has, or hereafter acquires any such right or option, the same is
hereby acknowledged to be subject to and subordinate to the Ground Lease and is
hereby waived and released as against Ground Lessor.
14. Ground Lessor shall have no obligation, nor incur any liability, with
respect to any warranties of any nature whatsoever, whether pursuant to the
Sub-Lease or otherwise, including, without limitation, any warranties respecting
use, compliance with zoning, title of lessor under the Sub-Lease, the authority
of lessor under the Sub-Lease, habitability, fitness for purpose and possession.
15. Anything herein or in the Sub-Lease to the contrary notwithstanding,
Ground Lessor shall have no obligation, nor incur any liability, beyond Ground
Lessor's then interest, if any, in the fee estate in the Building and Sub-Lessee
shall look exclusively to such interest of Ground Lessor, if any, in the fee
estate in the Building for the payment and discharge of any obligations imposed
upon Ground
<PAGE> 138
10
Lessor hereunder or under the Sub-Lease and Ground Lessor is hereby released or
relieved of any other obligations hereunder and under the Sub-Lease. Sub-Lessee
agrees that with respect to any money judgment which may be obtained or secured
by Sub-Lessee against Ground Lessor, Sub-Lessee shall look solely to the fee
estate or interest owned by the Ground Lessor in the Building, and Sub-Lessee
will not collect or attempt to collect any such judgment out of any other assets
of Ground Lessor.
IN WITNESS WHEREOF, the parties hereto have respectively signed and sealed
this Agreement as of the day and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By
_______________________________________
By_______________________________________
<PAGE> 139
11
Goldman, Sachs & Co. as lessor under the Sub-Lease and as the Ground
Lessee under the Ground Lease, agrees for itself and its successors and assigns,
that (i) the within Agreement does not (a) constitute a waiver by Ground Lessor
of any of its rights under the Ground Lease and/or (b) in any way release the
Ground Lessee from its obligation to comply with the terms, provisions,
conditions, covenants, agreements and clauses of the Ground Lease, (ii) the
provisions of the Ground Lease remain in full force and effect and must be
complied with by the Ground Lessee, and (iii) upon the occurrence and
continuance of an Event of Default under the Ground Lease, Sub-Lessee may pay
all rent, additional rents and all other sums due under the Sub-Lease to the
Ground Lessor as provided in the within Agreement.
GOLDMAN, SACHS & CO.
By
_______________________________________
<PAGE> 140
Schedule D
Major Building Equipment
Major Building Equipment consists solely of the following:
(a) any vertical electrical riser;
(b) any vertical standpipe riser;
(c) any vertical condenser water riser;
(d) any vertical domestic water riser;
(e) any vertical chilled water riser;
(f) any vertical condensate riser;
(g) any vertical steam riser;
(h) any vertical radiation riser;
(i) any vertical venting stack;
(j) any vertical draining stack;
(k) the hoist motor of any elevator;
(l) the motor drive of any elevator;
(m) the cab of any elevator;
(n) any drive motor of any escalator;
(o) any emergency generator;
(p) any chiller;
(q) any cooling tower;
(r) any steam station;
(s) any strainercycle;
(t) any air compressor;
<PAGE> 141
2
(u) any house tank;
(v) the life safety system (consisting of the data gathering panels on
the various floors, the fire command center at the lobby desk, the
automation center and the central processing unit);
(w) any cooling coil system;
(x) any elevator bank control system processor; or
(y) the tubing system of any chiller or condensor.
In no event shall anything not specified in clauses (a) through (y) above
(including, without limitation, any expansion joint of any vertical riser, the
window washing rig, the pre-heat coils and the component parts of any of the
items listed in clauses (a) through (y) above) be an independent item of Major
Building Equipment, the financial responsibility for the repair or replacement
thereof being Lessees's in all instances; provided, however, that the
replacement of an item of Major Building Equipment in its entirety shall include
the replacement of the component parts thereof.
<PAGE> 142
SCHEDULE E
DEED
THIS INDENTURE, made the 11th day of June, nineteen hundred and eighty-five,
between GOLDMAN, SACHS & CO., 85 Broad Street, New York, New York 10004
("Grantor") and METROPOLITAN LIFE INSURANCE COMPANY, One Madison Avenue, New
York, New York 10010 ("Grantee").
WITNESSETH, that Grantor, in consideration of ten dollars ($10), lawful money of
the United States, and other good and valuable consideration paid by Grantee,
does hereby grant and release unto Grantee and its heirs, successors and assigns
forever, subject to the terms and exclusions listed below,
ALL that certain lot, plot, piece or parcel of land, with the buildings,
structures and improvements thereon erected, situate, lying and being in the
Borough of Manhattan, City, County and State of New York.
BEGINNING at the corner formed by the intersection of the northerly side of
Pearl Street with the easterly side of Broad Street;
Running thence northerly, along the easterly line of Broad Street, 68.00 feet to
a point;
Thence easterly, at right angles to the preceding course, 7.50 feet to a point;
Thence northerly, along the easterly line of Broad Street and at right angles to
the preceding course, 40.00 feet to a point;
Thence westerly, at right angles to the preceding course, 7.50 feet to a point;
Thence northerly, along the easterly line of Broad Street and at right angles to
the preceding course, 128.09 feet to a point in the southerly line of South
William Street.
Thence easterly, along the southerly line of South William Street and forming an
angle of 109 degrees 27 minutes 57 seconds on its southerly side with the
preceding course, 94.54 feet to an angle point therein;
<PAGE> 143
Thence still easterly, along the southerly line of South William Street and
forming an angle of 187 degrees 20 minutes 55 seconds on its southerly side with
the preceding course, 114.03 feet to a point;
Thence southerly, along a line forming an angle of 91 degrees 14 minutes 00
seconds on its westerly side with the preceding course, 6.10 feet to a point;
Thence still southerly, forming an angle of 175 degrees 24 minutes 30 seconds on
its westerly side with the preceding course, 83.40 feet to a point in the
northerly line of Stone Street;
Thence still southerly, along the westerly line of Stone Street and forming an
angle of 153 degrees 30 minutes 16 seconds on its westerly side with the
preceding course, 42.13 feet to a point in the westerly line of Coenties Alley;
Thence still southerly, along the westerly line of Coenties Alley and forming an
angle of 198 degrees 05 minutes 24 seconds on its westerly side with the
preceding course, 37.55 feet to an angle point therein;
Thence still southerly, along the westerly line of Coenties Alley and forming an
angle of 187 degrees 59 minutes 20 seconds on its westerly side with the
preceding course, 19.09 feet to an angle point therein;
Thence still southerly, along the westerly line of Coenties Alley and forming an
angle of 187 degrees 17 minutes 25 seconds on its westerly side with the
preceding course, 51.14 feet to a point in the northerly line of Pearl Street;
Thence westerly, along the northerly line of Pearl Street and forming an angle
of 97 degrees 44 minutes 26 seconds on its northerly side with the preceding
course, 84.22 feet to an angle point therein;
Thence still westerly, along the northerly line of Pearl Street and forming an
angle of 154 degrees 33 minutes 55 seconds on its northerly side with the
preceding course, 206.48 feet to the point or place of BEGINNING.
TOGETHER with all right, title and interest, if any, of Grantor in and to any
streets and avenues abutting the above described premises to the center lines
thereof,
TOGETHER with the appurtenances and all the estate and rights of Grantor in and
to said premises;
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<PAGE> 144
EXCEPTING THEREFROM, HOWEVER, THE FOLLOWING:
(a) Grantor's rights as landlord under the following leases for
space at the premises:
1. Indenture of Lease between Seller as successor in interest
to 85 Broad Street Associates and Merrill Lynch, Pierce, Fenner & Smith dated
September 17, 1981, as supplemented by Agreement dated April 14, 1983.
2. Agreement of Lease between Seller and Emigrant Savings Bank
dated June 17, 1983;
3. Agreement of Lease between Seller and Restaurant
Associates, Inc. dated June 30, 1983 as supplemented by letter agreement dated
June 30, 1983 and as amended by Assignment and Assumption of Lease dated October
23, 1984 by which Restaurant Associates, Inc. assigned its interest in such
lease to RA/Eastern Newsstand Corporation;
4. Agreement of Lease between Seller and Godiva Chocolatier,
Inc. dated July 15, 1983; and
(b) The following fixtures and improvements:
Electrical Work and Communications Wiring - Occupant electric work from base
building panels on each floor to local wiring. Communications wiring throughout
the entire Building.
H.V.A.C. - Occupant HVAC from fire damper in shaft to local distribution.
Lath & Acoustics - Occupant lath and acoustics
Computer and Smoke Dampers - computer installation and smoke dampers in occupant
computer rooms.
Drywall, Rough Carpentry, Finished Carpentry, Millwork and Cabinetwork -
Occupant drywall, rough carpentry, finished carpentry, millwork doors, cabinets
and counters. Occupants' plastic laminate.
Plumbing and Sprinklers - Occupant plumbing and sprinkler from base building
risers to local distribution.
Raised Flooring and Floor Finishes - Raised floor and floor finishes in occupant
spaces.
Painting, Wall covering and Lauren Veneer - Paint and wall covering of occupant
spaces and lauren veneer supplied for occupant woodwork.
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<PAGE> 145
Aluminum Frame & Glass - Aluminum frame and glass occupant office fronts.
Security System and Vault Equipment - Security system including intercom, lobby
security doors and roll-up security gate in cafeteria. Bullet proof pass thru
vault window.
Kitchen Equipment and Carved Glass - Kitchen equipment and carved glass
decoration for occupant cafeteria.
Vertical Conveyors, Pneumatic Tubes and Audio Visual Equipment - Vertical
conveyors for occupant mail distribution, pneumatic tubes for occupant use and
audio visual equipment for occupant spaces.
Telephone Closets - Occupant telephone spaces.
Spray Fireproofing, Waterproofing and Floor Sealant - Repair spray on
fireproofing after occupant construction; waterproofing in occupant kitchen
areas and floor sealant in occupant areas.
Architectural Metal and Glass, Hollow Metal, Miscellaneous Metals and Hardware -
Architectural metal and glass, hollow metal, miscellaneous metal work and
hardware for occupant areas.
Venetian Blinds, Black-Out Shades and Finish Fabric - Venetian blinds and
black-out shades for occupant spaces, and fabric for occupant finishes.
Demountable, Acoustical and Folding Partitions - Removable and folding metal and
glass partitions and acoustical partitions in occupant spaces.
Masonry, Marble and Concrete - Masonry and marble for occupant areas and
concrete for occupant construction work.
Automatic Doors Equipment - Automatic doors in occupant areas.
Toilet Partitions and Accessories - Toilet partitions and accessories in
occupant area for added toilets.
TO HAVE AND TO HOLD the premises herein granted unto Grantee, the heirs,
successors and assigns of Grantee, forever.
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<PAGE> 146
AND Grantor, in compliance with Section 13 of the Lien Law, covenants that
Grantor will receive the consideration for this conveyance and will hold the
right to receive such consideration as a trust fund to be applied first for the
purpose of paying the cost of the improvement and will apply the same first to
the payment of the cost of the improvement before using any part of the total of
the same for any other purpose.
IN WITNESS WHEREOF, Grantor has duly executed this deed the day and year first
above written.
GOLDMAN, SACHS & CO.
By:
---------------------------------------
a general partner
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<PAGE> 147
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 11th day of June, 1985, before me personally came
__________________________, to me known to be the individual described in and
who executed the foregoing instrument and acknowledged that he executed the same
in the firm name as a General Partner and on behalf of GOLDMAN, SACHS & CO., a
limited partnership.
-----------------------------
Notary Public
<PAGE> 148
BARGAIN AND SALE DEED SECTION: 1
BLOCK: 29
Title No. LOT: 1,59 and
======================================= 19 and the beds of
Stone Street and
former Coenties
Alley
GOLDMAN, SACHS & CO.,
Grantor
TO
METROPOLITAN LIFE INSURANCE COMPANY,
Grantee
RETURN BY MAIL TO:
------------------------------------
- --------------------------------------------------------------------------------
Reserve this space for use of Recording Office.
<PAGE> 149
Schedule F
Section l0.8 of the Contract of Sale
10.8. (a) Seller and Purchaser acknowledge that cracks exist in
certain of the pre-cast concrete panels on the Building's curtain wall, that
certain panels have locally spalled at the surface and that exposed reinforcing
bars have been observed. Seller has retained the firm of Peter Corsell
Associates, Inc. ("Seller's Consultant") to investigate the conditions referred
to in the preceding sentence and to inspect the entire curtain wall to determine
the extent to which such conditions exist anywhere in the curtain wall
(collectively, the "Section 10.8 Condition"). Seller shall cause Seller's
Consultant to submit to
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<PAGE> 150
Seller and Purchaser, on or prior to July 1, 1985, a final report ("Seller's
Report") containing the results of the inspection by Seller's Consultant and
including a recommendation ("Seller's Recommendation") of the most appropriate
measures designed (i) to remedy the Section 10.8 Condition wherever it may exist
and (ii) to prevent its occurrence anywhere else in the curtain wall.
(b) Purchaser shall have the right, exercisable by notice (the
"Objection Notice") to Seller delivered not later than fifteen (15) business
days after Purchaser's receipt of Seller's Report, to object to Seller's
Recommendation, and if Purchaser shall timely give the Objection Notice, to
cause the firm of Purdy & Henderson Associates, Inc. ("Purchaser's Consultant")
to inspect the Section 10.8 Condition and to submit to Seller and Purchaser, on
or prior to the date which is two (2) months after the date Seller receives the
Objection Notice, a final report ("Purchaser's Report") containing the results
of the inspection by Purchaser's Consultant and including a recommendation
("Purchaser's Recommendation") of the most appropriate measures designed (i) to
remedy the Section 10.8 Condition wherever it may exist and (ii) to prevent its
occurrence anywhere else in the curtain wall.
(c) If Purchaser shall have timely given the Objection Notice, then
Seller, within ten (10) business days after receipt of Purchaser's Report, shall
cause copies of Seller's Report and Purchaser' s Report to be submitted to
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<PAGE> 151
the firm of Eipel Associates (the "Deciding Firm") which shall, within thirty
(30) days after such submission, select either Seller's Recommendation or
Purchaser's Recommendation as the one which is most appropriate in the
circumstances.
(d) Seller shall perform with all due diligence all work set forth
in Seller's Recommendation or (if Purchaser shall have timely given the
Objection Notice and the Deciding Firm selects Purchaser's Recommendation) all
work set forth in Purchaser's Recommendation (the "Contract Work").
(e) Seller shall be solely responsible for the cost of the Contract
Work and shall pay the fees and disbursements of Seller's Consultant. Purchaser
shall pay the fees and disbursements of Purchaser's Consultant. Seller and
Purchaser shall share equally the fees and disbursements of the Deciding Firm.
(f) Except for the Contract Work, the provisions of the GS Lease
shall govern the respective responsibilities of the parties (in their capacities
as lessee and lessor) for maintenance and repair of the Premises, including the
curtain walls of the Building, after the Closing.
(g) This Section 10.8 shall survive the Closing.
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<PAGE> 1
EXHIBIT 10.3
TEN HANOVER LLC,
Landlord,
TO
THE GOLDMAN SACHS GROUP, L.P.,
Tenant
Lease
Dated as of August 22, 1997
<PAGE> 2
TABLE OF CONTENTS
1. LEASED PREMISES; TERM OF LEASE ............................................1
1.1 LEASED PREMISES .......................................................1
1.2 TERM ..................................................................2
1.3 STEPHANEZE PREMISES ...................................................2
1.4 TENANT'S TERMINATION OPTIONS ..........................................8
1.5 LANDLORD'S FINANCING ..................................................9
1.6 CERTAIN DEFINITIONS ..................................................11
2. BASIC RENT, ETC ..........................................................14
2.1 BASIC RENT ...........................................................14
2.2 DETERMINATION OF FAIR MARKET RENT ....................................15
2.3 SUPPLEMENTAL RENT ....................................................17
3. MANNER OF PAYMENT ........................................................17
4. NET LEASE; NO ABATEMENT ..................................................18
5. CONDITION AND USE OF LEASED PREMISES .....................................18
6. MAINTENANCE; ALTERATIONS; CERTAIN REIMBURSEMENTS; ETC. ...................19
6.1 GENERALLY ............................................................19
6.2 CERTAIN DEFINITIONS ..................................................20
6.3 SUBMISSION AND APPROVAL OF PLANS AND SPECIFICATIONS IN
CERTAIN INSTANCES ....................................................23
6.4 REIMBURSABLE ALTERATIONS .............................................26
6.5 GENERAL PROVISIONS ...................................................36
6.6 CONSIDERATION BY TENANT ..............................................36
6.7 ENGINEER; APPROPRIATE ENGINEER .......................................37
7. HAZARDOUS SUBSTANCES .....................................................38
8. UTILITY SERVICES .........................................................39
9. INDEMNIFICATION BY TENANT ................................................40
10. ENTRY BY LANDLORD .......................................................41
11. PAYMENT OF TAXES ........................................................42
11.1 DEFINITIONS .........................................................42
11.2 PAYMENT OF TAXES ....................................................43
11.3 INITIAL TAX PAYMENTS ................................................43
11.4 EXTENDED TAX PAYMENTS ...............................................43
11.5 GENERAL PROVISIONS APPLICABLE TO TAXES ..............................45
11.6 INDUSTRIAL AND COMMERCIAL INCENTIVE PROGRAM .........................45
12. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS AND
PERMITTED ENCUMBRANCES ..................................................46
12.1 GENERALLY ...........................................................46
12.2 PERMITTED CONTESTS ..................................................47
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<PAGE> 3
13. LIENS ...................................................................48
14. INSURANCE ...............................................................48
14.1 RISKS TO BE INSURED .................................................49
14.2 POLICY PROVISIONS ...................................................50
14.3 DELIVERY OF INSURANCE CERTIFICATES; PAYMENT OF PREMIUM ..............51
14.4 NO LIMITATION OF DAMAGES ............................................51
15. DAMAGE TO OR DESTRUCTION OF PROPERTY ....................................51
15.1 WAIVER OF SS. 227; TENANT TO GIVE NOTICE ............................51
15.2 RESTORATION .........................................................51
15.3 APPLICATION OF INSURANCE PROCEEDS ...................................52
15.4 TERMINATION IN LIEU OF RESTORATION ..................................52
16. TAKING OF PROPERTY ......................................................59
16.1 NOTICE ..............................................................59
16.2 TOTAL TAKING ........................................................59
16.3 PARTIAL TAKING ......................................................60
16.4 APPLICATION OF AWARD ................................................61
16.5 TEMPORARY TAKING ....................................................62
17. DISBURSEMENT OF DEPOSITED SUMS ..........................................63
18. CERTIFICATE AS TO NO DEFAULT, ETC. ......................................65
19. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS, ETC. ...................66
20. ASSIGNMENT; SUBLEASES ...................................................67
21. VAULTS ..................................................................68
22. EVENTS OF DEFAULT; TERMINATION ..........................................68
23. REPOSSESSION ............................................................70
24. RELETTING ...............................................................70
25. SURVIVAL OF TENANT'S OBLIGATIONS; DAMAGES ...............................70
25.1 TERMINATION OF LEASE NOT TO RELIEVE TENANT OF OBLIGATIONS ...........70
25.2 CURRENT DAMAGES AND DAMAGES IN RESPECT OF SUPPLEMENTAL RENT .........71
25.3 FINAL DAMAGES .......................................................72
26. NO WAIVER ...............................................................73
27. REMEDIES CUMULATIVE .....................................................73
28. ACCEPTANCE OF EARLY TERMINATION OR SURRENDER ............................73
29. NO MERGER OF TITLE ......................................................74
30. EXCULPATION .............................................................74
31. DEFINITIONS. ............................................................75
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<PAGE> 4
32. END OF LEASE TERM .......................................................77
33. NOTICES .................................................................78
34. ANNUAL REPORTS ..........................................................78
35. MISCELLANEOUS ...........................................................79
36. EXPEDITED ARBITRATION ...................................................81
37. SUBORDINATION ...........................................................82
38. LANDLORD'S FAILURE TO PAY TAXES .........................................83
39. LANDLORD'S FAILURE TO PAY COSTS OF BASE BUILDING UPGRADE WORK OR FIT-OUT
WORK ..................................................................84
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<PAGE> 5
EXHIBITS
Exhibit A The Land
Exhibit B Initial Tax Payments
Exhibit C Permitted Encumbrances
Exhibit D Non-Disturbance Agreement
Exhibit E Major Building Equipment
-iv-
<PAGE> 6
Index of Definitions
--------------------
Defined Term Section Where Defined
- ------------ ---------------------
50% Untenantability .............................................15.4
Accountant .......................................................6.7
Additional Bidders ...............................................6.4
Alterations ......................................................6.1
Appropriate Engineer .............................................6.7
Appropriate Engineer .............................................6.7
Article 38 Advance ................................................38
Article 38 Demand Amount ..........................................38
Article 38 Demand Notice ..........................................38
Article 38 Dispute Notice .........................................38
Article 39 Advance ................................................39
Article 39 Demand Amount ..........................................39
Article 39 Demand Notice ..........................................39
Article 39 Dispute Notice .........................................39
Associated Reimbursables .........................................6.4
balance to be apportioned .......................................16.4
Base Amount ......................................................6.2
Base Building Savings Constant Payment ...........................1.6
Base Building Savings Credit .....................................2.1
Base Building Savings ............................................1.6
Base Rate ........................................................1.6
Base Tax Amount .................................................11.1
Basic Rent .......................................................2.1
Benchmark Amount .................................................6.4
Business Day ......................................................31
Cancellation Payment Payment Date ................................1.4
Cancellation Payment .............................................1.4
Comparable Treasury Rate .........................................1.6
Completed Percentage .............................................6.4
Condemnation Proceeds ...........................................16.4
ConEd ..............................................................8
Contractors ......................................................6.4
Cost Division Date ...............................................6.2
Cost Participation Limitation Notice .............................6.4
Costs .............................................................31
Credit Amount .....................................................35
Damage Cancellation Payment .....................................15.4
Damage Date .....................................................15.4
Damage Payment ..................................................15.4
Damage Termination Notice .......................................15.4
Deductible Amount .................................................31
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<PAGE> 7
Depositary ......................................................15.3
Deposited Sums ....................................................17
Determinated Amount ..............................................6.2
Determination Date ................................................19
Different Scope of Work Statement ................................6.4
Dispute Notice ...................................................6.4
Disputed Article 38 Amount ........................................38
Disputed Article 39 Amount ........................................39
Election Period .................................................15.4
Emergency Reimbursement Amount ...................................6.4
Engineer Designation Notice ......................................6.7
Engineer .........................................................6.7
Estimated Cost ...................................................6.4
Estimated Substantial Completion Date ............................6.4
Expedited Arbitration .............................................36
Expiration Date ..................................................1.2
Extended Completion Notice .......................................6.4
Extended Tax Payment ............................................11.4
Fair Market Rent .................................................2.2
Financing Closing Date ...........................................1.5
Financing Termination Notice .....................................1.5
First Rent Period ................................................2.1
First-Class Standard .............................................6.1
Fit-Out Work Constant Payment ....................................1.6
Fit-Out Work Interest Rate .......................................1.6
Fit-Out Work Investment ..........................................1.6
Fourth Rent Period ...............................................2.1
full placement cost .............................................14.1
Full Proceeds Amount ............................................15.4
GAAP..............................................................6.2
Gross Amount .....................................................6.4
Ground Lease ....................................................12.1
GS ................................................................30
Hazardous Substances ..............................................31
ICIP ............................................................11.6
Improvements .....................................................1.1
Index .............................................................31
Initial Improvements Agreement ...................................1.1
Initial Tax Payment .............................................11.3
Insurance Requirements ............................................31
Interest Rate ......................................................3
Land .............................................................1.1
Landlord ..........................................................31
Landlord ................................................Introduction
Landlord's Alternate Bidders .....................................6.4
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<PAGE> 8
Landlord's Preferred Bidder ......................................6.4
Landlord's Revised Plans .........................................6.4
Lease Termination Notice ..........................................22
Leased Premises ..................................................1.1
Legal Requirement Alteration .....................................6.2
Legal Requirements ................................................31
Liability Insurance ..............................................1.3
Limited Reimbursement Amount .....................................6.4
LMEP ...............................................................8
Main Interest Rate ...............................................1.6
Major Building Equipment .........................................6.2
Measuring Fraction ...............................................6.2
net annual rental .................................................31
Next Available Termination Date .................................16.5
Non-Disturbance Agreement .........................................37
Notice ............................................................33
Notional Expiration Date ........................................25.1
Notional Fit-Out Work Loan Amount ................................1.6
Notional Main Loan Debt Service ..................................1.6
Notional Main Loan Original Balance ..............................1.6
Notional Main Loan Outstanding Balance ...........................1.6
Notional Make-Whole Amount .......................................1.6
Notional Termination Date ........................................6.4
Officer's Certificate .............................................31
OLS .............................................................11.6
Original Bidders .................................................6.4
Overrun Notice ...................................................6.4
Overrun ..........................................................6.4
Partial Taking ..................................................16.2
Permitted Encumbrances ...........................................1.1
Permitted Investment ..............................................31
Permitted Investments .............................................31
Plan Submission Date .............................................6.4
Plans and Specifications Notice ..................................6.3
Plans and Specifications ..........................................31
Plans Submission Notice ..........................................6.3
Post-Termination Insurance ......................................15.4
Pre-Existing Mortgages ..........................................12.1
Prime Rate ........................................................31
Project ..........................................................1.1
Property Insurance ..............................................14.1
Qualified Alteration .............................................6.2
Qualified Hazardous Substance .....................................31
Qualified Overrun ................................................6.4
Qualified Prefinancing Costs .....................................1.5
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Qualified Restoration Costs .....................................15.4
Reduced Proceeds Amount .........................................15.4
Reimbursable Alterations .........................................6.2
Reimbursable Legal Requirement Alteration ........................6.2
Reimbursable Removal of Hazardous Substances .....................6.2
Reimbursable Replacement .........................................6.2
Reimbursable Structural Work .....................................6.2
Reimbursement Advances ...........................................6.4
Reimbursement Amount .............................................6.4
removal ............................................................7
remove .............................................................7
Rent Based Cancellation Payment ..................................1.4
Rent Commencement Date ...........................................2.1
Required Replacements ............................................6.1
Restoration Advances ..............................................17
Retained Bidder ..................................................6.4
Rules ............................................................2.2
Second Rent Period ...............................................2.1
Significant Proceeds Amount .......................................31
Specified Damage Termination Date ...............................15.4
Stephaneze Possession Date .......................................1.3
Stephaneze Premises ..............................................1.3
Stephaneze Restriction Date ......................................1.3
Stephaneze .......................................................1.3
Structural Work ..................................................6.2
Successor Landlord ................................................37
successor-assignee ................................................30
Superior Mortgage .................................................37
Superior Mortgagee ................................................37
Supplemental Rent ................................................2.3
Taking Fraction .................................................16.2
Taking ............................................................31
Tax Payments ....................................................11.4
Tax Year ........................................................11.1
Taxes ...........................................................11.1
Tenant Impositions ..............................................11.5
Tenant ............................................................31
Tenant ..................................................Introduction
Tenant's Counsel ...................................................9
Tenant's Designation Notice ......................................2.2
Tenant's Selected Bidder .........................................6.4
Tenant's Total Taking Amount ....................................16.4
Term .............................................................1.2
Termination Date .................................................1.4
Termination Notice ...............................................1.4
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Termination Option ...............................................1.4
Third Rent Period ................................................2.1
Total Taking ....................................................16.2
Unamortized Fit-Out Work Investment ..............................1.6
Voluntary Alterations ............................................6.1
Witkoff Management Agreement ......................................31
work ..............................................................31
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<PAGE> 11
LEASE, dated as of August 22, 1997, between TEN HANOVER LLC ("Landlord"),
a New York limited liability company having its principal office c/o The Witkoff
Group LLC, 156 William Street, New York, New York 10038, and THE GOLDMAN SACHS
GROUP, L.P. ("Tenant"), a Delaware limited partnership having its principal
office at 85 Broad Street, New York, New York 10004, Attention: General Services
Department.
WITNESSETH:
That in consideration of the mutual agreements herein contained, Landlord
and Tenant hereby agree and covenant to and with each other as follows:
1. Leased Premises; Term of Lease
1.1 Leased Premises
Landlord leases to Tenant, and Tenant rents from Landlord, subject
to the Permitted Encumbrances, the land located in the City, County and State of
New York more particularly described on Exhibit A hereto (the "Land"),
TOGETHER WITH (i) all Improvements (excluding any thereof which
pursuant to the final paragraph of this Section 1.1 are not Landlord's
property), and (ii) all personal property owned by Landlord now or
hereafter attached to or used in connection with the Improvements,
TOGETHER WITH all right, title and interest, if any, of Landlord in
and to:
(a) any strips and gores of land adjoining the Land on
any side thereof;
(b) any land lying in the bed of any street or avenue
abutting the Land, to the center line thereof; and
(c) any easements or other rights in adjoining property
enuring to Landlord by reason of ownership of the Land;
all of the foregoing (together with any Improvements excluded from clause (i)
above) are collectively called the "Leased Premises".
The Land and the Improvements are collectively called the "Project".
The term "Permitted Encumbrances" shall refer to the matters listed on Exhibit C
hereto. Simultaneously with the execution of this Lease, Landlord and Tenant are
executing an Initial Improvements Agreement of even date herewith (the "Initial
Improvements Agreement") relating to certain work to be done to prepare the
Leased Premises for occupancy by Tenant.
The term "Improvements" shall mean all buildings, structures,
fixtures, equipment and improvements now or hereafter located on, or attached to
or appurtenant to, the Land or to other Improvements, including any thereof
installed (i) as Base Building Upgrade Work (as such
<PAGE> 12
term is defined in the Initial Improvements Agreement) or Fit-Out Work (as such
term is defined in the Initial Improvements Agreement) pursuant to the Initial
Improvements Agreement, or (ii) by Tenant pursuant to Article 6; provided, that
the term "Improvements" shall not include any furniture, furnishings, trade
fixtures or business equipment furnished, installed or placed in the
Improvements by Tenant at Tenant's sole cost and expense.
Except as otherwise provided in the next paragraph, all Improvements
shall be (or if hereafter installed shall upon installation become) the property
of Landlord, a part of the Leased Premises and subject to this Lease.
Notwithstanding the provisions of Article 6, Tenant shall not remove from the
Leased Premises
(i) any Improvements constituting Base Building Upgrade Work, or
(ii) any Improvements constituting Fit-Out Work paid for by Landlord
unless (x) such removal is required by Legal Requirements, or (y) Tenant
replaces the Improvements so removed with other Improvements of substantially
equal value.
All Improvements constituting Fit-Out Work paid for by Tenant shall
remain the property of Tenant, subject to removal by Tenant subject to the
provisions of Article 6; provided, that unless and until so removed, the same
shall nonetheless constitute Improvements for all purposes under this Lease. Any
such Improvements that shall not have been so removed shall, upon the expiration
or sooner termination of this Lease, become the property of Landlord.
1.2 Term.
Except as otherwise provided in Section 1.3, the term of this Lease
shall commence on the Possession Date (as such term is defined in the Initial
Improvements Agreement) and, unless sooner terminated pursuant to law or
pursuant to any of the terms of this Lease, shall expire at 11:59 p.m. on June
30, 2018 (the "Expiration Date"). The term of this Lease is referred to herein
as the "Term".
1.3 Stephaneze Premises.
(a) Landlord represents and warrants to Tenant that, as of the date
of this Lease, the Leased Premises are vacant and free of any occupancy or
tenancy or right thereto, other than the occupancy or tenancy by Stephaneze
("Stephaneze") of a portion of the Leased Premises (the "Stephaneze Premises"),
and that Landlord has commenced a summary proceeding against Stephaneze seeking
to recover possession of the Stephaneze Premises, and has furnished Tenant with
copies of all material pleading and material motion papers filed or served by
any party thereto. Landlord shall diligently prosecute such summary proceeding
and if such summary proceeding is dismissed or terminated without Landlord
having recovered possession of the Stephaneze Premises, then Landlord shall take
such further action as may be available to Landlord to recover possession of the
Stephaneze Premises.
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Promptly after recovering possession of the Stephaneze Premises,
Owner shall (i) perform and complete any Asbestos Removal Work, Refireproofing
Work, and/or Demolition Work (as such terms are defined in the Initial
Improvement Agreement), that may be required under the provisions of the Initial
Improvement Agreement with respect to the Stephaneze Premises, and (ii) notify
Tenant that the foregoing has been performed and completed and, prior to or
together with such notice, furnish Tenant with one or more Forms ACP-5
evidencing the removal from the Stephaneze Premises of all asbestos and
asbestos-containing material.
The term of the Lease with respect to the Stephaneze Premises shall
commence on (and the term "Leased Premises" shall not include the Stephaneze
Premises until) the Stephaneze Possession Date. The term "Stephaneze Possession
Date" shall mean the last of
(x) the Possession Date,
(y) the date on which Landlord recovers possession
of the Stephaneze Premises,
(z) the date on which (i) all Asbestos Removal
Work, Refireproofing Work and Demolition Work throughout the
Stephaneze Premises shall have been completed, (ii) Tenant
shall have been furnished with or obtained one or more Forms
ACP-5 evidencing the removal from the Stephaneze Premises of
all asbestos and asbestos-containing material, and (iii)
Tenant shall have received the Stephaneze Completion Notice,
or, if Tenant shall so elect, such earlier date (not earlier than the later of
the Possession Date or the date 30 days after the date on which Landlord
recovers possession of the Stephaneze Premises) as Tenant shall elect by notice
to Landlord.
If the Stephaneze Possession Date does not occur by the later of the
Possession Date or October 15, 1997, then Tenant shall be entitled to a credit
against the Basic Rent during the 12 month period beginning on the Rent
Commencement Date equal to $347,000; one-twelfth of such credit shall be applied
against each of the 12 monthly installments of Basic Rent during such 12 month
period. If the Stephaneze Possession Date does not occur by the first or any
later anniversary of October 15, 1997, then Tenant shall be entitled to a credit
against the Basic Rent during the 12 month period beginning with the first or
such later anniversary of the Rent Commencement Date equal to $347,000; one
twelfth of such credit shall be applied against each of the 12 monthly
installments of Basic Rent during such 12 month period. The preceding sentence
may be applied repeatedly, so long as Landlord's inability to deliver vacant
possession of the Stephaneze Premises by an anniversary of October 15, 1997
continues.
This Section 1.3(a) shall be an express provision to the contrary
for purposes of Section 223-a of the New York Real Property Law and any other
law of like import now or hereafter in effect.
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(b) The following provisions of this Section 1.3(b) shall be
applicable until the Stephaneze Possession Date:
(i) There shall be no direct access between the Stephaneze
Premises and the Building (i.e., all access to or from the
Stephaneze Premises shall be from the street only).
(ii) Tenant shall not be required to furnish any services or
utilities to the Stephaneze Premises. If and to the extent
that the electricity, water, sewer, gas and telephone lines
currently serving the Stephaneze Premises run through the
Leased Premises, Tenant shall permit the same to remain;
provided, that Tenant shall have the right
(A) to relocate such lines at Tenant's expense;
provided, that (i) any such relocation shall be
performed only at times other than during the
regular business hours of Stephaneze, and (ii) no
such relocation shall be performed prior to the
earlier of (1) October 15, 1997, or (2) the date
on which Landlord recovers possession of the
Stephaneze Premises (such earlier date being
herein called the "Stephaneze Restriction Date"),
and
(B) to shut down such lines or otherwise to interrupt,
stop, suspend or curtail the delivery of services
through such lines whenever and for so long as may
be reasonably necessary by reason of damage to
such lines, accidents, or any testing,
maintenance, repairs, replacements, alterations,
additions or other work being undertaken by
Tenant, or by reason of any other cause beyond
Tenant's reasonable control; provided, that,
except in case of emergency, or reasonably
foreseeable or actual criminal liability of
Tenant, damage to such lines, accident or any
other cause beyond Tenant's reasonable control,
Tenant (i) shall not shut down such lines or
otherwise interrupt stop, suspend or curtail the
delivery of services through such lines prior to
the Stephaneze Restriction Date, and (ii) shall
use reasonable efforts to minimize interference
with the ordinary conduct of the business of
Stephaneze.
Provided that Tenant complies with the provisions of this
Section 1.3(b), Tenant shall have no liability to Landlord or
any Occupant of the Stephaneze Premises for or on account of
any shutdown of such lines or any interruption, stoppage,
suspension or curtailment of service through such lines for
any reason. In case of any damage to such lines, Tenant shall,
with reasonable promptness and diligence, immediately after
Tenant becomes aware of such damage, repair such damage (at
Landlord's
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expense, unless such damage shall have arisen from any act,
omission, negligence or intentional misconduct of Tenant). All
electricity, gas and water and sewer service to the Stephaneze
Premises shall be separately metered, and the charges therefor
shall be paid by Landlord directly to the public or municipal
utility supplier.
(iii) If the term of this Lease shall not have commenced with
respect to the Stephaneze Premises on or before March 1, 1998
then thereafter until the Stephaneze Possession Date: (A)
Landlord shall keep (or cause to be kept) all portions of the
Stephaneze Premises visible from without the Stephaneze
Premises in a well-maintained, clean and attractive condition;
(B) Landlord shall exterminate (or cause to be exterminated)
the Stephaneze Premises as necessary to keep the Stephaneze
Premises free of vermin; and (C) Landlord shall clean and
maintain (or cause to be cleaned and maintained) the exterior
surface of the exterior walls of the Stephaneze Premises,
including any and all glass located thereon.
(iv) Landlord shall make (or cause to be made) all repairs and
replacements in and to the Stephaneze Premises if the failure
to make such repair or replacement would result in an adverse
effect on the use, occupancy or appearance of the Leased
Premises and the need for such repair or replacement is not
the result of any act, omission, negligence or intentional
misconduct of Tenant (in which latter event such repair or
replacement shall be performed by Tenant). Landlord, at
Landlord's expense (unless the need for such compliance arises
out of any act, omission, negligence or intentional misconduct
of Tenant, in which event Tenant shall reimburse Landlord for
the cost of such compliance within 30 days after submission by
Landlord to Tenant of invoices evidencing the cost of such
compliance), shall promptly comply with all Legal
Requirements, Insurance Requirements and Permitted
Encumbrances relative to the Stephaneze Premises, whether or
not compliance therewith shall require Alterations or
interfere with the use or enjoyment of the Stephaneze
Premises. Landlord may contest any such Legal Requirement,
Insurance Requirement or Permitted Encumbrance (and not comply
therewith pending the resolution of such contest); provided,
that such contest has no adverse affect on Tenant's use or
occupancy of the Leased Premises. Tenant shall not at any time
use or occupy the Stephaneze Premises, or suffer or permit
anyone to use or occupy the Stephaneze Premises, in any
manner, or do anything in the Stephaneze Premises, or suffer
or permit anything to be done, brought into or kept on the
Stephaneze Premises which (A) constitutes a nuisance, public
or private, (B) makes unobtainable from reputable insurance
companies authorized to do business in New York State all risk
property insurance, or liability, elevator, boiler or other
insurance at standard rates, or (C) discharges objectionable
fumes, vapors or odors.
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(v) Landlord shall keep in effect commercial general liability
insurance, including broad form bodily injury, personal
injury, property damage and blanket contractual insurance,
against claims arising out of or connected with the
possession, use, operation or condition of the Stephaneze
Premises ("Liability Insurance") with a combined single limit
of not less than $10,000,000 for all claims with respect to
bodily injury, property damage and personal injury with
respect to any one occurrence. All such Liability Insurance
shall name Tenant as an additional insured and provide that no
cancellation, reduction in amount or material change in
coverage thereof shall be effective until at least 30 days
after receipt by Tenant of written notice thereof. Landlord
may obtain the aforesaid insurance under blanket or umbrella
policies. On the date hereof (with respect to Liability
Insurance required to be carried by Landlord), and at least 7
days prior to each policy expiration, Landlord shall deliver
(or cause to be delivered) to Tenant certificates of all such
Liability Insurance.
(vi) Subject to the next sentence, Tenant shall have (A) the
exclusive right to use, disconnect or close (x) any pipe,
duct, conduit, utility line or similar installation running in
or through but not serving the Stephaneze Premises, or (y) any
exhaust duct running in or through or serving the Stephaneze
Premises, (B) the right to install in and through the
Stephaneze Premises new or additional pipes, ducts, conduits,
utility lines or similar installations, in locations adjacent
to ceiling slabs, demising walls or structural columns, in
each case in a manner so as not to unreasonably interfere with
the use or occupancy of the Stephaneze Premises as retail
space, (C) the right to maintain, repair and replace any of
the foregoing and (D) the right to enter the Stephaneze
Premises for (1) all or any of the foregoing purposes, (2) to
inspect the Stephaneze Premises or (3) to maintain or make
repairs, replacements, alterations, additions or improvements
in or to the Leased Premises; provided, that, except in case
of emergency or reasonably foreseeable or actual criminal
liability of Tenant, Tenant shall give Landlord reasonable
prior notice of any such entry and shall use reasonable
efforts to minimize interference with the use and occupancy of
the Stephaneze Premises arising by reason of such entry.
Notwithstanding the foregoing, except in case of emergency or
reasonably foreseeable or actual criminal liability of Tenant,
Tenant shall take no action pursuant to this Section
1.3(b)(vi) prior to the Stephaneze Restriction Date. The
Stephaneze Premises shall consist only of the space within the
inside surface of the structural (or centerline of any
non-structural) walls, windows, doors, columns, and floor
slabs bounding the Stephaneze Premises (exclusive of any such
space used for pipes, ducts, conduits, utility lines or
similar installations). If at any time any windows of the
Stephaneze Premises are either temporarily darkened or
obstructed by reason of maintenance, cleaning, repairs,
replacements, alterations, additions or improvements in or
about the Leased Premises or the
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Stephaneze Premises, including by way of a sidewalk bridge (or
permanently darkened or obstructed if required by law), Tenant
shall have no liability to Landlord or any Occupant of the
Stephaneze Premises on account thereof; provided, that Tenant
shall use reasonable efforts not to darken or obstruct any
windows of the Stephaneze Premises and to minimize any such
darkening or obstruction when the same cannot reasonably be
avoided.
(c) Subject to the last sentence of this Section 1.3(c), if
Landlord shall fail to make any payment or perform any act required to be made
or performed by Landlord hereunder with respect or relating to the Stephaneze
Premises Tenant may (but shall be under no obligation to) without waiving or
releasing any obligation or default:
(i) in case of emergency, or reasonably foreseeable or actual
criminal liability of Tenant or interference with the use or
occupancy of, or the performance of the Base Building Upgrade
Work or the Fit-Out Work in, the Leased Premises, or
(ii) if Tenant shall give notice to Landlord referring to Tenant's
intent to exercise its self-help right under this Section
1.3(c), which notice shall specify Landlord's failure with
respect to the Stephaneze Premises and require such failure to
be remedied, and Landlord shall not remedy such failure within
30 days after the giving of such notice; provided, that in
case such failure cannot with due diligence be remedied by
Landlord within a period of 30 days, if Landlord proceeds as
promptly as may be reasonably possible after the giving of
such notice and with all due diligence to remedy such failure
and thereafter to prosecute the remedying of such failure with
all due diligence, the period of time after the receipt of
such notice by Landlord within which to remedy such failure
shall be extended for such period as may be necessary to
remedy the same with all due diligence,
make such payment or perform such act for the account and at the expense of
Landlord, and may enter upon the Stephaneze Premises or any part thereof for
such purpose and take all such action therein as, in the opinion of Tenant, may
be necessary or appropriate therefor. All payments so made by Tenant and all
costs and expenses (including without limitation attorneys fees and expenses)
incurred in connection with Tenant's exercise of its self-help right under this
Section 1.3(c), together with interest thereon at the Interest Rate, shall be
paid by Landlord to Tenant within 30 days after Landlord's receipt of Tenant's
demand therefor, accompanied by invoices evidencing the costs incurred by
Tenant. If Landlord objects to Tenant's exercise of its right of self-help under
this Section 1.3(c), then Tenant shall not be entitled to any reimbursement
under this Section 1.3(c) unless and until the matter is resolved in favor of
Tenant by Expedited Arbitration. Except in case of emergency or reasonably
foreseeable or actual criminal liability of Tenant, Tenant shall take no action
under this Section 1.3(c) prior to the Stephaneze Restriction Date.
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(d) Landlord shall protect, indemnify and save harmless Tenant
from and against all liabilities, obligations, claims, damages, penalties,
causes of actions, costs and expenses (including, without limitation, attorneys'
fees and expenses) imposed upon or incurred by or asserted against Tenant by
reason of any action by Landlord to recover possession of the Stephaneze
Premises.
(e) Landlord shall reimburse Tenant for all incremental
out-of-pocket costs incurred by Tenant prior to the commencement of the Term
with respect to the Stephaneze Premises on account of the Stephaneze Premises,
or the use or occupancy thereof, including any such costs arising out of any
maintenance, repair or replacement of any utility lines serving the Stephaneze
Premises (unless the need therefor arises out of any act, omission, negligence
or intentional misconduct of Tenant). Such reimbursement shall be due from time
to time within 30 days after Tenant's presentation of an invoice detailing such
incremental out-of-pocket costs.
1.4 Tenant's Termination Options
(a) Subject to the further provisions of this Section 1.4,
Tenant shall have the option (each, a "Termination Option") to terminate this
Lease effective as of (i) September 30, 2004, (ii) September 30, 2006, (iii)
June 30, 2008 or (iv) June 30, 2013 (each of the dates set forth in the
preceding clauses (i) - (iv) is called a "Termination Date"), by giving an
exercise notice (the "Termination Notice") to Landlord on or before the date
that is (A) one year prior to the applicable Termination Date in the case of a
termination as of September 30, 2004 or September 30, 2006 or (B) 18 months
prior to the applicable Termination Date in the case of a termination as of June
30, 2008 or June 30, 2013. Time is of the essence with respect to the giving of
any Termination Notice. Tenant may, by notice to Landlord at any time, waive any
one or more of its Termination Options.
(b) If Tenant timely exercises a Termination Option providing
for the termination of this Lease as of September 30, 2004, September 30, 2006
or June 30, 2008, then Tenant shall pay to Landlord, on or before September 1,
2004, September 1, 2006 or June 1, 2008, as the case may be (the "Cancellation
Payment Payment Date"), in addition to the Basic Rent, Supplemental Rent and Tax
Payment due on the Cancellation Payment Payment Date, the applicable
Cancellation Payment. "Cancellation Payment" means
(i) the amount of the Unamortized Fit-Out Work Investment as
of the applicable Cancellation Payment Payment Date,
plus
(ii) in the case of a Termination Option providing for the
termination of this Lease as of September 30, 2004 or
September 30, 2006, the Basic Rent and the Tax Payments
that would be payable for the six month period
immediately following the applicable Termination Date if
Tenant had not exercised the Termination Option (the
portion of the Cancellation Payment referred to in this
clause (iii) is called the "Rent Based Cancellation
Payment").
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<PAGE> 19
(c) If Tenant timely exercises any Termination Option, then on
the applicable Termination Date (i) this Lease shall terminate, (ii) Tenant
shall deliver to Landlord vacant possession of the Leased Premises subject to
and in accordance with all applicable provisions of this Lease as if the
Termination Date were the Expiration Date, and (iii) Basic Rent, Supplemental
Rent and Tax Payments due hereunder shall be payable through and apportioned as
of the Termination Date, and (except as provided in Section 32(b) with respect
to any holdover) Tenant shall have no liability for Basic Rent, Supplemental
Rent or Tax Payments which would otherwise have been payable after the
Termination Date.
(d) If (i) Tenant timely exercises a Termination Option as of
September 30, 2004 or September 30, 2006 and (ii) any Reimbursable Alteration
(other than Reimbursable Removal of Hazardous Substances) was performed prior to
the applicable Termination Date, then on or before the applicable Termination
Date, Landlord shall pay to Tenant, in respect of each such Reimbursable
Alteration, an amount equal to the excess of (A) the Reimbursement Amount which
would have been payable by Landlord with respect thereto if the Cost Division
Date with respect to such Reimbursable Alterations had been the applicable
Termination Date rather than the last day of the Second Rent Period, over (B)
the Reimbursement Amount paid by Landlord with respect thereto; provided, that
if with respect to any such Reimbursable Alteration Landlord shall have been
required to pay the Limited Reimbursement Amount rather than the Reimbursement
Amount and shall not have subsequently been required to make the payment
described in Section 6.4(g)(vi), then rather than the excess of the amount
described in clause (A) above over the amount described in clause (B) above
Landlord shall pay to Tenant, in respect of such Reimbursable Alteration, an
amount equal to the excess of (C) the Limited Reimbursement Amount which would
have been payable by Landlord with respect thereto if the Cost Division Date
with respect to such Reimbursable Alteration had been the applicable Termination
Date rather than the last day of the Second Rent Period, over (D) the Limited
Reimbursement Amount paid by Landlord with respect thereto.
1.5 Landlord's Financing.
(a) Landlord shall make reasonable efforts, as promptly as
reasonably possible, to cause the Financing Closing Date to occur. The term
"Financing Closing Date" shall refer to the date on which
(i) Landlord has received full disbursement of one or more
new loans sufficient in amount to permit Landlord to
deposit, and Landlord has deposited (a) $17,350,000 into
the account described in Section 6 of the Initial
Improvements Agreement, and (b) $50,000,000 into the
account described in Section 7 of the Initial
Improvements Agreement,
(ii) Landlord has caused the holders of all mortgages or
other liens on the Project (including but not limited to
the lender or lenders who shall have disbursed the new
loan or
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loans referred to above) to execute and deliver to
Tenant a Non-Disturbance Agreement, and
(iii) Tenant shall have received the certificate called for by
the last paragraph of Section 5 of the Option Agreement
of even date among Landlord, Tenant and certain others.
Landlord represents that it has furnished to Tenant a true and complete copy of
a commitment letter dated______ from Credit Suisse First Boston Mortgage
Capital. On the Financing Closing Date, Landlord shall furnish Tenant with
evidence that the deposits referred to in clause (i) above have been made.
(b) If the Financing Closing Date does not occur on or before
September 30, 1997, then either Landlord or Tenant may terminate this Lease by
notice (the "Financing Termination Notice") to the other given at any time prior
to the Financing Closing Date, in which event this Lease shall terminate as of
the date of the receipt of such Financing Termination Notice and neither party
shall have any further obligations or liabilities to the other, except that
Landlord shall reimburse Tenant in an amount not to exceed $6,700,000 for any
Qualified Prefinancing Costs incurred by Tenant. Tenant may make one or more
demands for reimbursement under this Section 1.5(b), each to be accompanied by
invoices paid or payable by Tenant, and each amount payable under this Section
1.5(b) shall be due within 30 days of such demand therefor. If any payment
required to be made pursuant to this Section 1.5(b) is not made when due, the
same shall bear interest in accordance with Section 3(c). Upon payment of any
amount pursuant to this Section 1.5(b), Tenant shall assign to Landlord all of
Tenant's right, title and interest in and to the plans and specifications, work,
equipment or other property to which such payment related (including the benefit
of any deposits or other payments made by Tenant and reimbursed by Landlord),
without recourse or representation.
"Qualified Prefinancing Costs" means any and all Costs paid or
incurred by Tenant for or in connection with the Base Building Work and/or the
Fit-Out Work on or prior to the date of termination of this Lease under this
Section 1.5(b), including any partial payments (e.g. deposits) with respect to
any systems or equipment to be installed as a part of the Base Building Work
and/or the Fit Out Work which were made by Tenant prior to the termination of
this Lease pursuant to this Section 1.5(b) or for which under commitments made
prior to the termination of this Lease pursuant to this Section 1.5(b) Tenant is
obligated, excluding in all cases any sums of which Tenant would be entitled to
a refund or which Tenant would be excused from paying if, promptly after
receiving notice of termination of this Lease under Section 1.5(b), Tenant gave
prompt notice of termination to Tenant's contractors, subcontractors or other
suppliers.
(c) If the Financing Closing Date shall not occur by September
30, 1997 Tenant shall have the right to arrange or provide on commercially
reasonable terms financing in the amount required
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(i) to make the deposits referred to in Section 1.5(a)
above,
(ii) to refinance the existing debt on the Property,
(iii) to pay all points, fees and other expenses, including,
without limitation, legal fees, title insurance premiums
and charges and mortgage recording taxes incurred by
Landlord in connection with all such financing being
provided under this Section 1(c),
(iv) to make all scheduled payments of principal and interest
through August 1, 1998 on the portion of the financing
being provided under this Section 1(c) applicable to the
deposits referred to in clause (i) above and to a
pro-rata share of the points, fees and other expenses
referred to in clause (iii) above, and
(v) to make all scheduled payments of principal and interest
through May 1, 1998 on the balance of the financing
being provided under this Section 1(c).
Notwithstanding the provisions of Section 1.5(b) above, Landlord shall not have
the right to terminate this Lease prior to October 15, 1997 and if prior to that
date Tenant shall arrange or provide a commercially reasonable commitment for
such financing, Landlord shall accept the same and close the financing to be
provided thereunder and shall not have the right to terminate this Lease
pursuant to Section 1.5(b).
1.6 Certain Definitions
The term "Notional Fit-Out Work Loan Amount" shall refer to the sum
of
(i) $50,000,000, plus
(ii) a pro rata portion of all points, fees and other
expenses, including, without limitation, legal
fees, title insurance premiums and charges and
mortgage recording taxes incurred by Landlord for
or in connection with the new loan or loans
referred to in clause (i) of Section 1.5(a), such
proration to be made according to the ratio which
the Notional Fit-Out Work Loan Amount bears to the
total amount of such new loan or loans, plus
(iii) the amount of all scheduled payments (including
principal and interest) which
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would be required to be paid on or before August
1, 1998 on a loan in the principal amount of the
Notional Fit-Out Work Loan Amount bearing
interest at the Fit-Out Work Interest Rate and
disbursed on the Financing Closing Date if such
loan had provided for constant monthly payments
on the first day of each month equal to the
constant monthly payment which would be required
to fully amortize such principal amount over such
constant monthly payments beginning on the first
day of the month after the month in which such
disbursement is made and ending December 1, 2009,
with each such payment being applied first to
accrued interest and then to a reduction in
principal (except that if the Financing Closing
Date is other than the first day of a month (x)
the first payment shall be deemed to consist of
interest only from the date of such disbursement
to the first day of the month after the month in
which such disbursement is made and to be due on
such first day of such month and (y) the
aforesaid constant monthly payments shall be
deemed to begin on the first day of the next
month).
The term "Fit-Out Work Investment" shall mean the Notional Fit-Out
Work Loan Amount minus all amounts included therein in respect of principal
under clause (iii) of the definition thereof (it being understood that in
computing the Fit-Out Work Investment the amount of the interest under said
clause (iii) shall not be deducted).
The term "Base Building Savings" shall mean the excess, if any, on
the Base Building Savings Commencement Date of (i) $17,350,000 over (ii) all
amounts disbursed by Landlord pursuant to Section 6 of the Initial Improvements
Agreement.
The term "Fit-Out Work Constant Payment" shall mean the constant
monthly payment which would be required to fully amortize, with interest at the
Fit-Out Work Interest Rate, the Fit-Out Work Investment over such constant
monthly payments on the first day of each month beginning September 1, 1998 and
ending on December 1, 2009 with each such payment being applied first to
interest accrued at the Fit-Out Work Interest Rate and then to amortization (and
with interest commencing to accrue on the Fit Out Work Investment as of August
1, 1998).
The term "Base Building Savings Constant Payment" shall mean the
constant monthly payment which would be required to fully amortize, with
interest at the Main Interest Rate, the Base Building Savings over such constant
monthly payments on the first day of each month beginning on the Base Building
Savings Commencement Date (as such term is defined in the Initial Improvements
Agreement) and ending June 1, 2008 with each such payment being applied first to
interest accrued at the Main Interest Rate and then to amortization (and with
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interest commencing to accrue on the Base Building Savings as of one month
before the Base Building Savings Commencement Date).
The term "Main Interest Rate" shall mean the sum of the Base Rate
plus 140 basis points per annum.
The term "Fit-Out Work Interest Rate" shall mean the sum of the Base
Rate plus 90 basis points per annum.
The term "Base Rate" shall mean the straight line interpolation to
seven years between (i) the interest rate on the on-the-run five year U.S.
Treasury securities quoted by Credit Suisse First Boston to Landlord and Tenant
at the time during the business day prior to the Financing Closing Date at which
the rate being paid by Landlord on the corresponding new loan referred to in
clause (i) of Section 1.5(a) is determined, and (ii) the interest rate on the
on-the-run ten year U.S. Treasury securities quoted by Credit Suisse First
Boston to Landlord and Tenant at such time.
The term "Unamortized Fit-Out Work Investment" shall mean, as of any
date, that amount which would be unamortized on such date if the Fit-Out Work
Investment were amortized with interest at the Fit-Out Work Interest Rate over
constant monthly payments on the first of each month equal to the Fit-Out Work
Constant Payment beginning on September 1, 1998 and ending on December 1, 2009,
with each such payment being applied first to interest accrued at the Fit-Out
Work Interest Rate and then to amortization (with interest commencing to accrue
on the Fit-Out Work Investment as of August 1, 1998). The Unamortized Fit-Out
Work Investment as of the first day of any month shall be computed as of after
the application of such constant monthly payment due on such first day of such
month.
The term "Notional Main Loan Original Balance" shall equal the
excess of (i) the principal amount of all mortgage debt of Landlord outstanding
(other than to affiliates) as of immediately after the Financing Closing Date
over (ii) the sum of (a) the Notional Fit-Out Work Loan Amount, plus (b) the
Base Building Savings.
The term "Notional Main Loan Outstanding Balance" shall mean, as of
any date, the principal amount which would be outstanding on a loan having an
original principal amount equal to the Notional Main Loan Original Balance,
disbursed on the Financing Closing Date, providing for 216 constant monthly
payments on the first day of each month, beginning on the lst day of the month
after the month in which such disbursement is made, equal to the constant
monthly payment which would be required to fully amortize the Notional Main Loan
Original Balance over such 216 constant monthly payments, with each such payment
being applied first to accrued interest and then to a reduction in principal
(except that if the Financing Closing Date is other than the first day of a
month (x) the first payment shall be deemed to consist of interest only from the
date of such disbursement to the first day of the month after the month in which
such disbursement is made and to be due on such first day of such month and (y)
the aforesaid 216 constant monthly payments shall be deemed to begin on the
first day of the next month).
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The term "Notional Main Loan Debt Service" shall mean the amount of
the constant monthly payment referred to in the definition of Notional Main Loan
Outstanding Balance.
The term "Notional Make-Whole Amount" shall mean, as of any date,
the excess, if any, of (i) the present value as of such date (determined by
using a discount rate equal to Comparable Treasury Rate) of all Supplemental
Rent scheduled to be paid by Tenant under Section 2.3 of this Lease after such
date over (ii) the Unamortized Fit-Out Work Investment as of such date. In the
making the determination under clause (i) above, it shall be assumed that Tenant
has not exercised any of its Termination Options and any Termination Options
actually exercised by Tenant shall be disregarded. As used above, the term
"Comparable Treasury Rate" shall, as of any date, mean the yield to maturity of
U.S. Treasury securities maturing on or about June 1, 2008 as published by The
Wall Street Journal for the third business day prior to such date.
Promptly after the requisite facts are known, Landlord and Tenant
shall join in one or more instruments confirming (a) the Base Rate, the Fit-Out
Work Interest Rate, the Fit-Out Work Notional Loan Amount, the Fit-Out Work
Investment, the Fit-Out Work Constant Payment, the Unamortized Fit-Out Work
Investment as of September 1, 2004, the Unamortized Fit-Out Work Investment as
of September 1, 2006, and the Unamortized Fit-Out Work Investment as of June 1,
2008, and (b) the Main Interest Rate, the Base Building Savings, the Base
Building Savings Constant Payment and the Notional Main Loan Debt Service. The
failure of either party to execute such instrument referred to above shall not
constitute a default hereunder or otherwise affect this Lease.
Any dispute as to the computations and determination to be made
pursuant to this Section 1.6 shall be determined by Expedited Arbitration.
2. Basic Rent, etc.
2.1 Basic Rent
(a) Tenant shall pay to Landlord, as fixed annual rent for the
Leased Premises, Basic Rent. Basic Rent shall be payable by Tenant to Landlord
in advance, in equal monthly installments, on the Rent Commencement Date and on
the first day of each and every month thereafter throughout the Term.
(b) As used herein:
(i) "Basic Rent" means (A) during the period commencing
on June 1, 1998 (the "Rent Commencement Date"), to and including May 31, 2003
(the "First Rent Period"), a per annum rate equal to $8,420,095.88, payable in
equal monthly installments of $701,674.66, (B) during the period commencing on
June 1, 2003 to and including June 30, 2008 (the "Second Rent Period"), a per
annum rate equal to $10,573,515.14, payable in equal monthly installments of
$881,126.26, (C) during the period commencing on July 1, 2008 to and including
June 30, 2013 (the "Third Rent Period"), a per annum rate equal to 95% of the
Fair Market Rent
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for such period and (D) during the period commencing on July 1, 2013 to and
including the Expiration Date (the "Fourth Rent Period") a per annum rate equal
to 95% of the Fair Market Rent for such period. Fair Market Rent shall be
determined in accordance with Section 2.2 below.
(ii) If (a) Tenant shall give a notice pursuant to
Section 6 of the Initial Improvements Agreement establishing the Base Building
Savings Commencement Date, and (b) there are any Base Building Savings, then
there shall be credited against the Basic Rent due for each of the months
beginning with the Base Building Savings Commencement Date and ending June 1,
2008, an amount equal to the Base Building Savings Constant Payment. The
aforesaid credit is herein called the "Base Building Savings Credit". In no
event shall Landlord ever be required to pay to Tenant any portion of the Base
Building Savings Credit.
2.2 Determination of Fair Market Rent
(a) Each determination of Fair Market Rent shall be made, to the
extent not inconsistent with this Section, in accordance with the rules from
time to time in effect of the American Arbitration Association or, if the
American Arbitration Association shall have ceased to function as an arbitration
association, of a successor or comparable organization (the "Rules"). There
shall be three arbitrators: one designated by Landlord; one designated by
Tenant; and one designated in the manner hereinafter described. Each arbitrator
shall, as of the date of his or her designation, be a real estate broker
licensed in the State of New York doing business in the Borough of Manhattan and
having at least 15 years experience in first-class Manhattan office building
leases. Not more than 30 months and not less than 24 months before the first day
of the Third Rent Period or the Fourth Rent Period, as applicable, Tenant shall
give to Landlord a notice designating the name and address of Tenant's
arbitrator ("Tenant's Designation Notice"). Landlord, by notice to Tenant given
not later than 20 days after the giving of Tenant's Designation Notice, shall
designate the name and address of Landlord's arbitrator.
If either party shall fail timely to designate its arbitrator, and such
failure shall continue for 10 days after receipt by the failing party of notice
of such failure, such other party may designate an arbitrator on behalf of the
failing party. Promptly after the designation of the second of the two
arbitrators to be designated, such two arbitrators shall meet and attempt to
mediate between Landlord and Tenant an agreement upon the Fair Market Rent in
question. If, within 15 days after the designation of the second of the two
arbitrators to be designated, Landlord and Tenant have not agreed upon the Fair
Market Rent in question, such two arbitrators shall jointly designate a third
arbitrator. If, within 30 days after the designation of the second of the two
arbitrators to be designated, no third arbitrator shall have been so jointly
designated, such third arbitrator shall be designated pursuant to the Rules. The
arbitrators shall render their decision within 60 days after the designation of
the third arbitrator to be designated. Landlord and Tenant shall each pay the
fees and disbursements of the arbitrator designated by or on behalf of it, and
Landlord and Tenant shall share equally the fees and disbursements of the third
arbitrator, if any.
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(b) "Fair Market Rent" means the fixed annual rent that
would be payable for the Leased Premises by a third-party tenant having the then
creditworthiness of Tenant under a five year lease commencing on the first day
of the Third Rent Period or the Fourth Rent Period (as the case may be) upon all
of the terms and conditions of this Lease to be applicable to the Third Rent
Period or Fourth Rent Period (as the case may be), including, without
limitation, the following:
(i) that such fixed annual rent is payable from and
after the first day of the Third Rent Period or
the Fourth Rent Period (as the case may be),
(ii) that the Initial Improvements Agreement is not
applicable to the Third Rent Period or the Fourth
Rent Period (as the case may be), and that Tenant
shall accept the Leased Premises in its "as-is"
condition at the commencement of the Third Rent
Period or the Fourth Rent Period (as the case may
be), and that in connection with the Third Rent
Period or the Fourth Rent Period (as the case may
be) Landlord shall not be required to perform any
work, pay any amount or render any services to
make the Leased Premises ready for Tenant's use
and occupancy or provide any abatement of Basic
Rent or other sums due hereunder,
(iii) that during the Third Rent Period or the Fourth
Rent Period (as the case may be), Tenant shall be
responsible for any increases in Taxes above the
Base Tax Amount, and
(iv) that the ground floor of the Improvements are
legally permitted to be used for retail purposes,
and taking into account all relevant factors.
(c) Each arbitrator shall render as his or her
determination of the Fair Market Rent a fixed dollar amount per annum (in the
aggregate, not per rentable square foot), and shall give a notice to the other
arbitrators and Landlord and Tenant thereof. All notices pursuant to the
preceding sentence shall be given simultaneously at a meeting (called by the
third arbitrator on at least five Business Days' notice to Landlord and Tenant
and the other arbitrators) at which all three arbitrators and Landlord and
Tenant are present. The arithmetic average, of the two determinations closest to
one another shall be and constitute the determination of the arbitration;
provided, that if in any case the highest and lowest determinations are
equidistant from the middle determination, then the middle determination shall
be and constitute the determination of the arbitration.
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2.3 Supplemental Rent
In addition to Basic Rent, Tenant shall pay to Landlord additional
rental (the "Supplemental Rent"), (a) in advance, on September 1, 1998 and on
the first day of each and every month through and including June 1, 2008, in an
amount equal to the Fit-Out Work Constant Payment and (b) on June 1, 2008 (in
addition to the amount required to be paid on such date under clause (a) of this
Section 2.3), an additional amount equal to the Unamortized Fit-Out Work
Investment as of June 1, 2008.
3. Manner of Payment
(a) Basic Rent, Supplemental Rent, Tax Payments and all other sums
payable by Tenant to Landlord hereunder, all of which shall constitute rent,
shall be payable in lawful money of the United States of America and shall be
paid to Landlord (i) in the case of Basic Rent, Supplemental Rent and Tax
Payments, by wire transfer of immediately available federal funds as directed by
Landlord, and (ii) in the case of all other sums, either by wire transfer as
aforesaid or by check (subject to collection) drawn on a New York Clearing House
Association member bank at Landlord's address set forth above or at such other
address of Landlord within the United States as Landlord from time to time may
designate or to such agent or person or persons resident or having an office at
such other address within the United States as Landlord from time to time may
designate.
(b) If Tenant fails timely to pay any Basic Rent, Supplemental Rent,
Tax Payment or other sum payable by Tenant to Landlord under this Lease, Tenant
shall pay interest thereon from the date when such amount became due to the date
of Landlord's receipt thereof at the lesser of (i) the greater of (A) 18% per
annum, or (B) the Prime Rate, and (ii) the maximum rate permitted by law (the
lesser of such rates is called the "Interest Rate"). Any sums payable by Tenant
for which no due date is specified in this Lease shall be due and payable on the
30th day after the giving of an invoice therefor.
(c) If Landlord fails timely to pay any sum payable by Landlord to
Tenant under this Lease other than (i) a payment which Landlord is required to
make under Section 11.2, which failure to make such payments is governed by
Article 38, or (ii) a payment which Landlord is required to make under Section 6
or Section 7 of the Initial Improvements Agreement, which failure to make such
payment is governed by Article 39, or (iii) a payment of net annual rental
payable under the Ground Lease which Landlord is required to make under Section
12.3, which failure to make such payment is governed by Article 38, Landlord
shall pay interest thereon from the date when such amount became due to the date
of Tenant's receipt thereof at the Interest Rate. Any sum payable by Landlord
for which no due date is specified in this Lease shall be due and payable on the
30th day after the giving of an invoice therefor.
(d) If Tenant shall fail timely to pay the Cancellation Payment or
the Supplemental Rent payable under clause (b) of Section 2.3 when due then, in
addition to such Cancellation Payment or Supplemental Rent, Tenant shall pay as
additional rental upon demand (x) an amount equal to interest at the Interest
Rate on such Cancellation Payment (excluding the Rent-Based Cancellation
Payment) or on such Supplemental Rent from the Cancellation
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Payment Payment Date or June 1, 2008 (as the case may be) until payment in full
by Tenant of the Cancellation Payment or such Supplemental Rent and all amounts
required by this sentence, and (y) in case of any failure timely to pay the
Cancellation Payment when due on September 1, 2004 or September 1, 2006,
interest at the Interest Rate on the Rent-Based Cancellation Payment from the
Cancellation Payment Payment Date until payment in full of the Cancellation
Payment and all other amounts required by this sentence. If Tenant shall fail
timely to pay the Cancellation Payment or the Supplemental Rent payable under
clause (b) of Section 2.3 when due then, in addition to the amounts which Tenant
is required to pay under the preceding sentence, Tenant shall indemnify Landlord
against all other losses, damages, costs and expenses arising out of such
failure.
4. Net Lease; No Abatement
Except as otherwise provided in the Initial Improvements Agreement,
Landlord shall not be required to provide any services or utilities to the
Leased Premises. Subject to the last sentence of this Article 4, this Lease is a
net lease of the Leased Premises, and Tenant shall pay all costs, charges,
taxes, assessments and other expenses of every character, foreseen or
unforeseen, ordinary or extraordinary, for the payment of which Landlord or
Tenant is or shall become liable by reason of its respective estate, right,
title or interest in the Leased Premises or any part thereof, or which are
connected with or arise out of the possession, use, occupancy, maintenance,
addition to, repair or rebuilding of the Leased Premises, including, without
limitation, those specifically referred to in this Lease. Except as provided in
Article 16, Section 20(a), Article 38 and Article 39, the Basic Rent and all
other sums payable by Tenant hereunder shall be paid without notice, demand,
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction. The foregoing provisions of this
Article 4(a) shall not relieve Landlord of, or require Tenant to bear or
reimburse Landlord for, the costs of performing (i) Landlord's obligations under
the Initial Improvements Agreement, (ii) Landlord's obligations to make certain
reimbursements pursuant to Article 6, or (iii) Landlord's obligations under
Articles 3, 7, 11, 12, 38 or 39 or any other provision of this Lease which by
its terms imposes any obligation on Landlord, and (b) shall not obligate Tenant
to pay or reimburse Landlord for (A) any taxes or assessments which Tenant is
not required by the provisions of Article 11 to pay or to reimburse to Landlord
or (B) any interest, principal, or other costs or expenses relative to any
indebtedness or other financing of Landlord; provided that the foregoing shall
not relieve Tenant of its obligation to pay Supplemental Rent.
5. Condition and Use of Leased Premises
LANDLORD DOES NOT MAKE, AND TENANT ACKNOWLEDGES THAT LANDLORD HAS NOT
MADE, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THIS
LEASE, OR THE PRESENT OR FUTURE MERCHANTABILITY, HABITABILITY, CONDITION,
QUALITY, DURABILITY, FITNESS OR SUITABILITY OF THE LEASED PREMISES IN ANY
RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF TENANT, OR ANY
OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED,
WITH RESPECT THERETO, EXCEPT AS OTHERWISE
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PROVIDED IN THIS LEASE. Subject to the performance by Landlord of Landlord's
obligations under the Initial Improvements Agreement, Tenant accepts the Leased
Premises "as-is". Tenant may use the Leased Premises only as an office building
and, subject to applicable Legal Requirements, for purposes reasonably ancillary
thereto, including, without limitation, for one or more dining rooms,
cafeterias, restaurants, bars or other food service or preparation facilities
for use by Tenant's personnel and invitees and for one or more health or
exercise facilities for the use of Tenant's personnel. In addition, Tenant may
use any portion of the Improvements above the subcellar and below the 2nd floor
for retail uses so long as there remains throughout the Term a first-class
office building lobby on the ground floor of the Improvements. Tenant shall not
suffer or permit the Leased Premises or any part hereof, to be used by the
public in such a manner as would subject the Leased Premises or any part thereof
to a claim of adverse possession by the public.
6. Maintenance; Alterations; Certain Reimbursements; Etc.
6.1 Generally
(a) Subject to the provisions of this Lease, Tenant:
(i) shall, in accordance with first-class
office building maintenance and operating standards
generally applicable in 1998 (collectively, the
"First-Class Standard"), keep the Leased Premises in
overall first-class order, condition and repair;
(ii) shall promptly make all replacements in
and to the Leased Premises (whether interior or
exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen) which are
necessary or appropriate in a first-class office
building according to the standards thereof generally
applicable in 1998 (collectively, "Required
Replacements"); and
(iii) may make additions, alterations and
replacements (other than Required Replacements) in and
to and, subject to the provisions of Section 1.1,
removals from the Leased Premises (collectively,
"Voluntary Alterations"; Required Replacements,
Structural Work and Voluntary Alterations are
collectively called "Alterations").
Notwithstanding the foregoing, (x) Tenant's obligation with respect to the shell
of the Building (excluding the roof) shall be limited to maintaining the same in
such condition as the same is required by applicable Legal Requirements to be
maintained and also in a condition not materially worse than the condition in
which the same was in on the date of this Lease, and (y) if Landlord shall give
a Cost Participation Limitation Notice with respect to any Reimbursable
Replacement or Reimbursable Legal Requirement Alteration, Tenant shall not be
obligated to Landlord to make such Reimbursement Replacement or Reimbursable
Legal Requirement
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Alterations nor, with respect to any such Reimbursable Replacement, to repair
the item which was to have been replaced.
(b) No Alteration may be undertaken if such Alteration would
(i) result in the Improvements not being a first-class office building or (ii)
materially and adversely affect any structural element of the Improvements or
any item of Major Building Equipment. Each Alteration shall be effected with due
diligence, in a good and workmanlike manner, and in compliance with all Legal
Requirements, Insurance Requirements and Permitted Encumbrances. All Structural
Work and all replacements of items of Major Building Equipment shall be of a
quality at least equal to the original installation. Landlord shall not be
liable to any contractors, subcontractors, laborers, materialmen, suppliers or
vendors for services performed or material provided on or in connection with the
Leased Premises. Landlord shall not be required to maintain, alter, repair,
rebuild or replace the Leased Premises or any part thereof. Tenant waives all
rights to make Alterations at Landlord's expense, except that Landlord shall in
accordance with the further provisions of this Article 6 make reimbursements to
Tenant on account of Reimbursable Alterations. Except as provided in Section
1.1, all Improvements arising from the making of any Alterations shall
immediately become the property of Landlord, shall be a part of the Leased
Premises and shall be subject to this Lease, and Tenant shall, upon demand of
Landlord, execute and deliver an appropriate instrument confirming Landlord's
title thereto.
6.2 Certain Definitions
As used herein:
(a) "Legal Requirement Alteration" means any Alteration
undertaken in order to comply with a Legal Requirement.
(b) "Reimbursable Replacement" means the replacement of any
item of Major Building Equipment in its entirety; provided, that (i) such
replacement is performed after completion of the Base Building Upgrade Work,
(ii) such replacement (in light of the physical condition of the item in
question) is consistent with the First-Class Standard, (iii) the repair of the
item in question is inconsistent with the First-Class Standard; (iv) such
replacement shall not have been necessitated by fire, other casualty or a
Taking, and (v) if the Witkoff Management Agreement shall have been terminated,
such replacement shall not have been necessitated by the negligence (including,
without limitation, failure to adhere to the manufacturer's suggested
maintenance procedures) or intentional misconduct of Tenant or the Building
management company employed by Tenant occurring after such termination.
(c) "Reimbursable Legal Recruitment Alteration" means any
Alteration undertaken solely in order to comply with a Legal Requirement enacted
after the date of this Lease and which (i) is performed after completion of the
Base Building Upgrade Work, (ii) in accordance with generally accepted
accounting principles consistently applied ("GAAP") should be capitalized, (iii)
is not an Alteration in any area designed for tenant occupancy, and (iv) is not
necessitated by fire, other casualty or a Taking.
(d) "Structural Work" consists solely of the following:
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(i) replacement and/or repair of the Building's
curtain wall in whole or in part, except that
Structural Work shall not include caulking
treatment of the curtain wall except for any such
caulking treatment done in conjunction with
repairs or replacement of the portion of the
curtain wall being caulked (other than any repairs
or replacement undertaken in order to avoid the
exclusion provided for in this clause (i)).
(ii) replacement and/or repair of the Building's steel
frame, footings, foundations, columns, beams,
floors (including concrete floors and the steel
floors supporting the concrete floors) and core
walls.
(iii) replacement (but not repair) of the roof in its
entirety (but not in part) required in order to
preserve the structural integrity of the Building
or the watertightness and airtightness of the
Building.
(iv) replacement of the watertight membrane or other
watertight barrier under the Building's plaza, and
any removal, reinstallation, repair or replacement
of the Building's plaza arising out of such
replacement
(e) "Reimbursable Structural Work" means any Structural Work
provided that (i) such Structural Work is performed after completion of the Base
Building Upgrades, (ii) such Structural Work (in light of a physical condition)
is consistent with the First-Class Standard, (iii) if such Structural Work is a
replacement, then (A) such replacement (in light of the physical condition of
the item in question) is consistent with the First-Class Standard and (B) the
repair of the item in question is inconsistent with the First-Class Standard,
(iv) such Structural Work shall not have been necessitated by fire, other
casualty or a Taking, and (v) if the Witkoff Management Agreement shall have
been terminated, such Structural Work shall not have been necessitated by the
negligence of Tenant or the Building management company employed by Tenant
occurring after such termination. Notwithstanding the foregoing, the first
$100,000 of Structural Work performed by Tenant in any calendar year which, but
for this sentence, would constitute Reimbursable Structural Work shall be deemed
not to be Reimbursable Structural Work.
(f) "Reimbursable Removal of Hazardous Substances" means the
removal of Qualified Hazardous Substances; provided, that (i) the term
"Reimbursable Removal of Hazardous Substances" shall not include any Asbestos
Removal Work or any Refireproofing Work except to the extent that Landlord fails
to perform the same on or before (a) the Partial Possession Date applicable to
the space in question with respect to any space other than the Stephaneze
Premises or (b) the Stephaneze Possession Date, in the case of the Stephaneze
Premises, and (ii) if the Costs of any removal of Qualified Hazardous Substances
(as reasonably
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estimated by Tenant) shall be less than $500,000 then, unless Tenant, by notice
to Landlord, shall elect to treat the same as a Reimbursable Removal of
Hazardous Substances, such removal shall be deemed not to be a Reimbursable
Removal of Hazardous Substance. In applying the provisions of this clause (ii)
each removal contracted for separately (unless done so solely in order to avoid
the provisions of this Section 6) shall be considered a separate removal.
(g) "Reimbursable Alterations" means, collectively,
Reimbursable Replacements, Reimbursable Structural Work, Reimbursable Legal
Requirement Alterations and Reimbursable Removal of Hazardous Substances.
(h) "Qualified Alteration" means (i) any Alteration (other
than any Reimbursable Replacement, any Structural Work or any Legal Requirement
Alteration) which affects any item of Major Building Equipment and (ii) any
Restoration.
(i) "Major Building Equipment" means any item listed on
Exhibit E and any replacement thereof.
(j) "Base Amount" means the lower of
1) the original contract price of the Retained
Bidder, less any portion of the original contract
price of the Retained Bidder not actually paid by
Tenant, or
2) the original contract price of Landlord's
Preferred Bidder or, if Tenant shall have timely
given the Dispute Notice and the Appropriate
Engineer shall have selected Tenant's Selected
Bidder, the original contract price of Tenant's
Selected Bidder.
(k) "Determined Amount" means the lower of
1) the original contract price of the Retained
Bidder, or
2) the original contract price of Landlord's
Preferred Bidder or, if Tenant shall have timely
given the Dispute Notice and the Appropriate
Engineer shall have selected Tenant's Selected
Bidder, the original contract price of Tenant's
Selected Bidder.
(l) "Cost Division Date" means, (i) with respect to any
Reimbursable Alteration (other than Reimbursable Removal of Hazardous
Substances) commenced during the First Rent Period or the Second Rent Period,
the last day of the Second Rent Period, (ii) with respect to any Reimbursable
Alterations commenced during the Third Rent Period, the last day of the Third
Rent Period, or (iii) with respect to any Reimbursable Alterations commenced
during the Fourth Rent Period, the last day of the Fourth Rent Period.
(m) "Measuring Fraction" means, with respect to any
Reimbursable Alteration (other than any Reimbursable Removal of Hazardous
Substances), the fraction whose
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numerator is the number of months in the period from the Cost Division Date with
respect to such Reimbursable Alteration to the end of the expected useful life
of such Reimbursable Alteration and whose denominator is the number of months in
the period from the Estimated Substantial Completion Date of such Reimbursable
Alteration to the end of the expected useful life thereof. Any dispute as to the
reasonableness of any Estimated Substantial Completion Date, and any dispute as
to the expected useful life of any Reimbursable Alteration, shall be determined
by the Appropriate Engineer. As to any Reimbursable Removal of Hazardous
Substances, the Measuring Fraction shall be one (1.00).
If Landlord and Tenant shall disagree (i) as to whether any item is an item of
Major Building Equipment, or (ii) as to whether any replacement is a
Reimbursable Replacement, or (iii) as to whether any work is Structural Work, or
(iv) as to whether any Structural Work is Reimbursable Structural Work, or (v)
as to whether a Legal Requirement requires an Alteration, or (vi) as to whether
an Alteration is a Legal Requirement Alteration, or (vii) as to whether any
Legal Requirement Alteration is a Reimbursable Legal Requirement Alteration, or
(viii) as to whether any Alteration is a Qualified Alteration, or (ix) as to
whether any removal of any Hazardous Substance is a Reimbursable Removal of
Hazardous Substances, the matter shall in each case be determined by the
Appropriate Engineer. Notwithstanding the foregoing, any dispute under clause
(vii) - in so far as it relates to whether in accordance with GAAP an item
should be capitalized - shall be determined by the Accountant.
6.3 Submission and Approval of Plans and Specifications in Certain
Instances.
(a) Required Submissions. Prior to:
(i) performing any of the Base Building
Upgrade Work; or
(ii) undertaking any Reimbursable
Replacement, any Structural Work (whether or not
Reimbursable Structural Work), any Legal Requirement
Alteration (whether or not a Reimbursable Legal
Requirement Alteration) or any Qualified Alteration;
Tenant shall (subject to Section 6.3(f)) submit all of the Plans and
Specifications therefor to Landlord for Landlord's approval, together with, in
case Tenant contends that the work in question is a Reimbursable Alteration, (i)
a statement to that effect, and (ii) a good faith estimate of the Costs of such
Reimbursable Alteration prepared by a reputable architect, engineer or
contractor. Each such submission is herein called a "Plans Submission Notice".
Landlord shall give notice (the "Plans and Specifications Notice") to Tenant of
Landlord's approval or disapproval of any Plans and Specifications within 20
Business Days after the date upon which the same are given to Landlord (which
Plans and Specifications Notice shall, in the case of a disapproval, be
accompanied by a reasonably complete and specific statement of the reasons for
disapproval); provided, that
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(A) with respect to all Plans and
Specifications submitted by Tenant prior to Tenant's
occupancy of the Leased Premises for the conduct of
business, the aforesaid 20 Business Day period shall be
shortened to 10 Business Days, and
(B) with respect to all Plans and
Specifications submitted by Tenant after Tenant's
occupancy of the Leased Premises for the conduct of
business, if (i) at least 10 Business Days before the
date upon which Tenant submits all of the Plans and
Specifications for the work in question to Landlord,
Tenant gives notice to Landlord that Tenant intends to
make any replacement of an item of Major Building
Equipment or to undertake any Structural Work, Legal
Requirement Alteration or Qualified Alteration (which
notice shall specify the general nature of the work and
an estimated date for the submission of all of the Plans
and Specifications therefor to Landlord) and (ii) Tenant
delivers all of the Plans and Specifications for the
work in question to Landlord within 2 Business Days of
the estimated submission date set forth in Tenant's
notice, then the aforesaid 20 Business Day period shall
be shortened to 10 Business Days.
If Tenant's notice shall have included a statement that the work in question is
a Reimbursable Alteration, the Plans and Specifications Notice shall include
Landlord's agreement or disagreement with such statement.
(b) Disapproval Only Under Certain Circumstances. Landlord
shall not disapprove any Plans and Specifications unless the work contemplated
thereby would (i) result in the Improvements not being a first-class office
building or (ii) materially and adversely affect any structural element of the
Improvements or any item of Major Building Equipment. If Tenant disputes
Landlord's right to disapprove, the matter shall be determined by the
Appropriate Engineer.
(c) Certain Conditions. Subject to Sections 6.3(d) and (f),
Tenant shall not perform any Base Building Upgrade Work or undertake any
Reimbursable Replacement, Structural Work, Legal Requirement Alteration or
Qualified Alteration unless and until (i) Landlord shall approve (or be deemed
to have approved) the Plans and Specifications therefor in a Plans and
Specifications Notice or (ii) the Appropriate Engineer shall determine that
Landlord did not have the right to disapprove such Plans and Specifications
pursuant to this Lease.
(d) Failure to Give timely Notice. Subject to the provisions
of the next paragraph, if Landlord shall fail timely to give Tenant a Plans and
Specifications Notice, Tenant may proceed with the work in question, and if
Landlord thereafter disapproves the Plans and Specifications therefor Tenant may
continue such work unless the Appropriate Engineer determines that Landlord had
the right to disapprove pursuant to this Lease. If the Appropriate
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Engineer so determines, Tenant shall cease such work, but the work done by
Tenant to the date of the Appropriate Engineer's determination shall not
constitute a default hereunder if Tenant thereupon commences and thereafter
diligently prosecutes to completion such remedial work (including, without
limitation, the removal of the work theretofore done by Tenant and the
restoration of the affected area of the Leased Premises) as Landlord may
reasonably determine to be appropriate in the circumstances (unless Tenant shall
dispute Landlord's determination, in which case the remedial work, if any, to be
done by Tenant shall be determined by the Appropriate Engineer).
Notwithstanding the provisions of the foregoing paragraph, if
(i) Tenant's Plans Submission Notice shall include the following statement in
block capital letters: "THIS NOTICE IS BEING GIVEN UNDER SECTION 6.3(a) OF OUR
LEASE. YOUR FAILURE TIMELY TO RESPOND WILL RESULT IN YOUR BEING DEEMED TO HAVE
APPROVED THE PLANS AND SPECIFICATIONS INCLUDED HEREWITH", and (ii) Landlord
shall fail timely to give to Tenant a Plans and Specifications Notice with
respect to such Plans and Specifications, then Landlord shall be deemed to have
given to Tenant a Plans and Specifications Notice approving such Plans and
Specifications and any Plans and Specifications Notice thereafter given by
Landlord disapproving such Plans and Specifications shall be void and of no
effect.
If (i) Tenant's Plans Submission Notice shall include the
following statement in block capital letters: "THIS NOTICE IS BEING GIVEN UNDER
SECTION 6.3(a) OF OUR LEASE WITH RESPECT TO A REIMBURSABLE ALTERATION. YOUR
FAILURE TIMELY TO DISAGREE WITH TENANT'S STATEMENT THAT THE WORK CALLED FOR BY
THE PLANS AND SPECIFICATIONS INCLUDED HEREWITH CONSTITUTES A REIMBURSABLE
ALTERATION WILL RESULT IN YOUR BEING DEEMED TO AGREE THAT SUCH WORK CONSTITUTES
A REIMBURSABLE ALTERATION." and (ii) Landlord shall fail timely to give to
Tenant a Plans and Specifications Notice with respect to such Plans and
Specifications indicating that Landlord disagrees with Tenant's statement that
the work called for by such Plans and Specifications constitutes a Reimbursable
Alteration, then Landlord shall be deemed to have agreed that such work
constitutes a Reimbursable Alteration.
(e) Submission of Certain Plans and Specifications Not
Requiring Approval. At the request of Landlord (made not more frequently than
once in any 12-month period), Tenant shall submit to Landlord Plans and
Specifications for all Alterations (other than Plans and Specifications required
to be submitted to Landlord pursuant to Section 6.3(a)) to the extent that such
Plans and Specifications have been prepared and have not theretofore been
submitted to Landlord. Landlord shall have no right to approve any Plans and
Specifications submitted by Tenant pursuant to this Section 6.3(e) unless it is
determined that such Plan and Specifications should have been submitted for
approval under Section 6.3(a).
(f) Emergencies. Provided that Tenant shall have given
Landlord prompt telephonic notice (confirmed in writing as soon as reasonably
practicable) of an emergency, Tenant may (without first complying with the
applicable provisions of Sections
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6.3(a)(b), (c) and (e)) proceed with such aspects of any Alteration as Tenant
may reasonably deem necessary in light of the emergency, but as promptly as
reasonably practicable thereafter Tenant shall comply with the applicable
provisions of said sections. Any dispute as to Tenant's right to avail itself of
this Section 6.3(f) shall be determined by the Appropriate Engineer.
6.4 Reimbursable Alterations
(a) Submission of Bids; Different Score of Work Statement.
(1) In the case of any Reimbursable Alteration, Tenant shall
(subject to Section 6.4(f)), simultaneously with the submission of all of the
Plans and Specifications therefor to Landlord (or as soon thereafter as
reasonably practicable, but in no event later than the date which is 5 Business
Days prior to the date upon which Landlord is required to give the Plans and
Specifications Notice), deliver to Landlord a list of at least 3 reputable
contractors (collectively, the "Original Bidders") from whom Tenant proposes to
obtain bids for the work. Landlord shall have the right, exercisable by notice
to Tenant delivered not later than 10 Business Days after receipt by Landlord of
the list of the Original Bidders, to designate no more than three additional
reputable contractors (which may include Landlord or an affiliate of Landlord)
from whom Landlord desires Tenant to obtain bids (collectively, the "Additional
Bidders"). Tenant shall, as promptly as reasonably practicable, obtain bids from
at least two of the Original Bidders and solicit bids from all of the Additional
Bidders (if any) on a competitive basis and submit all bids obtained (together
with the proposed contracts relating thereto) to Landlord together with (x)
Tenant's reasonable estimate of the date of substantial completion of the work
in question (the "Estimated Substantial Completion Date") and (y) Tenant's
reasonable estimate of reasonable fees and disbursements of any architect or
engineer retained by Tenant in connection with the work in question, and within
5 Business Days after receipt thereof Landlord shall give notice to Tenant
designating the Original Bidder or the Additional Bidder (in either case being a
bidder from whom Tenant has obtained a bid) which in Landlord's judgment should
perform the work in question (the bidder so designated by Landlord being called
"Landlord's Preferred Bidder"). All such bids shall be on a lump sum or
guaranteed maximum amount basis. Tenant shall have the right, exercisable by
notice (the "Dispute Notice") given to Landlord within 5 Business Days after the
date upon which Tenant receives notice of the identity of Landlord's Preferred
Bidder (which Dispute Notice shall specify the Original Bidder or the Additional
Bidder ("Tenant's Selected Bidder") which Tenant proposes to select to do the
work in question), to dispute Landlord's designation of Landlord's Preferred
Bidder, and if the Dispute Notice shall be timely given, the Appropriate
Engineer shall select either Landlord's Preferred Bidder or Tenant's Selected
Bidder as the bidder which (in light of the bid, contract terms, reputation and
experience of such bidder) is most appropriate to do the work in question.
Notwithstanding Landlord's designation of, or the Appropriate Engineer's
selection of, Landlord's Preferred Bidder, Tenant may retain any Original Bidder
or Additional Bidder from whom Tenant has obtained a bid in accordance with this
Section 6.4(a) to do the work in question (the bidder so retained being called
the "Retained Bidder").
(2) If Landlord believes that the Reimbursable Alteration reflected
in the Plans and Specifications submitted by Tenant is not the most appropriate
Alteration to address
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<PAGE> 37
the condition in question (in the case of a Reimbursable Replacement or
Reimbursable Structural Work) or to comply with the Legal Requirement in
question (in the case of a Reimbursable Legal Requirement Alteration) or to
effect removal (in the case of Reimbursable Removal of Hazardous Substances)
then, Landlord shall include in its notice designating Landlord's Preferred
Bidder a statement to that effect (such statement being herein called a
"Different Scope of Work Statement") and shall include with such notice (x) such
revisions to or such replacement for the Plans and Specifications submitted by
Tenant as Landlord believes are needed to reflect such most appropriate
Alteration ("Landlord's Revised Plans"), (y) a list of at least 3 reputable
contractors from whom Landlord desires Tenant to obtain bids for the performance
of the Reimbursable Alteration in accordance with Landlord's Revised Plans
("Landlord's Alternate Bidders") and who may be the same as or different from
the Additional Bidders, and (z) if Landlord believes that the Alteration
reflected in Landlord's Revised Plans is not a Reimbursable Alteration, a
statement to that effect. In such a case, Tenant may elect to perform the
Alteration in question either pursuant to Landlord's Revised Plans or, subject
to Section 6.3(c), pursuant to the Plans and Specifications submitted by Tenant,
subject, in either case, to the provisions of Section 6.4(h). If Landlord shall
include the statement described in clause (z) above, and Tenant shall disagree
therewith, the dispute shall be resolved by the Appropriate Engineer.
If (A) Tenant's notice accompanying Tenant's submission to Landlord
of the bids required to be submitted to Landlord under Section 6.4(a)(1) shall
include the following statement in block capital letters: "THIS NOTICE IS BEING
GIVEN TO YOU UNDER SECTION 6.4(a) OF OUR LEASE WITH RESPECT TO A REIMBURSABLE
ALTERATION. YOUR FAILURE TIMELY TO FURNISH A DIFFERENT SCOPE OF WORK STATEMENT
WILL RESULT IN YOUR LOSING THE RIGHT TO FURNISH A DIFFERENT SCOPE OF WORK
STATEMENT. IF YOU FURNISH A DIFFERENT SCOPE OF WORK STATEMENT YOUR FAILURE TO
INCLUDE THEREIN A STATEMENT THAT YOU DO NOT BELIEVE THAT THE ALTERATION CALLED
FOR THEREBY IS NOT A REIMBURSABLE ALTERATION WILL RESULT IN YOUR BEING DEEMED TO
AGREE THAT SUCH ALTERATION CONSTITUTES A REIMBURSABLE ALTERATION" and (B)
Landlord shall fail to include in its notice designating Landlord's Preferred
Bidder a Different Scope of Work Statement or shall fail to include with such
notice Landlord's Revised Plans or shall fail to include with such notice a list
of Landlord's Alternate Bidders, then Landlord shall be deemed to have waived
its rights under this Section 6.4(a)(2) with respect to the Reimbursable
Alteration in question. If (i) Tenant's notice accompanying Tenant's submission
to Landlord of the bids required to be submitted to Landlord under Section
6.4(a)(1) shall include the statement set forth in clause (i) of the preceding
sentence, and (ii) Landlord shall furnish a Different Scope of Work Statement
and shall fail to include therein a statement that Landlord does not believe
that the Alteration called for thereby is not a Reimbursable Alteration, then
Landlord shall be deemed to have agreed that such Alteration is a Reimbursable
Alteration.
(b) Reimbursement Amount. Landlord shall, in accordance with Section
6.4(d) or 6.4(e), reimburse Tenant on account of any Reimbursable Alteration in
an amount (the "Reimbursement Amount") equal to the product of the Measuring
Fraction multiplied by the sum of (i) the Base Amount for the work in question,
plus (ii) any Qualified Overruns; plus (iii) the reasonable fees and
disbursements of any architect or engineer retained
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by Tenant in connection with the work in question (the sum of the amounts
referred to in clauses (i), (ii) and (iii) being herein called the "Gross
Amount"). Any dispute as to the reasonableness of the incurrence by Tenant of
any Cost under clause (ii) or (iii) above in connection with the work in
question, or as to the reasonableness of the amount of any such Cost, shall be
determined by the Appropriate Engineer.
(c) Overruns; Qualified Overruns. At any time during the performance
of any Reimbursable Alteration, Tenant may give notice (an "Overrun Notice") to
Landlord specifying any cost (an "Overrun") in excess of the original contract
price of Tenant's Selected Bidder which Tenant expects to incur and which Tenant
contends was unforeseeable by Tenant at the time of commencement of the work
(each Overrun Notice to specify the nature of and reasons for the Overrun in
question in reasonably complete and specific detail). Within 10 Business Days
after receipt of an Overrun Notice, Landlord shall notify Tenant as to whether
or not in Landlord's judgment the Overrun in question is reasonable in amount in
the circumstances and was unforeseeable by Tenant at the time of commencement of
the work. If Tenant shall dispute Landlord's judgment, the reasonableness of the
amount of, and the foreseeability by Tenant of, the Overrun in question shall be
determined by the Appropriate Engineer. Any Overrun determined by Landlord or
the Appropriate Engineer to be reasonable in amount in the circumstances and
unforeseeable by Tenant at the time of commencement of the work shall be a
"Qualified Overrun". Tenant shall not be chargeable with the failure by any
Contractor to foresee any Overrun.
(d) Reimbursement Upon Full Completion. Except in the case of a
Reimbursable Alteration in respect of which an Extended Completion Notice has
been given, Landlord shall upon the full completion of the work in question and
within 30 days after Landlord's receipt of Tenant's request therefor remit the
Reimbursement Amount to Tenant; provided, that Landlord shall not be obligated
to make such remittance unless:
(i) Tenant's request for remittance shall be
accompanied by (A) a certificate of Tenant (in
form reasonably satisfactory to Landlord) stating
that an amount at least equal to the Reimbursement
Amount has been paid to contractors,
subcontractors, materialmen, engineers, architects
or other persons (whose names and addresses and a
description of the work involved shall be stated)
who have furnished labor, materials, supplies,
permits or services for the work in question
(collectively, "Contractors") and that to Tenant's
best knowledge (after due inquiry) there is no
outstanding indebtedness due for labor, materials,
supplies, permits or services in any manner
connected with the work in question which if
unpaid might be the basis for any type of lien on
the Leased Premises or any part thereof, and (B) a
certificate of the architect or engineer who
prepared the related Plans and Specifications (in
form reasonably
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satisfactory to Landlord) stating that such work
has been fully completed in a good and
workmanlike manner and in accordance with the
Plans and Specifications (as approved by Landlord
or as determined by the Appropriate Engineer to
have been required to be approved by Landlord
pursuant to this Lease);
(ii) Landlord shall have received (A) true copies of
all bills paid by Tenant to Contractors in
connection with the work in question, (B) an
instrument in writing from any title company
insuring Landlord's estate in the Project
certifying that there are no undischarged
mechanics', laborers' or materialmen's liens
affecting any part of the Project (other than
liens, if any, in respect of which Landlord has
consented to take security pursuant to Article
13(a)(ii)) and
(iii) no Event of Default shall have occurred and be
continuing.
(e) Reimbursement as Work Proceeds. If at any time prior to or
during the performance of any Reimbursable Alteration Tenant determines that the
full completion thereof will not occur within six months after the commencement
of such Reimbursable Alteration, Tenant shall give Landlord notice of such
determination (an "Extended Completion Notice") and thereafter Landlord shall
from time to time within 30 days after Landlord's receipt of Tenant's request
therefor (but in no event more frequently than once during any 30-day period)
make advances to Tenant on account of the Reimbursement Amount for the work in
question (collectively, "Reimbursement Advances"); provided, that:
(i) no Reimbursement Advance shall be made until
Tenant shall have delivered to Landlord evidence
reasonably acceptable to Landlord that Tenant has
paid Contractors engaged in the work in question
an aggregate amount (the "Benchmark Amount") equal
to the positive remainder, if any, obtained by
subtracting the Determined Amount for the work in
question from the original contract price of the
Retained Bidder, and Reimbursement Advances shall
be made only for amounts paid by Tenant to such
Contractors which are in excess of the Benchmark
Amount;
(ii) no Reimbursement Advance (other than the final
Reimbursement Advance) shall be due unless:
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(a) Tenant's request for such Reimbursement Advance
shall be accompanied by (x) a certificate of
Tenant (in form reasonably satisfactory to
Landlord) stating that (1) the amount of the
Reimbursement Advance then requested has been paid
by Tenant to Contractors (whose names and
addresses and a description of the work involved
shall be stated) engaged in the work in question,
(2) the amount of the Reimbursement Advance then
requested (when taken together with the aggregate
amount of all Reimbursement Advances theretofore
made by Landlord) exceeds neither 90% of the
Reimbursement Amount nor the product of the
Determined Amount multiplied by the percentage
(the "Completed Percentage") of the work called
for in the contract of the Retained Bidder which
has actually been installed in the Leased
Premises, (3) the amount of the Reimbursement
Advance, when added to all amounts paid by Tenant
to Contractors engaged in the work in question and
not reimbursed by Landlord by way of prior
Reimbursement Advances or the then Reimbursement
Advance (but excluding the Benchmark Amount) is at
least equal to the quotient obtained by dividing
the amount of the then requested Reimbursement
Advance by the Measuring Fraction and (4) no part
of the cost of the work described in any previous
or then pending request for a Reimbursement
Advance has been or is being made the basis for
the Reimbursement Advance then being requested,
and (y) a certificate of the architect or engineer
who prepared the related Plans and Specifications
(in form reasonably satisfactory to Landlord)
stating in substance that the Completed Percentage
has been reached and that the work has been
performed in a good and workmanlike manner and in
accordance with the Plans and Specifications (as
approved by Landlord or as determined by the
Appropriate Engineer to have been required to be
approved by Landlord pursuant to this Lease);
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(b) Landlord shall have received true copies of all
bills paid or payable by Tenant to Contractors
which form the basis for the Reimbursement Advance
in question; and
(c) no Event of Default shall have occurred and be
continuing; and
(i) the final Reimbursement Advance shall not be due unless
all of the conditions specified in clauses (i) through
(iii) of Section 6.4(d) shall have been fulfilled in
respect of such Reimbursement Advance.
(f) Emergencies. Provided that Tenant shall have given Landlord
prompt telephonic notice (confirmed in writing as soon as reasonably
practicable) of an emergency, Tenant may proceed with any Reimbursable
Alteration without first complying with the applicable provisions of this
Section 6.4 and Landlord shall, following full completion of the emergency work
in question and within 30 days after Landlord's receipt of Tenant's request
therefor, remit the Emergency Reimbursement Amount (as hereinafter defined) to
Tenant; provided that Landlord shall not be obligated to make such remittance
unless all of the conditions specified in clauses (i) through (iii) of Section
6.4(d) shall have been fulfilled in respect of the work in question (provided,
that (i) if no architect or engineer was retained for the emergency work in
question, Section 6.4(a)(i)(B) shall be deemed fulfilled if (x) Tenant shall
deliver a certificate to Landlord stating that such emergency work has been
fully completed in a good and workmanlike manner and (y) such emergency work has
been fully completed in a manner consistent with the character of the
Improvements as a first-class office building (with due regard to the character
of the work as emergency work), and (ii) if an architect or engineer was
retained for the emergency work in question but (due to the nature of the
emergency) no Plans and Specifications therefor were prepared, Section
6.4(a)(i)(B) shall be deemed fulfilled if (x) Tenant shall deliver to Landlord a
certificate of such architect or engineer stating that such emergency work has
been fully completed in a good and workmanlike manner and (y) such emergency
work has been fully completed in a manner consistent with the character of the
Improvements as a first-class office building (with due regard to the character
of the work as emergency work).
"Emergency Reimbursement Amount" means the product of the Measuring
Fraction multiplied by an amount equal to all Costs reasonably incurred by
Tenant in connection with the emergency work in question.
Any dispute as to Tenant's right to avail itself of this Section
6.4(f), or as to the reasonableness of the incurrence by Tenant of any Cost in
connection with the emergency work in question, or as to the reasonableness of
the amount of any such Cost, shall be determined by the Appropriate Engineer.
Landlord shall not be required to make payment of any amount in dispute pending
resolution of such dispute.
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(g) Landlord's Right to Decline to Participate in Certain Costs.
(i) The term "Notional Termination Date" shall mean, as of any
date, (a) if prior to such date Tenant shall have exercised any Termination
Option, the Termination Date with respect thereto, and (b) if prior to such date
Tenant shall not have exercised any Termination Option, the Termination Date
with respect to the earliest Termination Option which, as of such date, has not
lapsed without exercise or been waived or, if all of the Termination Options
shall then have lapsed without exercise or been waived, the Expiration Date.
(ii) The term "Plan Submission Date" with respect to any
Reimbursable Replacement or Reimbursable Legal Requirement Alteration shall mean
the date on which Tenant furnishes the Plans Submission Notice with respect
thereto to Landlord under Section 6.3(a).
(iii) The term "Associated Reimbursables" shall mean
(a) with respect to any Reimbursable Replacement, (i)
all other Reimbursable Replacements the Plan
Submission Date for which occurred earlier than,
and in the same calendar year as, such
Reimbursable Replacement, excluding any thereof
with respect to which Tenant, by notice to
Landlord under Section 6.4(g)(vii), shall have
withdrawn its Plans Submission Notice and (ii) all
Reimbursable Legal Requirement Alterations the
Plans Submission Date for which occurred earlier
than, and in the same calendar year as, such
Reimbursable Replacement, excluding any thereof
with respect to which Tenant, by notice to
Landlord under Section 6.4(g)(vii), shall have
withdrawn its Plans Submission Notice, or
(b) with respect to any Reimbursable Legal Requirement
Alteration, (i) all other Reimbursable Legal
Requirement Alterations the Plan Submission Date
for which occurred earlier than, and in the same
calendar year as, such Reimbursable Legal
Requirement Alteration, excluding any thereof with
respect to which Tenant, by notice to Landlord
under Section 6.4(g)(vii), shall have withdrawn
its Plans Submission Notice and (ii) all
Reimbursable Replacements the Plans Submission
Date for which occurred earlier than, and in the
same calendar year as, such Reimbursable Legal
Requirement Alteration, excluding any thereof with
respect to which Tenant, by notice to Landlord
under Section 6.4(g)(vii), shall have withdrawn
its Plans Submission Notice
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<PAGE> 43
(iv) The term "Estimated Cost" with respect to any
Reimbursable Replacement or any Reimbursable Legal Requirement Alteration shall
mean the sum of (a) the Determined Amount with respect thereto, and (b) Tenant's
reasonable estimate of reasonable fees and disbursements of any architect or
engineer retained by Tenant in connection with the work in question.
(v) If (a) on the Plan Submission Date with respect to any
Reimbursable Replacement or any Reimbursable Legal Requirement Alteration the
Notional Termination Date is earlier than the fifth anniversary of such Plan
Submission Date, and (b) the Estimated Cost with respect to such Reimbursable
Replacement or such Reimbursable Legal Requirement Alteration, together with the
Estimated Cost with respect to all Associated Reimbursables, exceeds $500,000,
then Landlord shall have the right to give a notice with respect to such
Reimbursable Replacement or Reimbursable Legal Requirement Alteration referring
to this Section (a "Cost Participation Limitation Notice") and, if Landlord
shall timely give a Cost Participation Limitation Notice with respect to such
Reimbursable Replacement or such Reimbursable Legal Requirement Alteration, then
(x) Landlord shall not be required to make the
reimbursement which, in the absence of this clause (x)
Landlord would otherwise be required to make under the first
sentence of Section 6.4(b), and
(y) Landlord shall, in accordance with Section
6.4(d) or 6.4(e), reimburse Tenant on account of such
Reimbursable Replacement or such Reimbursable Legal
Requirement Alteration in an amount (the "Limited
Reimbursement Amount") equal to the product of the Measuring
Fraction multiplied by the lesser of
(a) the Gross Amount with respect to such
Reimbursable Replacement or such
Reimbursable Legal Requirement Alteration,
or
(b) the excess, if any, of $500,000 over the
Gross Amounts with respect to all Associated
Reimbursables, if any.
Landlord may give a Cost Participation Limitation Notice with respect to any
Reimbursable Replacement or any Reimbursable Legal Requirement Alteration at any
time on or before the date on which Landlord is entitled to give notice under
Section 6.4(a) designating Landlord's Preferred Bidder; provided, that if Tenant
timely gives a Dispute Notice with respect to such Reimbursable Replacement or
Reimbursable Legal Requirement Alteration and the Appropriate Engineer selects
Tenant's Selected Bidder as the bidder which is most appropriate to do the work
in question, Landlord may give a Cost Participation Limitation Notice with
respect to such Reimbursable Replacement or Reimbursable Legal Requirement
Alteration within five (5) Business Days after receipt of notice of such
selection by the Appropriate Engineer.
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(vi) If (A) at any time after Landlord shall have given a Cost
Participation Limitation Notice with respect to any Reimbursable Replacement or
any Reimbursable Legal Requirement Alteration, any Termination Option shall
lapse without exercise or be waived, and (B) had such Termination Option and all
earlier Termination Options been waived immediately prior to the Plan Submission
Date with respect to such Reimbursable Replacement or such Reimbursable Legal
Requirement Alteration, Landlord would not have been entitled to give a Cost
Participation Limitation Notice with respect to such Reimbursable Replacement or
such Reimbursable Legal Requirement Alterations, then Landlord shall pay to
Tenant the excess of (x) the Reimbursement Amount with respect to such
Reimbursement Replacement or such Reimbursement Legal Requirement Alteration
(i.e. the Reimbursement Amount which would have been payable under Section
6.4(b) if Landlord had not given a Cost Participation Limitation Notice), over
(y) the Limited Reimbursement Amount with respect to such Reimbursable
Replacement or such Reimbursable Legal Requirement Alteration. Such payment
shall be due within thirty (30) days of Tenant's demand therefor, but not
earlier than the date on which it would otherwise be due under the provisions of
this Section 6.4. Notwithstanding the fact that the amount required to be paid
pursuant to this Section 6.4(g)(vi) is required to be paid on a date later than
the date on which the Reimbursement Amount would have been required to be paid
if Landlord had not given the Cost Participation Limitation Notice, no interest
shall be due on such amount, except for interest under Section 3(c) from and
after the date on which such amount is required to be paid pursuant to this
Section 6.4(g)(vi) if Landlord shall fail timely to make such payment.
(vii) Tenant may, by notice to Landlord given at any time
prior to the commencement of any Reimbursable Replacement or any Reimbursable
Legal Requirement Alteration, withdraw its Plans Submission Notice with respect
to such Reimbursable Replacement or Reimbursable Legal Requirement Alterations.
If Tenant shall do so, and shall subsequently desire to make such Reimbursable
Replacement or Reimbursable Legal Requirement Alteration, it must again give a
Plans Submission Notice with respect thereto and all of the applicable
provisions of Section 6.3 and 6.4 shall again be applicable as if such withdrawn
Plans Submission Notice had never been given.
(viii) If after Landlord shall have given a Cost Participation
Limitation Notice with respect to any Reimbursable Replacement or any
Reimbursable Legal Requirement Alterations (the "Reimbursable Replacement or
Reimbursable Legal Requirement Alteration in question"), Tenant shall give a
notice under Section 6.4(g)(vii) with respect to any Reimbursable Replacement
or Reimbursable Legal Requirement Alteration which, in the absence of such
notice by Tenant, constituted an Associated Reimbursable with respect to the
Reimbursable Replacement or Reimbursable Legal Requirement Alteration in
question, then for purposes of computing the Limited Reimbursement Amount with
respect to the Reimbursable Replacement or Reimbursable Legal Requirement in
question such Reimbursable Replacement or Reimbursable Legal Requirement
Alterations with respect to which Tenant shall have given a notice under Section
6.4(g)(vii) shall not be deemed to be an Associated Reimbursable. Any increase
in the Limited Reimbursement Amount payable by reason of this Section
6.4(g)(viii) shall be due and payable within thirty (30) days of Tenant's demand
therefor, but not earlier than the date on which it would otherwise be due under
the provisions of this Section 6.4.
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(h) Different Scope of Work Statement The provisions of this
Section 6.4(h) shall be applicable to any Alterations as to which Landlord
timely gives a Different Scope of Work Statement and timely furnishes Landlord's
Revised Plans and a list of Landlord's Alternate Bidders in accordance with
Section 6.4(a).
If Tenant shall elect to perform such Alteration in accordance
with Landlord's Revised Plans and such Alteration is a Reimbursable Alteration,
then the foregoing provisions of this Section 6.4, including without limitation
the provisions requiring Tenant to obtain and/or solicit bids and furnish the
bids so received to Landlord (and the related provisions of this Article 6)
shall be applied with reference to Landlord's Revised Plans, except that in such
a case
(a) the term "Additional Bidders" shall refer
only to Landlord's Alternate Bidders,
(b) the term "Original Bidders" shall refer only
to any other bidders from whom Tenant
requests and receives a bid to perform the
Reimbursable Alteration in accordance with
Landlord's Revised Plans, and
(c) notwithstanding the third sentence of
Section 6.4(a)(1), Tenant shall not be
obligated to obtain bids from any minimum
number of Original Bidders.
If Tenant shall elect to perform the Alteration in accordance
with the Plans and Specifications submitted by Tenant and such Alteration is a
Reimbursable Alteration, then (i) the foregoing provisions of Section 6.4 shall
be applied with reference to the Plans and Specifications submitted by Tenant,
(ii) the Appropriate Engineer shall select as more appropriate either the Plans
and Specifications submitted by Tenant or Landlord's Revised Plans, and (iii) if
the Appropriate Engineer selects the Landlord's Revised Plans and the Alteration
reflected thereon is a Reimbursable Alteration then, provided that at least one
of Landlord's Alternate Bidders shall submit a bid in accordance with Section
6.4(a) for the performance of the Reimbursable Alteration in accordance with
Landlord's Revised Plans, the Reimbursement Amount, Limited Reimbursement
Amount, Base Amount, Determined Amount, and Gross Amount with respect to such
Reimbursable Alteration shall be, respectively, the lower of (p) the
Reimbursement Amount, Limited Reimbursement Amount, Base Amount, Determined
Amount, and Gross Amount resulting from the application of the foregoing
provisions of Section 6.4 (and the related provisions of this Article 6) with
reference to the Plans and Specifications submitted by Tenant, or (q) the
Reimbursement Amount, Limited Reimbursement Amount, Base Amount, Determined
Amount, and Gross Amount which would have resulted from the application of the
foregoing provisions of Section 6.4 (and the related provisions of this Article
6) with reference to Landlord's Revised Plans. In order to determine the amounts
referred to in clause (q) above, Tenant shall solicit bids for the performance
of the Reimbursable Alteration in accordance with Landlord's Revised Plans from
Landlord's Alternate Bidders and any other bidders from whom Tenant desires to
solicit bids, and
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(a) when used with reference to the amounts
referred to in clause (q) above, (1) the
term "Additional Bidders" shall refer only
to Landlord's Alternate Bidders, and (2) the
term "Original Bidders" shall refer only to
any other bidders from whom Tenant requests
and receives a bid to perform the
Reimbursable Alteration in accordance with
Landlord's Revised Plans, and
(b) notwithstanding the third sentence of
Section 6.4(a)(1), Tenant shall not be
obligated to obtain bids from any minimum
number of Original Bidders.
Notwithstanding the foregoing provisions of this Section
6.4(h), (a) if Tenant so elects, the Appropriate Engineer's selection under
clause (ii) of the preceding paragraph of the Plans and Specifications submitted
by Tenant or Landlord's Revised Plans as more appropriate and/or, if applicable,
the Appropriate Engineer's determination whether the Alteration shown on the
Plans and Specifications submitted by Tenant constitutes a Reimbursable
Alteration and/or, if applicable, the Appropriate Engineer's determination
whether the Alteration shown on Landlord's Revised Plans constitutes a
Reimbursable Alteration shall occur before Tenant decides whether to perform the
Reimbursable Alterations in accordance with Landlord's Revised Plans or the
Plans and Specifications submitted by Tenant, and (b) if Tenant so elects,
Tenant may solicit bids for the performance of the Reimbursable Alteration in
accordance with Landlord's Revised Plans from Landlord's Alternate Bidders and
other bidders from Tenant shall desire to obtain bids before deciding whether to
perform the Reimbursable Alterations in accordance with the Plans and
Specifications submitted by Tenant or Landlord's Revised Plans.
6.5 General Provisions
Time shall be of the essence with respect to the giving of notices
and other submissions under this Article. The right to receive any reimbursement
under this Article 6, in respect of Reimbursable Alterations shall be for the
exclusive benefit of Tenant, it being the express intent of the parties hereto
that in no event shall such right be conferred upon or for the benefit of any
third party, including, without limitation, any contractor, subcontractor,
materialman, laborer, architect, engineer, attorney or any other person, firm or
entity.
6.6 Consideration by Tenant
(a) Upon demand of Landlord, Tenant shall comply in all
respects with any reasonable and timely suggestions made by Landlord with
respect to construction matters relating to any Reimbursable Alteration, and
shall correct any defect in the work in question or any material departure from
the Plans and Specifications for the work in question. Any dispute pursuant to
this Section 6.6(a) shall be determined by the Appropriate Engineer.
(b) Tenant shall, within 10 Business Days after receipt of a
statement therefor (accompanied by true copies of the bills paid by Landlord),
reimburse Landlord for all
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reasonable out-of-pocket expenses incurred for the services of an architect or
engineer making inspections of any Restoration.
6.7 Engineer; Appropriate Engineer
(a) "Engineer" means each of the following:
Syska & Hennessey Inc.
Meyer Strong & Jones P.C.
Jaros Baum & Bolles
Robert Derector Associates
Cosentini Associates
Joseph Loring & Associates
Weidlinger & Associates
Purdy & Henderson Associates Inc.
Weiskopf & Pickworth
Gilsanz Murray Stefick LLP
Office of James Ruderman LLP
or
such other independent engineering firm or firms having at least 15 years'
experience in first-class Manhattan office buildings as shall from time to time
be designated by Landlord to Tenant and approved by the other party (which
approval shall not be unreasonably withheld or delayed; any dispute as to
whether Landlord or Tenant has unreasonably withheld or delayed such approval to
be determined by Expedited Arbitration).
(b) Except as otherwise provided in Section 6.7(d),
"Appropriate Engineer" means, in respect of any matter required by this Lease to
be determined by an Appropriate Engineer, such Engineer as Tenant may designate
by notice (an "Engineer Designation Notice") to Landlord; provided, that if
Tenant shall fail to give an Engineer Designation Notice within 7 Business Days
after Tenant receives Landlord's request for the same, the "Appropriate
Engineer" for the matter in question shall be such Engineer as Landlord may
designate in a notice to Tenant delivered at any time prior to receipt by
Landlord of such Engineer Designation Notice.
(c) Each Appropriate Engineer shall make its determination or
selection as promptly as reasonably practicable, but in any event within 20 days
after request therefor by Landlord or Tenant. Each determination or selection
made by an Appropriate Engineer pursuant to this Lease shall be final and
binding on Landlord and Tenant. Landlord and Tenant shall each pay one-half of
the fees and expenses of each Appropriate Engineer which is called upon to act
hereunder.
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(d) In respect of any determination to be made by the
Appropriate Engineer under clause (i), (ii), (iii), (iv). (v), (vi), (vii) or
(ix) of the last paragraph of Section 6.2 or any selection to be made by the
Appropriate Engineer under Section 6.4(h), "Appropriate Engineer" mean such
independent Engineer or other independent engineering firm having at least 15
years' experience in first-class Manhattan office buildings as Landlord and
Tenant shall jointly designate (or if Landlord and Tenant shall be unable to
agree upon such joint designation within five business days after request of
either party to the other) as shall be designated by the American Arbitration
Association or its successor. In such a case, each party shall pay one-half the
fees and expenses of the American Arbitration Association or its successor.
(e) "Accountant" means, in respect of any matter required by
the last sentence of Section 6.2 of this Lease to be determined by an
Accountant, such independent certified public accountant who is a member of a
"Big-6" accounting firm as Tenant may designate in a notice to Landlord and as
may be approved by Landlord (which approval shall not be unreasonably withheld
or delayed); provided, that if Tenant shall fail to give such notice within 7
Business Days after Tenant receives Landlord's request for the same, the
Accountant for the matter in question shall be such independent certified public
accountant who is a member of a "Big-6" accounting firm as Landlord may
designate in a notice to Tenant delivered at any time prior to receipt by
Landlord of Tenant's notice designating the Accountant and as may be approved by
Tenant (which approval shall not be unreasonably withheld or delayed). The
Accountant shall make his or her determination as promptly as reasonably
practicable, but in any event within 20 days after request therefor by Landlord
or Tenant. Each determination made by an Accountant pursuant to this Lease shall
be final and binding on Landlord and Tenant. Landlord and Tenant shall each pay
one-half of the fees and expenses of any Accountant which is called to act
hereunder. Any dispute as to whether Landlord or Tenant has unreasonably
withheld or delayed approval of an independent certified public accountant
designated by the other party shall be determined by Expedited Arbitration.
7. Hazardous Substances
If Tenant shall remove from the Leased Premises any Qualified
Hazardous Substances, then Landlord shall (subject to the last sentence of this
Article 7) reimburse Tenant for the actual reasonable costs incurred by Tenant
to remove such Qualified Hazardous Substances, such reimbursement to be made
within 30 days after Tenant notifies Landlord of the amounts incurred by Tenant,
which notice shall be accompanied by paid invoices or other evidence reasonably
satisfactory to Landlord of the Costs incurred; provided, that the foregoing
provisions of this Article 7 shall not be applicable to any Reimbursable Removal
of Hazardous Substances which are governed by the provisions of Article 6. As
used in this Article 7 and in Article 6 the terms "remove" and "removal" (i)
when used with respect to any Hazardous Substance used for fireproofing or other
purpose necessary or appropriate for the continued occupancy and operation of
the Leased Premises as a first-class office building shall include the
replacement of such removed Hazardous Substance with suitable substitute
materials, and (ii) when used with respect to any Hazardous Substance shall
include, if Tenant shall elect, in lieu of removal, to enclose, encapsulate or
otherwise remediate such Hazardous Substance, such enclosure, encapsulation or
other remediation. Notwithstanding the foregoing, in no event shall
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Landlord have any obligation under this Article 7 to reimburse Tenant for the
costs of any Asbestos Removal Work or Refireproofing Work except to the extent
that Landlord fails to perform the same on or before (i) the Possession Date
with respect to any space other than the Stephaneze Premises or (ii) the
Stephaneze Possession Date, in the case of the Stephaneze Premises.
8. Utility Services
(a) Tenant shall pay all charges for all public or private
electrical, steam, gas, fuel, power and other utility services at any time
rendered to or in connection with the Leased Premises. Tenant shall be a direct
customer of the utility companies providing such services. If any rebates or
benefits shall be available from the utility company as part of any utility
company sponsored energy conservation program on account of the energy efficient
nature of Tenant's lighting fixtures and/or equipment, then Landlord, at
Tenant's sole expense, shall take such actions as Tenant may reasonably request
to obtain such rebates or benefits and, if any such rebates or benefits are paid
to or received by Landlord, Landlord shall promptly remit the same to Tenant.
The term "ConEd" shall refer to the electric utility from time to time
furnishing electricity to the Improvements.
(b) Landlord hereby notifies Tenant that Landlord has applied for
benefits under the Lower Manhattan Energy Program (Article 2-I of the General
City Law) (the "LMEP") and a certification that the Improvements are an
"eligible building" under subparagraph (a) of Section 25-aa of the General City
Law. Landlord shall be responsible for the preparation of all applications
(including revised applications) and any other documents, certificates and
instruments that may be required to obtain such benefits and certification
and/or in order to maintain such benefits and certification in effect. Tenant
shall, at Landlord's request, cooperate with Landlord's efforts to obtain such
benefits and certification (including, without limitation, the execution within
5 Business Days after request of any forms required to be executed by Tenant or
otherwise customarily executed by similarly situated tenants and supplying such
information not considered by Tenant to be confidential as may be necessary to
complete such forms and as Landlord is unable to obtain itself), provided, that
Tenant shall not be required to alter, modify or delay the Base Building Upgrade
Work or the Fit-Out Work or to alter its usage of electricity or alter in any
manner adverse to Tenant any electrical equipment in or serving the
Improvements. Landlord shall pay to Tenant, within 30 days after demand,
Tenant's reasonable out-of-pocket costs and expenses (including without
limitation attorneys fees' and disbursements) incurred in reviewing such
applications and such other documents, certificates and instruments, or
otherwise cooperating, at Landlord's request, with Landlord's efforts to obtain
such benefits. In addition to all other rent required by this Lease to be paid
by Tenant, Tenant shall pay to Landlord, within thirty (30) days of Tenant's
receipt of each ConEd bill for electricity service to the Improvements an amount
equal to the reduction shown thereon as a result of the Improvements receiving
benefits under the LMEP. If the amount of any ConEd bill for electricity service
to the Improvements shall reflect a reduction in the amount billed as a result
of the Improvements receiving benefits under the LMEP, but the amount of such
reduction is not shown thereon, the parties shall endeavor to agree upon the
amount of such reduction and, if they have not agreed upon such amount within
fifteen (15) days after Tenant's receipt of such
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ConEd bill, the same shall be determined by arbitration. If in any such case the
amount of such reduction shall not have been agreed upon or determined by
arbitration by the date on which Tenant is required to make payment to Landlord
under this Section 8(b), Tenant shall make payment in accordance with Tenant's
determination of such amount, subject to adjustment (plus interest thereon at
the Prime Rate from the 30th day after Tenant's receipt of the relevant ConEd
bill to the date of payment of such adjustment) upon the amount of such
determination being agreed upon or determined in arbitration.
(c) Landlord hereby notifies Tenant that Landlord intends to apply
to ConEd for ConEd's Business Incentive Rate (the "BIR"). Landlord shall be
responsible for the preparation of all applications (including revised
applications) and any other documents, certificates and instruments that may be
required to obtain the BIR and/or in order to maintain the BIR in effect. Tenant
shall, at Landlord's request, cooperate with Landlord's efforts to obtain the
BIR (including, without limitation, the execution within 5 Business Days after
request of any forms required to be executed by Tenant or otherwise customarily
executed by similarly situated tenants and supplying such information not
considered by Tenant to be confidential as may be necessary to complete such
forms and as Landlord is unable to obtain itself), provided that Tenant shall
not be required to alter, modify or delay the Base Building Upgrade Work or the
Fit-Out Work or to alter its usage of electricity or alter in any manner adverse
to Tenant any electrical equipment in or serving the Improvements. Landlord
shall pay to Tenant, within 30 days after demand, Tenant's reasonable
out-of-pocket costs and expenses (including without limitation attorneys fees'
and disbursements) incurred in reviewing such applications and such other
documents, certificates and instruments, or otherwise cooperating, at Landlord's
request, with Landlord's efforts to obtain such benefits. In addition to all
other rent required by this Lease to be paid by Tenant, Tenant shall, within
thirty (30) days of Tenant's receipt of each ConEd bill for electricity service
to the Improvements, furnish Landlord with a copy of such bill and pay to
Landlord, an amount equal to the reduction shown thereon as a result of the
Improvements receiving the BIR. If the amount of any ConEd bill for electricity
service to the Improvements shall reflect a reduction in the amount billed as a
result of the Improvements receiving the BIR, but the amount of such reduction
is not shown thereon, the parties shall endeavor to agree upon the amount of
such reduction and, if they have not agreed upon such amount within fifteen (15)
days after Tenant's receipt of such ConEd bill, the same shall be determined by
arbitration. If in any such case the amount of such reduction shall not have
been agreed upon or determined by arbitration by the date on which Tenant is
required to make payment to Landlord under this Section 8(c), Tenant shall make
payment in accordance with Tenant's determination of such amount, subject to
adjustment (plus interest thereon at the Prime Rate from the 30th day after
Tenant's receipt of the relevant ConEd bill to the date of payment of such
adjustment) upon the amount of such determination being agreed upon or
determined in arbitration.
9. Indemnification by Tenant
(a) Tenant shall protect, indemnify and save harmless Landlord from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, attorneys' fees and
expenses) imposed upon or incurred
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by or asserted against Landlord or against the Leased Premises or any part
thereof by reason of the occurrence or existence of any of the following during
the Term: (1) the conduct, management or possession of the Leased Premises or
any part thereof, (2) any accident, injury to or death of persons or loss of or
damage to property occurring in, on or about the Leased Premises or any part
thereof or the adjoining sidewalks, curbs, vaults and vault space, if any,
streets or ways, (3) any use, nonuse or condition of the Leased Premises or any
part thereof or the adjoining sidewalks, curbs, vaults and vault space, if any,
streets or ways, (4) any failure on the part of Tenant to perform or comply with
any of the terms, provisions or conditions of this Lease, (5) performance of any
labor or services or the furnishing of any materials or other property in
respect of the Leased Premises or any part thereof, (6) any negligence or
tortious act or omission on the part of Tenant or any of its partners, agents,
contractors, servants, employees, licensees or invitees, (7) any negligence or
tortious act or omission on the part of any subtenant of Tenant, or of any
partners, agents, contractors, servants, employees, licensees or invitees of any
subtenant of Tenant, (8) any sublease of all or any part of the Leased Premises
or (9) the execution by Landlord of any application, document or instrument
under Section 35(1) below.
(b) In case any claim is made against Landlord or in case any
action, suit or proceeding (a "proceeding") is brought against Landlord or the
Leased Premises or any part thereof by reason of any of the foregoing, Landlord
shall give prompt notice to Tenant and Tenant shall cause such claim or
proceeding to be defended by counsel ("Tenant's Counsel") designated by Tenant
and approved by Landlord (which approval shall not be unreasonably withheld).
Tenant shall have the right to control the defense and settlement of any such
claim or proceeding and shall not be required to indemnify Landlord from the
costs and expenses of any settlement agreed to without Tenant's consent;
provided, that Landlord shall have the right (i) to require Tenant and Tenant's
Counsel to consult with Landlord and counsel retained and paid by Landlord, (ii)
to assume control of the defense and settlement of any such claim or proceeding
at any time if Landlord waives its right to be indemnified by Tenant on account
thereof and (iii) to make any settlement without Tenant's consent if Landlord
pays the amount of such settlement and waives its right to be indemnified by
Tenant on account of the claim or proceeding to which such settlement relates;
provided, further, that Tenant shall not settle any claim or proceeding without
Landlord's consent if such settlement requires an admission of liability (civil
or criminal) on the part of Landlord. Landlord shall cooperate with Tenant, at
Tenant's expense, in the defense of any such claim or proceeding in such manner
as Tenant may from time to time reasonably request.
10. Entry by Landlord
Tenant shall permit Landlord to enter the Leased Premises or any part
thereof at all reasonable times upon reasonable notice (except in case of
emergency) for the purpose of inspecting the same or doing any work under
Articles 7 and 19, and to keep and store all such materials therein as may be
reasonably necessary or appropriate for any such purpose without the same
constituting a partial or complete, constructive or actual eviction (but nothing
contained herein shall create or imply any duty on the part of Landlord to do
any work under Article 19). Landlord shall not have any duty to make any such
inspection and shall not incur any liability or obligation by making or for not
making any such inspection. Tenant shall also permit Landlord
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to enter the Leased Premises or any part thereof at all reasonable times upon
reasonable notice for the purposes of exhibiting the Leased Premises for sale or
mortgage. In addition, Tenant shall permit Landlord to enter the Leased Premises
or any part thereof at all reasonable times upon reasonable notice during each
of the 24 month periods prior to any Termination Date and the 24 month period
prior to the Expiration Date for purposes of exhibiting the Leased Premises for
lease; provided, that with respect to Landlord exhibiting the Leased Premises
prior to any particular Termination Date, if the time for exercising the
Termination Option that would result in this Lease terminating on such
Termination Date shall have lapsed without exercise by Tenant or if such
Termination Option shall have been waived, Landlord shall no longer be permitted
to enter the Leased Premises for purposes of exhibiting same for lease during
such 24 month period. Any entry pursuant to this Article 10 shall be subject to
the condition that, except in case of emergency, if Tenant so desires, any
representative of Landlord shall be accompanied at all times by a representative
of Tenant.
11. Payment of Taxes
11.1 Definitions
(a) "Base Tax Amount" means, with respect to (i) the Third Rent
Period, the Taxes (excluding any amounts described in Section 11.1(b)(ii)) for
the Tax Year beginning July 1, 2008 or such other date closest to and on or
after July 1, 2008 as may then be adopted as the beginning of the fiscal year
for real estate tax purposes for the City of New York and (ii) the Fourth Rent
Period, the Taxes (excluding any amounts described in Section 11.1(b)(ii)) for
the Tax Year beginning July 1,2013 or such other date closest to and on or after
July 1, 2013 as may then be adopted as the beginning of the fiscal year for real
estate tax purposes for the City of New York.
(b) "Taxes" means (i) the real estate taxes, vault taxes,
assessments and special assessments levied, assessed or imposed upon or with
respect to the Project by any federal, state, municipal or other government or
governmental body or authority and (ii) any expenses incurred by Landlord in
contesting such taxes or assessments and/or the assessed value of the Project,
which expenses shall be allocated to the Tax Year to which such expenses relate.
If at any time the method of taxation shall be altered so that in lieu of or as
a substitute for, the whole or any part of such real estate taxes, assessments
and special assessments now imposed on real estate, there shall be levied,
assessed or imposed (x) a tax, assessment, levy, imposition, fee or charge
wholly or partially as a capital levy or otherwise on the rents received
therefrom, or (y) any other such substitute tax, assessment, levy, imposition,
fee or charge, including without limitation, transit taxes, fees and
assessments, then all such taxes, assessments, levies, impositions, fees or
charges or the part thereof so measured or based shall be included in "Taxes".
If Landlord is an entity exempt from the payment of taxes described, in clauses
(i) and (ii), there shall be included in "Taxes" any amounts that such owner or
Tenant is obligated to pay in lieu of the taxes described in clauses (i) and
(ii). "Taxes" shall not include (A) any franchise, capital stock or transfer tax
(except to the extent franchise or capital stock taxes may be included in
"Taxes" under the preceding provisions of this Section 11.1), (B) personal
property taxes, (C) any business improvement district fees and charges, (D) all
taxes or charges imposed on Tenant
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with respect to the rentals payable under this Lease, including, without
limitation, the Commercial Rent or Occupancy Taxes imposed pursuant to Title 11,
Chapter 7 of the New York City Administrative Code, or (E) any water or sewer
charges, license fees, permit fees, inspection fees or similar charges, all of
which taxes, charges and fees described in clauses (B) through (E), subject to
the provisions of Section 12.2 shall be payable directly by Tenant to the
applicable taxing authority.
(c) "Tax Year" means each period of 12 months, commencing on the
first day of July of each such period, in which occurs any part of the Term, or
such other period of 12 months occurring during the Term as hereafter may be
adopted as the fiscal year for real estate tax purposes of the City of New York.
11.2 Payment of Taxes
Landlord shall pay, before any fine, penalty, interest or cost may
be added for non-payment, all Taxes, and upon request shall furnish Tenant with
an Officer's Certificate certifying to the payment of all Taxes and copies of
official receipts or other proof of payment satisfactory to Tenant.
11.3 Initial Tax Payments
On the first day of July, 1998 and on the first day of each and
every month thereafter through the end of the Second Rent Period, Tenant shall
pay to Landlord the respective monthly amounts set forth on Exhibit B (each, an
"Initial Tax Payment"); provided, that if the term of this Lease shall
terminate prior to the end of the Second Rent Period and on a day other than the
last day of the calendar month, the Initial Tax Payment for the month in which
the term of this Lease shall terminate shall be appropriately prorated. The
Initial Tax Payments shall not be affected by any changes in the Taxes assessed
against the Project, and Tenant shall have no right to share in any refund of
Taxes received by Landlord with respect to any periods occurring prior to June
30, 2008.
11.4 Extended Tax Payments
(a) During each of the Third Rent Period and the Fourth Rent Period,
if Taxes for any Tax Year exceed the Base Tax Amount applicable to such period,
Tenant shall pay to Landlord (each, an "Extended Tax Payment"; Initial Tax
Payments and Extended Tax Payments are collectively called "Tax Payments") the
amount by which Taxes for such Tax Year are greater than the applicable Base Tax
Amount. If there shall be any increase in the Taxes for any Tax Year, whether
during or after such Tax Year, or if there shall be any decrease in the Taxes
for any Tax Year, the Extended Tax Payments for such Tax Year shall be
appropriately adjusted and paid or refunded, as the case may be, in accordance
herewith. In no event, however, shall Taxes be reduced below the applicable Base
Tax Amount.
(b) If Landlord shall receive a refund of Taxes for any Tax Year in
respect of which Tenant has paid Extended Tax Payments, Landlord shall pay to
Tenant the net refund (i.e., after deducting the costs and expenses of obtaining
the same, including, without limitation,
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appraisal, accounting, consulting and legal fees, to the extent that such costs
and expenses were not included in the Taxes for such Tax Year); provided, that
such payment to Tenant shall in no event exceed Tenant's Tax Payment paid for
such Tax Year. If Landlord shall have received from the taxing authority any
interest on such refund, Landlord shall also pay to Tenant the portion of such
interest allocable to the portion of the refund being paid to Tenant.
(c) If the Taxes comprising the applicable Base Tax Amount are
reduced as a result of an appropriate proceeding or otherwise, the Taxes as so
reduced shall for all purposes be deemed to be the Base Tax Amount and Landlord
shall notify Tenant of the amount by which the Tax Payments previously made were
less than the Tax Payments required to be made under this Section 11.3, and
Tenant shall pay the deficiency within 10 days after demand therefor.
(d) Subject to the provisions of this Section 11.4(d), Landlord
shall have the sole right to contest the assessed valuation of the Project for
each Tax Year and to control the prosecution or settlement of such contest.
Notwithstanding the foregoing, Landlord shall not settle any tax reduction
proceedings with respect to any Tax Year commencing on or after July 1, 2009
without Tenant's consent, which consent (x) shall not be unreasonably withheld
and (y) if Landlord's request for consent shall include the following statement
in block capital letters:
THIS NOTICE IS BEING GIVEN UNDER SECTION 11.4 OF OUR
LEASE WITH YOU AND SEEKS YOUR CONSENT TO A PROPOSED
SETTLEMENT OF TAX REDUCTION PROCEEDINGS. YOUR FAILURE TO
GIVE NOTICE DENYING YOUR CONSENT WITHIN TEN DAYS AFTER
THE DATE OF THIS NOTICE
shall be deemed granted if not withheld in writing within 10 days after request
by Landlord. If on or before the 60th day prior to the last day on which a party
may contest the assessed valuation of the Project with respect to any such Tax
Year commencing on or after July 1, 2009, Tenant (by notice referring to this
Section 11.4(d)) shall request that Landlord advise Tenant whether or not
Landlord will contest the assessed valuation of the Project with respect to such
Tax Year, then (i) if Landlord shall not on or before the 30th day prior to such
last day advise Tenant that Landlord will contest the assessed valuation of the
Project with respect to such Tax Year then (subject to the last sentence of this
Section 11.4(d)) Tenant shall have the sole right to do so and to control the
prosecution or settlement of such contest, and (ii) if Landlord shall on or
before the 30th day prior to such last day advise Tenant that Landlord will
contest the assessed valuation of the Project with respect to such Tax Year then
Landlord shall do so. In any instance where pursuant to the foregoing provisions
of this Section 11.4(d) any such action or proceeding is being undertaken by
Tenant, (x) Landlord shall cooperate with Tenant, execute any and all documents
reasonably required in connection therewith and, if required by Legal
Requirements, join with Tenant in the prosecution thereof, and (y) Tenant shall
be entitled to recover first out of any refund obtained the costs and expenses
of obtaining the same, including, without limitation, appraisal, accounting,
consulting and legal fees and the balance of such refund shall be apportioned
between the parties subject to the provisions of Section 11.4(b).
Notwithstanding the foregoing, Tenant shall not settle any tax reduction
proceedings brought by Tenant pursuant to
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clause (i) above without Landlord's consent, which consent (x) shall not be
unreasonably withheld and (y) if Tenant's request for consent shall include the
following statement in block capital letters:
THIS NOTICE IS BEING GIVEN UNDER SECTION 11.4 OF
OUR LEASE WITH YOU AND SEEKS YOUR CONSENT TO A
PROPOSED SETTLEMENT OF TAX REDUCTION
PROCEEDINGS. YOUR FAILURE TO GIVE NOTICE
DENYING YOUR CONSENT WITHIN TEN DAYS AFTER
THE DATE OF THIS NOTICE
shall be deemed granted if not withheld in writing within 10 days after request
by Tenant.
11.5 General Provisions Applicable to Taxes
(a) The Extended Tax Payment for each Tax Year shall be due and
payable in installments in the same manner that Taxes for such Tax Year are due
and payable by Landlord, whether to the City of New York or to a Superior
Mortgagee. Tenant shall pay each such installment no later than the later of (i)
10 days after the rendering of a statement therefor by Landlord to Tenant, or
(ii) 20 days prior to the date on which the corresponding installment of Taxes
are due. The statement to be rendered by Landlord shall set forth in reasonable
detail the computation of the particular installment being billed.
(b) Landlord's failure to render or delay in rendering any
statement with respect to any Tax Payment or installment thereof shall not
prejudice Landlord's right to thereafter render such a statement, nor shall the
rendering of a statement for any Tax Payment or installment thereof prejudice
Landlord's right to thereafter render a corrected statement therefor.
(c) Except for amounts included in Taxes, subject to the
provisions of Section 12.2 Tenant shall pay, before any fine, penalty, interest
or cost may be added for nonpayment, (i) all personal property taxes, (ii) all
business improvement district fees and charges, (iii) all taxes or charges
imposed on Tenant with respect to the rentals payable under this Lease,
including, without limitation, the Commercial Rent or Occupancy Taxes imposed
pursuant to Title 11, Chapter 7 of the New York City Administrative Code, and
(iv) all water or sewer charges, license fees, permit fees, inspection fees or
similar charges, (collectively, "Tenant Impositions").
11.6 Industrial and Commercial Incentive Program
Landlord hereby notifies Tenant that Landlord intends to avail
itself of the Industrial and Commercial Incentive Program ("ICIP") with respect
to the Base Building Upgrade Work and the Fit-Out Work to the extent in either
case that the same qualify for the ICIP. In contracting pursuant to the Initial
Improvements Agreement for the Base Building Upgrade Work and, to the extent
that the same qualifies for the ICIP, the Fit-Out Work, Tenant shall include
provisions requiring all of the construction managers, contractors and
subcontractors to comply with the New York City Office of Labor
Services/Construction
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Division ("OLS") requirements applicable to construction projects benefiting
from the ICIP. Such compliance, as of the date hereof, includes the following:
the submission and approval of a Construction Employment Report, attendance at a
pre-construction conference with representatives of the OLS and adherence to the
provisions of Article 22 of the ICIP Rules and Regulations, the provisions of
New York City Charter Chapter 13-B and the provisions of Executive Order No. 50
(1980). Furthermore, at Landlord's request, Tenant shall (A) report to Landlord
the number of workers permanently engaged in employment in the Leased Premises,
the nature of each worker's employment and, to the extent applicable, the New
York City residency of each worker, (B) provide access to the Leased Premises by
employees and agents of the Department (as such term is defined in the ICIP
Rules and Regulations) at all reasonable times, and (C) enforce the contractual
obligations of such construction managers, contractors and subcontractors to
comply with the OLS requirements. Landlord shall be responsible for the
preparation of all applications (including any revised applications),
certificates of continuing eligibility and any other documents, certificates and
instruments that may be required in order to obtain benefits under the ICIP
and/or in order to maintain the benefits in effect. Tenant shall, at Landlord's
request, (i) make available to Landlord the Plans and Specifications and all
cost records relative to the Base Building Upgrade Work and the Fit-Out Work,
and (ii) otherwise cooperate with Landlord's efforts to obtain such benefits
(including, without limitation, the execution within 5 Business Days after
request of any forms required to be executed by Tenant or otherwise customarily
executed by similarly situated tenants), provided, that Tenant shall not be
required to alter, modify or delay the Base Building Upgrade Work or the Fit-Out
Work. Landlord shall pay to Tenant, within 30 days after demand, Tenant's
reasonable out-of-pocket costs and expenses (including, without limitation,
attorneys' fees and disbursements) incurred in reviewing such applications,
certificates of continuing eligibility and such other documents, certificates
and instruments, or otherwise cooperating, at Landlord's request, with
Landlord's efforts to obtain such benefits. All benefits obtained under ICIP
shall, to the extent legally permissible, accrue to Landlord (and if paid to or
received by Tenant, Tenant shall pay same to Landlord). Landlord shall indemnify
and hold harmless Tenant from and against any and all liability, damages,
claims, costs or expenses (including legal fees) incurred by or asserted against
Tenant by reason of or arising out of to the ICIP, any benefits granted
thereunder, or any application, certificates, documents or instruments prepared
or filed in connection therewith unless such liability, damages, claims, cost or
expenses arise out of Tenant's failure to comply with Article 11.
12. Compliance with Legal and Insurance Requirements and Permitted
Encumbrances
12.1 Generally
Subject to the Provisions of Article 6 and Section 12.2, Tenant
shall promptly comply (at Tenant's expense, unless the need for such compliance
arises out of any act, omission, negligence or intentional misconduct of
Landlord or any agent, employee, contractor, licensee of Landlord, in which case
Landlord shall reimburse Tenant for the costs of compliance within 30 days after
submission by Tenant to Landlord of invoices evidencing the costs of compliance)
with all Legal Requirements, Insurance Requirements and Permitted Encumbrances
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(exclusive of the lease described in item 1 of Exhibit C (the "Ground Lease")
and mortgages and related documents described in items 2, 3, 4 and 5 of Exhibit
C (the "Pre-Existing Mortgages"), as to which Tenant's obligations shall be only
as provided in Section 12.3), whether or not compliance therewith shall require
Alterations or interfere with the use and enjoyment of the Leased Premises or
any part thereof.
12.2 Permitted Contests
Tenant, without Landlord's consent may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Tenant Imposition, Legal
Requirement, or Permitted Encumbrance and may withhold payment or performance of
the same pending such contest, provided, that (a) such proceedings shall suspend
the collection thereof from Landlord and the Leased Premises or any part
thereof, (b) neither the Leased Premises nor any part thereof or interest
therein would be in any danger of being sold, forfeited or lost, (c) Landlord
shall not be in any danger of any criminal liability by reason thereof and (d)
in the case of a contest involving any Legal Requirement or any Permitted
Encumbrance, if at any time Landlord determines that Landlord is in danger of
any civil liability in an amount in excess of one year's Basic Rent, Tenant
shall (within 5 Business Days after Tenant receives Landlord's request therefor)
furnish to Landlord such security against such civil liability as Landlord may
reasonably request. Tenant shall give prompt notice to Landlord of the
commencement of or of Tenant's desire to commence any contest permitted by the
preceding sentence and Landlord shall, at Tenant's expense, reasonably cooperate
with Tenant with respect to any such contest and, if in connection with the
commencement, prosecution or settlement of such contest only Landlord can
execute any report, certificate, instrument, application or other document or
take any other action, in each case reasonably required in connection with such
contest, then, upon Tenant's request and at Tenant's expense, Landlord shall
execute or take the same. If in connection with any such request Landlord
consults with an engineer, an attorney or other professional, Tenant shall,
within 10 days after Tenant's receipt of demand therefor accompanied by copies
of the bills paid by Landlord, reimburse Landlord for the reasonable
out-of-pocket expenses incurred by Landlord for the services of such
professionals. If such professional advises Landlord in writing that Landlord's
executing such document or taking such action might result in the Leased
Premises or any part thereof or interest therein being sold, forfeited or lost
or in Landlord becoming criminally liable, and if such professional furnishes a
reasonably detailed explanation of the foregoing and the reasons therefor,
Landlord shall promptly advise Tenant and furnish Tenant with a copy of such
professional's advice and explanation and Landlord need not execute such
document or take such action. If, while contesting any amount, Tenant withholds
payment of the same, Tenant shall maintain the amount withheld (together with
penalties and interest from time to time accruing thereon) on deposit in a
separate interest bearing account in Landlord's name with a bank or trust
company selected by Tenant having an office in the Borough of Manhattan and a
combined shareholders equity of at least $200 million (or, if Tenant and
Landlord so agree, with Landlord). If any of the conditions set forth in the
proviso to the first sentence of this Section 12.2 are violated, Landlord shall
be entitled to withdraw the funds on deposit in said account in order to make
payment of the amount being contested. All interest earned on funds in such an
account shall be credited to such account and Tenant shall pay all taxes
thereon. Upon termination or
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settlement of such contest, any required payment of the amount contested shall
be made from such account and the balance remaining in such account shall be
paid to Tenant. If the amount in the account is insufficient, Tenant shall pay
the amount of the deficiency.
12.3 Ground Lease and Pre-Existing Mortgages. Landlord shall comply
with the Ground Lease and the Pre-Exiting Mortgages; provided, that this Section
12.3 shall not be deemed to release Tenant from or require Landlord to perform
any of Tenant's obligations under this Lease and if and to the extent that any
action is required to be taken both by Landlord as tenant under the Ground Lease
or mortgagor under the Pre-Existing Mortgages and by Tenant as tenant hereunder,
such action shall be taken by Tenant hereunder at Tenant's expense.
Notwithstanding the foregoing, Landlord shall be solely responsible for the
payment of (i) the net annual rental payable under the Ground Lease, and (ii)
all principal and interest on any debt secured by any of the Pre-Existing
Mortgages. If and to the extent that Landlord shall be required by the
provisions of this Section 12.3 to perform any work in or to the Leased
Premises, Tenant shall have the right to perform such work at Landlord's
expense, in which case Landlord shall reimburse Tenant for the reasonable costs
of performance within 30 days after submission by Tenant to Landlord of invoices
evidencing the costs of performance. Landlord shall exercise all renewal options
required to keep the Ground Lease in effect so long as this Lease is in effect.
If Landlord shall acquire the lessor's interest under the Ground Lease, Landlord
shall have the right to terminate the same and, if Landlord acquires such
interest and terminates the Ground Lease, this Lease shall continue in full
force and effect, except that all provisions relating to the Ground Lease shall
be deemed deleted.
13. Liens
(a) Within 60 days after the date on which Landlord gives Tenant
notice, referring to this Article 13 and Section 19(a)(v), of the existence of
any mechanic's, laborer's or materialman's lien, any lien arising under any
Permitted Encumbrance or any security interest which might be or become a lien,
encumbrance or charge upon the Leased Premises or any part thereof (other than
any such lien, encumbrance or charge caused by Landlord) and directs Tenant to
remove or discharge the same, Tenant shall either (i) remove or discharge the
same, by bonding or otherwise, or (ii) if Landlord shall consent thereto,
provide Landlord with an unconditional and irrevocable letter of credit (issued
by a New York Clearing House Association member bank satisfactory to Landlord
and in form satisfactory to Landlord) or other security satisfactory to Landlord
indemnifying Landlord against such lien or security interest.
(b) Nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or implied
by inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to or repair of the Leased Premises or
any part thereof.
14. Insurance
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14.1 Risks to be Insured
(a) Tenant shall maintain or cause to be maintained with insurers
and pursuant to insuring agreements approved by Landlord:
(i) insurance with respect to all buildings,
improvements, equipment and machinery constituting a part of the Leased Premises
against loss or damage by perils customarily included under standard "all-risk"
policies (including specifically damage by water), in amounts sufficient to
prevent Landlord or Tenant from becoming a co-insurer of any partial loss under
the applicable policies, and in any event in amounts not less than 90% of the
then full replacement cost (without deducting depreciation) of such buildings,
improvements, equipment and machinery (exclusive of the costs of foundations,
excavations and footings) (the "full replacement cost") as determined at the
request of Tenant (or at the request of Landlord, made not sooner than one year
after the previous determination), and (in either case) at Tenant's expense by
the insurer or insurers or by an expert selected by Tenant and approved by
Landlord;
(ii) boiler and machinery coverage, either, as Tenant
shall elect, as part of the policy referred to in clause (i) of this Section
14.1(a) or, if by a secondary policy, in an amount not less than $100,000,000 or
such greater amount as Landlord may reasonably require by notice to Tenant (the
insurance described in clause (i) above and this clause (ii) is collectively
called "Property Insurance");
(iii) commercial general liability insurance, including
broad form bodily injury, personal injury, property damage and blanket
contractual insurance, against claims arising out of or connected with the
possession, use, operation or condition of the Leased Premises with a combined
single limit of not less than $100,000,000 (or, such greater amount as Landlord
may reasonably require by notice to Tenant) for all claims with respect to
bodily injury, property damage and personal injury with respect to any one
occurrence;
(iv) appropriate builder's risk insurance with respect
to any Alterations (including, without limitation, any Restoration) or other
work on or about the Leased Premises or any part thereof;
(v) appropriate workers compensation and employer's
liability insurance with respect to any Alteration (including, without
limitation, any Restoration) or other work on or about the Leased Premises or
any part thereof; and
(vi) such other insurance with respect to the Leased
Premises or any part thereof in such amounts and against such insurable
casualties as Landlord from time to time may reasonably require by notice to
Tenant.
(b) All insurance required to be maintained under clause (ii) or
(iii) of Section 14.1(a) may be subject to a deductible of not more than the
Deductible Amount. Landlord shall not unreasonably withhold any of the approvals
referred to in Section 14.1(a). Any dispute whether Landlord has unreasonably
withheld such an approval and any dispute regarding the dollar amounts of the
limits of coverage under clause (ii) or (iii) of Section 14.1(a)
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and any dispute under clause (iv), (v), or (vi) of Section 14.1(a) shall be
resolved by arbitration. Pending the outcome of such arbitration, Tenant may act
as if the dispute had been resolved in its favor.
(c) The insurance required to be maintained by Tenant under
clause (i) of Section 14.1(a) shall also include (1) flood coverage of not less
than $25 million, (2) earthquake coverage of not less than $25 million, (3)
broad form water coverage (including backup of sewers and drains) of not less
than $5 million, (4) demolition coverage of not less than $10 million, (5)
increased cost of construction coverage of not less than $10 million, and (6)
law and ordinance coverage of not less than $10 million.
(d) Whenever in connection with any Alterations Tenant causes
its general contractor to name Tenant as an insured under any commercial general
liability insurance, Tenant shall also cause its general contractor also so to
name Landlord.
14.2 Policy Provisions
All insurance maintained by Tenant pursuant to Section 14.1(a)
shall: (a) except for any workers' compensation insurance and employers'
liability insurance, name as insureds, as their respective interests may appear,
Landlord and Tenant and any Superior Mortgagee who shall have executed and
delivered a Non-Disturbance Agreement; (b) include a stipulation that premiums
will be paid by and are the responsibility of Tenant; (c) except for any
comprehensive general liability, worker's compensation insurance or employer's
liability insurance, provide that no act or omission of Tenant shall impair or
affect the rights of the insureds to receive and collect the proceeds under the
relevant policy; and (d) provide that no cancellation, reduction in amount or
material change in coverage thereof shall be effective until at least 30 days
after receipt by Landlord of written notice thereof. Tenant shall have the sole
authority to settle claims under insurance policies; provided, that in case of
any damage or destruction affording Tenant the right to terminate this Lease
pursuant to Section 15.4(a), Tenant may not settle all or any of the claims
under the policies referred to in clauses (i), (ii), (iv) or (vi) of Section
14.1(a) arising from any damage or destruction unless it shall waive such right
with respect to such damage or destruction. Tenant may obtain any of the
insurance required hereby under blanket or umbrella policies; provided, that any
such policy of insurance provided for under clauses (i), (ii), (iv) or (vi) of
Section 14.1(a): (i) shall permit recovery in the amount required by the clause
in question to be carried without regard to other insured events with respect to
other properties, and (ii) shall not contain any clause which would result in
the insured thereunder being required to carry insurance with respect to the
property covered thereby in an amount equal to a minimum specific percentage of
the full insurable value of such property in order to prevent the insured
therein named from becoming a co-insurer of any loss with the insurer under such
policy.
Tenant shall also cause the members, partners or shareholders of
Landlord whose names shall have been furnished to Tenant and, so long as The
Witkoff Group LLC is an affiliate of Landlord, The Witkoff Group LLC as
additional named insureds under the insurance required to be maintained by
Tenant under clause (iii) of Section 14.1(a).
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14.3 Delivery of Insurance Certificates; Payment of Premium
On the date hereof and not less than 7 days prior to each policy
expiration Tenant shall deliver to Landlord certificates of all insurance
policies required by this Lease to be maintained. Tenant shall pay all premiums
on each such insurance policy within the time required under such policy and
furnish Landlord with evidence of payment thereof within 10 Business Days after
payment.
14.4 No Limitation of Damages
Landlord shall not be limited in the proof of any damages which
Landlord may claim against Tenant arising out of or by reason of Tenant's
failure during the Term (or thereafter in case of insurance required to be
provided under Section 15.4(k)) to provide and keep in force the insurance
required under this Lease to the amount of the insurance premium or premiums not
paid or incurred by Tenant and which would have been payable upon such
insurance, but Landlord shall also be entitled to recover as damages for such
breach the uninsured amount of any loss to the extent of any deficiency between
the insurance required by the provisions of this Lease and the insurance carried
by Tenant, together with all costs and expenses incurred by Landlord which
Landlord would not have incurred if the required insurance had been maintained
by Tenant. However, any such damages so recovered by Landlord shall be subject
to and limited by the provisions of Article 25.
15. Damage to or Destruction of Property
15.1 Waiver of ss. 227; Tenant to Give Notice
Tenant hereby waives the provisions of Article 227 of the Real
Property Law and confirms that the provisions of this Article 15 shall govern
and control in lieu thereof. In case of any damage to or destruction of the
Leased Premises or any part thereof, if, in Tenant's reasonable opinion, the
cost to repair or rebuild the same will exceed $1,000,000, Tenant shall promptly
give notice thereof to Landlord, generally describing the nature and extent of
such damage or destruction.
15.2 Restoration
In case of any damage to or destruction of the Leased Premises or
any part thereof, this Lease shall continue in full force and effect without
abatement of any Basic Rent, Supplemental Rent or other amounts payable by
Tenant hereunder. Tenant, whether or not the insurance proceeds, if any, on
account of such damage or destruction shall be sufficient for the purpose, shall
(subject to the applicable provisions of Article 6 and Section 15.4(c))
promptly commence and proceed with due diligence to complete the restoration,
replacement or rebuilding of the Leased Premises (which may include demolition
of the remaining portions of the Leased Premises prior to rebuilding) as nearly
as possible to its condition immediately prior to such damage or destruction
with such Voluntary Alterations as Tenant shall (subject to the applicable
provisions of Article 6) elect (such restoration, replacement and rebuilding,
together with any
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temporary repairs and protection pending completion of the work, being herein
called "Restoration").
15.3 Application of Insurance Proceeds
(a) Promptly after the occurrence of any damage to or destruction of
the Leased Premises or any part thereof the insurance proceeds with respect to
which are expected by Tenant to exceed the Significant Proceeds Amount, Tenant
by notice to Landlord and the institution appointed, shall appoint a depositary
of the insurance proceeds under this Section 15.3 (the "Depositary"). Without
limiting the foregoing, Tenant may appoint a Depositary at any other time. The
Depositary shall be a bank or trust company having an office in the Borough of
Manhattan and a combined shareholders equity of at least $200 million. Funds
held by the Depositary shall be invested by the Depositary, upon the
instructions of Tenant, in Permitted Investments.
(b) All insurance proceeds on account of any damage to or
destruction of the Leased Premises or any part thereof shall be payable as
follows:
(i) to Tenant, to the extent that such proceeds are
equal to or less than the Significant Proceeds Amount, and
(ii) to the Depositary, to the extent that such proceeds
are in excess of the Significant Proceeds Amount;
provided, that if an Event of Default shall have occurred and be continuing, the
amounts paid or payable to Tenant in accordance with the foregoing clause (i)
shall be paid to the Depository and shall (without the necessity of Tenant's
compliance with the provisions of Article 17) be returned (together with the
interest thereon) to Tenant only upon the curing of such Event of Default, but
less the portion, if any, applied and disbursed by the Depositary in accordance
with the provisions of Article 17.
15.4 Termination in Lieu of Restoration
(a) If:
(i) (x) after September 30, 2004 the Leased Premises shall be so
damaged or destroyed that the Costs of Restoration shall
exceed the product of $10,000,000 multiplied by a fraction
whose numerator is the Index for the month which is three
months prior to the month in which the damage or destruction
occurred and whose denominator is the Index for April, 1997,
and (y) on the date of such damage or destruction Tenant's
right to terminate this Lease as of June 30, 2008 shall not
have lapsed without exercise,
(ii) (x) after September 30, 2009 the Leased Premises shall be so
damaged or destroyed that the Costs of Restoration shall
exceed the
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product of $10,000,000 multiplied by a fraction whose
numerator is the Index for the month which is three months
prior to the month in which the damage or destruction occurred
and whose denominator is the Index for April, 1997, and (y) on
the date of such damage or destruction Tenant's right to
terminate this Lease as of June 30, 2013 shall not have lapsed
without exercise,
(iii) after September 30, 2014 the Leased Premises shall be so
damaged or destroyed that the Costs of Restoration shall
exceed the product of $10,000,000 multiplied by a fraction
whose numerator is the Index for the month which is three
months prior to the month in which the damage or destruction
occurred and whose denominator is the Index for April, 1997,
or
(iv) at any time the Leased Premises shall be so damaged or
destroyed that 50% or more of the useable area thereof cannot,
with the exercise by Tenant of all due diligence, be rendered
tenantable and fit for the normal conduct of business within
90 days after the date of the damage or destruction (the
condition described in this clause (iv) being called "50%
Untenantability"),
then (subject to the further provisions of this Section 15.4) Tenant may, by
notice (the "Damage Termination Notice") to Landlord given within the 180-day
period (the "Election Period") following the date (the "Damage Date") of damage
or destruction, elect to terminate this Lease as of a date specified in the
Damage Termination Notice (the "Specified Damage Termination Date"), which
Specified Damage Termination Date shall be no earlier than 20 days after the
giving of such Damage Termination Notice and no later than one year after the
giving of such Damage Termination Notice.
(b) If Tenant shall timely give the Damage Termination Notice then,
subject to Section 15.4(i), this Lease shall terminate on the Specified Damage
Termination Date; provided, that if on or prior to the date which is 15 days
after the giving of such Damage Termination Notice Landlord shall by notice to
Tenant dispute Tenant's right to terminate this Lease pursuant to Section
15.4(a), the matter shall be determined by the Appropriate Engineer and (i) if
the Appropriate Engineer's determination is in Landlord's favor, then this Lease
shall continue in full force and effect or (ii) if the Appropriate Engineer's
determination is in Tenant's favor, then, subject to Section 15.4(i), this Lease
shall terminate effective as of the Specified Damage Termination Date. At any
time at the request of Landlord or Tenant, the Appropriate Engineer shall make a
determination as to whether Tenant has the right to terminate this Lease
pursuant to this Section 15.4.
(c) At all times prior to the giving of the Damage Termination
Notice, Tenant shall prosecute the Restoration with all due diligence and in
accordance with the Plans and Specifications therefor (as approved by Landlord
or as determined by the Appropriate Engineer to have been required to be
approved by Landlord pursuant to this Lease); provided, that unless
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(i) Tenant waives in writing Tenant's termination right under this
Section 15.4 with respect thereto, or
(ii) Tenant does not give the Damage Termination Notice on or prior
to the end of the applicable Election Period,
Tenant shall not be obligated to (i) expend more than the Significant Proceeds
Amount with respect to the Restoration of such damage or destruction, or (ii)
expend any Costs which are not Qualified Restoration Costs. The term "Qualified
Restoration Costs" shall mean Costs of any Restoration to the extent undertaken
to (i) secure or prevent further damage to the Leased Premises and/or (ii)
effect Restoration of Building systems but only to the extent the same are not
located in any area designed for tenant occupancy.
(d) Simultaneously with the giving of the Damage Termination Notice,
Tenant shall:
(i) assign to Landlord (by instruments reasonably satisfactory to
Landlord) all of Tenant's right, title and interest in and to
the Plans and Specifications (if any) for the Restoration;
(ii) assign to Landlord (by instruments reasonably satisfactory to
Landlord) all of Tenant's right, title and interest in and to
that portion (if any) of the proceeds of Tenant's Property
Insurance which has not yet been received by Tenant from the
insurer (provided, that if and when Landlord receives such
portion of the proceeds of Tenant's Property Insurance from
the insurer, Landlord shall, within 10 Business Days after
receipt of a request therefor from Tenant, pay to Tenant an
amount equal to the lesser of (x) such portion of the proceeds
of Tenant's Property Insurance received by Landlord from the
insurer or (y) the amount, if any, by which the aggregate
amount expended by Tenant for Qualified Restoration Costs in
connection with the Restoration on or prior to the date of the
Damage Termination Notice exceeds the sum of (l) the portion
of the proceeds of Tenant's Property Insurance (if any)
received by Tenant from the insurer on or prior to the date of
the Damage Termination Notice and (2) the Deductible Amount
under the insurance policy required to be maintained by Tenant
under Section 14.1(a));
(iii) pay to Landlord, in immediately available funds, an amount
(the "Damage Payment") equal to the sum of the positive
remainder, if any, obtained by subtracting the aggregate
amount theretofore expended by Tenant for Qualified
Restoration Costs in connection with the Restoration from the
sum of (A) that portion (if any) of the proceeds of Tenant's
Property Insurance which Tenant received from the insurer on
or prior to the date of the Damage Termination Notice plus (B)
the Deductible Amount under the insurance policy required to
be maintained by Tenant under Section 14.1(a) (the computation
of the payment under
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this clause (iii) shall not be affected by any amount of
proceeds of Tenant's Property Insurance that Tenant may have
spent on other than Qualified Restoration Costs) ; and
(iv) if the insurance policy required to be maintained by Tenant
under Section 14.1(a) was for less than the full replacement
cost most recently determined pursuant to said Section,
deposit with the Depositary, in immediately available funds,
an amount equal to the excess of (x) the amount which would
have been recoverable from the insurer if such policy had been
for the full replacement cost most recently determined
pursuant to said Section over (y) the amount which is
recoverable from the insurer under such policy on account of
the damage or destruction.
If the insurer under the insurance policy required to be maintained
by Tenant under Section 14.1(a) shall pay to Tenant any amount which is required
by Section 15.3 to be paid to the Depositary, Tenant shall immediately deposit
such amount with the Depositary.
(e) Subject to Section 15.4(f), during the period commencing on the
date of the Damage Termination Notice and ending on the Specified Damage
Termination Date, Landlord shall have full control over the Restoration and may
use the Damage Payment and the amounts on deposit with the Depositary to defray
the costs of the Restoration. Landlord and Tenant shall reasonably cooperate
with one another to effectuate the Restoration in an efficient manner, and
during the Restoration Landlord shall use reasonable efforts to minimize
interference with Tenant's use of the undamaged portion (if any) of the Leased
Premises. Landlord shall not be liable to Tenant for any matter relating to or
arising out of the Restoration unless due to Landlord's gross negligence or
willful misfeasance; provided, that Landlord shall retain reputable contractors
who carry reasonable and customary public liability insurance.
(f) If following the giving of the Damage Termination Notice,
Landlord shall timely dispute Tenant's right to terminate this Lease pursuant to
Section 15.4(a) and the Appropriate Engineer shall determine that Tenant had no
right to terminate this Lease pursuant to Section 15.4(a), then:
(i) Tenant shall thereupon assume full control of the Restoration
and shall prosecute the same with all due diligence to
completion in accordance with the requirements of this Lease;
and
(ii) within 10 Business Days after the Appropriate Engineer's
determination, Landlord shall (x) reassign to Tenant that
which was assigned to Landlord pursuant to Section 15.4(d)(i)
and (ii) and (y) pay to Tenant in immediately available funds
an amount equal to the positive remainder, if any, obtained by
subtracting the aggregate amount theretofore expended by
Landlord in connection with the Restoration (exclusive,
however, of any amount disbursed to Landlord by the
Depositary) from the sum of (a) the amount, if any, received
by Landlord from the insurer by reason of the assignment
referred to in Section
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15.4(d)(ii) (exclusive, however, of any portion of such amount
paid by Landlord to Tenant pursuant to Section 15.4(d)(ii)),
and (b) the Damage Payment.
(g) Prior to the termination of this Lease pursuant to this Section
15.4 there shall be no abatement of the Basic Rent, Supplemental Rent or any
other sum payable by Tenant hereunder. Basic Rent, Supplemental Rent and Tax
Payments due hereunder shall be payable through and apportioned as of the
Specified Damage Termination Date, and (except as provided in Section 32(b) with
respect to any holdover) Tenant shall have no liability for Basic Rent,
Supplemental Rent or Tax Payments which would otherwise have been payable after
the Specified Damage Termination Date.
(h) If this Lease is terminated pursuant to this Section 15.4, then,
in addition to all amounts payable under Section 15.4(d), Tenant shall pay to
Landlord, on or before the Specified Damage Termination Date, a cancellation
payment (the "Damage Cancellation Payment") equal to the sum of
(i) the Basic Rent and the Tax Payments that would be payable for
the period commencing on the Specified Damage Termination Date
and ending on the earlier of (x) the date six months after the
Specified Damage Termination Date, or (y) (i) if the damage or
destruction shall have occurred on or before the end of the
Second Rent Period and Tenant shall have timely exercised
Tenant's option to terminate the Lease as of June 30, 2008,
the last day of the Second Rent Period, (ii) if the damage or
destruction shall have occurred during the Third Rent Period
and Tenant shall have timely exercised Tenant's option to
terminate the Lease as of June 30, 2013, the last day of the
Third Rent Period, or (iii) if the damage or destruction shall
have occurred during the Fourth Rent Period, the last day of
the Fourth Rent Period, plus
(ii) if the Specified Damage Termination Date shall occur prior to
June 1, 2008, the sum of (x) the amount of the Unamortized
Fit-Out Work Investment as of the Specified Damage Termination
Date, (y) if the Specified Damage Termination Date shall be
other than the first day of a month, interest at the Fit-Out
Work Interest Rate on such Unamortized Fit-Out Work Investment
from the first day of the month in which the Specified Damage
Termination Date shall occur to the Specified Damage
Termination Date, and (z) the Notional Make-Whole Amount as of
the Specified Damage Termination Date
provided, that (a) Tenant shall be entitled to a credit against the amount
required to be paid pursuant to clause (i) above equal to all Basic Rent and Tax
Payments previously paid, if any, which is attributable to the period after the
Specified Damage Termination Date, and (b) if under Section 15.4(b) Landlord
shall timely dispute Tenant's right so to terminate this Lease, then Tenant
shall not be required to make the Damage Cancellation Payment unless the
Appropriate
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Engineer's determination is in Tenant's favor. In any case under clause (b) of
the preceding sentence, the Damage Cancellation Payment shall be due within 5
days after the determination.
(i) It shall be a condition to the effectiveness of the Damage
Termination Notice and the termination of this Lease pursuant to this Section
15.4, that on or before the Specified Damage Termination Date Tenant pays either
(1) all amounts required to be paid by Tenant under Section 15.4(d) and Section
15.4(h), or (2) all amounts which Tenant believes in good faith are required to
be paid by Tenant under Section 15.4(d) and Section 15.4(h). Any dispute with
respect to the determination of any amount required to be paid by Tenant under
Section 15.4(d) shall be resolved by arbitration and any dispute with respect to
the determination of any amount required to be paid by Tenant under Section
15.4(h) shall be resolved by Expedited Arbitration. If in such arbitration or
Expedited Arbitration it is determined that Tenant underpaid, Tenant shall pay
the amount of the underpayment to Landlord within 5 days after the such
determination, together with interest thereon at the Prime Rate from the
Specified Damage Termination Date until paid by Tenant. If in such arbitration
or Expedited Arbitration it is determined that Tenant overpaid, Landlord shall
pay the amount of the overpayment to Tenant within 5 days after such
determination, together with interest thereon at the Prime Rate from the
Specified Damage Termination Date until paid by Landlord.
(j) If by reason of the termination of this Lease pursuant to
Section 15.4 or Tenant's failure to effect Restoration by reason of Tenant's
having so terminated this Lease
(p) the insurer under the insurance policy required to
be maintained by Tenant under clauses (i) and (ii) of
Section 14.1(a) is released under the terms of the
policy from its obligation to make payment on account of
the loss arising out of such damage or destruction, or
(q) the amount which under the terms of the policy such
insurer is required to pay on account of the loss
arising out of such damage or destruction is less than
the amount which under the terms of the policy such
insurer would have been required to pay if this Lease
had not been terminated and Tenant had effected such
restoration as Landlord, within the time period provided
by the policy, actually commits to such insurer to
effect (such lesser amount being herein called the
"Reduced Proceeds Amount"),
then Tenant shall, within 30 days after Landlord's demand,
(x) in the case of (p) above, pay to Landlord the amount
which under the terms of the policy such insurer would
have been required to pay on account of the loss arising
out of such damage or destruction if this Lease had not
been terminated and Tenant had effected such restoration
as
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Landlord, within the time period provided by the policy,
actually commits to such insurer to effect (the "Full
Proceeds Amount"), or
(y) in the case of (q) above, pay to Landlord the excess
of the Full Proceeds Amount over the Reduced Proceeds
Amount.
Together with the assignment delivered under Section l5.4(d) (ii),
Tenant shall furnish Landlord with a notice, in block capital letters, of the
period provided by the policy within which Tenant must make its restoration
commitment to the insurer.
Landlord, at Tenant's expense, shall prosecute all insurance claims
the proceeds of which have been assigned to Landlord under Section 15.4(d)(ii)
diligently and in accordance with the terms of the applicable policies and,
notwithstanding the provisions of Section 14.2 to the contrary, Landlord shall
have the sole right to settle such claims.
(k) If Tenant shall terminate this Lease pursuant to this Section
15.4, Tenant shall maintain in effect the insurance required by clauses (i) and
(ii) of Sections 14.1(a) ("Post-Termination Insurance") until the earliest of
(1) the later of (a) the end of Tenant's then current policy
period, or (b) the date two years after the Specified
Damage Termination Date,
(2) the date on which Landlord receives the proceeds of the
insurance required to be maintained by Tenant under
clauses (i) and (ii) of Section 14.1(a) with respect to
the damage or destruction giving rise to such
termination (including any amounts payable under Section
15.4(j)), or
(3) the date on which Landlord commences restoration of such
damage or destruction (other than protective work or
demolition).
All of the provisions of Article 14, in so far as they relate to the insurance
required by clauses (i) and (ii) of Sections 14.1(a), shall be applicable to
such Post-Termination Insurance, except that (a) Landlord shall be solely
entitled to all proceeds of such Post-Termination Insurance arising out of any
casualty occurring after the Specified Damage Termination Date, and (b)
Landlord, at its expense, shall prosecute all insurance claims to the proceeds
of which it is so entitled diligently and in accordance with the terms of the
applicable policies and, notwithstanding the provisions of Section 14.2 to the
contrary, Landlord shall have the sole right to settle such claims. At
Landlord's request, Tenant shall join in the execution of any documents
reasonably required by the insurer to be executed by Tenant in connection with
such claims. If Tenant shall fail, within 10 Business Days of Landlord's request
to execute any such document, Landlord is hereby appointed Tenant's
attorney-in-fact to do so.
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On or before the Specified Damage Termination Date, Tenant shall
furnish Landlord with a certificate of the insurance required by this Section
15.4(k) showing as the expiration date thereof the end of Tenant's then current
policy period. So long as Tenant is required by this Section 15.4(k) to maintain
insurance, Tenant shall, no later than 7 days prior to the end of each of
Tenant's policy periods, furnish Landlord with a certificate of the insurance
required by this Section 15.4(k) showing as the expiration date thereof the end
of Tenant's next policy period or, if such next policy period will end after two
years after the Specified Damage Termination Date, two years after the Specified
Damage Termination Date. No certificate delivered pursuant to this paragraph
shall be effective to extend the date through which Tenant is required by this
Section 15.4(j) to maintain insurance. If at any time Tenant does not maintain
the insurance required by this Section 15.4(k) to be maintained by it, Landlord,
after 2 Business Days notice to Tenant, may purchase insurance providing the
same coverage, and if Landlord does so Tenant shall reimburse Landlord on demand
for all of the costs incurred by Landlord in maintaining such insurance.
(l) If this Lease is terminated pursuant to this Section 15.4 on or
prior to June 1, 2008, Tenant shall also reimburse Landlord, within 10 days of
Landlord's demand, any document preparation fee, recording fee, attendance fee
or similar fee charged by any of Landlord's lenders, not exceeding $10,000 in
the aggregate for all lenders, by reason of Landlord applying the sum received
under Section 15.4(h)(ii) to prepayment of any of Landlord's mortgage debt due
to such lender.
16. Taking of Property
16.1 Notice
Landlord and Tenant shall each notify the other if it becomes aware
of a Taking, or the commencement of any proceedings or negotiations which might
result in a Taking.
16.2 Total Taking
In case of a Total Taking, this Lease shall terminate on the date of
such Taking. For purposes of the preceding sentence, a Taking shall be deemed a
"Total Taking" if all of the Leased Premises are taken or if, in Tenant's
reasonable opinion, the remainder of the Leased Premises that is not taken is
not reasonably susceptible to use by Tenant for the conduct of its business. In
the event of a dispute as to whether a Taking constitutes a Total Taking, the
matter shall be determined by Expedited Arbitration and (a) if the arbitrator
determines that the Taking in question is not a Total Taking the Taking in
question shall be deemed a Partial Taking or (b) if the arbitrator determines
that the Taking in question is a Total Taking this Lease shall terminate on the
later of the date of the determination or the date of such Taking. Basic Rent,
Supplemental Rent and Tax Payments due hereunder shall be payable through and
apportioned as of the date of termination, and (except as provided in Section
32(b) with respect to any holdover) Tenant shall have no liability for Basic
Rent, Supplemental Rent or Tax Payments which would otherwise have been payable
after the date of termination. Within 10 Business Days after termination of the
Lease in accordance with this Section 16.2, Landlord shall return to Tenant all
Basic Rent
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and Tax Payments previously paid, if any, which is attributable to the period
after such termination.
If this Lease shall terminate pursuant to this Section 16.2 on or
prior to June 1 2008, Tenant shall pay to Landlord an amount equal to the sum of
(x) the Unamortized Fit-Out Work Investment as of the date of termination, (y)
if the date of termination shall be other than the first day of a month,
interest at the Fit-Out Work Interest Rate on such Unamortized Fit-Out Work
Investment from the first day of the month in which the date of termination
shall occur to the date of termination, and (z) the Notional Make Whole Amount
as of the date of termination. In such a case, Tenant shall also reimburse
Landlord, within 10 days of Landlord's demand, any document preparation fee,
recording fee, attendance fee or similar fee charged by any of Landlord's
lenders, not exceeding $10,000 in the aggregate for all lenders, by reason of
Landlord applying the sum received pursuant to this paragraph to prepayment of
any of Landlord's mortgage debt due to such lender.
Any claim for compensation resulting from a Total Taking may be
settled by Landlord without Tenant's consent. Notwithstanding the foregoing, in
case of any Total Taking in respect of which Tenant will be required to make any
payment pursuant to the preceding paragraph (i) Tenant shall be entitled, at
Tenant's expense, to participate in the prosecution of such claim, and (ii) the
same shall not be settled without Tenant's consent unless the amount of such
settlement is sufficient to pay in full the Tenant's Total Taking Amount in
respect of such Total Taking.
16.3 Partial Taking
In case of a Taking other than a Total Taking (a "Partial Taking")
(a) this Lease shall remain in full force and effect; provided, that on the date
of such Taking this Lease shall terminate as to the portion of the Leased
Premises taken (which portion shall be deemed excluded from the Leased Premises)
and if the portion of the Leased Premises that was taken shall include any area
designed for tenant occupancy, the Basic Rent shall be reduced by multiplying
the same by a fraction, the numerator of which is the rentable square footage of
the portion of the Leased Premises that was taken and the denominator of which
is the rentable square footage of the Leased Premises prior to the Taking (the
"Taking Fraction") and (b) Tenant, whether or not the awards or payments, if
any, on account of such Taking shall be sufficient for the purpose shall
promptly commence Restoration of the Leased Premises (exclusive of the taken
portion) and thereafter diligently prosecute the same to completion in
accordance with the Plans and Specifications therefor (as approved by Landlord
or as determined by the Appropriate Engineer to be required to have been
approved by Landlord pursuant to this Lease). Notwithstanding any Partial
Taking, the Supplemental Rent shall not be reduced or otherwise abated.
Any claim for compensation resulting from a Partial Taking may be
settled by Landlord without Tenant's consent; provided, that if the portion
thereof awarded for Restoration is less than the estimated cost of such
Restoration then Tenant shall have a right to approve any such settlement, such
approval not to be unreasonably withheld, and if the portion of the Leased
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Premises that was taken shall include any Fit-Out Work, then Tenant shall have
the right to participate, at Tenant's expense, in the prosecution of such claim
and the right to approve any such settlement, such approval not to be
unreasonably withheld. Any dispute under the preceding sentence should be
resolved by the Appropriate Engineer.
16.4 Application of Award
(a) In the event of a Total Taking, the award for such Taking,
including interest, if any, paid by the condemning authority through the date of
payment of such award (the "Condemnation Proceeds"), shall be paid as follows:
(i) Landlord shall first be entitled to receive such
portion of the Condemnation Proceeds as shall
equal the Notional Main Loan Outstanding Balance
on the date of the Total Taking, plus interest
thereon at the Main Interest Rate from the date of
the Total Taking through the day of payment of
such amount to Landlord;
(ii) subject to Section 16.4(e), Tenant shall next be
entitled to receive such portion of the
Condemnation Proceeds as shall equal the amount
payable by Tenant pursuant to Section 16.2 by
reason of such Total Taking, if any, plus interest
thereon at the Fit-Out Work Interest Rate from the
date of such payment by Tenant through the day of
payment of such amount to Tenant (the amount so
payable by Tenant, plus such interest, is herein
called "Tenant's Total Taking Amount"); and
(iii) Landlord shall be entitled to receive the balance
of such Condemnation Proceeds.
(b) In the event of a Partial Taking, the Condemnation Proceeds
shall be paid as follows:
(i) Tenant shall first be entitled to receive such
portion of the Condemnation Proceeds as shall be
awarded for Restoration, plus interest thereon (if
paid by the condemning authority) at the rate paid
by the condemning authority from the date of the
Partial Taking through the day of payment of such
amount to the Depositary (and the amount referred
to in this clause (i) shall be paid to the
Depositary for disbursement in accordance with
Article 17); and
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(ii) (A) If the portion of the Leased Premises that was
taken does not include any Fit-Out Work, then
Landlord shall be entitled to the entire balance
of such award; or (B) if the portion of the Leased
Premises that was taken does include any Fit-Out
Work, then the balance of such award exclusive of
any interest thereon paid by the condemning
authority (the "balance to be apportioned") shall
be apportioned between Landlord and Tenant such
that (x) Landlord shall be entitled to receive all
of the balance to be apportioned exclusive of the
portion thereof allocable to the Fit-Out Work that
was so taken, and (y) Tenant shall be entitled to
receive the portion of the balance to be
apportioned allocable to the Fit Out Work, and (z)
all interest shall be apportioned in the same
proportions.
(c) If the order or decree in any condemnation or similar
proceeding shall fail separately to state the amount of the compensation for
Restoration and/or the apportionment of the Condemnation Proceeds pursuant to
Section 16.4(a) or (b), and if Landlord and Tenant cannot agree thereon within
30 days after the final award or awards shall have been fixed and determined,
the dispute shall be determined by arbitration.
(d) Nothing in this Lease shall preclude Tenant from claiming
or receiving from the condemning authority any compensation to which Tenant may
otherwise lawfully be entitled in respect of Tenant's furniture, furnishings,
trade fixtures or business equipment furnished, installed or placed in the
Improvements by Tenant at Tenant's sole cost and expense or for moving to a new
location or for interruption of, or damage to, Tenant's business; provided, that
any award made is separate to Tenant and not part of damages recoverable by
Landlord.
(e) Notwithstanding the provisions of Section 16.4(a), if and
to the extent that on the date of the payment by the condemning authority of the
Condemnation Proceeds with respect to any Total Taking Tenant shall not have
paid the amount payable by Tenant pursuant to Section 16.2 by reason of such
Total Taking, the amount which would otherwise be paid to Tenant under clause
(ii) of Section 16.4 shall be paid to Landlord and shall be a credit against
Tenant's obligation under the second paragraph of Section 16.2
16.5 Temporary Taking
Sections 16.2 through 16.4 to the contrary notwithstanding, the
provisions of this Section 16.5 shall govern any Taking for temporary use. In
the case of any Taking for temporary use, this Lease shall remain in effect as
to the Leased Premises (including the portion taken) and there shall be no
reduction in Basic Rent or (unless otherwise legally required) other change in
the obligations of Tenant hereunder. If the term of the temporary Taking shall
not extend (a) beyond the next Termination Date in respect of which Tenant has
or may then exercise a
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Termination Option (the "Next Available Termination Date"), or (b) if Tenant has
not exercised any Termination Option and no longer has available any Termination
Options, beyond the Expiration Date, then in either such case the entire award
shall be payable to Tenant and Tenant shall make Restoration of the Leased
Premises in accordance with the requirements of this Lease. If the term of the
temporary Taking shall extend (i) beyond the Next Available Termination Date, or
(ii) if Tenant has not exercised any Termination Option and no longer has
available any Termination Options, beyond the Expiration Date, then in either
such case Tenant need not make Restoration, the portion of the award applicable
to the Restoration shall be paid to Landlord and the balance of the award shall
be apportioned between Landlord and Tenant as of such Next Available Termination
Date or the Expiration Date (as the case may be) by the condemning authority or,
if the condemning authority fails to act, by arbitration; provided, that if
pursuant to the foregoing provisions of this sentence, such balance is
apportioned as of a Next Available Termination Date with respect to which Tenant
has not exercised its Termination Option and Tenant shall not thereafter
exercise such Termination Option then, in each case, such balance (together with
interest thereon at the Prime Rate from the date such award was originally paid
to and including the date such reapportioned award is payable) shall be
reapportioned between Landlord and Tenant as of the next succeeding Termination
Date.
17. Disbursement of Deposited Sums
(a) Subject to the provisions of this Article 17 the Depositary
shall, from time to time as any Restoration proceeds and within 10 Business Days
after receipt of Tenant's request therefor (but in no event more frequently than
once during any 30-day period), make disbursements (collectively, "Restoration
Advances") to Tenant from the funds deposited with the Depositary pursuant to
Sections 15.3(b), 15.4(d)(iii) or 16.4(b)(i) (collectively, the "Deposited
Sums") for application to the Costs of the Restoration in question.
Simultaneously with the delivery of each such request to the Depositary, Tenant
shall give notice thereof to Landlord (which notice shall be accompanied by
copies of such request and all other papers delivered to the Depositary).
(b) No Restoration Advance shall be made on account of any fire or
other casualty until Tenant shall have delivered evidence reasonably
satisfactory to Landlord that an aggregate amount at least equal to the
Significant Proceeds Amount has been expended for Costs in connection with the
Restoration, and Restoration Advances on account of any fire or other casualty
shall be made only for amounts paid or payable by Tenant for Costs which are in
excess of the Significant Proceeds Amount.
(c) No Restoration Advance (other than the final Restoration
Advance) in respect of any fire or other casualty or any Partial Taking shall be
due unless Tenant's request for such Restoration Advance shall be accompanied
by:
(i) a certificate of Tenant addressed to the Depositary and
Landlord (in form reasonably satisfactory to Landlord) stating that (A) the
amount of the Restoration Advance then requested has been paid or is then duly
payable by Tenant to Contractors (whose names and addresses and a description of
the work involved shall be stated), (B) the amount of
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the Restoration Advance then requested (when taken together with the aggregate
amount of all Restoration Advances theretofore made by the Depositary) exceeds
neither 90% of the Deposited Sums (together with interest on such amount) nor
the Installed Value of the Restoration work in question (Tenant's certificate to
set forth a calculation of the Installed Value), and (C) no part of cost of the
work described in any previous or then pending request for a Restoration Advance
has been or is being made the basis for the Restoration Advance then being
requested; and
(ii) a certificate of the architect or engineer who prepared
the related Plans and Specifications addressed to the Depositary and Landlord
(in form reasonably satisfactory to Landlord) stating in substance that (A) the
calculation of Installed Value as set forth in the certificate referred to in
the foregoing clause (i) is correct, (B) the work has been performed in a good
and workmanlike manner and in accordance with the Plans and Specifications (as
approved by Landlord or as determined by the Appropriate Engineer to have been
required to be approved by Landlord pursuant to this Lease) and (C) the
unadvanced portion of the Deposited Sums in question, together with any
additional amount to be available from the insurer, are at least equal to the
Costs of the Restoration which will remain unpaid after giving effect to the
Restoration Advance in question.
(d) No Restoration Advance (including the final Restoration Advance)
in respect of any fire or other casualty or any Partial Taking shall be due
unless:
(i) no certificate delivered to the Depositary or Landlord by
Tenant or by any architect or engineer in connection with the Restoration in
question shall have been materially incorrect at the time of delivery (Landlord
to give notice to Tenant within 10 Business Days after Landlord's receipt of the
certificate in question if Landlord contends that such certificate was
materially incorrect; any such dispute to be determined by the Appropriate
Engineer);
(ii) Landlord shall have received true copies of all bills
paid or payable by Tenant to Contractors which form the basis for the
Restoration Advance in question;
(iii) in the case of a Restoration Advance to be made on
account of a fire or other casualty, Tenant shall have waived its right to
terminate this Lease pursuant to Section 15.4(a) on account of such damage or
other casualty; and
(iv) no Event of Default shall have occurred and be
continuing.
(e) Neither any final Restoration Advance nor the release of any
remaining balance of Deposited Sums pursuant to Article 17(f) shall be made
unless:
(i) Tenant's request for such Restoration Advance or such
release shall be accompanied by (x) a certificate of Tenant addressed to the
Depositary and Landlord (in from reasonably satisfactory to Landlord) stating
that Tenant's best knowledge (after due inquiry) there shall (after giving
effect to such Restoration Advance or release) be no outstanding indebtedness
due for labor, materials, supplies, permits or services in any manner connected
with the Restoration which if unpaid might be the basis for any type of lien on
the Leased Premises, or
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any part thereof, and that (in the case of a request for a final Restoration
Advance) the amount requested has been paid or is then duly payable to
Contractors (whose names and addresses and a description of the work involved
shall be stated) and (y) a certificate of the architect or engineer who prepared
the related Plans and Specifications addressed to the Depositary and Landlord
(in form reasonably satisfactory to Landlord) stating that the Restoration work
has been fully completed in a good and workmanlike manner and in accordance with
the Plans and Specifications (as approved by Landlord or as determined by the
Appropriate Engineer to have been required to be approved by Landlord pursuant
to this Lease); and
(ii) the Depositary and Landlord shall have received (x) an
instrument in writing from any title company insuring Landlord's estate in the
Leased Premises certifying that there are no undischarged mechanics', laborers'
or materialmen's liens affecting any part of the Leased Premises (other than
liens, if any, in respect of which Landlord has consented to take security
pursuant to Article 13(a)(ii)) and (y) evidence reasonably satisfactory to
Landlord that Tenant has obtained waivers of mechanics', laborers' or
materialmen's liens or releases of such liens from all Contractors engaged in
the Restoration.
(f) Subject to Article 17(g), any balance of a Deposited Sum
(together with interest thereon) remaining with the Depositary upon the
completion of any Restoration on account of fire or other casualty or any
Partial Taking shall (i) in the case of fire or other casualty, be remitted to
Tenant promptly upon its request and (ii) in the case of a Partial Taking, be
remitted to Landlord promptly upon its request.
(g) Notwithstanding anything to the contrary contained in this
Lease, upon any early termination of this Lease (including, without limitation,
any early termination pursuant to Section 15.4(a)), the Depositary shall
forthwith remit to Landlord the balance of all Deposited Sums (together with
accrued interest thereon) held by the Depositary immediately prior to such
termination.
(h) Each Restoration Advance shall be made by the Depositary as soon
as reasonably practicable, but in no event later than the date which is 30 days
after Tenant shall have satisfied all of the applicable conditions to such
Restoration Advance specified in this Article 17.
18. Certificate as to No Default, etc.
Landlord and Tenant shall each deliver to the other within 10 days after
request, an Officer's Certificate stating (a) that this Lease is unmodified and
in full force and effect (or, if there have been modifications, that this Lease
is in full force and effect, as modified, and stating the modifications), (b)
the dates to which the Basic Rent, Supplemental Rent and Tax Payments have been
paid and that, to the best knowledge (after due inquiry) of the party giving
such certificate, no Event of Default has occurred and is continuing hereunder,
or, if any Event of Default has occurred and is continuing specifying the nature
and period of existence thereof, and (c) that, to the best knowledge (after due
inquiry) of the party giving such certificate, the other party has fulfilled all
of its obligations under this Lease or, if not, stating in what respects such
other party has failed to do so. Any Officer's Certificate may be relied upon by
any prospective
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purchaser or mortgagee of the Leased Premises or any part thereof or interest
therein or by any prospective assignee of this Lease or any prospective
subtenant.
19. Right of Landlord to Perform Tenant's Covenants, etc.
(a) If Tenant shall fail to make any payment or perform any act required
to be made or performed by Tenant hereunder, Landlord may (but shall be under no
obligation to) without waiving or releasing any obligation or default:
(i) in case of emergency, or reasonably foreseeable or actual
criminal liability,
(ii) if such failure is under Section 14.1(a), 14.2 or 14.4,
and if Landlord shall give notice to Tenant referring to this Section 19(a)
(ii) and specifying such failure and requiring it to be remedied and Tenant
shall not remedy such failure within 7 days after the giving of such notice,
(iii) if such failure is under Section 14.3, and if Landlord
shall give notice to Tenant referring to this Section 19(a)(iii) and specifying
such failure and requiring it to be remedied and Tenant shall not remedy such
failure within 4 days after the giving of such notice,
(iv) if such failure is under Article 12, and if Landlord
shall give notice to Tenant referring to this Section 19(a)(iii) and specifying
such failure and requiring it to be remedied and Tenant shall not remedy such
failure within 15 days after the giving of such notice; provided, that in case
such failure cannot with due diligence be remedied by Tenant within a period of
15 days, if Tenant proceeds as promptly as may be reasonably possible after the
receipt of such notice and with all due diligence to remedy such failure
thereafter to prosecute the remedying of such failure with all due diligence,
the period of time after the giving of such notice by Tenant within which to
remedy such failure shall be extended for such period as may be necessary to
remedy the same with all due diligence,
(v) if such failure is under Article 13, or
(vi) if such failure is under any provision of this Lease
other than Articles 12, 13 or 14, subject to the provisions of Section 19(b), if
Landlord shall give notice to Tenant referring to this Section 19(a)(vi) and
specifying such failure and requiring it to be remedied and Tenant shall not
remedy such failure within 30 days after the giving of such notice; provided,
that in case such failure cannot with due diligence be remedied by Tenant within
a period of 30 days, if Tenant proceeds as promptly as may be reasonably
possible after the giving of such notice and with all due diligence to remedy
such failure and thereafter to prosecute the remedying of such failure with all
due diligence, the period of time after the receipt of such notice by Tenant
within which to remedy such failure shall be extended for such period as may be
necessary to remedy the same with all due diligence,
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make such payment or perform such act for the account and at the expense of
Tenant, and may enter upon the Leased Premises or any part thereof for such
purpose and take all such action thereon as, in the opinion of Landlord, may be
necessary or appropriate therefor. All payments so made by Landlord and all
costs and expenses (including, without limitation, Costs and attorneys' fees and
expenses) incurred in connection therewith, together with interest thereon at
the Interest Rate, shall be paid by Tenant to Landlord within 10 days after
Tenant's receipt of Landlord's demand therefor referring to this Article 19 and
Section 22(c) accompanied by copies of all bills therefor.
(b) If within 15 days after the date on which Tenant receives notice
from Landlord under Section 19(a)(vi), Tenant shall commence an arbitration
seeking a determination that the matter referred to in Landlord's notice under
Section 19(a)(vi) does not constitute a failure to make a payment or perform an
act required to be made or performed hereunder, then (i) Landlord may not make
such payment or perform such act for the account and at the expense of Tenant
and may not enter upon the Leased Premises or any part thereof for such purpose
or take action thereon prior to the date upon which the determination in
arbitration is made (the "Determination Date") and (ii) if the action is
determined in a manner adverse to Tenant, the 30 day (or longer) period
referred to in Section 19(a)(vi) above shall be extended to the date 30 days
after the Determination Date (or for such longer period commencing on the
Determination Date as may reasonably be required in order to remedy the matters
in question with all due diligence).
20. Assignment; Subleases
(a) Tenant may, subject to the restrictions on the use of the Leased
Premises set forth in this Lease, sublet the Leased Premises or any part
thereof, or assign this Lease without the consent of Landlord; provided, that
(i) Tenant shall deliver to Landlord a fully executed counterpart of each such
sublease, assignment or other relevant instrument and any modification or
amendment of any of the foregoing promptly after execution thereof and shall
notify Landlord of any occupancy no later than the date on which such occupancy
is to be taken, (ii) no assignment, whether by operation of law, consolidation,
merger or otherwise, shall be made unless within 15 days thereafter the assignee
shall execute and deliver to Landlord an instrument assuming all the obligations
of Tenant under this Lease thereafter accruing, (iii) no sublease, assignment or
other transaction and no assumption, shall affect or reduce any of the
obligations of Tenant (including the original Tenant and each such assignee)
hereunder but this Lease and all the obligations of Tenant (including the
original Tenant and each such assignee) hereunder shall continue in full force
and effect as the obligations of a principal and not the obligations of a
guarantor or surety and (iv) each sublease, assignment or other instrument made
by Tenant after the date hereof shall be subject and subordinate to this Lease
and the terms and provisions hereof. Each sublease of all or any part of the
Leased Premises made by Tenant after the date hereof shall provide that if
Landlord shall terminate this Lease prior to the scheduled expiration date of
such sublease then, upon Landlord's request, the subtenant thereunder (and
anyone holding by, through or under such subtenant) shall attorn to Landlord
upon all of the terms, covenants and conditions of such sublease. As and for
security for the due and punctual payment and performance of its obligations
under this Lease, Tenant hereby assigns to Landlord all rents and other sums due
to Tenant under any sublease of all or any part of the Leased
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Premises; provided, that other than upon the occurrence of and during the
continuance of an Event of Default Tenant may (A) freely modify or terminate all
or any of the subleases or otherwise deal with all or any of the subtenants, (B)
collect rents when due, (C) permit and collect prepayments of rent and (D)
retain all such rents (paid when due or prepaid) and other sums free of any
claim or lien of Landlord. All amounts received by Landlord pursuant to the
preceding sentence shall be set-off against Tenant's obligations hereunder.
Tenant shall not mortgage, pledge or otherwise encumber this Lease or any
interest therein.
(b) The interest of Landlord in this Lease and/or in and to the
Leased Premises may, at any time, be sold, conveyed, assigned or otherwise
transferred, or mortgaged, pledged or otherwise encumbered, without the consent
of Tenant. Upon any conveyance of the Leased Premises and the assumption by the
new owner of the Leased Premises of the obligations of Landlord hereunder
thereafter accruing, the conveyor shall be completely relieved of and from any
and all obligations of Landlord hereunder thereafter accruing, and Tenant shall
thereupon look only to the new owner of the Leased Premises for the performance
of any obligations of Landlord hereunder thereafter accruing.
21. Vaults
Landlord shall have no responsibly for title to or any other aspect of
vaults and areas, if any, now or hereafter built extending beyond the boundary
line of the Land. Tenant may occupy and use the same during the Term, subject to
this Lease and any Legal Requirements. No revocation on the part of any
governmental department or authority of any license or permit to maintain and
use any such vault and areas shall in any way affect this Lease or the amount of
the rent or any other charge payable by Tenant hereunder. Tenant shall comply
with all such licenses and permits, and if any such license or permit shall be
revoked, Tenant shall do and perform all such work as may be necessary to comply
with any order revoking the same.
22. Events of Default; Termination
Each of the following shall constitute an Event of Default:
(a) if Tenant shall fail to pay any Basic Rent, Supplemental Rent,
Tax Payment or Cancellation Payment, when and as the same becomes due and
payable and such failure continues for a period of 7 days after notice from
Landlord of such failure referring to this Section 22(a), specifying such
failure and requiring it to be remedied is given to Tenant; or
(b) if, in any period of 12 consecutive months, (i) in two separate
instances, Tenant shall fail to pay any Basic Rent, Supplemental Rent or Tax
Payment when and as the same becomes due and payable and notice of such failure
has been given to Tenant under Section 22(a) and (ii) in a third or later
instance, Tenant shall fail to pay any Basic Rent, Supplemental Rent or Tax
Payment coming due when and as the same becomes due and payable;
(c) if Tenant shall fail to pay any sum due to Landlord under the
Initial Improvements Agreement or under this Lease other than any Basic Rent,
Supplemental Rent or Tax Payment when and as the same becomes due and payable
and such failure continues for a
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period of 30 days after notice from Landlord of such failure referring to this
Section 22(c), specifying such failure and requiring it to be remedied is given
to Tenant;
(d) if Tenant shall fail to pay any amount under Article 19 when
due; or
(e) if Tenant shall fail to perform or comply with any term of
Article 13 or 14 and such failure continues for a period of 15 days after notice
from Landlord of such failure referring to this Section 22(e), specifying such
failure and requiring it to be remedied is given to by Tenant; or
(f) if Tenant shall fail to perform or comply with any term of
Article 12, and such failure shall continue for more than 30 days after notice
from Landlord of such failure referring to this Section 22(f), specifying such
failure and requiring it to be remedied is given to Tenant; provided, that in
case such failure cannot with due diligence be remedied by Tenant within a
period of 30 days, if Tenant proceeds as promptly as may be reasonably possible
after the giving of such notice and with all due diligence to remedy such
failure and thereafter to prosecute the remedying of such failure with all due
diligence, the period of time after the receipt of such notice by Tenant within
which to remedy such failure shall be extended for such period as may be
necessary to remedy the same with all due diligence; or
(g) if Tenant shall fail to perform or comply with any term of this Lease or the
Initial Improvements Agreement (other than any failure referred to in a previous
subdivision of this Article 22), and such failure shall continue for more than
30 days after notice from Landlord of such failure referring to this Section
22(g), specifying such failure and requiring it to be remedied is given to
Tenant; provided, that in case such failure cannot with due diligence be
remedied by Tenant within a period of 30 days, if Tenant proceeds as promptly as
may be reasonably possible after the receipt of such notice and with all due
diligence to remedy such failure and thereafter to prosecute the remedying of
such failure with all due diligence, the period of time after the receipt of
such notice by Tenant within which to remedy such failure shall be extended for
such period as may be necessary to remedy the same with all due diligence;
provided further that, in the case of this Section 22(g) only, if Tenant within
15 days after the receipt of such notice of default shall dispute the existence
of such failure the matter shall be determined by arbitration and if it shall be
determined that such failure exists, the time within which Tenant shall have to
remedy the same shall run from the date of such determination; provided finally,
however, that if (i) by reason of such failure, any Superior Mortgagee shall
give notice of default under the Superior Mortgage held by it, and (ii) Landlord
shall so notify Tenant, then the immediately preceding proviso shall cease to be
effective with respect to such failure and the time within which Tenant shall
have to remedy the same shall run from the date of Landlord's notice under this
proviso.
This Lease and the term and estate hereby granted are subject to the
limitation that if an Event of Default shall occur then, in addition to any
other remedies available to Landlord at law or in equity, Landlord may at any
time during the continuance of such Event of Default give to Tenant a notice (a
"Lease Termination Notice") specifying a date, not less than five days after the
date of such notice, on which specified date this Lease shall terminate, and on
such date, subject
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to Article 25 relating to the survival of Tenant's obligations, this Lease and
the term and estate hereby granted shall expire and terminate by limitation and
all rights of Tenant under this Lease shall cease, but Tenant shall remain
liable for damages as provided herein or pursuant to law. All costs and expenses
incurred by or on behalf of Landlord (including, without limitation, attorneys'
fees and expenses) occasioned by any Event of Default by Tenant under this Lease
shall be payable by Tenant upon demand by Landlord (together with interest
thereon at the Interest Rate).
23. Repossession
If an Event of Default shall have occurred and be continuing, Landlord,
after termination of this Lease pursuant to Article 22, may enter upon and
repossess the Leased Premises or any part thereof by summary proceedings or
other legal proceedings and may remove Tenant and all other persons and any and
all property therefrom. Landlord shall be under no liability for or by reason of
such entry, repossession or removal.
24. Reletting
At any time or from time to time before or after the repossession of the
Leased Premises or any part thereof pursuant to Article 23, Landlord may (but
shall have no obligation to) relet the Leased Premises or any part thereof for
the account of Tenant, in the name of Tenant or Landlord or otherwise, without
notice to Tenant, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Term) and on
such conditions (which may include concessions or free rent) and for such uses
as Landlord, in its uncontrolled discretion may determine, and may collect and
receive the rents therefor. Landlord shall not be responsible or liable for any
failure to relet the Leased Premises or any part thereof or for any failure to
collect any rent due upon any such reletting.
25. Survival of Tenant's Obligations; Damages
25.1 Termination of Lease Not to Relieve Tenant of Obligations
No expiration or termination of the Term pursuant to Article 22 or
otherwise (other than a termination of this Lease under and in accordance with
Section 1.4, Article 15 or Article 16), and no repossession of the Leased
Premises or any part thereof pursuant to Article 23 or otherwise, shall relieve
Tenant of its liabilities and obligations accruing hereunder prior to such
expiration or termination, all of which shall survive such expiration,
termination or repossession. The term "Notional Expiration Date" shall refer to
(i) if prior to such expiration, termination or repossession
pursuant Articles 22 or 23 Tenant shall have exercised any
Termination Option, the Termination Date with respect thereto,
and
(ii) if prior to such expiration, termination or repossession
pursuant to Article 22 or 23 Tenant shall not have exercised
any Termination Option, the Termination Date with respect to
the earliest
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Termination Option which, as of the date of such expiration,
termination or repossession, had not lapsed without exercise
or been waived or, if all of the Termination Options shall
then have lapsed without exercise and/or been waived, the
Expiration Date,
provided, that, in case of any expiration, termination or repossession pursuant
to Articles 22 or 23 arising out of any Event of Default arising out of Tenant's
failure timely to pay the Cancellation Payment by reason of the exercise of a
Termination Option providing for the termination of this Lease as of September
30, 2004 or September 30, 2006, the Notional Expiration Date shall be deemed for
all purposes of this Lease (including without limitation Section 25.2(c) and
Section 25.3(b)) to be June 30, 2008. In case of any expiration, termination or
repossession pursuant to Articles 22 or 23 arising out of any Event of Default
arising out of Tenant's failure timely to pay the Cancellation Payment by reason
of the exercise of a Termination Option providing for the termination of this
Lease as of September 30, 2004, September 30, 2006 or June 30, 2008, Tenant
shall be entitled to a credit against the amounts payable by it under Section
25.2(b) and (c) and Section 25.3(b) equal to the amount of any payments made by
Tenant under Section 1.4.
Notwithstanding any provision of this Lease to the contrary (except as provided
in the next sentence), in case of any expiration or termination of the Term of
this Lease or repossession of the Leased Premises pursuant to Articles 22 or 23,
Tenant's liability in respect of any period after the Notional Expiration Date
shall be limited to that provided for in Section 25.2 and/or Section 25.3. The
preceding sentence shall not release Tenant from (i) any obligations under this
Lease with respect to any period after the Notional Expiration Date but prior to
Tenant's surrender to Landlord of vacant possession of the Leased Premises, or
(ii) any liability (other than for rent or on account of the non-payment
thereof) arising out of any act or omission in violation of this Lease committed
by Tenant or any party claiming by, through or under Tenant, or (iii) any
obligation which under Section 35(k) survives the termination or expiration of
this Lease.
25.2 Current Damages and Damages in Respect of Supplemental Rent
In the event of any such expiration, termination or repossession pursuant to
Articles 22 or 23, Tenant shall pay to Landlord
(a) (i) immediately upon such expiration, termination or
repossession, the Basic Rent, Supplemental Rent, Tax Payments and all other
sums required to be paid by Tenant pursuant to this Lease up to the time of such
expiration, termination or repossession, and (ii) thereafter Tenant, until the
Notional Expiration Date, and whether or not the Leased Premises or any part
thereof shall have been relet, shall be liable to Landlord for, and shall pay to
Landlord, as liquidated and agreed current damages for Tenant's default, (a) the
Basic Rent and Tax Payments and all other sums which would be payable under this
Lease by Tenant in the absence of such expiration, termination or repossession
(other than Supplemental Rent), plus (b) all reasonable expenses of Landlord in
connection with such expiration, termination and repossession and any reletting
effected for the account of Tenant pursuant to Article 24 (including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
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attorneys' fees, employees' expenses, alteration costs and expenses of preparing
for such reletting) less (c) the proceeds, if any, of such reletting. Tenant
shall pay such current damages monthly on the days on which the Basic Rent and
Tax Payments and other sums would have been payable under this Lease in the
absence of such expiration, termination or repossession, and Landlord shall be
entitled to recover the same from Tenant on each such day, plus
(b) immediately upon such expiration, termination or repossession,
if such expiration, termination or repossession shall occur on or prior to June
1, 2008, the sum of (i) the then present value, discounted at the Fit-Out Work
Interest Rate, of the Supplemental Rent which would be payable under this Lease
from the date of such expiration, termination or repossession for what would be
the then unexpired Term in the absence of such expiration, termination or
repossession, plus (ii) the Notional Make-Whole Amount as of the date of such
expiration, termination or repossession, plus (iii) any charges (other than
prepayment or make-whole charges) incurred by Landlord to any of Landlord's then
existing lenders by reason of such expiration, termination or repossession.
(c) upon the Notional Expiration Date, if the Notional Expiration
Date is September 30, 2004 or September 30, 2006, the sum of the Basic Rent and
Tax Payments that would be payable for the 6 month period following such
Notional Expiration Date.
25.3 Final Damages
At any time after any such expiration, termination or repossession,
whether or not Landlord shall have collected any current damages as aforesaid,
Landlord at its option shall be entitled to recover from Tenant and Tenant shall
pay to Landlord on demand, as and for liquidated and agreed final damages for
Tenant's default and in lieu of all damages under Section 25.2(a)(ii) and
Section 25.2(c) (but not in lieu of damages under Section 25.2(b) which shall be
payable in addition to the damages payable under this Section 25.3) beyond the
date of such demand, an amount equal to the sum of
(a) the excess, if any, of (i) the then present value
discounted at the Main Interest Rate in effect on the date of termination
of this Lease, of the Basic Rent, Tax Payments and all other sums
(exclusive of Supplemental Rent) which would be payable under this Lease
from the date of such demand (or, if it be earlier, the date to which
Tenant shall have satisfied in full its obligations under Section 25.2(a)
to pay current damages) to the Notional Expiration Date (such Tax Payments
during the First and Second Rent Periods to be determined pursuant to
Exhibit B attached hereto and during the Third Rent Period and Fourth Rent
Period to be computed based on the assumption that Taxes will increase by
three percent per annum (on a compounded basis) over the Taxes in effect
for the Tax Year last ended prior to such expiration, termination or
repossession), over (ii) the sum of (x) the then present value, discounted
at the Prime Rate in effect on the date of termination of this Lease, of
the then fair net rental value (i.e. the fixed rent that would be paid
assuming that Tenant pays all Taxes and operating expenses for the
Improvements) of the Leased Premises for the same period, and (y) the then
present value, discounted at the Prime Rate in effect of the date of
termination of this
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Lease, of the Taxes for the same period (such Taxes to be computed on the
basis of the assumption that Taxes will increase three percent per annum
(on a compounded basis) above the Taxes in effect for the Tax Year last
ended prior to such expiration, termination or repossession), plus
(b) if the Notional Expiration Date is September 30, 2004 or
September 30, 2006, the sum of the Basic Rent and Tax Payments that would
be payable for the 6 month period following such Notional Expiration Date.
If any statute or rule of law shall limit the amount of such liquidated final
damages to less than the amount above agreed upon, Landlord shall be entitled to
the maximum amount allowable under such statute or rule of law, but not in
excess of the amount provided by this Section 25.3.
26. No Waiver
No failure by Landlord or Tenant to insist upon the strict performance of
any term hereof or to exercise any right, power or remedy consequent upon a
breach thereof, and no payment or acceptance of full or partial rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term. No waiver of any breach shall affect or alter this Lease,
which shall continue in full force and effect, or the rights of Landlord or
Tenant with respect to any other then existing or subsequent breach.
27. Remedies Cumulative
Each right, power and remedy of Landlord or Tenant provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise by
Landlord or Tenant of any one or more of the rights, powers or remedies provided
for in this Lease or now or hereafter existing at law or in equity or by statute
or otherwise shall not preclude the simultaneous or later exercise by Landlord
or Tenant of any or all such other rights, powers or remedies. All sums payable
by Tenant to Landlord hereunder (other than the Basic Rent and Supplemental
Rent) shall be deemed additional rent and Landlord shall have all of the same
rights, powers and remedies in the case of the failure by Tenant to pay any such
sum when due as Landlord would have in the case of the failure by Tenant to pay
Basic Rent or Supplemental Rent when due.
28. Acceptance of Early Termination or Surrender
No early termination of this Lease (other than pursuant to and in
accordance with Section 1.4, Article 15 or Article 16) or surrender to Landlord
of this Lease, and no surrender of the Leased Premises or any part thereof or of
any interest therein, shall be valid or effective unless agreed to and accepted
in writing by Landlord, and no act by Landlord, other than such a written
agreement and acceptance by Landlord, shall constitute an agreement thereto or
acceptance thereof.
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29. No Merger of Title
There shall be no merger of this Lease nor of the leasehold estate created
by this Lease with the fee estate or any other leasehold estate in the Leased
Premises or any part thereof by reason of the fact that the same person, firm,
corporation or other entity may acquire or own or hold, directly or indirectly,
(a) this Lease or the leasehold estate created by this Lease or any interest in
this Lease or in any such leasehold estate, and (b) the fee estate or any other
leasehold estate in the Leased Premises or any part thereof or any interest in
such fee estate or leasehold estate, and no such merger shall occur unless and
until all persons, firms, corporations and other entities having an interest in
or lien upon (i) this Lease or the leasehold estate created by this Lease and
(ii) the fee estate or any other leasehold estate in the Leased Premises or any
part thereof shall join in a written instrument effecting such merger and shall
duly record the same.
30. Exculpation
(a) Except as provided below, no general or limited partner of The
Goldman Sachs Group, L.P., a Delaware limited partnership ("GS"), or of any
assignee which is a successor to substantially all the assets and business of
GS (a "successor-assignee") shall have any personal liability under this Lease
and any judgment taken or rendered against GS or any successor-assignee
hereunder or related hereto shall be enforceable only against the property of GS
or such successor-assignee; provided, that:
(i) if at any time GS or a successor-assignee (x) shall
dissolve (other than pursuant to, or as a result of, insolvency proceedings) and
(y) shall distribute its assets without adequately providing for any and all of
its obligations and liabilities under this Lease, then all persons who were
general partners of GS or of such successor-assignee immediately prior to the
dissolution shall be personally and jointly and severally liable to GS or such
successor-assignee or the benefit of Landlord to extent of any loss, cost,
damage or injury which Landlord may suffer as a result of the failure to make
adequate provision for such obligations and liabilities; and
(ii) this Article 30(a) shall not relieve any general or
limited partner of GS or of a successor-assignee from any obligation to restore
to GS or such successor-assignee any distributions of cash, property or other
assets by GS or such successor-assignee made to such partner which (x) were made
at any time when the distributor was insolvent or (y) resulted in the
distributor's becoming insolvent. For purposes of this Lease, GS or a
successor-assignee shall be "insolvent" if (A) it is generally unable to pay its
debts and other liabilities as they become due or (B) the sum of its debts is
greater than all of its property at a fair valuation (taking into account this
Lease and the liabilities of Tenant hereunder).
This Article 30(a) is for the sole benefit of GS and each successor-assignee.
Any other party acquiring the leasehold estate created by this Lease shall have
full personal liability hereunder.
(b) Any judgment taken or rendered against Landlord hereunder or
related hereto shall be enforceable only against the interest of Landlord in the
Project or, in the event of a sale, financing or other disposition by Landlord
of the Project or any part thereof, against cash,
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property or other assets of Landlord (but not of any member, partner,
stockholder, principal, officer or other person or entity which, directly or
indirectly, has an interest in Landlord) equal in amount to the proceeds of such
sale, financing or other disposition.
31. Definitions
As used in this Lease, the following terms have the following respective
meanings:
"Business Day" means any weekday on which the New York Stock Exchange, or
its successor, is open for business.
"Costs" means, with respect to any construction, improvements, alteration,
restoration, replacement, repairs, or rebuilding ("work"), the costs charged by
contractors, subcontractors and materialmen for all labor, materials, machinery
and equipment purchased, leased or used in connection with such work, fees and
compensation payable to contractors and subcontractors in connection with such
work, governmental fees and charges assessed or incurred in connection with such
work, fees and expenses of architects and engineers for estimates, surveys,
preliminary investigations, plans, drawings, specifications and supervision
related to such work, and the reasonable out-of-pocket expenses of
administration, supervision and inspection of such work.
"Deductible Amount" means, with respect to any insurance policy issued in
any month, the product of $500,000 multiplied by the fraction whose numerator is
the Index for the third month preceding the month in which such policy is issued
and whose denominator is the Index for April, 1997.
"Hazardous Substances" means any flammable or explosive materials, any
petroleum or petroleum products (including oil, crude oil, natural or synthetic
gas), any radioactive materials, any asbestos or asbestos containing materials,
PCBs, or any other hazardous or toxic waste, material or substance, including,
without limitation, any waste, material or substance now or hereafter included
in the definition of "hazardous substances," "hazardous wastes," hazardous
materials," "toxic substances," "toxic wastes" or "toxic materials" (or similar
term) contained in any Legal Requirement.
"Index" means, for any month the "Consumer Price Index" for such month for
all Urban Consumers, New York, New York-Northeastern New Jersey Area (1982-1984
= 100), published by the Bureau of Labor Statistics of the U.S. Department of
Labor or any successor index thereto. If the Index ceases to use 1982-1984 = 100
as basis of calculation, then the Index shall be adjusted to the figure that
would have been arrived at had the manner of computing the Index in effect at
the date of this Lease not been altered. In the event such Index (or a successor
index) is not available, another index reasonably selected by Landlord and
reasonably acceptable to Tenant shall be substituted therefor.
"Insurance Requirements" means all terms of or incorporated by reference
into any insurance policy covering or applicable to the Leased Premises.
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"Landlord" means only the owner, at the time in question, of the Project,
so that in the event of any transfer or transfers of title to the Project and
the assumption by the transferee of all of Landlord's obligations and liability
hereunder accruing after such transfer, the transferor shall be and hereby is
relieved and freed of all obligations of Landlord under this Lease accruing
after such transfer.
"Legal Requirements" means all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions, health, safety, environmental and other requirements
of all governmental, public or quasi-public departments, commissions, boards,
courts, authorities and agencies foreseen or unforeseen, ordinary or
extraordinary, which now or at any time hereafter may be applicable to the
Stephaneze Premises (when such term is used in Section 1.3) or to the Leased
Premises (when such term is used in any other Section of this Lease).
The phrase "net annual rental" shall refer to the net annual rental
payable under the Ground Lease, as such phrase is used therein.
"Officer's Certificate" means a certificate signed by a party or a general
partner or corporate officer of a party.
"Permitted Investment" means (i) direct obligations of the United States
of America, or obligations for which the full faith and credit of the United
States of America is pledged, and obligations of any agency or instrumentality
of the United States of America, (ii) obligations of any State of the United
States of American or Canada or any Province of Canada or any political
subdivision or agency or instrumentality of any thereof rated in the third
highest grade or better by two or more of Standard and Poor's Corporation,
Moody's Investors Service Inc. or Fitch Investors Service (or their successors),
(iii) any commercial paper issued by a corporation organized under the laws of
the United States of America or any State thereof or of Canada or any Province
thereof or by any foreign bank having a branch or agency in the United States of
America and rated in the second highest grade or better by two or more of
Standard & Poor's Corporation, Moody's Investors Service Inc. or Fitch Investors
Service (or their successors) and having a maturity not in excess of nine
months, (iv) certificates of deposit of, or drafts or bills of exchange accepted
generally by, any bank or trust company or any savings and loan association
incorporated under the laws of the United States of America or any State thereof
or Canada or any Province thereof or by any foreign bank having a branch or
agency in the United States of America and, in each case, which has capital and
surplus aggregating at least $200,000,000 as of the date of its most recent
report of condition and (v) such other securities or investments as Landlord
shall from time to time consent to; provided, that in no event shall either of
the following be "Permitted Investments": (a) any security of, or investment in,
any person or entity in which Tenant and/or any affiliate of Tenant have (either
directly or indirectly) a 5% or greater equity interest or (b) a security or
investment of any kind whose stated maturity is longer than 3 years.
"Prime Rate" means the prime interest rate announced by Morgan Guaranty
Trust Company of New York (or, if Morgan Guaranty Trust Company of New York
shall not exist or
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shall cease to publish such rate, such other bank in New York, New York as shall
be designated by Landlord in a notice to Tenant) to be in effect at its
principal office in New York, New York.
"Plans and Specifications" means plans and specifications prepared by a
reputable and licensed architect or engineer regularly involved in first-class
office buildings in the Borough of Manhattan in work of the nature described in
such Plans and Specifications.
"Qualified Hazardous Substance" means any Hazardous Substance which (a)
exists in the Leased Premises on the date of this Lease or (b) is introduced by
Landlord, Landlord's agents, employees, contractors, or licensees, into the
Leased Premises after the date of this Lease.
"Significant Proceeds Amount" means with respect to any damage or
destruction or Taking, the product of $5 million multiplied by the fraction
whose numerator of which is the Index for the third month preceding the month in
which such damage or destruction or Taking occurs and whose denominator is the
Index for April, 1997.
"Taking" means a taking during the Term of all or any part of the Leased
Premises, or any interest therein or right accruing thereto, including, without
limitation, any right of access thereto, as the result of or in lieu of or in
anticipation of the exercise of the right of condemnation or eminent domain, or
a change of grade affecting the Leased Premises or any part thereof.
"Tenant" means the tenant originally named herein or any successor or
assign.
"Witkoff Management Agreement" means the Management Agreement of even date
herewith between Tenant and The Witkoff Group LLC as the same may be assigned,
amended, restated or supplemented from time to time.
The words "enter", "re-enter", "entry" and "re-entry" as used in this
lease are not restricted to their technical legal meaning.
32. End of Lease Term
(a) Upon the expiration or earlier termination of this Lease, Tenant
shall quit and surrender to Landlord the Leased Premises free and clear of all
tenancies and occupancies and in good order and condition, ordinary wear and
tear and damage which Tenant is not required hereunder to repair excepted.
(b) If Tenant holds over without the consent of Landlord after
expiration or termination of this Lease, Tenant shall pay as holdover rental (in
addition to any and all amounts payable by Tenant upon such expiration or
termination of this Lease) for each month of the holdover tenancy an amount
equal to the greater of (i) 125% of the fair market rental value of the Leased
Premises for such month, or (ii) 125% of the Basic Rent and Tax Payments which
Tenant was obligated to pay for the month immediately preceding the end of the
Term; provided, that
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(x) if such holdover shall continue for more than three
months the percentage under each of clause (i) and clause (ii)
shall increase for periods after the third month to 150%, and
(y) if such holdover shall continue for more than six
months the percentage under clause (ii) shall increase for
periods after the sixth month to 200%.
The aforesaid holdover rent shall be Landlord's sole monetary remedy on account
of such holdover, but Tenant shall not be deemed released from its obligation to
pay damages under Article 25 or from any obligation which under Section 35(k)
survives the termination or expiration of this Lease. Tenant shall not be liable
for Supplemental Rent in respect of any holdover, or for any consequential or
other damages incurred by Landlord on account of such holdover. No holding over
by Tenant after the Term shall operate to extend the Term. Notwithstanding the
foregoing, the acceptance of any rent paid by Tenant pursuant to this Section
32(b) shall not preclude Landlord from commencing and prosecuting a holdover or
summary eviction proceeding.
33. Notices
All notices, requests, demands, certifications and other communications
hereunder (each, a "Notice") shall (except in the case of the telephonic notices
expressly permitted under this Lease) be in writing and shall be delivered by
(a) personal delivery, (b) United States mail, certified or registered, postage
prepaid, return receipt requested, or (c) nationally recognized overnight
courier, in each case addressed to the party to be notified at the address for
such party specified in the first paragraph of this Lease or to such other place
as the party to be notified may from time to time designate by at least 10 days'
notice to the notifying party. Notices by either party may be given by such
party's attorney. Each notice shall be deemed to have been given on the date
such notice is actually received as evidenced by a written receipt therefor, and
in the event of such failure to deliver by reason of changed address of which no
notice was given or refusal to accept delivery, as of the date of such failure.
Whenever Landlord gives any Notice under this Lease, it shall give a copy
thereof in the same manner to Tenant at 85 Broad Street, New York, New York
10004, Attention: General Counsel, or at such other place as the party to be
notified may from time to time designate by at least 10 days' notice to the
notifying party.
Whenever Tenant gives any Notice under this Lease, it shall give a copy
thereof in the same manner to Landlord at 156 William Street, New York, New York
10038, Attention: James F. Stomber, Esq. or at such other place as the party to
be notified may from time to time designate by at least 10 days' notice to the
notifying party.
34. Annual Reports
Within 120 days of the end of each of Tenant's fiscal years ending during
the Term, Tenant shall furnish to Landlord a statement of operating expenses for
the Improvements for
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such fiscal year together with a schedule of subleases of all or any part of the
Leased Premises indicating the premises demised, commencement date, expiration
date, renewal options, base rent and escalation provisions.
35. Miscellaneous
(a) If any term of this Lease or any application thereof shall be
invalid or unenforceable, the remainder of this Lease and any other application
of such term shall not be affected thereby. All covenants and obligations of
Landlord and Tenant hereunder which are not fully performed upon the expiration
or earlier termination of this Lease shall survive such expiration or earlier
termination.
(b) This Lease may be changed or amended only by an instrument in
writing, signed by the party against whom enforcement of such change or
amendment is sought.
(c) Subject to Article 20, this Lease shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
(d) This Lease shall be construed and enforced in accordance with
and governed by the laws of the State of New York.
(e) The headings in this Lease are for purposes of reference only
and shall not limit or otherwise affect the meaning hereof. References herein to
sections are, unless otherwise indicated, references to sections hereof.
(f) Landlord and Tenant each represents to the other that it has
dealt with no broker (other than affiliates of Tenant) in connection with the
negotiation and execution of this Lease. Tenant shall pay, and shall indemnify
and defend Landlord against any claims for, any commission with respect to this
Lease due to any such affiliate.
(g) Landlord and Tenant hereby waive trial by jury in any action
arising under this Lease.
(h) No matter concerning this Lease shall be arbitrable unless
arbitration of such matter is specifically provided for herein. Except (1) as
provided in Section 2.2 with respect to any arbitration under said Section and
(2) as provided in Article 36 with respect to any arbitration under any
provision of this Lease providing for Expedited Arbitrations, in any instance in
this Lease in which arbitration is specifically provided for, such arbitration
shall be conducted pursuant to the rules of the American Arbitration
Association, or if the American Arbitration Association shall have ceased to
function as an arbitration association, of a successor or comparable
organization and the arbitrators shall be persons experienced in matters of the
same general nature as the matter subject to arbitration. If, in any
arbitration, the arbitrator or arbitrators shall award any sum to be paid by one
party hereto to the other, the arbitrators shall also award interest thereon,
computed at the Prime Rate in effect from time to time, from the date (prior to
such arbitration) on which, according to the terms hereof, such sum was to have
been paid.
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(i) In any instance in this Lease in which Landlord covenants not
unreasonably to withhold its consent or approval, Tenant's sole remedy in case
of such unreasonable withholding is an action for specific performance or
injunction directing such consent or approval and Landlord shall have no
liability for monetary damages. In any instance in this Lease in which Tenant
covenants not unreasonably to withhold its consent or approval, Landlord's sole
remedy in case of such unreasonable withholding is an action for specific
performance or injunction directing such consent or approval and Tenant shall
have no liability for monetary damages. In any such action, the prevailing party
shall be entitled to recover its reasonable attorneys fees and disbursements
from the other party.
(j) Neither Landlord nor Tenant shall, without the consent of the
other party, refer to the other party, this Lease or any related transaction in
any advertising, promotional material, publicity, press release or similar
material. This Article 35(j) shall not prohibit disclosures in any offering
materials relating to any securitization of any mortgage debt on the Leased
Premises or relating to any other type of public or private security offering.
(k) No expiration or termination of the Term shall relieve Landlord
or Tenant of its respective liabilities and obligations.
(1) accruing hereunder prior to such expiration or
termination, or
(2) provided by this Lease to be performed after such
expiration or termination (including without limitation
Tenant's obligations under Section 15.4(k) in case of
any termination of this Lease pursuant to Section 15.4),
all of which shall survive such expiration or termination.
(l) If any governmental agency or any electric, gas, water, steam,
sewer or telecommunications utility or supplier shall require or request that
any application or other document or instrument required or requested by it to
be furnished to it in connection with any Alterations or with any electric, gas,
water, steam, sewer or telecommunication service to the Leased Premises be
executed by the owner of the Leased Premises, Landlord shall within
(1) prior to Tenant's opening for the conduct of
business in the Leased Premises, 2 Business Days after the
submission of such application, document or instrument to it
by Tenant, or
(2) thereafter, 5 Business Days after the submission of
such application, document or instrument to it by Tenant,
execute and return the same to Tenant. Notwithstanding the foregoing, Landlord
shall have no obligation to execute and return any such application, document or
instrument unless such application, document or instrument is either (i)
reasonable, or (ii) customarily required by any governmental agency or any
electric, gas, water, steam, sewer or telecommunications utility or
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supplier in situations similar to the situation in question, or (iii) required
by any Legal Requirement. Any dispute as to whether Landlord shall be obligated
to execute and return any application, document or instrument shall be subject
to Expedited Arbitration. If Tenant shall prevail and Landlord shall not execute
and return such application, document or instrument within 2 Business Days of
the decision in arbitration, Tenant is hereby appointed as attorney-in-fact of
Landlord to execute such application, document or instrument.
(m) This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party which drafted or caused
to be drafted the provisions hereof.
(n) If on (i) the date of any termination of this Lease pursuant to
Section 15.4, (ii) the date of any termination of this Lease pursuant to Section
16.2, or (iii) any expiration, termination or repossession pursuant to Article
22 or 23, the aggregate amount theretofore disbursed by Landlord pursuant to
Section 7 of the Initial Improvements Agreement shall be less than the Owner's
FOW Cost Limit (as defined in the Initial Improvements Agreement), then (x) the
amount of the excess of the Owner's FOW Cost Limit over such aggregate amount
theretofore disbursed is herein called the "Credit Amount", and (y)
notwithstanding any provision of this Lease to the contrary, Tenant shall be
entitled to a credit equal to the Credit Amount against (1) in the case of
clause (i) above, the amount payable under Section 15.4(h)(ii), (2) in the case
of clause (ii) above, the amount payable under the second paragraph of Section
16.2, and (3) in the case of clause (iii) above, the amount payable under
Section 25.2(b). Promptly after Landlord's request given at any time after the
aggregate amount disbursed by Landlord pursuant to said Section 7 shall exceed
Owner's FOW Cost Limit, Tenant shall execute an instrument, in form reasonably
satisfactory to Landlord, confirm such fact and that Tenant shall have no right
to any credit pursuant to this Section 35(n).
(o) At the request of either party, the parties shall execute,
deliver and acknowledge a memorandum of this Lease under Section 291-c of the
Real Property Law, and any other documents required in connection with the
recording thereof. The requesting party shall bear the costs of recording the
same.
36. Expedited Arbitration.
The term "Expedited Arbitration" shall refer to arbitration under
this Article 36. In any case under this Lease in which a matter is to be
determined by Expedited Arbitration, either party may give notice to the other
stating that it wishes such dispute to be so determined. The arbitrator in any
such matter shall be the first of the following that is able and willing to act
as such:
Lee Kuntz
Lloyd Shor
If none of such named persons shall be able and willing to act as the
arbitrator, the parties shall apply to the American Arbitration Association
located in the City of New York for the designation of such arbitrator and if no
arbitrator shall have been appointed within 10 Business
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Days then either party may apply to the Supreme Court in New York County or to
any other court having jurisdiction for the designation of such arbitrator. Any
arbitrator so appointed shall be an attorney who is a partner at a law firm
having at least 100 attorneys and shall have at least 15 years experience in the
practice of commercial real estate in the Borough of Manhattan. The arbitrator
shall conduct such hearings as he or she may deem appropriate, and shall notify
Landlord and Tenant of his or her determination as soon as practicable, and, if
reasonably possible, within 5 Business Days after the designation of the
arbitrator. Judgment upon any decision rendered in arbitration held pursuant to
this Article 36 shall be final and binding upon Landlord and Tenant, whether or
not a judgment shall be entered in any court. Each party shall pay its own
counsel fees and expenses, if any, in connection with any arbitration under this
Article 36, and the parties shall share the fees of the arbitrator and all other
expenses and fees of any such arbitration. The arbitrator shall select as his or
her determination the determination of either Landlord or Tenant in the matter
that is in dispute, except that in arbitrations under Section 1.3, Article 38 or
Article 39 the arbitrator may make his or her determination partially in favor
of one party and partially in favor of the other, but in no event shall the
arbitrator make any award in excess of the amount claimed due by Tenant. The
arbitrator shall be bound by the provisions of this Lease, and shall not add to,
subtract from or otherwise modify such provisions.
37. Subordination
(a) Subject to Section 37(b), this Lease is subject and subordinate
to each mortgage (a "Superior Mortgage") which may now or hereafter affect all
or any portion of the Leased Premises. The mortgagee under a Superior Mortgage
is called a "Superior Mortgagee". Tenant shall execute, acknowledge and deliver
any instrument reasonably requested by Landlord or a Superior Mortgagee to
evidence such subordination, but no such instrument shall be necessary to make
such subordination effective. Tenant shall execute any amendment of this Lease
requested by a Superior Mortgagee, provided such amendment shall not (i)
increase the rent, (ii) reduce or extend the Term, (iii) enlarge or diminish the
Leased Premises, (iv) other than to a de minimis extent, increase Tenant's
obligations under this Lease or reduce Landlord's obligations under this Lease,
(v) other than to a de minimis extent, reduce Tenant's rights under this Lease
or increase Landlord's rights under this Lease, or (vi) other than to a de
minimis extent, otherwise adversely affect Tenant. In the event of the
enforcement by a Superior Mortgagee of the remedies provided for by law or by
such Superior Mortgage Tenant, upon request of any person succeeding to the
interest of Landlord (a "Successor Landlord"), shall automatically become the
tenant of such Successor Landlord upon the terms of any Non-Disturbance
Agreement between Tenant and the applicable Superior Mortgagee.
(b) Notwithstanding Section 37(a), this Lease shall not be subject
and subordinate to any Superior Mortgage unless the Superior Mortgagee under
such Superior Mortgage shall have executed and delivered to Tenant a
non-disturbance agreement in the form attached hereto as Exhibit D or another
form no less favorable to Tenant in any material respect (a "Non-Disturbance
Agreement"). Anything contained in Section 37(a) to the contrary
notwithstanding, if (i) such Superior Mortgagee executes and delivers to Tenant
a Non-Disturbance Agreement accompanied by a notice from Landlord including the
following statement in block capital letters -THIS NOTICE IS BEING GIVEN UNDER
SECTION 37(B)
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OF YOUR LEASE. YOUR FAILURE TIMELY TO RESPOND MAY RESULT IN LANDLORD BEING
DEEMED TO HAVE SATISFIED ITS OBLIGATION UNDER SAID SECTION 37(B) WITH RESPECT TO
THE MORTGAGE IN QUESTION - and (ii) Tenant either fails or refuses to execute
and deliver such Non-Disturbance Agreement within 15 Business Days after
delivery of such Non-Disturbance Agreement to Tenant, then, so long as such
Superior Mortgagee does not withdraw such Non-Disturbance Agreement and the same
remains available for acceptance and execution by Tenant, Landlord shall be
deemed to have satisfied its obligation under this Section 37(b) and shall have
no further obligation to deliver to Tenant a Non-Disturbance Agreement with
respect to the Superior Mortgage in question.
38. Landlord's Failure to Pay Taxes
(a) If Tenant believes that Landlord has failed timely to pay to the
appropriate governmental agency any amount which Landlord is required by Section
11.2 to pay, then (i) Tenant may give Landlord a notice (an "Article 38 Demand
Notice") specifying and identifying such amount (an "Article 38 Demand Amount")
and containing the following statement in block capital letters: "THIS NOTICE IS
BEING GIVEN UNDER ARTICLE 38 OF OUR LEASE. YOUR FAILURE TIMELY TO PAY THE TAXES
HEREIN SPECIFIED AND FURNISH EVIDENCE THEREOF TO TENANT WILL RESULT IN TENANT
HAVING THE RIGHT TO PAY SUCH TAXES AND OFFSET THE AMOUNT SO PAID AGAINST RENT
DUE UNDER THE LEASE" and (ii) at any time on or after the 30th day after the
giving of such Article 38 Demand Notice Tenant may pay the Article 38 Demand
Amount or any portion thereof to the appropriate governmental agency (together
with all interest, penalties, late charges and similar fees thereon or with
respect thereto); provided, that if within 30 days after the giving of the
Article 38 Demand Notice Landlord notifies Tenant that Landlord has paid all of
such Article 38 Demand Amount to the appropriate governmental agency (together
with all interest, penalties, late charges and similar fees thereon or with
respect thereto) (which notice shall include evidence of such payment) and
Landlord has actually done so Tenant shall not be entitled to make payment of
the Article 38 Demand Amount or any portion thereof, and if within 30 days after
the giving of such Article 38 Demand Notice Landlord notifies Tenant that
Landlord has paid a portion identified and specified in such notice of the
Article 38 Demand Amount to the appropriate governmental agency (together with
all interest, penalties, late charges and similar fees thereon or with respect
thereto) (which notice shall include evidence of such payment) and Landlord has
actually done so Tenant may pay only the balance of such Article 38 Demand
Amount not so paid by Landlord or any portion of such balance to the appropriate
governmental agency (together with all interest, penalties, late charges and
similar fees thereon or with respect thereto). The amount paid by Tenant
pursuant to this Section 38(a) is called an "Article 38 Advance").
(b) If Tenant makes an Article 38 Advance in accordance with Section
38(a), then, except as otherwise provided in Section 38(c), (i) Landlord shall
reimburse to Tenant within 15 days after Tenant's demand therefor the amount of
the Article 38 Advance, together with interest thereon at the Interest Rate from
the date of payment by Tenant to the date on which Landlord so reimburses
Tenant, (ii) if Landlord shall fail timely to make such reimbursement, Tenant
shall have the right to set-off the amount of the Article 38 Advance together
with such
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interest thereon against the rent under this Lease (exclusive of the
Supplemental Rent), and (iii) Landlord shall be deemed to have waived its right
to claim that such setoff was improper or constitutes a failure to pay rent or
other default under this Lease; provided, that Landlord shall have the right to
bring and maintain a separate action against Tenant as provided for in Section
38(d).
(c) If within 30 days after the giving of the Article 38 Demand
Notice, Landlord notifies Tenant (an "Article 38 Dispute Notice") that Landlord
believes that all or a portion identified and specified in such Article 38
Dispute Notice of the Article 38 Demand Amount is not required by Section 11.2
to be paid by Landlord or is not overdue (in either case all or such identified
and specified portion being herein called the "Disputed Article 38 Amount"),
then Landlord shall not be required to reimburse Tenant and Tenant shall not
have a right of set-off with respect to the Disputed Article 38 Amount except to
the extent that the dispute with respect thereto is resolved in Tenant's favor
in accordance with the next sentence. Tenant shall have the right, with respect
to any such dispute, to elect by notice to Landlord that such dispute be
resolved by litigation or Expedited Arbitration, but any such election shall be
irrevocable with respect to the dispute in question.
(d) If Landlord does not timely give an Article 38 Dispute Notice,
Landlord shall nevertheless have the right to recover from Tenant by separate
action so much of the Article 38 Demand Amount setoff by Tenant as Landlord was
not required by Section 11.2 to pay or which was not overdue; provided, that
Landlord's sole remedy in such an action shall be a money judgment against
Tenant.
(e) Notwithstanding the provisions of Section 20(b) or the
provisions of the definition of the term "Landlord" set forth in Article 31,
Tenant's rights under this Article 38 shall survive any sale, conveyance,
assignment or other transfer of the Leased Premises and after any thereof shall
continue to be enforceable against the new owner of the Leased Premises,
notwithstanding that the amounts to which such rights relate were originally
required to be paid by such new owner's predecessor.
(f) The provisions of this Article 38 shall also be applicable to
the net annual rental which Landlord is required to pay under the Ground Lease,
mutatis mutandis. In applying such provisions to such net annual rent,
references in this Article 38 to the "appropriate governmental agency" shall be
deemed to refer to the landlord under the Ground Lease and references in this
Article 38 to "Section 11.2" shall be deemed to refer to the provisions of the
Ground Lease requiring the payment of net annual rental.
39. Landlord's Failure to Pay Costs of Base Building Upgrade Work or
Fit-Out Work
(a) If Tenant believes that Landlord has failed timely to pay to the
appropriate party any amount which Landlord is required by Section 6 or 7 of the
Initial Improvements Agreement to pay, then (i) Tenant may give Landlord a
notice (an "Article 39 Demand Notice") specifying and identifying such amount
(an "Article 39 Demand Amount") and containing the following statement in block
capital letters: "THIS NOTICE IS BEING GIVEN UNDER ARTICLE 39 OF
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OUR LEASE. YOUR FAILURE TIMELY TO PAY THE COSTS HEREIN SPECIFIED AND FURNISH
EVIDENCE THEREOF TO TENANT WILL RESULT IN TENANT HAVING THE RIGHT TO PAY SUCH
COSTS AND OFFSET THE AMOUNT SO PAID AGAINST RENT DUE UNDER THE LEASE" and (ii)
at any time on or after the 10th day after the giving of such Article 39 Demand
Notice Tenant may pay the Article 39 Demand Amount or any portion thereof to the
appropriate party (together with all interest, penalties, late charges and
similar fees thereon or with respect thereto) provided, that if within 10 days
after the giving of the Article 38 Demand Notice Landlord notifies Tenant that
Landlord has paid all of such Article 39 Demand Amount to the appropriate party
(together with all interest, penalties, late charges and similar fees thereon or
with respect thereto) (which notice shall include evidence of such payment) and
Landlord has actually done so Tenant shall not be entitled to make payment of
the Article 39 Demand Amount or any portion thereof and if within 10 days after
the giving of such Article 39 Demand Notice Landlord notifies Tenant that
Landlord has paid a portion identified and specified in such notice of the
Article 39 Demand Amount to the appropriate party (together with all interest,
penalties, late charges and similar fees thereon or with respect thereto) (which
notice shall include evidence of such payment) and Landlord has actually done so
Tenant may pay only the balance of such Article 39 Demand Amount not so paid by
Landlord or any portion of such balance to the appropriate party (together with
all interest, penalties, late charges and similar fees thereon or with respect
thereto). The amount paid by Tenant pursuant to this Section 39(a) is called an
"Article 39 Advance").
(b) If Tenant makes an Article 39 Advance in accordance with Section
39(a), then, except as otherwise provided in Section 39(c), (i) Landlord shall
reimburse to Tenant within 15 days after Tenant's demand therefor the amount of
the Article 39 Advance, together with interest thereon at the Interest Rate from
the date of payment by Tenant to the date on which Landlord so reimburses
Tenant, (ii) if Landlord shall fail timely to make such reimbursement, Tenant
shall have the right to setoff the amount of the Article 39 Advance together
with such interest thereon against the rent under this Lease, and (iii) Landlord
shall be deemed to have waived its right to claim that such setoff was improper
or constitutes a failure to pay rent or other default under this Lease and its
right to bring and maintain a separate action against Tenant to recover all or
any portion of the Article 39 Demand Amount.
(c) If within 10 days after the giving of the Article 39 Demand
Notice, Landlord notifies Tenant (an "Article 39 Dispute Notice") that Landlord
believes that all or a portion identified and specified in such Article 39
Dispute Notice of the Article 39 Demand Amount is not required by Section 6 or 7
of the Initial Improvements Agreement to be paid by Landlord or is not overdue
(in either case all or such identified and specified portion being herein called
the "Disputed Article 39 Amount"), then Landlord shall not be required to
reimburse Tenant and Tenant shall not have a right of set-off with respect to
the Disputed Article 39 Amount except to the extent that the dispute with
respect thereto is resolved in Tenant's favor in accordance with the next
sentence. Tenant shall have the right, with respect to any such dispute, to
elect by notice to Landlord that such dispute be resolved by litigation or
Expedited Arbitration, but any such election shall be irrevocable with respect
to the dispute in question.
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(d) Notwithstanding the provisions of Section 20(b) or the
provisions of the definition of the term "Landlord" set forth in Article 31,
Tenant's rights under this Article 39 shall survive any sale, conveyance,
assignment or other transfer of the Leased Premises and after any thereof shall
continue to be enforceable against the new owner of the Leased Premises,
notwithstanding that the amounts to which such rights relate were originally
required to be paid by such new owner's predecessor.
(e) For purposes of computing the Base Building Savings, the Base
Building Savings Constant Payment and the Base Building Savings Credit, Landlord
shall be deemed to have disbursed pursuant to Section 6 of the Initial
Improvements Agreement all amounts reimbursed by Landlord or set-off by Tenant
pursuant to this Article 39, exclusive of all such amounts representing
interest, penalties, late charges or similar fees paid by Tenant or interest
paid by Landlord. The resulting decrease in the Base Building Savings Constant
Payment and Base Building Savings Credit shall be effective as of the Basic Rent
payment date next following such reimbursement or set-off and, if such Basic
Rent payment date shall be after the Rent Commencement Date, shall be computed
with respect to the number of months provided for in the definition of "Base
Building Constant Monthly Payment" minus the number of months in the period
commencing with the Base Building Savings Commencement Date and ending on the
day preceding the day prior to such Basic Rent payment date, rather than the
number of months provided for in the definition of "Base Building Constant
Monthly Payment". Promptly after such reimbursement or set-off Landlord and
Tenant shall join in one or more supplements to the instruments referred to in
the penultimate paragraph of Section 1.6 confirming the matters set forth in
this Section 39(e). The failure of either party to execute such supplement shall
not constitute a default hereunder or otherwise affect this Lease.
(f) Each Article 39 Advance shall constitute a loan from Tenant to
Landlord and notwithstanding Tenant's having made such Article 39 Advance the
Base Building Upgrade Work and/or the Fit-Out Work to which such Article 39
Advance shall relate, shall nonetheless constitute the property of Landlord, a
part of the Lease Premises and subject to the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have caused this lease to be duly
executed and delivered, all as of the date and year first above written.
TEN HANOVER L.L.C.
By: NEXT GENERATION DEVELOPMENT, L.L.C.
its sole manager
By: /s/ Steven C. Witkoff
-------------------------------------
Steven C. Witkoff, its sole manager
THE GOLDMAN SACHS GROUP L.P
By: /s/ Edward F. Markiewicz
-------------------------------------
Edward F. Markiewicz
Attorney-in-Fact
-86-
<PAGE> 97
Exhibit A
The Land
All that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City and State o New York, more particularly bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northeasterly side of
Hanover Square and the southeasterly side of Pearl Street;
RUNNING THENCE Northeasterly along the southeasterly side of Pearl Street,
187.129 feet to a point;
THENCE RUNNING along a line forming an interior angle of 92 degrees 26 minutes
50 seconds to the last mentioned course, 120.854 feet to the northwesterly side
of Water Street;
THENCE RUNNING along the northwesterly side of Water Street, 189.352 feet to the
northeasterly side of Hanover Square;
THENCE RUNNING along the northeasterly side of Hanover Square, 138.897 feet to
the point or place of BEGINNING.
A-1
<PAGE> 98
Exhibit B
Initial Tax Payments
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The monthly Tax Payment due on the first day is
of each month of the 12 month period
beginning July 1,
- --------------------------------------------------------------------------------
<S> <C>
1998 7,189.00
- --------------------------------------------------------------------------------
1999 14,593.67
- --------------------------------------------------------------------------------
2000 22,220.48
- --------------------------------------------------------------------------------
2001 30,076.09
- --------------------------------------------------------------------------------
2002 38,167.38
- --------------------------------------------------------------------------------
2003 46,501.40
- --------------------------------------------------------------------------------
2004 55,085.44
- --------------------------------------------------------------------------------
2005 63,927.00
- --------------------------------------------------------------------------------
2006 73,033.81
- --------------------------------------------------------------------------------
2007 82,413.83
- --------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 99
Exhibit C
Permitted Encumbrances
1) Lease dated July 13, 1965, from Helen H. Arnold, individually and as the
Executrix of the Estate of Thomas B. Hall, deceased, Patricia Arnold, as
infant by Helen H. Arnold her General Guardian and Elizabeth J. Hall, as
lessor, to Cradle Realty Corporation, as lessee, a memorandum of which is
recorded in Reel 5335 at Page 210, as amended by Amendment to Lease dated
May 15, 1969 and recorded November 5, 1969 in Reel 155 at Page 1135 and by
Agreement dated as of August 1, 1985 between Helen H. Arnold and Patricia
Arnold Lawless, as landlord, and The Hanover Square Company, as tenant,
affecting a portion of the Land.
2) Amended and Restated First Mortgage, Consolidation and Security Agreement
between Ten Hanover LLC and CS First Boston Mortgage Capital Corp. dated
as of November 15, 1996 recorded November 27, 1996 in Reel 2396 at page
1552 and all of the mortgages referred to therein.
3) First Assignment of Leases and Rents, made by Ten Hanover LLC to CS First
Boston Mortgage Capital Corp., dated November 15, 1996 recorded November
27, 1996 in Reel 2396 page 1634.
4) Second Mortgage and Security Agreement made by Ten Hanover LLC to CS First
Boston Mortgage Capital Corp. dated November 15, 1996 recorded November
27, 1996 in Reel 2396 at page 1546, as amended by First Modification of
the Second Mortgage and Security Agreement dated __________, recorded
__________ in Reel ___ at page ___, and by the Second Modification of the
Second Mortgage and Security Agreement dated August 14, 1997, intended to
recorded.
5) Second Assignment of Leases and Rent, made by Ten Hanover LLC to CS First
Boston Mortgage Capital Corp., dated November 15, 1996 recorded November
27, 1996 in Reel 2396 page 1729.
6) Additional Mortgage and Security Agreement made by Ten Hanover LLC to CS
First Boston Mortgage Capital Corp. dated August 14, 1997, intended to be
recorded.
7) Additional Assignment of Leases and Rent, made by Ten Hanover LLC to CS
First Boston Mortgage Capital Corp., dated November 14, 1997, intended to
be recorded
8) Reservation of Water Course as set forth in deed recorded in Liber 3735
page 36.
9) Any state of facts as an accurate survey may show.
C-1
<PAGE> 100
Exhibit D
Non-Disturbance Agreement
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement"),
made as of the _______ day of _____________, ___ by and among [_______________],
a _________________ having an address at _____________ ("Mortgagee"), and THE
GOLDMAN SACHS GROUP, L.P., a Delaware limited partnership having an office at 85
Broad Street, New York, N.Y. 10004 ("Tenant")
W I T N E S S E T H:
WHEREAS, TEN HANOVER LLC, a New York limited liability company
("Landlord") and Tenant have entered into (i) a lease dated as of ____________,
with respect to the land described on Exhibit A hereto and all buildings,
structures, fixtures and equipment thereon (the "Original Lease") and (ii) an
initial improvements agreement dated as of __________, with respect to certain
improvements to be made in and to the premises demised by the aforesaid lease
(the "Original Initial Improvements Agreement") (the Original Lease and the
Original Initial Improvements Agreement, along with any amendments to either
thereof to which Mortgagee consents in writing, being referred to hereinafter as
the "Lease" and the premises demised by the Lease from time to time being
referred to hereinafter as the "Premises");
WHEREAS, Mortgagee is the holder of the mortgages described on Exhibit B
hereto (collectively, together with all renewals, modifications, consolidations,
replacements, substitutions, additions and extensions, and as spread or
consolidated, the "Mortgages"), which encumber the Premises and Landlord's
interest in the Lease;
WHEREAS, the Lease provides that, upon execution and delivery of this
Agreement, the Lease and all of Tenant's rights thereunder are and shall be at
all times and in all respects subject and subordinate to the lien of the
Mortgages, and to all advances now or hereafter made under or secured by the
Mortgages; and
WHEREAS, Mortgagee and Tenant desire to enter into this Agreement upon the
terms, covenants and conditions contained herein.
NOW, THEREFORE, in consideration of the agreements of the parties
contained herein, the parties hereby agree as follows:
1. Tenant hereby confirms that the Lease and all of Tenant's rights
thereunder are and shall be at all times and in all respects subject and
subordinate to the lien of the Mortgages, and to all advances now or hereafter
made under or secured by the Mortgages. Notwithstanding the provisions of this
Paragraph 1 or any other provision hereof or any of the provisions of the
Mortgages, Mortgagee specifically agrees that all insurance proceeds and all
proceeds of any Taking (as such term is defined in the Lease) shall be paid,
held and applied as provided for in the Lease; provided, however, that when, if
and to the extent that the Lease provides that any
D-1-
<PAGE> 101
such proceeds are to be paid to Landlord, the provisions of the Mortgages shall
govern and control such proceeds as between Landlord and Mortgagee.
[In any non-disturbance agreement executed and delivered prior to the full
disbursement of all amounts required to be available to pay Owner's BBW Cost
Installments and Owner's FOW Cost Installments under Sections 6 and 7 of the
Original Initial Improvements Agreement, insert the following paragraph:
Mortgagee further agrees that all of the funds required by Sections 6 and
7 of the Original Initial Improvements Agreement to be available to pay Owner's
BBW Cost Installments and Owner's FOW Cost Installments (as such terms are
defined in the Original Initial Improvements Agreement) shall be held in
separate bank accounts under Mortgagee's control and, provided that Tenant shall
not be in default under the Lease beyond the applicable grace period provided
for therein with respect to the default in question, shall be used and applied
in accordance with said Sections 6 and 7, and that, provided that Tenant shall
not be in default under the Lease beyond the applicable grace period provided
for therein, all rights of Mortgagee in and to said funds shall be subject and
subordinate in all respects to Tenant's rights under said Sections 6 and 7 to
require that such funds be so used and applied.]
2. Provided that Tenant shall not be in default under the Lease beyond the
applicable grace period provided therein with respect to the default in question
as of the date Mortgagee commences a foreclosure action or proceeding to enforce
the Mortgages, (a) Tenant shall not be named as a party in any foreclosure
action or proceeding to enforce the Mortgages (unless such joinder shall be
required under applicable law, and in which case Mortgagee shall not seek
affirmative relief from Tenant in such action or proceeding) nor shall the Lease
be cut off or terminated nor Tenant's possession or other rights thereunder be
disturbed in any such action or proceeding and (b) subject to the provisions of
Paragraphs 4 and 5 of this Agreement, Mortgagee will recognize the Lease and
Tenant's rights thereunder.
3. Upon any foreclosure of the Mortgage or other acquisition of the
Premises (whether by deed-in-lieu of foreclosure, in connection with a
proceeding under the United States Bankruptcy Code or any amendments,
modifications or supplements thereto or replacements thereof (the "Code") or
otherwise), Tenant shall attorn to Mortgagee or any other party acquiring said
property or so succeeding to Landlord's rights (any such party, including
Mortgagee in such capacity, being the "Successor Landlord") and shall recognize
the Successor Landlord as its landlord under the Lease, and Tenant shall
promptly execute and deliver any instruments that the Successor Landlord may
reasonably request in writing to evidence further said attornment.
4. Upon such attornment, the Lease shall continue as a direct lease
between the Successor Landlord and Tenant upon all the terms, covenants and
conditions thereof except that, subject to the provisions of Paragraph 5 below,
the Successor Landlord shall not be (a) liable for any previous act or omission
of Landlord under the Lease, but Successor Landlord shall be liable for any act
or omission of Successor Landlord under the Lease occurring after such
attornment, including the failure of Successor Landlord to remedy, within a
reasonable time after such attornment, any default by Landlord in performing any
of its obligations under the Lease which
D-2-
<PAGE> 102
continues after such attornment, (b) subject to any offsets, defenses, claims or
counterclaims that Tenant may have against Landlord or any predecessor landlord,
but Successor Landlord shall be subject to any offset, defense, claim or
counterclaim available to the Tenant under the Lease accruing after such
attornment, (c) bound by any payment of rent or other charges under the Lease
made more than thirty (30) days prior to its due date unless such payment shall
have been expressly approved in writing by Mortgagee or (d) bound by any
amendment, modification, extension, expansion, termination, cancellation or
surrender of the Lease unless Mortgagee has consented thereto in writing or
unless the same is effected pursuant to any of the terms or provisions of the
Lease.
5. Notwithstanding the foregoing, upon such attornment, Successor Landlord
shall be subject to all of Tenant's rights (including rights of set-off) and
remedies under Articles 38 and 39 of the Original Lease, as amended by any
amendments to which Mortgagee consents in writing, even if such rights and
remedies shall have accrued prior to such attornment and even if Landlord's acts
or omissions shall have caused or contributed to the condition or delay giving
rise to such rights and remedies.
6. The attornment provided for in Paragraph 3 of this Agreement shall
inure to the benefit of any Successor Landlord, shall be self-operative, and no
further instrument shall be required to give effect to the attornment. Tenant,
however, upon demand of any Successor Landlord, agrees to execute, from time to
time, instruments in confirmation thereof, reasonably satisfactory to any such
Successor Landlord, acknowledging such attornment and setting forth the terms
and conditions of its tenancy. Nothing contained in this Paragraph 6 shall be
construed to impair any right otherwise exercisable by any such Successor
Landlord.
7. From and after the date hereof, Tenant shall at the same time such
notice is sent to Landlord, send to Mortgagee a copy of any notice of default or
notice in connection with the commencement of any action to terminate the Lease
(whether in connection with a proceeding pursuant to the Code or otherwise) on
account of any default and agrees that, notwithstanding any provisions of the
Lease to the contrary, no such notice shall be deemed to have been given unless
Mortgagee shall have been given such notice. Such notices shall be sent by
certified or registered mail, postage prepaid, return receipt requested or shall
be delivered to Mortgagee at Mortgagee's address first set forth above (or at
such other address as Mortgagee shall specify in a written notice to Tenant at
the address first specified above for Tenant). Any such notice shall be deemed
to be given to Mortgagee on the earlier of (a) the day of receipt (as evidenced
by a receipt signed by Mortgagee or the refusal to accept delivery by Mortgagee)
or (b) three (3) days after Tenant's deposit of such notice in the mail, first
class postage prepaid. With respect to the commencement by Tenant of any action
to terminate the Lease, Mortgagee shall have the right, but not the obligation,
to cure any default on the part of Landlord that is the basis for such action
within a reasonable time (including the time required for Mortgagee to obtain
possession of the Premises if such possession is necessary to effect such cure)
after receipt of the notice by Tenant with respect to such action. This
Paragraph 7 shall not be applicable to any termination of the Lease in whole or
in part (or rescission of the exercise of any expansion option or right)
pursuant to any provision of the Lease providing for such a termination (or
rescission).
D-3-
<PAGE> 103
8. Tenant shall not, without Mortgagee's prior written consent, cancel,
surrender or terminate the Lease and any attempt to do so shall be null and void
and of no force or effect. This Paragraph 8 shall not be applicable to any
cancellation, surrender or termination of the Lease in whole or in part (or
rescission of the exercise of any expansion option or right) pursuant to any
provision of the Lease expressly providing for such a cancellation, surrender or
termination (or rescission).
9. Tenant acknowledges that Landlord's interest under the Lease has been
assigned to Mortgagee as further security for the indebtedness secured by the
Mortgages. In the event Mortgagee notifies Tenant of a default under the
Mortgages and demands that Tenant pay its rent and all other sums due under the
Lease to Mortgagee, Tenant agrees that it shall pay its rent and all other sums
due under the Lease to Mortgagee.
10. Tenant and Mortgagee acknowledge that this Agreement satisfies all
conditions and requirements in the Lease relating to the granting of a
non-disturbance agreement by Mortgagee.
11. This Agreement is not intended to amend the Mortgages, nor is it
intended to increase or diminish the rights and obligations under the Mortgages
of the parties thereto.
12. By signing below, each of the signatories to this Agreement represents
that (a) it has full power and authority to execute this Agreement and to bind
itself to performance hereunder and (b) the execution and delivery of this
Agreement (1) have been duly authorized by all necessary acts on its part, (2)
do not violate or conflict with its organizational documents, (3) do not
conflict with any law or judgment of a government authority applicable to it and
(4) do not result in the breach of or constitute a default under any agreement
or other obligation to which it is a party.
13. This Agreement may not be modified, amended or terminated unless in
writing and duly executed by the party against whom the same is sought to be
asserted and constitutes the entire agreement between the parties with respect
to the subject matter hereof. Upon execution by every party hereto, this
Agreement shall supersede any previously executed agreement in effect between
the Mortgagee and Tenant with respect to the matters addressed herein.
14. This Agreement shall be governed by the laws of the State of New York
applicable to agreements made and to be performed within such State. The
undersigned hereby submit to personal jurisdiction in the State of New York for
all matters, if any, which shall arise with respect to this Agreement, and waive
any and all rights under the laws of any other state or country to object to
jurisdiction within the State of New York or to institute a claim of forum non
conveniens with respect to any court in the State of New York for the purposes
of litigation with respect to this Agreement.
15. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
D-4-
<PAGE> 104
16. Anything herein or in the Lease to the contrary notwithstanding, if
Mortgagee or a Successor Landlord shall acquire title to the Property, or shall
otherwise become liable for any obligations of Landlord under the Lease,
Mortgagee and any such Successor Landlord shall have no obligation, nor incur
any liability, beyond Mortgagee's or such Successor Landlord's then interest, if
any, in the Property and Tenant shall look exclusively to such interest, if any,
of Mortgagee or such Successor Landlord in the Property for the payment and
discharge of any obligations imposed upon Mortgagee or such Successor Landlord
hereunder or under the Lease. Tenant agrees that with respect to any money
judgment that may be obtained or secured by Tenant against Mortgagee or a
Successor Landlord, Tenant shall look solely to the estate or interest owned by
Mortgagee or such Successor Landlord in the Property and Tenant shall not
collect or attempt to collect any such judgment out of any other assets of
Mortgagee or such Successor Landlord.
D-5-
<PAGE> 105
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
[Lender]
By: ______________________________
Name:
Title:
THE GOLDMAN SACHS GROUP, L.P.
By: The Goldman Sachs Corporation,
its general partner
By: ______________________________
Name:
Title:
D-6-
<PAGE> 106
Exhibit E
Major Building Equipment
HVAC
Any cooling tower
The collection basin of any cooling tower
Any chiller
The evaporator shell or tubes of any chiller
The condenser shell or tubes of any chiller
The steam condenser or tubes of any chiller
Any fan system heating coil
Any fan system cooling coil
Any fan system fan housing
Any fan system fan wheel
Any air receiver
Any chilled water riser
Any condenser water riser
Any steam riser
Any house tank
Any condensate riser
Any heating water riser
Electrical
Any electrical riser feeder (normal or emergency) 400 amps or higher
Any electrical horizontal feeder (normal or emergency) at or below ground level
400 amps or higher
Any motor control center (normal or emergency)
Any motor starter (normal or emergency) 200 amps or higher
Any diesel engine
Any emergency power system generator 1000 KW or higher
Elevator
The hoist motor of any elevator
The motor generator of any elevator
Plumbing and Fire Prevention
Any domestic hot or cold water riser or main
Any sanitary waste riser or main
Any storm drainage riser or main
Any fire standpipe riser or main
E-1-
<PAGE> 1
EXHIBIT 10.4
================================================================================
LEASE, dated as of July 16, 1998,
Between
TCC ACQUISITION CORP.,
as Agent, as Landlord
and
THE GOLDMAN SACHS GROUP, L.P.,
as Tenant
180 Maiden Lane
New York, New York 10038
================================================================================
<PAGE> 2
TABLE OF CONTENTS(1)
Page
----
Article 1. Basic Lease Provisions .................................. 1
Article 2. Demise of Premises; Term ................................ 4
Article 3. Rent .................................................... 6
Article 4. Tax and Operating Costs ................................. 8
Section 4.1 Definitions ................................ 8
Section 4.2 Additional Rent ............................ 16
Section 4.3 Payments on Account ........................ 17
Section 4.4 Escalation Statement ....................... 17
Section 4.5 Audit, etc ................................. 18
Section 4.6 Base Year Statement ........................ 18
Section 4.7 Base Year Audit, etc ....................... 18
Section 4.8 Excess Cleaning Costs ...................... 19
Article 5. Use of Premises ......................................... 20
Article 6. Alterations by Tenant ................................... 22
Section 6.1 In General ................................. 22
Section 6.2 Landlord's Approval in Certain Cases ....... 23
Section 6.3 Government Permits and Licenses ............ 24
Section 6.4 Tenant's Contractors ....................... 24
Section 6.5 Performance of Alterations ................. 25
Section 6.6 Mechanics Lien ............................. 25
Article 7. Various Covenants ....................................... 25
Section 7.1 Tenant's Covenants ......................... 25
Section 7.2 Landlord's Covenants ....................... 29
Section 7.3 Year 2000 Compliance ....................... 30
Article 8. Changes or Alterations by Landlord ...................... 31
Article 9. Surrender; Ownership of Improvements; Removal
of Special Installations; Tenant's Shafts and
Other Areas; Holdover ................................... 33
Section 9.1 Surrender .................................. 33
Section 9.2 Ownership of Improvements .................. 33
Section 9.3 Removal of Special Installations ........... 34
Section 9.4 Areas Reserved to Landlord ................. 35
Section 9.5 [Intentionally Omitted] .................... 35
- ----------
(1) This table of contents, list of exhibits and table of definitions was not
included in the Lease at the time of execution and is not a part of the Lease.
It was prepared subsequent to the execution of the Lease solely for convenience
of reference.
<PAGE> 3
Section 9.6 Removal of Personal Property ............. 35
Section 9.7 Holdover ................................. 35
Article 10. Electric Current and Water .............................. 36
Section 10.1 Base Electricity ......................... 36
Section 10.2 Supplemental Electricity ................. 36
Section 10.3 Additional Electricity ................... 37
Section 10.4 Character of Electricity ................. 37
Section 10.5 Tenant's Dedicated Switches .............. 37
Section 10.6 Electricity Supplier for the Building .... 37
Section 10.7 Electricity Charges--Average Cost
per KWH ................................ 38
Section 10.8 Electric Charges -- Actual Cost
Contribution ........................... 40
Section 10.9 Billing & Payment ........................ 40
Section 10.10 Direct Service -- Illegality of
Redistribution ......................... 41
Section 10.11 Direct Service -- Tenant's Election ...... 41
Section 10.12 Tenant's Generator Plan -- Sale of
Output ................................. 42
Section 10.13 General .................................. 42
Section 10.14 Lamps. Starters & Ballasts ............... 42
Section 10.15 Water .................................... 42
Section 10.16 Exculpation .............................. 43
Section 10.17 Gas ...................................... 43
Article 11. Elevators. Cleaning. Services, etc ...................... 43
Section 11.1 Definitions .............................. 43
Section 11.2 Passenger Elevator and Escalator Service . 43
Section 11.3 Freight Elevator Service ................. 45
Section 11.4 Heating, Ventilating and Air-
Conditioning ........................... 46
Section 11.5 Supplemental Condenser Water ............. 47
Section 11.6 Cleaning By Landlord ..................... 47
Section 11.7 Cleaning By Tenant ....................... 48
Section 11.8 Cooperation in the Selection of
Cleaning Contractors ................... 49
Section 11.9 Rubbish Removal .......................... 49
Section 11.10 Additional Services ...................... 49
Section 11.11 Interruption in Services ................. 50
Section 11.12 Damage or Defective Condition ............ 51
Section 11.13 Building Directory ....................... 51
Section 11.14 Operation & Maintenance of the Building .. 51
Section 11.15 Accessibility and Security ............... 52
Section 11.16 Tenant's Car Service Line ................ 54
Section 11.17 Applicable Price ......................... 54
Section 11.18 Fire Alarm ............................... 55
Article 12. Assignment and Subletting ............................... 55
Section 12.1 General .................................. 55
Section 12.2 Request for Consent ...................... 56
Section 12.3 Consent Not to Be Unreasonably Withheld;
Conditions ............................. 57
Section 12.4 Effect of Consent ........................ 58
2
<PAGE> 4
Section 12.5 Provisions Applicable to Every Sublease .. 58
Section 12.6 Profit Sharing ........................... 59
Section 12.7 Changes in Control; Transactions with
Successors ............................... 60
Section 12.8 Transactions with Related Parties ........ 60
Section 12.9 Miscellaneous Provisions Regarding
Assignments .............................. 60
Article 13. Damage by Fire, etc ..................................... 61
Article 14. Condemnation ............................................ 63
Article 15. Compliance with Laws .................................... 64
Article 16. Mortgage, Subordination, and Attornment ................. 65
Article 17. Conditions of Limitation ................................ 67
Article 18. Re-entry by Landlord .................................... 69
Article 19. Damages ................................................. 70
Article 20. Curing Tenant's Defaults-- Additional Rent .............. 71
Article 21. Consents ................................................ 72
Article 22. Insurance ............................................... 73
Article 23. Brokerage Commission .................................... 76
Article 24. Satisfaction of Tenant's Remedies ....................... 77
Article 25. Landlord's Payments to Tenant ........................... 77
Article 26. Tenant's Right to Lease Additional Space ................ 78
Article 27. Renewal Term ............................................ 85
Article 28. Notices ................................................. 91
Article 29. Quiet Enjoyment ......................................... 91
Article 30. Binding Authority ....................................... 91
Article 31. Governing Law; Severability ............................. 91
Article 32. Lease Contains All Agreements-- No Waivers .............. 92
Article 33. Parties Bound ........................................... 92
Article 34. Special Purpose Areas; 16th Floor ....................... 93
Section 34.1 Special Purpose Areas-- General .......... 93
Section 34.2 Continued Operation 0f 41st Floor
Special Purpose Area ..................... 96
Section 34.3 Continued Operation of 3rd/4th Floor
Special Purpose Area ..................... 97
Section 34.4 Continued Operation of 2nd Floor
Special Purpose Area ..................... 98
Section 34.5 Continued Operation of Basement
Special Purpose Area ..................... 99
Section 34.6 16th Floor -- General .................... 100
3
<PAGE> 5
Section 34.7 Miscellaneous ............................ 100
Section 34.8 Miscellaneous ............................ 101
Article 35. Arbitration ............................................. 101
Article 36. Other Installations By Tenant ........................... 102
Section 36.1 Tenant's Generator Plant and
Tenant's Cooling Plant ................... 102
Section 36.2 Tenant's Antenna Equipment ............... 105
Section 36.3 Tenant's Closed Circuit Television
Cameras ................................ 106
Section 36.4 Window Film and Window Treatment ......... 106
Section 36.5 Use of Fire Stairs ....................... 106
Section 36.6 Tenant's Messenger Center ................ 107
Article 37. Tenant's Right of First Offer to Purchase ............... 107
Article 38. Tenant's Termination Right .............................. 109
Article 39. Landlord Defaults -- Tenant Right to Cure ............... 110
Section 39.1 ............................................ 110
Section 39.2 Landlord's Failure to Pay Costs
of Initial Improvements .................. 112
Section 39.3 Successor Liability ...................... 113
Article 40. Miscellaneous ........................................... 113
Article 41. ICIP & LMEP Program ..................................... 114
Section 41.1 The Project; the Benefits ................ 114
Section 41.2 Requirements to Obtain Benefits .......... 115
Section 41.3 Requirements in Respect of Contractors ... 116
Section 41.4 Submetering .............................. 117
Section 41.5 Tenant's Obtaining Direct Electric
Service ................................ 117
Article 42. Tenant's Shafts and Other Areas ......................... 117
Section 42.1 General .................................. 118
Section 42.2 CNA Closet ............................... 119
Section 42.3 Freight Elevator Lobby Space ............. 120
Section 42.4 Carlift Room ............................. 121
Section 42.5 Carlift Conveyor Shaft ................... 122
Section 42.6 Fuel Oil Riser Shaft ..................... 122
Section 42.7 Pipe Space ............................... 123
Section 42.8 Unused Exhaust Space ..................... 123
Section 42.9 Existing Kitchen Exhaust Space ........... 124
Section 42.10 Fire Stair Riser Space ................... 125
Section 42.11 Relocations by Tenant .................... 125
Section 42.12 Other Provisions ......................... 125
Section 42.13 Telecommunications Points of Entry
Section 42.14 Tenant's Fuel Tank ....................... 126
4
<PAGE> 6
EXHIBITS
A. Landlord
B. Stacking Plan, Areas and Floor Plans
C. Premises
D. Floor Plans
E. [Intentionally Omitted]
F. Certificate of Occupancy
G. Structural Reinforcement Work
H. Pre-Approved Critical Trade Contractors
I. Building Rules and Regulations
J. Tenant's Security and Background Check Procedures
K. Construction Rules and Regulations
L. Elevator Specifications
M. Cleaning Specifications
N. Cleaning Contractors-- Initial Bid List
0. Supplemental, Overtime and Sundry Services
P. Consent to Assignment & Consent to Sublease
Q. Form of Assumption
R. Form of Mortgage Non-Disturbance Agreement
S. Schedule of Existing Leases
T. Roof Warranty
U. Tenant's Messenger Facilities
AA. Chilled Water Plant
BB. Cooling Towers
CC. Loadbank
DD. Emergency Generator Plan
EE. Goldman Sachs Emergency Switchgear Room
FF. New' Communication Riser Location
GG. Power Conduit Risers
HH. Fuel Oil Piping Risers
II. Chilled Water Piping Riser
JJ. Stair Conduit Risers
KK. Dish Antennae
LL. Emergency Power Distribution Equipment Location
MM. Dish Antennae Space
NN. Telecommunication Point of Entry
00. Basement Switchgear Room
PP. Relocated Existing Kitchen Exhaust Flues
AAA. Entry Provisions
BBB. Pipe Erection and Other Work Provisions
CCC. SSL Special Purpose Area Lease Provision
DDD. Other Special Purpose Area Lease Provisions
5
<PAGE> 7
180 Maiden Lane
Table of Definitions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Lease
Defined Term Section Page
- --------------------------------------------------------------------------------
<S> <C> <C>
16th Floor Right 34.6 100
- --------------------------------------------------------------------------------
2nd Floor Special Purpose Area 34.1 93
- --------------------------------------------------------------------------------
30 Day Tenant 34.1 94
- --------------------------------------------------------------------------------
3rd Floor Escalators 11.2 45
- --------------------------------------------------------------------------------
3rd/4th Floor Special Purpose Area 34.1 93
- --------------------------------------------------------------------------------
41st Floor Machine Room 36.1 102
- --------------------------------------------------------------------------------
41st Floor Special Purpose Area 34.1 93
- --------------------------------------------------------------------------------
Acceptance Notice 26.3 79
- --------------------------------------------------------------------------------
Accepted Offer Space 26.3 80
- --------------------------------------------------------------------------------
Actual Electric Cost Contribution 10.8 40
- --------------------------------------------------------------------------------
Additional Metering Equipment 10.8 40
- --------------------------------------------------------------------------------
Additional Rent Dispute Notice 4.5 18
- --------------------------------------------------------------------------------
Alterations 7.1 27
- --------------------------------------------------------------------------------
Amortized Capital Improvement 4.1 11
- --------------------------------------------------------------------------------
Applicable Laws 15.1 64
- --------------------------------------------------------------------------------
Applicable Portion 2.3 4
- --------------------------------------------------------------------------------
Applicable Price 11.17 54
- --------------------------------------------------------------------------------
Audit Period 4.1 8
- --------------------------------------------------------------------------------
Base Building 11.14 52
- --------------------------------------------------------------------------------
Base Building Closet Installations 42.2 119
- --------------------------------------------------------------------------------
Base Building Pipes 42.7 123
- --------------------------------------------------------------------------------
Base Premises 1.5 1
- --------------------------------------------------------------------------------
Base Year Statement 4.6 18
- --------------------------------------------------------------------------------
Basement Special Purpose Area 34.1 93
- --------------------------------------------------------------------------------
BLS 11.17 54
- --------------------------------------------------------------------------------
Books and Records 37.1 108
- --------------------------------------------------------------------------------
Broker 23 76
- --------------------------------------------------------------------------------
Building Electricity 10.6 38
- --------------------------------------------------------------------------------
Building Electricity Supplier 10.7 39
- --------------------------------------------------------------------------------
Building Requirements 10.3 37
- --------------------------------------------------------------------------------
Business Days 11.1 43
- --------------------------------------------------------------------------------
Business Hours 11.1 43
- --------------------------------------------------------------------------------
C&W 23 76
- --------------------------------------------------------------------------------
Cartlift Conveyor Shaft 42.5 122
- --------------------------------------------------------------------------------
Cartlift Room 42.4 121
- --------------------------------------------------------------------------------
Cartlift Room Leased Floors 42.1 118
- --------------------------------------------------------------------------------
Cartlift Room Leases 42.1 118
- --------------------------------------------------------------------------------
Claims 7.1 28
- --------------------------------------------------------------------------------
Cleaning Costs 4.1 9
- --------------------------------------------------------------------------------
Cleaning Payment 4.8 19
- --------------------------------------------------------------------------------
CNA Closet 42.2 119
- --------------------------------------------------------------------------------
CNA Closet Installations 42.2 119
- --------------------------------------------------------------------------------
ConEd 10.6 38
- --------------------------------------------------------------------------------
Continuing Premises 38 109
- --------------------------------------------------------------------------------
Contractors 41.3 116
- --------------------------------------------------------------------------------
contractors, contractor 6.4 24
- --------------------------------------------------------------------------------
CPI Factor 11.17 54
- --------------------------------------------------------------------------------
CPI-U 11.17 54
- --------------------------------------------------------------------------------
Critical Trade Contractors 6.4 24
- --------------------------------------------------------------------------------
DBS 41.3 116
- --------------------------------------------------------------------------------
</TABLE>
Page 1 of 5
<PAGE> 8
180 Maiden Lane
Table of Definitions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Lease
Defined Term Section Page
- --------------------------------------------------------------------------------
<S> <C> <C>
Default Termination 18.2 69
- --------------------------------------------------------------------------------
deliver, delivery 2.3 5
- --------------------------------------------------------------------------------
Delivery Date 2.3 5
- --------------------------------------------------------------------------------
Disputed Section 39.2 Amount 39.2 113
- --------------------------------------------------------------------------------
DOF 41.3 116
- --------------------------------------------------------------------------------
Early Termination Date 38 109
- --------------------------------------------------------------------------------
Early Termination Premises 38 110
- --------------------------------------------------------------------------------
Electric Charge 10.7 39
- --------------------------------------------------------------------------------
Electrical Equipment 10.3 37
- --------------------------------------------------------------------------------
Entry Provisions 42.1 118
- --------------------------------------------------------------------------------
Escalation Statement 4.1 9
- --------------------------------------------------------------------------------
Estimated Repair Time 13.3 62
- --------------------------------------------------------------------------------
Excess Cleaning Cost 4.8 19
- --------------------------------------------------------------------------------
Excluded Cleaning Areas 11.6 48
- --------------------------------------------------------------------------------
Executive Elevators 11.2 44
- --------------------------------------------------------------------------------
Existing Building Generators 36.1 102
- --------------------------------------------------------------------------------
Existing Bulkhead Enclosure 36.1 102
- --------------------------------------------------------------------------------
Existing First Mortgage 16.3 66
- --------------------------------------------------------------------------------
Existing Kitchen Exhaust Space 42.1 118
- --------------------------------------------------------------------------------
Existing Mortgages 16.3 67
- --------------------------------------------------------------------------------
Existing Second Mortgage 16.3 66
- --------------------------------------------------------------------------------
Existing Special Purpose Area Use 5.1 21
- --------------------------------------------------------------------------------
Expiration Date 1.7 1
- --------------------------------------------------------------------------------
Final ICIP Application 41.2 115
- --------------------------------------------------------------------------------
Fire Stair Riser Space 42.10 125
- --------------------------------------------------------------------------------
First Renewal Term 27.1 86
- --------------------------------------------------------------------------------
Fixed Rent 3.2 6
- --------------------------------------------------------------------------------
Freight Elevator Hours 11.3 45
- --------------------------------------------------------------------------------
Freight Elevator Lobby Leased Floors 42.1 119
- --------------------------------------------------------------------------------
Freight Elevator Lobby Leases 42.1 119
- --------------------------------------------------------------------------------
Freight Elevator Lobby Space 42.3 120
- --------------------------------------------------------------------------------
Fuel Oil Riser Shaft 42.6 122
- --------------------------------------------------------------------------------
Full Premises Floor 2.1 4
- --------------------------------------------------------------------------------
GS 23 76
- --------------------------------------------------------------------------------
Guarantor 17.2 68
- --------------------------------------------------------------------------------
hazardous materials 15.2 65
- --------------------------------------------------------------------------------
Holidays 11.1 43
- --------------------------------------------------------------------------------
ICIP Benefits 41.1 115
- --------------------------------------------------------------------------------
ICIP Program 41.1 115
- --------------------------------------------------------------------------------
ICIP Work 41.2 115
- --------------------------------------------------------------------------------
ICIP/LMEP Submissions 41.2 115
- --------------------------------------------------------------------------------
Index 11.17 54
- --------------------------------------------------------------------------------
Interest Rate 4.5 18
- --------------------------------------------------------------------------------
Kitchens 9.3 34
- --------------------------------------------------------------------------------
Land 1.1 1
- --------------------------------------------------------------------------------
Landlord Cleaned Building Area 4.1 9
- --------------------------------------------------------------------------------
Landlord Cleaned Premises Area 4.1 9
- --------------------------------------------------------------------------------
Landlord Failure 39.1 110
- --------------------------------------------------------------------------------
Landlord Indemnitees 7.1 28
- --------------------------------------------------------------------------------
Landlord Monthly Payments 25.1 77
- --------------------------------------------------------------------------------
</TABLE>
Page 2 of 5
<PAGE> 9
180 Maiden Lane
Table of Definitions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Lease
Defined Term Section Page
- --------------------------------------------------------------------------------
<S> <C> <C>
Landlord's Determination 26.10 83
- --------------------------------------------------------------------------------
Landlord's Exercise Deadline Date 26.2 79
- --------------------------------------------------------------------------------
Landlord's Final Determination 27.4 89
- --------------------------------------------------------------------------------
Landlord's Initial Determination 27.4 88
- --------------------------------------------------------------------------------
Landlord's Low Rise Elevator Cost Contribution 11.2 44
- --------------------------------------------------------------------------------
Landlord's Offer Notice 37.1 107
- --------------------------------------------------------------------------------
Landlord's Work 2.6 6
- --------------------------------------------------------------------------------
lease 26.1 79
- --------------------------------------------------------------------------------
LMEP Application 41.2 115
- --------------------------------------------------------------------------------
LMEP Benefits 41.1 115
- --------------------------------------------------------------------------------
LMEP Program 41.1 115
- --------------------------------------------------------------------------------
Minimum Price 37.2 108
- --------------------------------------------------------------------------------
Multi-Full Floor Contiguous Block 26.3 80
- --------------------------------------------------------------------------------
New Bulkhead Enclosure 36.1 102
- --------------------------------------------------------------------------------
Newmark 23 76
- --------------------------------------------------------------------------------
Nomura 2.3 5
- --------------------------------------------------------------------------------
Non-Compliant Party 41.3 116
- --------------------------------------------------------------------------------
Notice of Landlord Failure 39.1 110
- --------------------------------------------------------------------------------
OCS 41.3 116
- --------------------------------------------------------------------------------
Offer 37.1 107
- --------------------------------------------------------------------------------
Offer Notice 26.2 79
- --------------------------------------------------------------------------------
Offer Price 37.2 108
- --------------------------------------------------------------------------------
Offer Space 26.2 79
- --------------------------------------------------------------------------------
Offer Space Appraiser 26.10 84
- --------------------------------------------------------------------------------
Offer Space Commencement Date 26.6 81
- --------------------------------------------------------------------------------
Offer Space Fair Market Rent 26.9 82
- --------------------------------------------------------------------------------
Offer Space Initial Cleaning Cost 26.9 83
- --------------------------------------------------------------------------------
Office Area Renewal Fixed Rent 27.3 87
- --------------------------------------------------------------------------------
Operating Costs 4.1 9
- --------------------------------------------------------------------------------
Original Applicable Price 11.17 54
- --------------------------------------------------------------------------------
Other Special Purpose Area Lease Provision 34.1 94
- --------------------------------------------------------------------------------
Other Tenants 34.1 94
- --------------------------------------------------------------------------------
Partial Accepted Offer Space 26.7 81
- --------------------------------------------------------------------------------
Partial Premises Floor 2.1 4
- --------------------------------------------------------------------------------
Pipe Erection and Other Work Provisions 42.1 118
- --------------------------------------------------------------------------------
Pipe Space 42.7 123
- --------------------------------------------------------------------------------
plans and specifications 6.2 23
- --------------------------------------------------------------------------------
Preliminary ICIP Application 41.2 115
- --------------------------------------------------------------------------------
Prime Rate 19.1 70
- --------------------------------------------------------------------------------
procuring party 22.6 74
- --------------------------------------------------------------------------------
Prohibited Occupant 5.3 22
- --------------------------------------------------------------------------------
Project 41.1 115
- --------------------------------------------------------------------------------
Property 37.1 108
- --------------------------------------------------------------------------------
Property Information 37.1 107
- --------------------------------------------------------------------------------
Proposed Sublease Expiration Date 12.2 56
- --------------------------------------------------------------------------------
Proposed Sublease Premises 12.2 56
- --------------------------------------------------------------------------------
Real Estate Taxes 4.1 16
- --------------------------------------------------------------------------------
Recapture Provision 26.2 79
- --------------------------------------------------------------------------------
Records Retention Deadline 4.1 16
- --------------------------------------------------------------------------------
Registers Office 16.3 66
- --------------------------------------------------------------------------------
</TABLE>
Page 3 of 5
<PAGE> 10
180 Maiden Lane
Table of Definitions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Lease
Defined Term Section Page
- --------------------------------------------------------------------------------
<S> <C> <C>
Related Party 12.8 60
- --------------------------------------------------------------------------------
Renewal Notice 27.1 86
- --------------------------------------------------------------------------------
Renewal Option 27.1 85
- --------------------------------------------------------------------------------
Renewal Premises 27.1 86
- --------------------------------------------------------------------------------
Renewal Term 27.1 85
- --------------------------------------------------------------------------------
Renewal Term Appraiser 27.4 89
- --------------------------------------------------------------------------------
Renewal Term Fair Market Rent 27.3 87
- --------------------------------------------------------------------------------
Renewal Term Initial Cleaning Cost 27.3 88
- --------------------------------------------------------------------------------
Rent 3.1 6
- --------------------------------------------------------------------------------
Scheduled Delivery Date 2.3 4
- --------------------------------------------------------------------------------
Scheduled Offer Space Delivery Date 26.2 79
- --------------------------------------------------------------------------------
Second Renewal Term 27.1 86
- --------------------------------------------------------------------------------
Section 39.2 Advance 39.2 112
- --------------------------------------------------------------------------------
Section 39.2 Demand Amount 39.2 112
- --------------------------------------------------------------------------------
Section 39.2 Demand Notice 39.2 112
- --------------------------------------------------------------------------------
Section 39.2 Dispute Notice 39.2 112
- --------------------------------------------------------------------------------
Secure Area 7.1 26
- --------------------------------------------------------------------------------
Selected Removal Bid 9.3 34
- --------------------------------------------------------------------------------
Single Tenant Floors 42.2 120
- --------------------------------------------------------------------------------
Special Installations 9.3 34
- --------------------------------------------------------------------------------
Special Purpose Area 34.1 93
- --------------------------------------------------------------------------------
Special Purpose Area Right 34.1 94
- --------------------------------------------------------------------------------
Special Purpose Elevator 11.2 45
- --------------------------------------------------------------------------------
SSL Special Purpose Area Lease Provision 34.1 94
- --------------------------------------------------------------------------------
Switch 10.5 37
- --------------------------------------------------------------------------------
Tenant ID Card 11.15 52
- --------------------------------------------------------------------------------
Tenant Indemnitees 7.2 29
- --------------------------------------------------------------------------------
Tenant's Acceptance 37.1 108
- --------------------------------------------------------------------------------
Tenants Antenna Equipment 36.2 105
- --------------------------------------------------------------------------------
Tenant's Antennas 36.2 105
- --------------------------------------------------------------------------------
Tenant's Building Equipment 7.3 30
- --------------------------------------------------------------------------------
Tenant's CCTV Equipment 36.3 106
- --------------------------------------------------------------------------------
Tenants Cleaning Share 4.1 9
- --------------------------------------------------------------------------------
Tenant's Cooling Plant 36.1 103
- --------------------------------------------------------------------------------
Tenant's Cooling Tower 36.1 103
- --------------------------------------------------------------------------------
Tenant's Dedicated Switches 10.5 37
- --------------------------------------------------------------------------------
Tenant's Determination 26.10 83
- --------------------------------------------------------------------------------
Tenant's Electrical Equipment 36.1 103
- --------------------------------------------------------------------------------
Tenant's Electrical Work 10.5 37
- --------------------------------------------------------------------------------
Tenant's Final Determination 27.4 89
- --------------------------------------------------------------------------------
Tenant's Generator Plant 36.1 103
- --------------------------------------------------------------------------------
Tenant's Generators 36.1 102
- --------------------------------------------------------------------------------
Tenant's Initial Determination 27.4 88
- --------------------------------------------------------------------------------
Tenant's Loadbank 36.1 103
- --------------------------------------------------------------------------------
Tenant's Loading Dock Area 36.6 107
- --------------------------------------------------------------------------------
Tenants Low Rise Elevator Work 11.2 44
- --------------------------------------------------------------------------------
Tenant's Low Rise Elevator Work Costs 11.2 44
- --------------------------------------------------------------------------------
Tenants Mechanical Equipment 36.1 103
- --------------------------------------------------------------------------------
Tenants Self-Help Notice 39.1 111
- --------------------------------------------------------------------------------
Tenant's Self-Help Right 39.1 111
- --------------------------------------------------------------------------------
</TABLE>
Page 4 of 5
<PAGE> 11
180 Maiden Lane
Table of Definitions
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Lease
Defined Term Section Page
- --------------------------------------------------------------------------------
<S> <C> <C>
Tenant's Shafts 42.1 118
- --------------------------------------------------------------------------------
Tenants Termination Option 38 109
- --------------------------------------------------------------------------------
Termination Fee 38 110
- --------------------------------------------------------------------------------
Termination Notice 38 109
- --------------------------------------------------------------------------------
Underlying Lease 16.1 65
- --------------------------------------------------------------------------------
Underlying Mortgage 16.1 65
- --------------------------------------------------------------------------------
untenantable 13.1 61
- --------------------------------------------------------------------------------
Unused Exhaust Space 42.8 123
- --------------------------------------------------------------------------------
Year 2000 Compliant, Year 2000 Compliance 7.3 31
- --------------------------------------------------------------------------------
</TABLE>
Page 5 of 5
<PAGE> 12
LEASE, dated as of July 16, 1998, between TCC ACQUISITION CORP., as
agent for the companies listed on Exhibit A, having an office at 180 Maiden
Lane, New York, New York 10038 ("Landlord"), and THE GOLDMAN SACHS GROUP, L.P.,
a Delaware limited partnership, having an office at 85 Broad Street, New York,
New York 10004 ("Tenant").
Article 1. Basic Lease Provisions.
1.1 Building:
The Building located on the parcel of land (the "Land") having
as an address 180 Maiden Lane, New York, New York 10038.
1.2 Rentable Area of the Building (excluding Basement):
1,091,570 rentable square feet. Attached as Exhibit B is a
stacking plan showing the rentable, useable, and gross area of
each floor of the Building, and typical floor plans of a Full
Premises Floor in the mid-rise elevator bank and of a Full
Premises Floor in the high rise elevator bank.
1.3 Premises:
as set forth on the listing attached as Exhibit C and as shown
on Exhibit D.
1.4 Effective Date of Lease:
The date first-above written.
1.5 Last Delivery Date:
The Delivery Date of the last to be delivered of the 4th Floor
Office Area and floors 6-16 (the 4th Floor Office Area and
floors 6-16 being together referred to as the "Base
Premises").
1.6 Term Commencement Date:
The first Delivery Date.
1.7 Initial Expiration Date:
The last day of the calendar month during which occurs the
fifteenth (15th) anniversary of the Last Delivery Date. As
used in this Lease the term "Expiration Date" shall refer to
the Initial Expiration Date or, if any Renewal Option provided
for in Article 27 is duly and validly exercised, the
expiration date of the applicable Renewal Term.
<PAGE> 13
1.8 Rent Commencement Date:
With respect to each Applicable Portion of the Premises
delivered to Tenant, seven (7) months after the Delivery Date
of such Applicable Portion.
1.9 Rent:
(a) Fixed Rent for Office Areas (as more particularly
described in Section 3.2):
<TABLE>
<CAPTION>
Years (From Last Annual Rate per
Delivery Date(1)) rentable square foot
----------------- --------------------
<S> <C>
1-5 $37.50
6-10 $39.50
11-15 $44.00
</TABLE>
(b) Fixed Rent for Special Purpose Areas (as more particularly
described in Section 3.2):
<TABLE>
<CAPTION>
Years (From Last Annual Rate per
Delivery Date(2)) rentable square foot
----------------- --------------------
<S> <C>
1-5 $20.00
6-10 $21.00
11-15 $23.25
</TABLE>
(c) Fixed Rent for Non-Office Areas (as more particularly
described in Section 3.2):
<TABLE>
<CAPTION>
Years (From Last Annual Rate per
Delivery Date(3)) rentable square foot
----------------- --------------------
<S> <C>
1-5 $18.75
6-10 $19.75
11-15 $22.00
</TABLE>
(d) Additional Rent
- ----------
(1) Section 3.2 provides that floors delivered prior to the Last Delivery Date
shall have Fixed Rent payable at $37.50 per rentable square foot, subject to the
applicable Rent Abatement Period.
(2) Section 3.2 provides that floors delivered prior to the Last Delivery Date
shall have Fixed Rent payable at $20.00 per rentable square foot, subject to the
applicable Rent Abatement Period.
(3) Section 3.2 provides that floors delivered prior to the Last Delivery Date
shall have Fixed Rent payable at $18.75 per rentable square foot, subject to the
applicable Rent Abatement Period.
2
<PAGE> 14
Additional Rent: All sums, others than Fixed Rent, which are
due and payable to Landlord by Tenant under this Lease.
1.10 Rent Abatement Period:
With respect to any Applicable Portion of the Premises, the
period commencing on the Delivery Date of such Applicable
Portion and ending on the day preceding the Rent Commencement
Date with respect to such Applicable Portion.
1.11 Base Year:
1999 calendar year.
1.12 Tenant's Proportionate Share:
At any time, the percentage which has been calculated by
dividing the total number of rentable square feet of the
Office Area and the Special Purpose Areas other those in the
Basement which has been delivered to Tenant by the total
Rentable Area of the Building.
1.13 Special Purpose Areas:
As defined in Article 34.
1.14 Non-Office Areas:
Basement Spaces "I", "G" & "M"
the 1,208 rentable square foot portion of the 28th floor
the 1.2 19 rentable square foot portion of the 26th floor
1.15 Office Areas:
All portions of the Premises other than the Special Purpose
Areas and the Non-Office Areas.
1.16 Renewal Terms:
Two (2) additional periods of five (5) years each, subject to
the provisions of Article 27 of this Lease.
1.17 Landlord Address for Notices:
TCC Acquisition Corp., as Agent
c/o The Continental Insurance Company
CNA Plaza
333 S. Wabash - 14 North
Chicago, Illinois 60685
Attention: Corporate Real Estate
3
<PAGE> 15
1.18 Tenant Address for Notices:
General Counsel
The Goldman Sachs Group, L.P.
85 Broad Street
New York, New York 10004
Attention: Elaine S. Laurence
AND
General Services -- Lease Administration
The Goldman Sachs Group, L.P.
85 Broad Street
New York, New York 10004
Attention: Marlene G. Krammer
1.19 Initial Improvements Agreement:
the Initial Improvements Agreement of even date herewith
between Landlord and Tenant.
Article 2. Demise of Premises; Term.
2.1 Landlord hereby leases and demises to Tenant, and Tenant hereby
hires and takes from Landlord, upon and subject to the covenants, agreements,
terms, provisions and conditions of this Lease, the Premises. For the purposes
of this Lease: the term "Full Premises Floor" shall mean any floor of the
Building on or above the mezzanine level all of the leasable area of which is
leased to Tenant, and the term "Partial Premises Floor" shall mean any floor of
the Building on or above the mezzanine level some but not all of the leasable
area of which is leased to Tenant.
2.2 This Lease is effective on the Effective Date. The term shall
commence on the Term Commencement Date and shall end at 11:59 p.m. on the
Expiration Date, or on such earlier date upon which the term may expire or be
terminated pursuant to any of the conditions of limitation or other provisions
of this Lease or pursuant to law.
2.3 Landlord agrees to deliver the Premises, or portions thereof, in
accordance with the dates set forth in Exhibit C under the column heading
"Scheduled Delivery Date" (each floor, or a portion of a floor as described in
Exhibit C shall be deemed an "Applicable Portion"), and may deliver any
Applicable Portion to Tenant on any date earlier than the Scheduled Delivery
Date of such Applicable Portion, upon sixty (60) days' notice to Tenant of such
earlier delivery date. Prior to delivering the 16th floor, the 37th floor or the
40th floor Landlord shall complete Landlord's Work (as hereinafter defined) with
respect thereto. As used in this Lease the term "Delivery Date" with respect to
any
4
<PAGE> 16
Applicable Portion shall mean the date of the actual delivery thereof; provided,
however, that in the case of the 16th floor, the 37th floor or the 40th floor
the term "Delivery Date" shall mean the later of (i) the date of the actual
delivery thereof, and (ii) the date of completion of Landlord's Work with
respect thereto. As used herein, the phrase "deliver" or "delivery" shall refer
to delivery to Tenant of vacant possession. Landlord represents to Tenant that
(except as provided in the next paragraph), pursuant to the terms thereof or the
terms of other written agreements now in effect, each lease now covering any
Applicable Portion will expire or terminate on or prior to Scheduled Delivery
Date relative to such Applicable Portion, it being understood that (i) no
holding over by any tenant beyond such expiration or termination shall give rise
to or constitute a breach of the representation set forth in this sentence, and
(ii) the provisions of Section 2.5 below shall not be applicable to any breach
of such representation.
Landlord has not yet obtained surrender agreements from the tenant
of the 22nd floor or from space E on the 21st floor. If the Delivery Date of the
22nd floor does not occur on or before January 1, 1999 Tenant shall have the
right, by giving notice to Landlord prior to such Delivery Date, to revoke its
leasing of the 22nd floor pursuant to this Article 2. If the Delivery Date of
such space E does not occur on or before January 1, 1999 Tenant shall have the
right, by giving notice to Landlord prior to such Delivery Date, to revoke its
leasing of space E pursuant to this Article 2.
Tenant acknowledges that Nomura Capital Management, Inc. ("Nomura")
has an option to lease space C on the 26th floor exercisable on or before
February 1, 2007 for delivery to Nomura no later than August 1, 2007. If Nomura
exercises such option, Landlord shall promptly notify Tenant and the term of
this Lease shall expire with respect such space C on July 31, 2007.
2.4 Within thirty (30) days after the Delivery Date with respect to
any Applicable Portion, at the request of the other party, Landlord and Tenant
shall execute a mutually acceptable instrument specifying the exact calendar
dates of the Term Commencement Date, the Delivery Date of such Applicable
Portion, the Rent Commencement Date with respect to such Applicable Portion,
Tenant's Proportionate Share following the Delivery Date and, following the Last
Delivery Date, the Initial Expiration Date.
2.5 Pursuant to Section 223-a of the Real Property Law of the State
of New York and notwithstanding any other law of like import now or hereafter in
force, the parties hereto expressly provide that, if any Applicable Portion of
the Premises are not available for delivery to Tenant on the Scheduled Delivery
Date, Tenant shall not have any claim against Landlord, except as described in
Section 3.5, nor any right to rescind this Lease. Landlord shall use
commercially reasonable efforts, including commencing eviction proceedings and
diligently prosecuting the same to completion, at Landlord's cost and expense,
to obtain possession of any Applicable Portion that is not available for
delivery to Tenant on the Scheduled Delivery Date by reason of the holding over
in the space by a prior tenant thereof.
5
<PAGE> 17
2.6 Subject to the Initial Improvements Agreement, Landlord shall
deliver, and Tenant shall accept each Applicable Portion in its present "as is
condition, subject to reasonable wear and tear between the Effective Date and
the Delivery Date of such Applicable Portion, except (i) for latent defects,
(ii) that prior to the delivery of the 16th floor, Landlord shall have performed
all of the demolition work required by Article 34, (iii) that prior to the
delivery of the 37th floor Landlord shall have demolished all of the
improvements therein, including the existing staircase, and filled in and
restored the floor slabs above and below, and (iv) that prior to the delivery of
the 40th floor Landlord shall have demolished the existing staircase and filled
in and restored the floor slabs above and below (the work described in clauses
(ii), (iii) and (iv) being herein called "Landlord's Work"). Notwithstanding the
foregoing, within sixty (60) days after the delivery of any Applicable Portion,
Landlord, at Landlord's expense, shall refurbish the perimeter single finned
pipe radiation units serving such Applicable Portion as required for efficient
heating and otherwise in good working order and condition, all to the reasonable
satisfaction of Tenant.
Article 3. Rent.
3.1 Except as otherwise provided herein, Tenant shall pay the Fixed
Rent and Additional Rent as and when the same shall become due and payable, to
Landlord, at its office in the United States of America, or at any other place
or places in the United States of America as Landlord shall designate to Tenant,
in cash or by check payable to Landlord in United States currency, without
demand therefor and without any setoff or deduction whatsoever. The Fixed Rent
and the Additional Rent are collectively referred to from time to time as the
"Rent."
3.2 The rent reserved under this Lease for the term hereof shall be
and consist of Fixed Rent payable as follows ("Fixed Rent") with respect to each
Applicable Portion delivered to Tenant in accordance with this Lease:
with respect to the Office Areas:
(i) Commencing on the Delivery Date for each Applicable Portion and
continuing through the date which is the fifth (5th) anniversary of the
Last Delivery Date, Fixed Rent shall be payable at the rate of $37.50 per
rentable square foot per annum; and
(ii) Commencing on the date following the fifth (5th) anniversary of
the Last Delivery Date and continuing through the date which is the tenth
(10th) anniversary of the Last Delivery Date, Fixed Rent shall be payable
at the rate of $39.50 per rentable square foot per annum; and
6
<PAGE> 18
(iii) Commencing on the date following the tenth (10th) anniversary
of the Last Delivery Date and continuing through the Initial Expiration
Date, Fixed Rent shall be payable at the rate of $44.00 per rentable
square foot per annum.
with respect to the Special Purpose Areas:
(iv) Commencing on the Delivery Date for each Applicable Portion and
continuing through the date which is the fifth (5th) anniversary of the
Last Delivery Date, Fixed Rent shall be payable at the rate of $20.00 per
rentable square foot per annum; and
(v) Commencing on the date following the fifth (5th) anniversary of
the Last Delivery Date and continuing through the date which is the tenth
(10th) anniversary of the Last Delivery Date, Fixed Rent shall be payable
at the rate of $21.00 per rentable square foot per annum; and
(vi) Commencing on the date following the tenth (10th) anniversary
of the Last Delivery Date and continuing through the Initial Expiration
Date, Fixed Rent shall be payable at the rate of $23.25 per rentable
square foot per annum.
with respect to the Non-Office Areas:
(vii) Commencing on the Delivery Date for each Applicable Portion
and continuing through the date which is the fifth (5th) anniversary of
the Last Delivery Date, Fixed Rent shall be payable at the rate of $18.75
per rentable square foot per annum; and
(viii) Commencing on the date following the fifth (5th) anniversary
of the Last Delivery Date and continuing through the date which is the
tenth (10th) anniversary of the Last Delivery Date, Fixed Rent shall be
payable at the rate of $19.75 per rentable square foot per annum; and
(ix) Commencing on the date following the tenth (10th) anniversary
of the Last Delivery Date and continuing through the Initial Expiration
Date, Fixed Rent shall be payable at the rate of $22.00 per rentable
square foot per annum.
3.3 Fixed Rent shall be payable in equal monthly installments in
advance on the first day of each and every calendar month throughout the term,
except that commencing on the Delivery Date for each Applicable Portion, Fixed
Rent shall be abated for the Rent Abatement Period.
3.4 Commencing upon the Delivery Date for each Applicable Portion,
Tenant shall pay Landlord for the electricity provided to the Premises pursuant
to Article 9 of this Lease.
7
<PAGE> 19
3.5 Notwithstanding the foregoing, in the event that Landlord shall
fail to deliver any Applicable Portion of the Base Premises or the Special
Purpose Areas on or before the thirtieth (30th) day following the Scheduled
Delivery Date for such Applicable Portion (as postponed by Section 34.1 if
applicable) for any reason other than force majeure delays, then for each day on
or after such thirtieth (30th) day until the Delivery Date of such Applicable
Portion of the Base Premises or the Special Purposes Areas, the Rent
Commencement Date for such Applicable Portion shall be postponed by two days for
each day, commencing with the thirtieth (30th) day following the Scheduled
Delivery Date until the Delivery Date for such Applicable Portion.
3.6 In the event the Fixed Rent or Additional Rent or any part
thereof required to be paid by Tenant under the provisions of this Lease during
the term become uncollectible or shall be reduced or required to be reduced or
refunded by virtue of any Federal, state, county or city law, order or
regulation, or any direction of a public officer or body pursuant to law, or the
orders, rules, codes or regulations of any public or private organization or
entity in the nature of rent control or rent regulation, then Landlord, at its
option, may at any time thereafter terminate this Lease by not less than ninety
(90) days' written notice to Tenant on a date set forth in the notice. Upon such
termination this Lease and the Term hereof shall terminate and come to an end as
of the date fixed in the notice as if that date were the Expiration Date.
Notwithstanding the foregoing, Landlord shall not have the right to terminate
this Lease, if within the ninety (90) day period Tenant agrees in writing that:
(a) the Rent herein reserved is a reasonable rental and agrees to continue to
pay the rentals to the extent legally enforceable, and (b) upon the expiration
or other legal termination of the applicable period of time during which any
amounts shall be uncollectible, reduced or refunded, the Fixed Rent and
Additional Rent shall become and shall thereafter be payable in accordance with
the amounts reserved herein for the periods following such expiration or
termination, and (c) upon the expiration or other legal termination of the
applicable period of time during which any amounts shall be uncollectible,
reduced or refunded, Tenant shall pay to Landlord as Additional Rent, within
sixty (60) days after demand, all uncollected, reduced or refunded amounts that
would have been payable, absent such law, order, regulation, direction, rule or
code, provided that it is then legally permissible for Landlord to collect and
Tenant to pay all such amounts.
Article 4. Tax, Operating Costs and Cleaning Cost.
4.1 Definitions. As used in this Article:
(a) "Audit Period" with respect to the Escalation Statement relative
to any Lease Year shall mean the five year period commencing upon the
delivery of such Escalation Statement to Tenant.
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(b) "Cleaning Costs" shall mean, for any period, the costs of
cleaning all office floors of the Building above the mezzanine level of
the Building (including the common areas on such floors) excluding any
Full Premises Floors cleaned by Tenant pursuant to pursuant to Section
11.7 (the "Landlord Cleaned Building Area"); provided, however, that
"Cleaning Costs" shall not include any of the costs referred to in clause
(2) through (31) of Section 4.1(g).
(c) "Tenant's Cleaning Share" shall mean, for any period, a fraction
(i) the numerator of which is the total number of rentable
square feet of the Premises cleaned by Landlord pursuant to clause
(b) and (c) of Section 11.6 during said period (the "Landlord
Cleaned Premises Area"), and
(ii) the denominator of which is the Landlord Cleaned Building
Area during said period.
(d) "Escalation Statement" shall mean a statement setting forth the
amount payable by Tenant for a specified Lease Year pursuant to this
Article, including a reasonably detailed statement of Real Estate Taxes
for such Lease Year and Operating Costs for such Lease Year in form
reasonably acceptable to Tenant.
(e) "Lease Year" shall mean each calendar year in which any part of
the term of this Lease occurs and, in the case of a Default Termination of
this Lease, in which any part of the term of this Lease would have
occurred except for such Default Termination.
(f) "Operating Costs" shall mean the aggregate of all expenses of
operating, maintaining, and repairing the Building and the plazas,
sidewalks and curbs adjacent thereto, including, but not limited to, the
following:
(1) the replacement of worn-out equipment, facilities and
installations;
(2) steam, water, fuel and other utilities;
(3) heat, air conditioning and ventilation;
(4) refuse and rubbish removal, window cleaning, janitorial
and exterminating services;
(5) electricity for, and painting of, the public or common
areas of the Building;
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(6) security;
(7) cleaning services with respect to (i) the common areas of
the Building on or below the mezzanine level of the Building, and
(ii) the fire stairs and the windows of the Building (both the
interior and exterior thereof);
(8) gardening and other landscaping services;
(9) insurance (including rental income insurance);
(10) uniforms and supplies;
(11) sale or use taxes on supplies or services;
(12) payroll taxes, wages and salaries of all persons engaged
in the operation, maintenance and repair of the Building and the
plazas, sidewalks and curbs adjacent thereto and so-called fringe
benefits, including social security taxes, unemployment taxes,
worker's compensation, coverage for disability benefits,
contributions to any pension, hospitalization, welfare or retirement
plans or any other similar or like expenses incurred under the
provisions of any collective bargaining agreement and any other
amount incurred to provide benefits for employees engaged in the
operation, maintenance and repair of the Building and the plazas,
sidewalks and curbs adjacent thereto;
(13) fees for management services provided by an independent
management company or by Landlord, in either case, not to exceed, in
any Lease Year, including the Base Operating Year, an amount that
would be a reasonable and customary management fee paid to a
management company not affiliated with Landlord and that would
result from competitive bidding in an arms' length transaction for
buildings similar to the Building located in the vicinity of the
Building;
(14) the annual amortization over the useful life thereof of
costs, including financing costs (if any) incurred by Landlord, of
any equipment or device for, or capital improvement to, the Building
installed or paid for by Landlord on or after
(i) the date hereof (in the case of the determination of
Operating Costs for the purpose of computing the amount
payable by Tenant under this Article 4 with respect to
any Applicable Portion), or
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(ii) the applicable Offer Space Commencement Date (in
the case of the determination of Operating Costs for the
purpose of computing the amount payable by Tenant under
this Article 4 with respect to any Accepted Offer Space)
(the equipment, device or capital improvement being herein called an
"Amortized Capital Improvement") that is either intended as a
labor-saving measure or to effect other economies in the operation
or maintenance of the Building (but not, in either case, in any
Lease Year with respect to any Amortized Capital Improvement an
amount in excess of the actual savings in Operating Costs resulting
in such Lease Year from such Amortized Capital Improvement) or that
is required to comply with any laws, rules or regulations of any
governmental authority having jurisdiction enacted after
(i) the date hereof (in the case of the determination of
Operating Costs for the purpose of computing the amount
payable by Tenant under this Article 4 with respect to
any Applicable Portion), or
(ii) the applicable Offer Space Commencement Date (in
the case of the determination of Operating Costs for the
purpose of computing the amount payable by Tenant under
this Article 4 with respect to any Accepted Offer
Space);
(15) the charges of any independent contractor who under a
contract does any of the work of operating and maintaining the
Building or any of the plazas, sidewalks or curbs adjacent thereto,
provided that any such contract shall be competitively bid or the
cost thereof shall not exceed an amount that would result if the
contract were competitively bid;
(16) legal and accounting fees and disbursements;
(17) liabilities, damages, awards and judgments including
interest thereon, paid or incurred by Landlord and arising from the
ownership, operation, maintenance and repair of the Building and the
plazas, sidewalks and curbs adjacent thereto (excluding specifically
(a) all liabilities, damages, awards and judgments for injury or
death to persons and for property damage arising from ownership,
operation, maintenance and repair of the Building
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and the plazas, sidewalks and curbs adjacent thereto, or (b) all
liabilities, damages, awards and judgments on account of any breach
or violation of any tenant's lease); and
(18) any other expense or charge of any nature whatsoever,
whether or not herein mentioned that would, under generally accepted
accounting principles, be construed as an operating expense.
If during any period for which the Operating Costs are being
computed, including the Base Operating Year, Landlord is not for all or
any part of such period furnishing any particular work or service (the
cost of which if performed by Landlord would constitute an Operating Cost)
to more than five percent (5%) of the rentable portion of the office area
in the Building due to the fact that more than five percent (5%) of the
rentable portion of the office area of the Building is not leased to a
tenant or that Landlord is not obligated to perform the work or service in
that portion, then the amount of the Operating Costs for that period shall
be deemed, for the purposes of this Article, to be increased by an amount
equal to the additional Operating Costs that reasonably would have been
incurred during that period by Landlord if it had at its own expense
furnished the work or service to ninety-five percent (95%) of the rentable
portion of the office area in the Building.
(g) Notwithstanding anything to the contrary in this Lease, the term
"Operating Costs" shall not include any of the following:
(1) all costs of cleaning (including costs includable under
any subsection of Section 4.1(f) with respect to cleaning) any
portion of the Building other than (i) the common areas of the
Building on or below the mezzanine level of the Building, (ii) the
fire stairs of the Building, or (iii) the windows of the Building
(both the interior and the exterior thereof);
(2) Real Estate Taxes, franchise, transfer, inheritance or
capital stock taxes or taxes imposed upon or measured by the income
or profits of Landlord;
(3) the cost of any item that is, or should in accordance with
generally accepted accounting principles be, capitalized on the
books of Landlord (except as provided in Section 4.1(f)(14));
(4) the cost of any electricity or steam furnished to the
Premises or any other leasable space in the Building whether vacant
or demised to other tenants; the cost of any work or service
furnished for a tenant of space in the Building (including Tenant)
at that tenant's cost and expense;
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(5) any cost to the extent that Landlord is reimbursed
therefor out of insurance proceeds or otherwise, or for which
Landlord would be reimbursed under a standard "all risk" policy that
an owner of a building similar to the Building would typically carry
containing a deductible limit not exceeding the deductible limit
that an owner of a building similar to the Building would typically
carry;
(6) leasing commissions or advertising expenses incurred in
leasing or procuring tenants for the Building and legal expenses
incurred in preparing leases for tenants or in enforcing the terms
of any lease;
(7) legal fees, expenses and disbursements (other than those
reasonably incurred in connection with the maintenance and operation
of the Building), including, without limitation those incurred in
connection with leasing, sales, financing or refinancing;
(8) the cost of overtime heating, ventilating and air
conditioning furnished to the Premises or any other space leased to
tenants;
(9) depreciation and amortization, except as provided in
Section 4.1(f)(14);
(10) interest on and amortization of debts, except as provided
in Section 4.1(f)(14);
(11) the cost of improvements, installations and decorations
made in connection with preparing space for any tenant or occupant
or renovating space for any existing tenant or occupant, including
permit, license and inspection fees and any contribution by Landlord
to the cost of any such improvements, installations and decorations;
(12) financing and refinancing costs; and any costs incurred
in connection with the sale of the Building or the making or
assignment of any underlying or ground lease;
(13) the cost of any work or service (or level or amount
thereof) provided to any tenant or occupant of the Building
(including Tenant) which is in excess of the work or service (or
level or amount thereof) which Landlord is required by this Lease to
furnish to Tenant without separate or additional charge (including
without limitation the costs of all overtime HVAC, supplemental
HVAC, supplemental chilled water, supplemental condenser water,
special or supplemental cleaning (it being understood that the term
"special or supplemental cleaning" shall include all cleaning (in
the Premises or in any other leasable area of the Building) of the
type excepted
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from Landlord's cleaning obligation under clause (ii) to the proviso
to the first paragraph of Section 11.6), and overtime freight
elevator service);
(14) interest, fines and penalties resulting from the
violation by Landlord or any tenant or occupant of the Building of
any laws or requirements of legal authorities;
(15) costs and expenses incurred in connection with procuring
tenants, including lease concessions, landlord contributions and
allowances, lease takeover or rental assumption obligations;
(16) costs resulting from any judgement, settlement or
arbitration award against Landlord (including any thereof for bodily
or personal injury or property damage) and attorneys fees and
disbursements and other costs incurred in connection with the
defense of any claim or action against Landlord;
(17) costs of the type described in Section 4.1 (f)(12)
relative to any personnel above the grade of Building Manager;
(18) amounts payable under any ground or underlying lease;
provided, however, that this subsection shall not be deemed to
exclude from Operating Costs any amount payable under any such lease
which is otherwise included in and not otherwise excluded from
Operating Costs;
(19) the excess, if any of (i) any sums paid or incurred to
affiliates of Landlord or to, or to the affiliates of, the managing
agent of the Building for goods, services or other items the costs
of which are includable in Operating Costs, over (ii) the sums which
would have been paid or incurred therefor if the same had been
furnished by unaffiliated third-parties on a competitive bid basis;
(20) any compensation paid to clerks, attendants or other
persons in commercial concessions;
(21) advertising and promotional expenses;
(22) interest, charges and penalties resulting from the late
payment of any Operating Costs;
(23) costs incurred in connection with the removal,
encapsulation, enclosure, handling or other treatment of any
hazardous material or substance;
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(24) the costs of purchasing sculptures, paintings or other
works of art for the Building or its plaza in excess of amounts that
reasonable owners of comparable buildings would spend for decorating
the common areas of such buildings;
(25) legal fees, expenses and disbursements relating (A) to
enforcement of leases, recovery of possession, or collection of
rent, (B) to disputes with tenants or occupants, or prospective
tenants or occupants, or real estate brokers, (C) to disputes with
purchasers or lenders or ground or underlying lessors, (D) to
negotiations of leases, contracts of sale or mortgages or sale or
finance documents, or (E) to the defense of any claim the payment of
which would not constitute an Operating Cost;
(26) the costs of installing, operating, maintaining,
repairing and replacing any parking facilities in the Building;
(27) costs relating to withdrawal liability or unfunded
pension liability under any pension plan;
(28) the cost of complying in the Premises or in any other
leasable space in the Building with any law, rule or regulation of
any governmental authority having jurisdiction to the extent that
(i) in the case of the Premises, Tenant is required by the
provisions of this Lease (other than this Article 4) to bear such
cost, or (ii) in the case of any other leasable space in the
Building, Tenant would be required by the provisions of this Lease
(other than this Article 4) to bear such cost if such other leasable
space were a part of the Premises;
(29) the cost of installing, operating, maintaining and
replacing any specialty facility, such as any cafeteria or other
food service facility, any conference. or meeting facility, any
auditorium (including the Ricker auditorium), any dining or luncheon
club (including the Continental Club), any athletic or recreational
facility, or any observatory or radio or TV facility; and
(30) Landlord's general overhead; and
(31) to the extent any costs includable in Operating Costs are
incurred with respect to both the Building and other properties
(including, without limitation, salaries, fringe benefits and other
compensation of Landlord's personnel who provide services to both
the Building and other properties), there shall be excluded from
operating expenses a fair and reasonable percentage thereof which is
properly allocable to the other properties.
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(h) "Real Estate Taxes" shall mean (i) the taxes and assessments
imposed upon the Building and the Land (other than any interest or
penalties imposed in connection therewith) reduced by all abatements,
reductions and exemptions if, as and when in effect and benefitting the
Building and/or the Land, and (ii) all expenses, including fees and
expenses of counsel and experts, incurred by, or reimbursable by, Landlord
in connection with any application for a reduction in the assessed
valuation for the Building or the Land or the Real Estate Taxes or for a
judicial review thereof. If due to a future change in the method of
taxation any franchise, income, profit or other tax shall be levied
against Landlord in substitution for or in lieu of, in whole or in part,
any tax that would otherwise constitute a Real Estate Tax, the franchise,
income, profit or other tax (computed as if the Building and Land were the
only asset or business of Landlord) shall be deemed to be a Real Estate
Tax for the purposes hereof
(i) "Records Retention Deadline" with respect to any Lease Year
shall mean the last day of the Audit Period with respect to the Escalation
Statement relative to such Lease Year; provided, however, that in no event
shall the Records Retention Deadline with respect to any Lease Year occur
until all disputes relative to such Lease Year timely commenced by Tenant
under this Article 4 have been resolved. Notwithstanding the foregoing,
the Record Retention Deadline with respect to the Base Year shall mean the
last day of the Audit Period with respect to Lease Year 2000; provided,
however, that in no event shall the Records Retention Deadline with
respect to the Base Year occur until all disputes relative to the Base
Year timely commenced by Tenant under this Article 4 have been resolved.
4.2 Additional Rent. Tenant shall pay, as Additional Rent, in
respect of each Lease Year:
(a) Tenant's Proportionate Share of the excess of Real Estate
Taxes for such Lease Year over Real Estate Taxes for the Base Year;
(b) Tenant's Proportionate Share of the excess of Operating
Costs for such Lease Year over Operating Costs for the Base Year;
and
(c) Tenant's Cleaning Share of the Cleaning Costs for such
Lease Year; provided, however, that if during such Lease Year the
Landlord Cleaned Premises Area or the Landlord Cleaned Building Area
shall change the amount referred to in this clause (c) shall be
computed separately for each portion of such Lease Year.
Tenant's liability under clause (c) above with respect to any Applicable Portion
shall not commence, and shall be pro-rated as of, the Rent Commencement Date
relative to such Applicable Portion.
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If the Real Estate Taxes for any Lease Year or part thereof shall be
reduced after a payment therefor shall have been made by Tenant in respect of
that Lease Year pursuant to this Section, Landlord shall credit to Tenant an
amount equal to the product obtained by multiplying Tenant's Proportionate Share
by the net refund of the Real Estate Taxes received by Landlord (after
deduction, to the extent not previously paid by Tenant, of Tenant's
Proportionate Share of expenses, including fees and expenses of counsel and
experts, incurred by, or reimbursable by, Landlord in connection with reducing
the assessed valuation for the Building or the Land and in obtaining any
reduction or refund of the Real Estate Taxes) to the extent that the amount
otherwise payable pursuant to this Article for that Lease Year by Tenant would
have been less if the reduction in Real Estate Taxes had occurred during the
Lease Year; provided, however, that if the amount of such credit to which Tenant
is entitled shall exceed $100,000 Landlord shall, if Tenant shall so request,
refund the same within ten (10) days of such request.
4.3 Payments on Account. In order to provide for current payments on
account of Additional Rent payable to Landlord pursuant to this Article for any
Lease Year, Tenant agrees to make estimated payments on account of the
Additional Rent for and during each Lease Year in twelve (12) monthly
installments. Each such installment shall be in an amount equal to 1/12th of the
amount payable by Tenant to Landlord pursuant to Section 4.2 for the preceding
Lease Year and such additional amount as reasonably estimated by Landlord,
except that
(i) Tenant's estimated payments in respect of its liability
under clauses (a) and (b) of Section 4.2 for the first Lease Year
after the Base Year shall be based on Landlord's good faith estimate
of such liability, and
(ii) Tenant's estimated payments in respect of its liability
under clause (c) of Section 4.2 for the first Lease Year shall be
based on Landlord's good faith estimate of such liability,
(iii) in any subsequent case, Tenant's estimated payments
shall not exceed by more than 5% the amount of Tenant's liability
under Section 4.2 for the most recent previous Lease Year for which
an Escalation Statement was furnished by Landlord to Tenant.
4.4 Escalation Statement. Promptly after the end of any Lease Year
Landlord shall furnish Tenant with an Escalation Statement for such Lease Year.
If, as reflected in the Escalation Statement for any Lease Year, the amount of
Additional Rent payable by Tenant to Landlord pursuant to this Article for such
Lease Year shall be greater than (resulting in an underpayment) or be less than
(resulting in an overpayment) the total of all the installments/estimated
payments paid on account to Landlord by Tenant for the Lease Year, then,
promptly after receipt of the Escalation Statement for that Lease Year, Tenant
shall, in case of an underpayment, pay to Landlord the amount of the
underpayment
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or Landlord shall, in case of an overpayment, credit to Tenant the amount of
the overpayment.
4.5 Audit, etc. During the Audit Period with respect to any
Escalation Statement, Landlord shall permit all books and records of Landlord
and its managing agent relative to Real Estate Taxes, Operating Costs and
Cleaning Costs for the Lease Year to which such Escalation Statement shall
relate to be examined (and photocopied at Tenant's expense) by an officer of
Tenant or by an independent certified public accountant designated by Tenant for
the purpose of substantiating Landlord's determination of the amounts set forth
in such Escalation Statement. Landlord shall preserve such records until the
Record Retention Deadline with respect to the Lease Year to which such
Escalation Statement shall relate. Tenant shall keep all information obtained by
it pursuant to this Section 4.5 confidential other than any disclosures to
accountants, attorneys or other advisors or otherwise in connection with its
activities under this Section 4.5 or as required by law.
If during the Audit Period Tenant shall notify Landlord that Tenant
disputes the correctness of such Escalation Statement (and include in such
notice a statement of its reasons therefor) (such notice being herein called an
"Additional Rent Dispute Notice"), the parties shall make a good faith effort to
resolve their differences within thirty (30) days after Landlord's receipt of
Tenant's notice of dispute. If they are unable to do so, then either party shall
have the right to refer such dispute to arbitration as provided in Article
Thirty-Five. If and to the extent such dispute is resolved in Tenant's favor
Tenant shall be entitled to a refund of its overpayment, together with interest
at a rate per annum equal to the prime commercial lending rate (as published
from time to time by The Wall Street Journal) plus 2% but not in excess of the
amount permitted by law (the "Interest Rate") on the overpayment, from July 1 of
such Lease Year to the date of refund.
4.6 Base Year Statement. On or before the delivery to Tenant of the
Escalation Statement for Lease Year 2000, Landlord shall also deliver a
reasonably detailed statement of Real Estate Taxes for the Base Year and the
Operating Costs for the Base Year in form reasonably acceptable to Tenant (the
"Base Year Statement") and the Escalation Statement for the Lease Year 2000
shall not be deemed delivered unless accompanied by such Base Year Statement.
Subject to the provisions of Section 4.7, the Base Year Statement shall be used
to determine Tenant's liability under this Article 4 with respect to all Lease
Years during the initial term of this Lease.
4.7 Base Year Audit, etc. During the Audit Period relative to the
Escalation Statement relating to Lease Year 2000, Landlord shall permit all
books and records of Landlord and its managing agent relative to Real Estate
Taxes and Operating Costs for the Base Year to be examined (and photocopied at
Tenant's expense) by an officer of Tenant or by an independent certified public
accountant designated by Tenant for the purpose of substantiating Landlord's
determination of the amounts set forth in the Base Year Statement. Landlord
shall preserve such records until the Record Retention Deadline with respect to
the Base Year. Tenant shall keep all information obtained by it pursuant to this
Section 4.7
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confidential other than any disclosures to accountants, attorneys or other
advisors or otherwise in connection with its activities under this Section 4.7
or as required by law.
If during the Audit Period relative to the Escalation Statement
relating to Lease Year 2000 Tenant shall notify Landlord that Tenant disputes
the correctness of the Base Year Statement (and include in such notice a
statement of its reasons therefor), the parties shall make a good faith effort
to resolve their differences within thirty (30) days after Landlord's receipt of
Tenant's notice of dispute. If they are unable to do so, then either party shall
have the right to refer such dispute to arbitration as provided in Article
Thirty-Five. If the Base Year Statement is corrected pursuant to this Section
4.7, the Base Year Statement as so corrected shall be used to determine Tenant's
liability under this Article 4 with respect to all Lease Years during the
initial term of this Lease.
4.8 Excess Cleaning Costs. If, for any Lease Year during which
Tenant is cleaning any portion of the Premises pursuant to clause (a) of the
first paragraph of Section 11.7, Landlord can establish to Tenant's reasonable
satisfaction that
(a) the quotient of (i) the Cleaning Costs for such Lease
Year, divided by (ii) the Landlord Cleaned Building Area for such
Lease Year, exceeds
(b) what such quotient would have been if Landlord had
cleaned, and the Landlord Cleaned Building Area had been, all of all
of the office floors of the Building above the mezzanine
(such excess as Landlord is able so to establish being herein called the "Excess
Cleaning Cost") then, in respect of such Lease Year, Tenant shall pay Landlord,
as Additional Rent, an amount (the "Cleaning Payment") equal to the product of
(i) the excess of the Landlord Cleaned Building Area for such
Lease Year over the Landlord Cleaned Premises Area for such Lease
Year, multiplied by
(ii) the Excess Cleaning Cost (but not more than $.15 per
square foot of rentable area per annum);
provided, however, that if during such Lease Year the Landlord Cleaned Premises
Area or the Landlord Cleaned Building Area shall change then the foregoing
provisions of this paragraph shall be applied separately to each portion of such
Lease Year and the Cleaning Payment for such Lease Year shall be the aggregate
thereof for each such portion. Tenant shall make the Cleaning Payment to
Landlord within thirty (30) days of the submission to Tenant of the Escalation
Statement for such Lease Year accompanied by Landlord's bill therefor the
Cleaning Payment (which shall include a statement in reasonable detail of the
derivation of the Cleaning Payment) and reasonably detailed supporting
documentation establishing the Cleaning Payment to Tenant's reasonable
satisfaction. Notwithstanding
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Landlord's having established the Cleaning Payment to Tenant's reasonable
satisfaction, all of the provisions of Section 4.5 shall be applicable to this
Section 4.8, mutatis mutandis.
Article 5. Use of Premises.
5.1 The Premises shall only be used for general and executive
offices (including trading operations) and uses incidental thereto, including
the following incidental uses (i) conference and meeting facilities, including
places of assembly, (ii) computer and data processing, (iii) photocopying, (iv)
printing, (v) food preparation and service (including kitchens and kitchenettes,
pantries, dining rooms, cafeterias and vending machines), (vi) a health and
medical facility, (vii) an exercise and recreation facility, (vii) storage, (ix)
installation of equipment, and (x) support and utility functions; provided,
however, that the Special Purpose Areas may also be used for the purposes for
which the same are now being used. Tenant shall not use, or suffer or permit the
use of, the Premises or any part thereof for any other purpose.
Landlord represents and warrants that attached hereto as Exhibit F
is a true and correct copy of the Certificate of Occupancy for the Building as
in effect on the date hereof.
If pursuant to Applicable Law, Tenant cannot use any portion of the
Premises for any of the uses referred to above without amending the Certificate
of Occupancy for the Building to permit such portion of the Premises to be used
for such use, then
(i) Landlord shall (a) cooperate with Tenant as necessary or
appropriate in order to obtain such amendment to such Certificate of
Occupancy, and (b) within two (2) business days of Tenant's request,
execute any application or other documents necessary or appropriate
in order to obtain such amendment to such Certificate of Occupancy
(and, in such a case, Tenant shall reimburse Landlord within twenty
(20) days of demand for any out-of-pocket costs incurred by Landlord
for review by an independent architect or engineer of any such
application or other documents);
(ii) if, in order to obtain such amendment to such Certificate
of Occupancy, it shall be necessary to remove any violations noted
against the Building (other than any violations which pursuant to
this Lease are the responsibility of Tenant), Landlord shall,
promptly after Tenant's request, remove such violation, and if
Landlord shall fail to do so within twenty (20) days of Tenant's
request, Tenant may do so and recover the costs of doing so pursuant
to Article 39.
If pursuant to Applicable Law in effect on the date hereof, Tenant
cannot use or continue to use any portion of the Special Purpose Area for the
use for which it is now
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used (an "Existing Special Purpose Area Use") without amending the Certificate
of Occupancy for the Building to permit such portion of the Special Purpose Area
to be used for such use, then (A) clause (i) and (ii) above shall apply (except
that the parenthetical provision of clause (i) shall not be applicable) and (B)
if, in order to obtain such amendment to such Certificate of Occupancy, it shall
be necessary to comply with any requirements of Applicable Law (other than any
compliance which pursuant to this Lease it is Tenant's responsibility to
effect), Landlord shall, promptly comply with such requirement of Applicable
Law, and if Landlord shall fail to do so within twenty (20) days of Tenant's
request, Tenant may do so and recover the costs of doing so pursuant to Article
39.
5.2 Tenant shall not use, or knowingly suffer or permit the use of,
the Premises or any part thereof in any manner or for any purpose or do, bring
or keep anything, or knowingly suffer or permit anything to be done, brought or
kept, therein that would (a) violate any covenant, agreement, term, provision or
condition of this Lease or be unlawful or, subject to Section 5.1 above, be in
contravention of the Certificate of Occupancy for the Building, or (b) except as
permitted by this Lease, unreasonably interfere with the use and enjoyment of
the common areas and facilities of the Building by other occupants of the
Building.
5.3 Tenant will not use, or knowingly suffer or permit the use of,
the Premises or any part thereof for any of the following purposes, whether or
not incidental to Tenant's business, namely:
(i) manufacturing of any kind,
(ii) the retail sale to persons visiting the Premises of any
item whatsoever,
(iii) an auction of any kind (other than an auction incident
to Tenant's business or by telephone or other electronic means),
(iv) the preparation, dispensation or consumption of food or
beverages (other than to Tenant, other occupants of the Premises and
their employees, clients and guests),
(v) as a school or classroom (other than for the use of
Tenant, other occupants of the Premises and their employees, clients
and guests),
(vi) as a medical or dental office (other than for the use of
Tenant, other occupants of the Premises and their employees),
(vii) as an employment or travel agency (other than a travel
agent servicing Tenant, other occupants of the Premises and their
employees),
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(viii) as retail banking facilities (which term shall exclude
any ATM installed in the Premises), and
(ix) for the conduct of any disreputable activities.
Further, the Premises may not be used or occupied by any agency, department or
bureau of the United States government, any state or municipality within the
United States or any foreign government, or any political subdivision of any of
them, or any charitable, religious, union or other not-for-profit organization,
or any tax exempt entity within the meaning of the Internal Revenue Code of
1986, as amended (a "Prohibited Occupant"). Landlord shall not lease any space
in the Building to, or suffer or permit any space in the Building to be used or
occupied by, any Prohibited Occupant.
Notwithstanding the foregoing provisions of this Section 5.3, Tenant shall have
the right, subject to the other applicable terms of this Lease, to permit other
companies (whether or not they occupy space in the Building) to use Tenant's
meeting and training rooms and facilities (including the Picker Auditorium) and,
in connection therewith, to use Tenant's food service and consumption
facilities. Tenant may charge for such use and such use shall not be subject to
the provisions of Article 12 of this Lease.
5.4 If any governmental license or permit (other than a certificate
of occupancy) shall be required for the proper and lawful conduct of any
business or other activity carried on in the Premises, and, if the failure to
secure such license or permit would in any way affect Landlord or the Building,
Tenant, at its expense, shall procure and thereafter maintain the license or
permit, submit the license or permit to inspection by Landlord, and comply with
the terms and conditions thereof.
Article 6. Alterations by Tenant.
6.1 In General. Subject to and in accordance with this Article 6 and
the other applicable provisions of this Lease, Tenant shall have the right, from
time to time, to make Alterations (as such term is defined in Section 7.1(e)) in
and to the Premises and the other areas of Building in which, pursuant to any of
the provisions of this Lease, Tenant is authorized to place or install property
or perform work. Without limiting the generality of the foregoing, it is
specifically agreed that, subject to compliance with the applicable provisions
of this Lease, Tenant shall have the right
(a) to reinforce floors and columns, including the
reinforcement of columns necessary or appropriate to support
Tenant's installations pursuant to Article 36 generally as described
on Exhibit G;
(b) to make slab cuts for the purpose of installing stairs and
running risers and conduits and to make beam cuts;
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(c) to remove existing stairs and to fill in existing slab
cuts (it being specifically agreed that from and after the Term
Commencement Date Tenant may remove the interconnecting stairs
between floors 11, 12 and 13 and fill-in the existing slab cuts
notwithstanding that one or more of such floor may not yet have been
delivered to Tenant);
(d) to install stone floors and/or raised floors, including in
either case, if Tenant shall so elect, raising the level of the
elevator stops and core areas to match such raised floors;
(e) to install additional toilets, showers and other plumbing
facilities;
(f) to use BX cable rather than rigid conduit whenever
permitted by applicable law; and
(g) to install a derrick and/or a Chicago boom in connection
with Tenant's work under Article 36 (it being hereby confirmed that
the installation of any such derrick or boom shall constitute an
Alteration).
6.2 Landlord's Approval in Certain Cases. Notwithstanding the
foregoing, Tenant shall not commence or perform
(i) any structural Alteration,
(ii) any Alteration which affects the operation of the systems
of the Building outside of the Premises,
(iii) any Alteration to or which affects any portion of the
Building outside of the Premises, or
(iv) any Alteration (or series of related Alterations) the
cost of which on any floor of the Building is greater than Five
Hundred Thousand ($500,000) Dollars
unless (a) Tenant shall have submitted to Landlord complete architectural and
engineering working drawings and specifications prepared, at Tenant's expense,
by a competent architect or engineer licensed in the State of New York ("plans
and specifications"), and (b) Landlord shall have approved such plans and
specifications.
Landlord shall not unreasonably withhold such approval and shall
grant or deny such approval (including with any denial a reasonably detailed
statement of the reasons therefor) within
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(a) ten (10) business days in the case of the initial
submission of plans and specifications with regard to any Alteration
referred to in clause (i), (ii) and (iii) above), or
(b) five (5) business days in the case of any resubmission of
plans and specifications with regard to any Alteration referred to
in clause (i), (ii) or (iii) above or in the case of any submission
of plans and specifications with regard to any Alteration referred
to in clause (iv) above.
If Landlord shall fail timely to disapprove any plans and specifications in
accordance with this Section 6.2 (including the required statement of reasons)
Landlord shall be deemed to have approved the same.
Any approval by Landlord shall not be deemed to be a representation
or warranty that the approved work is properly designed to perform the function
for which it is intended or complies with any Applicable Law.
6.3 Governmental Permits and Licenses. Tenant shall obtain all
governmental permits, licenses and approvals required in connection with any
Alterations performed or proposed to be performed by Tenant. Landlord shall,
within two (2) business days of Tenant's request, execute any permit, license or
approval application or any similar document required to be executed by Landlord
in connection with Tenant's obtaining any such permit, license or approval. In
case of any Alteration subject to Section 6.2, Landlord shall execute such
application or document notwithstanding its not having received or approved the
plans and specifications therefor, but Landlord's execution of such application
or document shall not constitute Landlord's approval of such plans and
specifications or a waiver of Landlord's rights under Section 6.2 with respect
thereto.
6.4 Tenant's Contractors. Subject to the provisions of Section
7.1(e), Tenant shall have the right to use contractors of its choice for
performance of any Alterations; provided, however, that Tenant's mechanical,
electrical, plumbing and fire life safety contractor ("Critical Trade
Contractors") shall be subject to Landlord's prior approval. Landlord shall not
unreasonably withhold such approval and shall grant or deny approval within five
(5) business days of Tenant's request therefor. If Landlord shall fail timely to
deny approval, it shall be deemed to have granted approval. Any Critical Trade
Contractor approved by Landlord shall remain approved with respect to the
Alteration in question and subsequent Alterations until Landlord shall by notice
to Tenant revoke such approval, but no such revocation shall be effective with
respect to the Alteration in question or any subsequent Alterations for which
such Critical Trade Contractor was retained prior to such revocation. Landlord
hereby approves the Critical Trade Contractors listed on Exhibit H hereto. As
used in this Lease (relative to Landlord or Tenant), the term "contractors" or
"contractor" (but not the phrase "general contractor") shall also include
subcontractors or subcontractor.
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6.5 Performance of Alterations. Tenant will use reasonable efforts
in performing Alterations to avoid unreasonable interference with the occupants
of other parts of the Building, and shall perform the following work during
non-Business Hours, if so requested by Landlord: (a) demolition on any floor
immediately above or immediately below a floor occupied by any other tenant of
the Building, or (b) core drilling and chopping or chasing of concrete. Tenant
shall, at its sole cost and expense, repair all structural and mechanical parts
of the Building and the systems of the Building that shall be damaged by
Tenant's performance of Alterations, subject to the release provisions of
Section 22.6. Tenant shall comply with all Applicable Laws relative to the
performance by it of any Alterations. Tenant shall cause its contractors to
maintain workmen's compensation insurance as required by law and shall cause its
general contractor to maintain public liability insurance as may be reasonably
required by Landlord.
6.6 Mechanics Lien. Tenant shall not do or fail to do any act that
shall or may render the Building subject to any mechanic's lien or other lien
and if any lien or liens are filed against the Building arising out of any
Alterations undertaken by Tenant, Tenant shall, at its sole cost and expense,
promptly remove the lien or liens of record within thirty (30) days after the
earlier of demand by Landlord or the receipt of notice by Tenant from the lienor
or anyone else concerning the filing of the lien or liens. If Tenant shall fail
to timely remove such lien or liens, Landlord may cause such lien or liens to be
removed of record by payment, bond or otherwise, as Landlord may elect, and
Tenant shall reimburse Landlord, as Additional Rent, for all reasonable costs
and expenses incidental thereto (including, without limitation, legal fees).
Article 7. Various Covenants.
7.1 Tenant's Covenants. Tenant shall:
(a) take good care of the Premises, keep clean the portions of the
Premises that Landlord is not required by this Lease to clean, and,
subject to the release provisions of Section 22.6, pay the cost of making
good any injury, damage or breakage to the Building or the Premises done
by Tenant or by the employees, agents, licensees or invitees of Tenant;
(b) observe and comply with the rules and regulations annexed hereto
as Exhibit I and any other and further reasonable rules and regulations
that Landlord hereafter at any time may make and communicate to Tenant,
and that, in the reasonable judgment of Landlord, shall be necessary or
desirable for the safety, care or appearance of the Building, or the
preservation of good order therein, or the operation or maintenance of the
Building, or the equipment thereof, or the comfort of tenants or others in
the Building; provided, however, that in the case of any conflict between
the provisions of this Lease and any rule or regulation, the provisions of
this Lease shall control and provided, further that (i) Landlord will
enforce all rules and regulations uniformly against all tenants, including
Tenant, and
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(ii) so long as the area of the portion of the Premises not sublet (other
than to pursuant to Section 12.7 and 12.8) shall exceed 250,000 rentable
square feet, Landlord will not make any such other or further rule or
regulation without the consent of Tenant, which consent, provided that
such other or further rule or regulation does not, other than to a di
minimis extent, affect Tenant's conduct of business or Tenant's rights and
obligations under this Lease, shall not be unreasonably withheld and, if
Landlord includes the following legend at the top of its request for
consent "THIS REQUEST FOR CONSENT IS MADE PURSUANT TO SECTION 7.1(b) OF
YOUR LEASE; IF YOU DO NOT DENY CONSENT WITHIN TEN (10) BUSINESS DAYS OF
YOUR RECEIPT HEREOF YOU SHALL BE DEEMED TO HAVE GRANTED CONSENT" shall be
deemed granted ten (10) business days after Tenant's receipt of Landlord's
request for Tenant's consent unless Tenant notifies Landlord of its denial
and the reasons therefor within that period of time;
(c) permit Landlord, and any mortgagee under any Underlying
Mortgage, and any lessor under any Underlying Lease, and their
representatives, to enter the Premises (i) in an emergency, at any time
and without notice, and (ii) otherwise, following reasonable notice at
such hours as shall not materially interfere with the conduct of Tenant's
business in the area entered, for the purposes of inspection, and permit
them or any of their agents or contractors to enter the Premises (i) in an
emergency, at any time and without notice, and (ii) otherwise, following
reasonable notice at such hours as shall not materially interfere with the
conduct of Tenant's business in the area entered, for the purpose of
complying with any Applicable Law, or exercising any right reserved to
Landlord in any other provision of this Lease, and permit Landlord,
following reasonable notice, to show the Premises at reasonable times
during Business Hours (or non-Business Hours if entry during Business
Hours would materially interfere with the conduct of Tenant's business) to
any mortgagee under any Underlying Mortgage, any lessor under any
Underlying Lease, or any prospective purchaser, lessee, mortgagee or
assignee of any mortgage of the Building or the Land or of Landlord's
interest therein, and their representatives, and during the period of
twelve (12) months next preceding the date of expiration of the term
hereof, to similarly show the Premises to any person contemplating the
leasing of all or a portion thereof provided, however, that (a) except in
the case of an emergency or as Tenant may otherwise permit, no individual
shall be permitted to enter the Premises for purposes of performing any
maintenance, repairs, alterations, cleaning or other services or work or
related inspections or preparations, unless such individual has cleared
Tenant's security and background check procedures as administered by
Tenant and in effect from time to time (a copy of Tenant's security and
background check procedures in effect on the date hereof being attached
hereto as Exhibit J), and (b) if Tenant shall identify to Landlord any
portions of the Premises that contain cash, negotiable instruments,
securities or confidential information or otherwise secure materials
("Secure Area"), neither Landlord nor any other party authorized by this
Section to enter the Premises shall (except in an emergency) enter any
Secure
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Area except following reasonable notice and accompanied by Tenant's
representative which Tenant shall make available to Landlord for this
purpose;
(d) make no claim against Landlord for any injury or damage to
Tenant or to any other person or for any damage to, or loss (by theft or
otherwise) of, or loss of use of, any property of Tenant or of any other
person, irrespective of the cause of the injury, damage or loss, unless
done by Landlord, its agents, servants, employees or contractors but
subject, in any case, to the release provisions of Section 22.6;
(e) make no alteration, change, addition, improvement, repair or
replacement other than the installation, relocation and removal of trade
fixtures and business equipment (any such alteration, change, addition,
improvement, repair or replacement other than any such installation,
relocation and removal of trade fixtures and business equipment being
herein called "Alterations") in, to, or about the Premises and do no work
in connection therewith, except in accordance with Article 6 and with
Landlord's rules and regulations relating to construction, a copy of which
is attached hereto as Exhibit K; not permit the use of any contractors,
workmen or labor without proper union affiliation in the performance of
any work, labor or service if the use thereof will disturb labor harmony
with any contractors, workmen or labor engaged by Landlord to perform any
other work, labor or service in or about the Building; comply with all
Applicable Laws relative to the performance of, and maintain workmen's
compensation insurance and public liability insurance as may be reasonably
required by Landlord in connection with, any Alteration made by Tenant and
any maintenance, cleaning or service performed by Tenant; pay all charges,
as and when they become due and payable, incurred by Tenant in connection
with any Alterations made by Tenant or any maintenance, cleaning or
service performed by Tenant; and reimburse Landlord within twenty (20)
days of demand for any out-of-pocket costs incurred by Landlord for (i)
the review by an independent architect or engineer retained by Landlord of
any plans and specifications with respect to which Landlord has a right of
approval under Article 6 and/or (ii) the inspection by such architect or
engineer of the work covered thereby;
(f) without incurring any liability to Tenant, except for Landlord's
negligence, permit Landlord access to the Premises and permit Landlord to
open the Premises, whether or not Tenant shall be present, upon demand of
any receiver, trustee, assignee for the benefit of any creditor, sheriff,
marshall or court officer entitled to, or reasonably purporting to be
entitled to, access for the purpose of taking possession of, or removing,
Tenant's property or for any other purpose (but this provision and any
action by Landlord hereunder shall not be deemed a recognition by Landlord
that the person or official making the demand has any right to or interest
in or to this Lease or the Premises), or upon demand of any representative
of the fire, police, building, sanitation or other department of the city,
state or federal government;
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(g) at any time and from time to time upon not less than ten (10)
days' prior notice by Landlord, execute, acknowledge and deliver to
Landlord a statement of Tenant (or if Tenant is a corporation, an
appropriate officer of Tenant) certifying (i) that this Lease is
unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications), (ii) the dates to which the Fixed Rent and
Additional Rent have been paid in advance, if any, (iii) whether or not,
to the best knowledge of the signer of the certificate, Landlord is in
default in the keeping, observance or performance of any covenant,
agreement, term, provision or condition contained in this Lease and, if
so, specifying each default of which the signer may have knowledge, and
(iv) as to any other information relative to this Lease reasonably
requested by Landlord, to the best of the knowledge of the signer of the
certificate, it being intended that the statement may be relied upon by
any mortgagee under any Underlying Mortgage, any lessor under any
Underlying Lease, or any prospective purchaser, lessee, mortgagee or
assignee of any mortgage of the Building or the Land or of Landlord's
interest therein; and
(h) indemnify and save harmless Landlord, CNA Financial Corporation,
The Continental Corporation and its subsidiaries and their respective
officers, directors, agents and employees (collectively, the "Landlord
Indemnitees") from and against all claims including any liability, lien,
loss, cost, damage or expense arising therefrom ("Claims") to which any
Landlord Indemnitee may be subject or suffer (except insofar as it (x)
arises out of the negligence or intentional misconduct of any Landlord
Indemnitee or any contractor of any Landlord Indemnitee, or (y) is covered
by any insurance maintained by any Landlord Indemnitee or would be covered
by any insurance required by this Lease to be maintained by Landlord if
the same had been maintained) whether by reason of, or by reason of any
claim of, any injury to, or death of any person or persons or damage to
property (including any loss of use thereof) or otherwise arising from or
in connection with the use of or from any work or thing whatsoever done in
the Premises other than by any Landlord Indemnitee or any contractor of
any Landlord Indemnitee (but excluding any work or thing done by Tenant as
Landlord's agent) during the term of this Lease or during the period of
time, if any, prior to the Term Commencement Date that Tenant may have
been given access thereto for the purpose of doing work or otherwise, or
arising from any condition of the Premises due to or resulting from any
default by Tenant in the keeping, observance or performance of any
covenant, agreement, term, provision or condition contained in this Lease
or from any negligence or intentional misconduct of any Tenant Indemnitee
or any contractor of any Tenant Indemnitee. If any such Claim is asserted
against any Landlord Indemnitee, Landlord will promptly notify Tenant
thereof and that such Landlord Indemnitee is entitled to indemnification
and Tenant, upon notice from Landlord, shall defend such Claim at Tenant's
expense with counsel reasonably satisfactory to Landlord. Provided that
Tenant complies with the requirements of this Section, Tenant shall not be
liable for the fees of any separate counsel retained by any Landlord
Indemnitee. If Tenant shall assert that any Claim
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with respect to which it has received a demand for indemnification under
this Section 7.1(h) is or may be not covered by this Section 7.1(h), in
whole or in part, and it shall be determined by a court of competent
jurisdiction that such Claim was not covered by this Section 7.1(h), in
whole or in part, then Landlord shall reimburse Tenant for all or such
part of the costs and expenses incurred by Tenant in providing such
indemnification, including attorneys fees, with interest thereon from the
date incurred at the Interest Rate. This provision shall survive the
expiration or earlier termination of this Lease.
7.2 Landlord's Covenants. Landlord shall:
(a) subject to the release provisions of Section 22.6, pay the cost
of making good any injury, damage or breakage to the Premises or any
property therein or any other property installed in the Building by Tenant
done by Landlord or by the agents, servants, employees or contractors of
Landlord;
(b) at any time and from time to time upon not less than ten (10)
days' prior notice by Tenant, execute, acknowledge and deliver to Tenant a
statement of Landlord (or if Landlord is a corporation, an appropriate
officer of Landlord) certifying (i) that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications),
(ii) the dates to which the Fixed Rent and Additional Rent have been paid,
(iii) whether or not, to the best knowledge of the signer of the
certificate, Tenant is in default in the keeping, observance or
performance of any covenant, agreement, term, provision or condition
contained in this Lease and, if so, specifying each default of which the
signer may have knowledge, and (iv) as to any other information relative
to this Lease reasonably requested by Tenant, to the best of the knowledge
of the signer of the certificate, it being intended that the statement may
be relied upon by any assignee or subtenant or prospective assignee or
subtenant of Tenant's interest under this Lease; and
(c) indemnify and save harmless the Tenant and its subsidiaries and
affiliates and their respective officers, directors, members, agents and
employees (collectively, the "Tenant Indemnitees") from and against all
Claims to which any Tenant Indemnitees may be subject or suffer (except
insofar as it (x) arises out of the negligence or intentional misconduct
of any Tenant Indemnitee or any contractor of any Tenant Indemnitee, or
(y) is covered by any insurance maintained by any Tenant Indemnitee or
would be covered by any insurance required by this Lease to be maintained
by Tenant if the same had been maintained) whether by reason of, or by
reason of any claim of, any injury to, or death of any person or persons
or damage to property (including any loss of use thereof) or otherwise
arising from or in connection with the use of or from any work or thing
whatsoever done in the Premises by any Landlord Indemnitee or any
contractor of any Landlord Indemnitee, or arising from any condition of
the Building (including the Premises) due to or
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resulting from any default by Landlord in the keeping, observance or
performance of any covenant, agreement, term, provision or condition
contained in this Lease or from any negligence or intentional misconduct
of any Landlord Indemnitee or any contractor of any Landlord Indemnitee.
If any such Claim is asserted against any Tenant Indemnitee, Tenant will
promptly notify Landlord thereof and that such Tenant Indemnitee is
entitled to indemnifications and Landlord, upon notice form Tenant, shall
defend such Claim at Landlord's expense with counsel reasonable
satisfactory to Tenant Provided that Landlord complies with the
requirements of this Section, Landlord shall not be liable for the fees of
any separate counsel retained by any Tenant Indemnitee. If Landlord shall
assert that any Claim with respect to which it has received a demand for
indemnification under this Section 7.2(c) is or may be not covered by this
Section 7.2(c), in whole or in part, and it shall be determined by a court
of competent jurisdiction that such Claim was not covered by this Section
7.2(c), in whole or in part, ten Tenant shall reimburse Landlord for all
or such part of the costs and expenses incurred by Landlord in providing
such indemnification, including attorneys fees, with interest thereon from
the date incurred at the Interest Rate. This provision shall survive the
expiration or earlier termination of this Lease.
7.3 Year 2000 Compliance. Landlord shall take all actions as shall
be necessary or appropriate to insure that the Base Building becomes Year 2000
Compliant (as hereinafter defined) on or before the date on which any failure to
be Year 2000 Compliant would have any adverse effect on the operation or control
of any component of the Base Building or Tenant's Building Equipment (as
hereinafter defined), and shall take all commercially reasonable actions as
shall be necessary or appropriate to insure that the Base Building becomes Year
2000 Compliant as soon as possible. Without limiting the generality of the
foregoing, Landlord shall, and shall cause it managing agent to, (i) test each
system or component of the Base Building to confirm that it is Year 2000
Compliant, (ii) coordinate the scheduling of such tests with Tenant and permit
Tenant to observe the same, and (iii) permit Tenant and its Year 2000
consultants to inspect and copy all plans, specifications, vendor materials, and
other information regarding the Year 2000 Compliance of the Base Building.
Tenant shall take all actions as shall be necessary or appropriate
to insure that any systems or equipment installed by Tenant in the Building the
operation or control of which is interconnected with the Base Building
("Tenant's Building Equipment"), if not Year 2000 Compliant upon installation,
becomes Year 2000 Compliant on or before the date on which any failure to be
Year 2000 Compliant would have any adverse effect on the operation or control of
any component of the Base Building, and shall take all commercially reasonable
actions as shall be necessary or appropriate to insure that Tenant's Building
Equipment, if not Year 2000 Compliant upon installation, becomes Year 2000
Compliant as soon as possible. Without limiting the generality of the foregoing,
Tenant shall (i) test each system or component of the Tenant's Building
Equipment to confirm that it is Year 2000 Compliant, (ii) coordinate the
scheduling of such tests with Landlord and permit Landlord to observe the same,
and (iii) permit Landlord and its Year 2000 consultants to
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inspect and copy all plans, specifications, vendor materials, and other
information regarding the Year 2000 Compliance of the Tenant's Building
Equipment.
Notwithstanding the foregoing, in no event shall either party be
required to permit the other to inspect or copy any confidential or proprietary
information.
As used in this Section 7.3, the term "Year 2000 Compliant" shall
mean that the system or component in question
(i) properly processes, uses, employs and refers to all dates
on and after January 1, 2000, and
(ii) properly functions (or, when applied prospectively, will
property function) on all dates on and after January 1, 2000,
in either case, without interruption, exception, error or inaccuracy arising by
reason of such dates being on or after January 1, 2000, and the term "Year 2000
Compliance" shall have the correlative meaning.
Article 8. Changes or Alterations by Landlord.
8.1 Landlord reserves the right, without the same constituting an
eviction and without incurring liability therefor:
(i) to make any changes, alterations, additions, improvements,
repairs or replacements in or to the Building (excluding the
Premises and the Tenant's Shafts (except for the repair or
replacement without enlargement of the Base Building Closet
Installations, the CNA Closet Installations and the Base Building
Pipes so long as the same shall remain in Tenant's Shafts)) and the
fixtures and equipment therein (excluding those in the Premises and
the Tenant's Shafts (except for the repair or replacement without
enlargement of the Base Building Closet Installations, the CNA
Closet Installations and the Base Building Pipes so long as the same
shall remain in Tenant's Shafts)), as well as in or to the street
entrances, plazas, sidewalks, curbs, halls, passages, elevators,
escalators and stairways and other parts of the Building (excluding
the Premises and Tenant's Shafts (except for the repair or
replacement without enlargement of the Base Building Closet
Installations, the CNA Closet Installations and the Base Building
Pipes so long as the same shall remain in Tenant's Shafts)), and
(ii) to make repairs to the Premises if required by the terms
of this Lease, and
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(iii) to erect, maintain and use pipes, ducts and conduits in
and through the Building core (excluding (a) the portions of the
Building core included in the Premises, and (b) Tenant's Shafts
(except for the maintenance and use of the Base Building Closet
Installations, the CNA Closet Installations and the Base Building
Pipes so long as the same shall remain in Tenant's Shafts)),
all as Landlord may deem reasonably necessary or desirable; provided that as a
result of any of the foregoing referred to in clause (i), (ii) or (iii) of this
sentence, there shall be (w) no reduction in any service required to be
furnished pursuant to any other provision of this Lease (except as permitted by
Section 11.11), (x) no more than a de minimis affect on Tenant's access to or
use of the Premises or the stairways, shafts, risers and other utility areas of
the Building or the areas of the Building in which pursuant to this Lease Tenant
is permitted to install property or perform work, (y) no adverse affect upon the
security of the Building or the Premises, and (z) no adverse effect upon, or
upon the use or access to, any of the installations then existing in Tenant's
Shafts or any installations for which Tenant's Shafts could be used in the
future, and provided, further that Landlord shall use reasonable efforts to
minimize interference with Tenant in the location of any pipes, ducts and
conduits and shall permanently enclose them.
8.2 Notwithstanding the foregoing, unless required by Applicable
Law, Landlord shall not make changes, alterations, additions, improvements or
replacements to the street entrances, plazas, sidewalks, atrium, plaza level
lobby, mezzanine level lobby, escalators or elevators (except for any of such
changes, alterations, additions, improvements or replacements which are merely
cosmetic and do not involve or include the construction, installation, removal
or relocation of any wall or partition, stair or stairway, door or doorway,
ceiling or floor), or to the use of any of the foregoing, without Tenant's prior
approval, which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, Landlord shall be permitted, without consultation with Tenant, to
engage in its normal and typical maintenance of the atrium, plaza level lobby
and mezzanine level lobby in the same manner as it has prior to the date hereof
and as it shall deem necessary for the upkeep of the public portions of the
atrium. This Section 8.2 shall not be applicable so long as the Land and
Building are owned by CNA Corporation or its subsidiaries.
8.3 Landlord shall not lease or license any ground floor premises in
the Building (other than (i) the leasing of the now-existing lobby shop premises
to the present tenant thereof, or (ii) the leasing or licensing of the
now-existing lobby art gallery premises to the present tenant or licensee
thereof) without Tenant's prior approval of such person or entity and its use of
such premises (but not the terms of the lease or license), which approval shall
not be unreasonably withheld.
8.4 All art on the plaza level (including in the lobby art gallery
premises) or on the mezzanine level (i) shall be in keeping with museum quality
standards of presentation,
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(ii) shall reflect subject matter suitable to corporate environment, and (iii)
shall exclude subjects alluding to religion, sex and overt aggression.
8.5 On or before December 31, 1998 Landlord shall change the name of
the Building to 180 Maiden Lane, which shall remain the sole name of the
Building throughout the term of this Lease.
8.6 On or before December 31, 1998 Landlord shall remove all signs
the continued presence of which would violate this Section 8.6. On and after
January 1, 1999, Landlord shall not erect or maintain, or suffer or permit any
other person or entity to erect or maintain, any identity signage on the Land,
on the exterior of the Building, in any of the areas referred to in Section 8.2,
or visible from the Land, the exterior of the Building or any of the areas
referred to in Section 8.2; provided, however, that (a) any tenant, including
Tenant, having a security desk in the lobby may display discrete identity
signage on its security desk, and (b) any tenant may display identity signage in
the elevator lobby on its floor notwithstanding that such signage .is visible
from the Building elevators. As used above the term "identity signage" shall
mean any signage containing the name of any person or entity (or any portion or
any abbreviation thereof) or any symbol or mark associated with any person or
entity.
8.7 Neither this Lease nor any use by Tenant shall give Tenant any
right or easement to the use of any door or any passage connecting the Building
with any subway or any other building, and the use of such doors and passages
may be regulated or discontinued at any time by Landlord.
8.8 If an excavation shall be made upon any land adjacent to the
Building, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause the excavation a license to enter upon the
Premises for the purpose of doing any work the person deems necessary to
preserve the Building from injury or damage, all without any claim for damages
or indemnity against Landlord or diminution or abatement of rent
Article 9. Surrender; Ownership of Improvements; Removal of Special
Installations; Tenant's Shafts and Other Areas; Holdover.
9.1 Surrender. On or prior to the expiration or any earlier
termination of the term hereof, Tenant shall terminate its occupancy of, and
quit and surrender to Landlord, the Premises, broom-clean and in as good
condition as it was at the commencement of the term, except for ordinary wear
and tear and damage by fire or other casualty and except for other damage for
which Tenant is not responsible under the terms of this Lease.
9.2 Ownership of Improvements. All fixtures, equipment, improvements
and installations attached to, or built into, the Premises at the commencement
of or during the term hereof, whether installed by or at the expense of Landlord
or Tenant, shall be and remain the property of Landlord and part of the
Premises, subject to this Lease, and shall not
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be removed by Tenant except in connection with the continued use of the Premises
under this Lease; provided, however, that (i) unless such removal is required by
law, Tenant shall not remove any fixtures, equipment, improvements or
installations paid for by Landlord under the Initial Improvements Agreements
unless Tenant replaces the same with fixtures, equipment, improvements and
installations of substantially equal value, and (ii) Tenant shall have the
right, in all events, to remove any fuel tanks installed by it. All elevators
and all mechanical, electrical, plumbing and sprinklering fixtures, venetian
blinds, partitions, doors, vaults, stairs, paneling (including display cases and
cupboards recessed in paneling), molding, flooring, and heating, ventilation,
air conditioning and cooling equipment shall be deemed to be fixtures,
equipment, improvements and installations, whether or not attached to or built
into the Premises. If Tenant removes any fuel tank installed by it, it shall do
so in accordance with Applicable Law and shall remediate if and to the extent
required by Applicable Law.
9.3 Removal of Special Installations. As used in this Section 9.3
the term "Special Installations" shall mean any of the following furnished and
installed in the Premises by Tenant or Landlord at the request of Tenant
(whether or not attached thereto or built therein): internal staircases; slab
penetrations for interconnecting staircases and dumbwaiters; vaults; kitchens
with exhaust facilities ("Kitchens"); executive or private bathrooms; above-slab
slab reinforcements; vertical transportation systems (other than the conveyor
system installed by Landlord and existing on the date hereof); dumbwaiters; fuel
tanks; and Tenant's Antennas. If Landlord desires that any of the Special
Installations be removed from the Premises and so notifies Tenant prior to or
not more than six (6) months after the expiration or earlier termination of the
term of this Lease (which notice shall specify the Special Installations to be
removed and shall include a statement of the cost of such removal (which
Landlord shall have determined by (i) obtaining competitive bids from not fewer
than three qualified contractors (which bids shall be included with such
notice), and (ii) selecting the bid it believes to be most appropriate (which
most appropriate bid shall be identified in such notice) (the "Selected Removal
Bid"))) Tenant shall, by notice to Landlord given within thirty (30) days of its
receipt of Landlord's notice, elect either
(i) to remove such Special Installations (in which case Tenant
shall do so and repair any damage caused by such removal within
sixty (60) days after its receipt of Landlord's notice (or, if
later, within thirty (30) days after the expiration or earlier
termination of the term of this Lease), or
(ii) reimburse Landlord for the costs of such removal (in
which case if, within the period prescribed by clause (i) above,
Landlord shall remove such Special Installation Tenant shall
reimburse Landlord for the cost of such removal, not to exceed the
Selected Removal Bid).
Tenant's obligation to observe and perform this covenant shall survive the
expiration or earlier termination of this Lease. Notwithstanding the foregoing
provisions of this Section 9.3, Tenant shall not be required to remove (or pay
for the removal of) any Kitchen installed
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by it unless upon expiration of this Lease there shall be more than three
Kitchens in the Premises and, in such a case, if Landlord desires the removal of
any Kitchen (i) Tenant shall not be required to remove (or pay for the removal
of) more than such number of Kitchens installed by it as shall be required to
reduce to three the number of Kitchens in the Premises, and (ii) Tenant shall
have the right to select which of the Kitchens installed by it to remove (or pay
for the removal of). If Tenant removes any fuel tank installed by it, it shall
do so in accordance with Applicable Law and shall remediate if and to the extent
required by Applicable Law.
9.4 Areas Reserved to Landlord. All the perimeter walls of the
Premises, any balconies, terraces or roofs adjacent to the Premises (including
any flagpoles or other installations on any perimeter, walls, balconies,
terraces or roofs), and any space in and or adjacent to the Premises used for
shafts, stairways, stacks, pipes, conduits, ducts, electric or other utilities,
sinks, fan rooms or other Building facilities, and the use thereof, as well as
access thereto through the Premises (subject to the provisions of Section
7.1(c)) for the purposes of the use, operation, improvement, replacement,
repair, maintenance and decoration thereof, are expressly reserved to Landlord.
9.5 [Intentionally Omitted]
9.6 Removal of Personal Property. Except as provided in Section 9.2,
at or prior to the Expiration Date or any earlier date upon which the term of
this Lease may expire or be terminated, Tenant shall remove from the Premises
all of its personal property. Any personal property that remains in the Premises
after the expiration or termination of the term of this Lease shall be deemed to
have been abandoned, and either may be retained by Landlord as its property or
may be disposed of at Tenant's expense in any manner that Landlord chooses.
9.7 Holdover. If Tenant or Tenant's successors or assigns, whoever
is in possession, fails to vacate the Premises or any portion thereof on or
before the Expiration Date or other termination date of this Lease, such
continued use and occupancy of the Premises or such portion thereof shall
constitute a holdover under a month-to-month tenancy, in which event Tenant
shall be obligated to pay Landlord in advance on the first day of each month
with respect to all floors of the Premises which Tenant has not then completely
vacated (1) for the first ninety (90) days after the Expiration Date or other
termination date, a monthly fixed rental equal to one hundred fifty percent
(150%) of the aggregate of the Fixed Rent and the Additional Rent payable under
Article 4 for the last month of the term hereof and (2) thereafter a monthly
fixed rental equal to two hundred percent (200%) of the aggregate of the Fixed
Rent and the Additional Rent payable under Article 4 for the last month of the
term hereof. Tenant's liability under this Section 9.7 with respect to any floor
of the Premises shall terminate upon Tenant's vacation of such floor, but this
sentence shall not be deemed to release Tenant from any such liability under
this Section 9.7 with respect to such floor of the Premises accrued prior to
such vacation. The liability provided for in this Section 9.7 shall constitute
Landlord's sole remedy on account of any holdover by Tenant,
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and Tenant shall not be liable for any damages arising out of such holdover, or
to indemnify Landlord on account of any Claim arising out of such holdover;
provided, however, that this sentence shall not prevent Landlord from
prosecuting any action or proceeding to recover possession of the Premises.
Article 10. Electric Current and Water.
10.1 Base Electricity. Landlord shall furnish to the existing
electrical closets serving each floor of the Premises alternating electric
current in such amounts as Tenant shall from time to time draw or require;
provided, however, that Landlord shall not be required pursuant to this Section
10.1 to furnish alternating electric current in excess of 6 watts (demand) per
square foot of gross area of the Premises in the aggregate; provided, however,
that with respect to
(i) any of the Premises in the basement, the aforesaid amount
shall be 8.3 watts (demand) per square foot of gross area,
(ii) any of the Premises on the 3rd floor, the aforesaid
amount shall be 6.8 watts (demand) per square foot of gross area,
(iii) any of the Premises on the 4th floor, the aforesaid
amount shall be 12.8 watts (demand) per square foot of gross area,
and
(iv) any of the Premises on the 41st floor, the aforesaid
amount shall be 7.1 watts (demand) per square foot of gross area.
Tenant shall have the right to distribute the electrical current provided to it
under this Section 10.1 to the Premises (including transfers of electrical
current from one floor of the Premises to another) and to Tenant's installations
in, to, on or about the Building outside of the Premises. Tenant shall be
entitled to a key to the electrical closets on any floor all or any part of
which is included in the Premises.
10.2 Supplemental Electricity. Landlord shall furnish to each of
Tenant's Dedicated Switches (as hereinafter defined) alternating electric
current in such amounts as Tenant shall from time to time draw or require;
provided, however, that Landlord shall not be required pursuant to this Section
10.2 to furnish alternating electric current to Tenant's Dedicated Switches in
excess of 2000 amperes (demand) per switch, 4000 amperes (demand) in the
aggregate. Landlord shall not be obligated to furnish alternating electric
current under this Section 10.2 until Tenant shall have performed the work
described in Section 10.5. Tenant shall have the right to distribute the
electrical current provided to it under this Section 10.2 through the electrical
risers or buses installed by it pursuant to Article 42 to the Premises and to
Tenant's installations in, to, on or about the Building outside of the Premises.
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10.3 Additional Electricity. If Tenant shall request or desire
alternating electrical current in excess of that to which it is entitled under
Section 10.1 and 10.2, then, subject to the provisions of this Section 10.3,
Landlord shall furnish the same; provided, however, that if, in Landlord's
reasonable judgment, such additional electric current cannot be furnished unless
additional panels, transformers, risers, conduits, feeders, switches,
switchboards and/or appurtenances ("Electrical Equipment") are installed in the
Building (a) Landlord shall not be required to furnish such additional electric
current until such additional Electrical Equipment is so installed, and (b)
Tenant shall be permitted, following written notice to Landlord, to install such
additional Electrical Equipment provided that the installation and use thereof
is permitted by Applicable Laws and shall not cause permanent damage or injury
to the Building or cause or create a dangerous or hazardous condition or entail
unreasonable alterations or unreasonably interfere with or disturb other tenants
or occupants of the Building (collectively, "Building Requirements"), and Tenant
shall pay all costs and expenses in connection with such installation.
10.4 Character of Electricity. All alternating current finished by
Landlord pursuant to this Lease shall be furnished at nominal utility voltage
(265/460V with allowable fluctuations within regulatory agency requirements), 3
phase, 4 wire, with a power factor of 0.9. The electrical voltage and current
distortion at the service switchboards shall be within the limits stated in IEEE
519.
10.5 Tenant's Dedicated Switches. The term "Tenant's Electrical
Work" shall mean
(i) modification of an existing switchboard as shown on
Exhibit OO to accept two Switches in accordance with Applicable Law,
(ii) relocation of load from a Switch on switchboard B as
shown on Exhibit OO to one of the two Switches on said modified
existing switchboard, and
(iii) connection of (a) the Switch on switchboard B referred
to in clause (ii) above, and (b) the other Switch on the existing
modified switchboard to Tenant's load. (such two switches being
herein called "Tenant's Dedicated Switches").
The term "Switch" shall refer to a switch rated a 2500 amperes fused at 2000
amperes (demand). Tenant shall have the right to perform Tenant's Electrical
Work and, if Tenant does so, Tenant shall be entitled to exclusive use of
Tenant's Dedicated Switches. Upon the completion of Tenant's Electrical Work,
Landlord shall cause alternating electrical current to be furnished to Tenant's
Dedicated Switches in accordance with Section 10.2.
10.6 Electricity Supplier for the Building. Except to the extent
that Tenant shall otherwise consent from time to time or as otherwise provided
in this Lease, Landlord
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shall continue to purchase all electricity to be used by Landlord, Tenant or any
other tenant or occupant of the Building ("Building Electricity") from
Consolidated Edison Corporation or its successor ("ConEd") pursuant to ConEd's
applicable tariff and not pursuant to any contract or contractual arrangement.
Subject to the rights of any Building tenant under any lease now in
effect, Landlord shall not suffer or permit any tenant or occupant of the
Building (other than Tenant) to purchase electricity directly from ConEd or from
any other supplier (other than Landlord).
If Tenant shall so request Landlord shall solicit competitive bids
from at least three qualified electricity suppliers selected by Landlord and any
other qualified electricity suppliers identified by Tenant for the providing of
Building Electricity and, after consulting with Tenant and obtaining Tenant's
approval as provided below, shall enter into an electricity supply contract for
the providing of Building Electricity with the electricity supplier who Landlord
reasonably believes to be most beneficial to the tenants of the Building taking
into account price and any other relevant considerations; provided, however,
that Landlord shall not enter into any electricity supply contract with any
electricity supplier without Tenant's prior written approval of such contract
and such supplier. If any such contract entered into by Landlord shall provide
for any rebates or other payments to Landlord then the amounts payable by Tenant
under this Article 10 and Operating Costs under Article 4 shall be computed
after deducting such rebates and other payments. Upon the expiration or other
termination of any electricity supply contract, unless Tenant shall have
directed Landlord to purchase electricity from ConEd, Landlord shall again
comply with the provisions of this paragraph. If Tenant shall fail to approve
any electricity supply contract or any electricity supplier (either initially or
subsequently upon expiration or termination of the preceding electricity supply
contract) or shall direct Landlord to purchase Building Electricity from ConEd,
Landlord shall do so in accordance with the first paragraph of this Section
10.6, subject to the renewed application of this paragraph if Tenant shall
subsequently so request.
Landlord shall qualify and maintain qualification as a redistributor
of electricity under the applicable sales tax law, and, upon Tenant's request
from time to time, shall furnish to Tenant evidence that it has done so.
10.7 Electricity Charges -- Average Cost per KWH. All electric
current consumed by Tenant shall be measured by a meter or meters provided and
installed by Landlord at its expense at a location or locations selected by
Landlord. Each meter measuring the electricity referred to in Section 10.1 shall
be located in the Building electrical closet on the floor in question. Each
meter measuring the electricity referred to in Section 10.2 shall be located in
the basement of the Building on or adjacent to the switchboard on which the
switch in question is located. Prior to installing any meter pursuant to this
paragraph, Landlord shall so notify Tenant and, if Tenant promptly so request,
Landlord shall install a meter of the type referred to in Section 10.8 rather
than a consumption-only meter and in such a case Tenant shall reimburse Landlord
for increased cost of purchase or
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installation of such meter in excess of the cost of purchasing and installing a
consumption-only meter.
Commencing on the Term Commencement Date and upon the Delivery Date
of each Applicable Portion, Tenant shall pay to Landlord, for each billing
period of the electricity supplier furnishing the Building Electricity (the
"Building Electricity Supplier"), an amount (the "Electric Charge") equal to the
product obtained by multiplying
(i) the actual number of kilowatt hours of electric current
consumed by Tenant in the billing period, by
(ii) a fraction having as its numerator
(a) if ConEd shall be the Building Electricity Supplier,
the amount charged Landlord by ConEd pursuant to the
applicable tariff for Building Electricity for the billing
period including both the consumption charge (including fuel
adjustment) and the demand charge and all utility taxes, and
excluding all sales and use taxes whether or not separately
stated on the electric bill issued to Landlord,
(b) if ConEd shall not be the Building Electricity
Supplier, the sum of (i) the amount charged Landlord by the
Building Electricity Supplier pursuant to the electricity
supply contract entered into in accordance with this Lease for
Building Electricity for the billing period and (ii) the
amount charged Landlord by ConEd pursuant to the applicable
tariff for delivery to the Building of such Building
Electricity purchased from the Building Electricity Supplier
for the billing period, including, in both cases, both the
consumption charge (including fuel adjustment) and the demand
charge and all utility taxes, and excluding all sales and use
taxes whether or not separately stated on the electric bill
issued to Landlord,
and having as its denominator the total number of kilowatt hours of
Building Electricity consumed in the billing period.
Tenant shall also pay to Landlord any sales taxes on the Billing Period Electric
Charge payable by it pursuant to this Section, and Landlord shall remit such
sales tax to the appropriate governmental agency.
If, with Tenant's prior consent, the Building Electricity shall be
purchased from more than one electricity supplier for any billing period, the
aforesaid fraction shall be computed by aggregating the amounts charged by and
the electricity furnished by such suppliers.
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As used in this Section 10.7, the phrase "the amount charged
Landlord by ConEd" or "the amount charged Landlord by the Building Electricity
Supplier" shall mean such amount as reduced by all abatements, reductions and
exemptions if, as and when in effect and applicable to the electricity to which
this Section shall relate.
10.8 Electric Charges -- Actual Cost Contribution. By notice to
Landlord Tenant shall have the right to require that, in lieu of the amount
provided for in Section 10.7, the Electric Charge payable by Tenant be equal to
Tenant's actual contribution to the cost of Building Electricity ("Actual
Electric Cost Contribution"), considering consumption and demand (measured on a
co-incident demand basis) separately and, if Tenant shall so elect, considering
time of day; provided, however, that no such notice shall be effective unless
and until Tenant shall have installed in the Building such meters and other
equipment as are necessary to compute the Actual Electric Cost Contribution (the
"Additional Metering Equipment"). Tenant shall have the right to install the
Additional Metering Equipment in the Building. The demand component of the
Actual Electric Cost Contribution for any billing period shall be equal to the
ratio of Tenant's demand (measured on a co-incident demand basis) at the time of
the Building's peak demand for such billing period to the Building's peak demand
for such billing period, applied to the demand charge for such billing period.
The consumption component of the Actual Electric Cost Contribution for any
billing period shall be equal to the ratio of the Tenant's consumption for such
billing period to the Building's consumption for such billing period, applied to
the consumption charge (including fuel adjustment), and computed separately for
each applicable time of day, if applicable. The Actual Electric Cost
Contributions shall be computed exclusive of all sales and use taxes whether or
not separately stated on the electric bill issued to Landlord. Tenant shall also
pay to Landlord any sales taxes on the Electric Charge payable by Tenant
pursuant to this Section, and Landlord shall remit such sales tax to the
appropriate governmental agency. As used in this Section 10.8, the phrase "the
cost of Building electricity" shall mean such cost as reduced by all abatements,
reductions and exemptions if, as and when in effect and applicable to the
electricity to which this Section shall relate.
10.9 Billing & Payment. Landlord shall pay all charges for all
Building Electricity and shall indemnify Tenant against any claims therefor.
Landlord shall bill Tenant for the Electricity Charge, and the sales
and use tax thereon, monthly or at such other intervals as Landlord shall be
billed by the Building's Electricity Supplier. Each such bill shall be
accompanied by copies of the electric bills issued to Landlord on which it is
based, as well as records of the reading of the meters measuring Tenant's usage
and a statement showing the computation of the Electric Charge. Each such bill
rendered by Landlord in accordance with this Section shall be due and payable by
Tenant within twenty (20) days of presentation as aforesaid. If Tenant shall
dispute the amount of the Electric Charge for any billing period, and the
parties are unable to resolve such dispute within thirty (30) days of Tenant's
notice to Landlord thereof, such dispute shall be resolved by arbitration
pursuant to Article 35 and in any such arbitration the arbitrator shall be a
recognized electrical consultant practicing in New York City who shall have been
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engaged in such practice for not less than ten (10) years. No such dispute shall
excuse Tenant from payment on the basis of Landlord's bill, but Tenant shall be
entitled to interest at the Interest Rate on any overpayment from the date of
overpayment to the date of refund.
Landlord shall make available to Tenant from time to time upon
Tenant's request copies of all electricity billing records and meter and
submeter readings for the Building.
10.10 Direct Service -- Illegality of Redistribution. If it shall
become illegal for Landlord to purchase and redistribute electric current to its
tenants, Landlord shall, upon not less than thirty (30) days' prior notice to
Tenant, discontinue the furnishing of electric current to Tenant and Tenant
shall contract for electric current with the electricity supplier of Tenant's
choice; provided, however, that
(a) Landlord shall permit Tenant to use any existing
Electrical Equipment in the Building for the purpose of receiving
such electric current from such supplier but only to the extent that
the same is available, suitable and safely capable of supplying
electric current to Tenant,
(b) if and to the extent that any additional Electrical
Equipment is required to be installed in Building in order for
Tenant to receive such electrical current (without reduction in
capacity or diversity) Landlord shall install the same at its
expense subject to Tenant's approval thereof (not to be unreasonably
withheld), and
(c) Landlord shall not discontinue the furnishing of electric
current to Tenant until (i) Tenant has concluded arrangements with
Tenant's electric supplier, (ii) Tenant's electricity supplier has
commenced to provide electric current to Tenant, and (iii) if any
additional Electrical Equipment is required by clause (b) above to
be installed, the same has been installed and placed in service.
10.11 Direct Service--Tenant's Election. By notice to Landlord,
Tenant shall have the right (i) to purchase directly from the electricity
supplier of its choice any or all of the electric current otherwise required to
be furnished by Landlord pursuant to this Article 10 and (ii) for such purpose
to use any existing Electrical Equipment in the Building for the purpose of
receiving such electric current from such supplier but only to the extent that
the same is available, suitable and safely capable of supplying electric current
to Tenant; provided, however, that (a) Tenant shall not directly so purchase
electricity unless and until Tenant shall have installed in the Building any
additional Electrical Equipment necessary for Tenant to do so, and (b) Tenant
shall be required, at its expense, to maintain any such Electrical Equipment
used by Tenant pursuant to clause (ii) above or installed by Tenant pursuant to
clause (a) above. Tenant shall have the right to install in the Building such
additional Electrical Equipment as shall be necessary or appropriate in order
for Tenant to
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receive such electrical current (without reduction in capacity or diversity)
directly from Tenant's electricity supplier.
10.12 Tenant's Generator Plant -- Sale of Output. Tenant shall have
the right to sell the output of Tenant's Generator Plant to the purchaser of its
choosing (excluding Building tenants other than Tenant's subtenants), and to
install in the Building such additional Electrical Equipment as shall be
necessary for Tenant to do so; provided, however, that such additional
Electrical Equipment shall not adversely affect the Building's electrical system
or electric service to the Building or any of the other tenants therein.
10.13 General. Tenant's right to perform Tenant's Electrical Work
pursuant to Section 10.5 and Tenant's right to install Electrical Equipment
pursuant to Sections 10.3, 10.11 and 10.12 and Tenant's right to install
Additional Metering Equipment pursuant to Section 10.8 shall be subject to
Landlord's approval of the plans and specifications thereof (not to be
unreasonably withheld) and otherwise to the provisions of Section 6. Tenant
shall have the right to inspect and the right and obligation to maintain, repair
and replace all of the foregoing.
Tenant shall also have the right to inspect all meters referred to
in Section 10.7 and/or any Additional Metering Equipment in order to confirm the
accuracy thereof, and the right, subject to Landlord's approval (not to be
unreasonably withheld) to install devices to monitor and confirm the accuracy of
such meters and/or of such Additional Metering Equipment and/or to keep records
of Tenant's usage; provided, however, that such additional devices shall not
interfere with the functioning of such meters and/or of such Additional Metering
Equipment and that, if Landlord shall so request, Tenant shall remove such
devices upon the expiration or sooner termination of this Lease.
10.14 Lamps, Starters & Ballasts. Tenant shall purchase from the
vendor of its choice and install all lamps, starters and ballasts (including
replacements thereof) used in the lighting fixtures in the Premises.
10.15 Water. Landlord shall furnish hot and cold water for normal
use in Building lavatory and toilet facilities and for sprinklers, pantries and
slop sinks in or serving the Premises. Landlord shall furnish water for such
other purposes as Tenant shall require, including kitchens, a health club or
gymnasium, additional lavatory and toilet facilities and any cooling tower
installed by Tenant, for which Tenant shall pay as additional rent (i) the
actual out-of-pocket cost to Landlord of supplying, installing and maintaining a
meter to measure the water so furnished, (ii) the actual cost payable by
Landlord to the municipal or other water supplier for the such water, (iii) the
actual out-of-pocket cost to Landlord of any required pumping or heating of such
water, and (iv) any taxes, sewer rent or other charges that may be imposed by
any governmental agency based upon the quantity of such water the charge
therefor.
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10.16 Exculpation. Landlord shall in no way be liable for any
failure, inadequacy or defect in the character or supply of electric current,
water or steam furnished to the Building.
10.17 Gas. From and after the Delivery Date of the 3rd/4th Floor
Special Purpose Area (i) Tenant shall have the exclusive right to use the gas
supply system of the Building, and (ii) Tenant shall become a direct customer of
ConEd or the gas supplier of Tenant's choice and pay all charges for gas
directly to the supplier thereof.
Article 11. Elevators, Cleaning, Services, etc.
11.1 Definitions. For the purposes of this Lease, "Business Hours"
shall mean 7:00 A.M. to 7:00 P.M. on days other than Saturdays, Sundays and
Holidays. The term "Holidays" mean the holidays prescribed in the contracts for
the Building's labor staff in general (i.e. exclusive of holidays which
individual employees may take at different times). For purposes of this Lease,
"Business Days" shall mean all days other than Saturdays, Sundays and Holidays.
11.2 Passenger Elevator and Escalator Service.
(a) Landlord shall supply passenger elevator service at all times to
each floor of the Building that is served by the Building's passenger elevators
and on which the Premises are, or any portion thereof is, located, and Landlord
shall keep all passenger elevators in service (and available to Tenant) at all
times (except for breakdown and scheduled service, repairs or other work which
shall be subject to Section 11.7).
Landlord shall cause each passenger elevator to conform to the
performance specifications attached hereto as Exhibit L. No passenger elevator
shall, without Tenant's consent, be modified to serve any floor it does not
currently serve or to cease serving any floor it currently serves, except that
(i) Tenant shall have the right, from time to time, to control
whether or not the low-rise and/or the mid-rise and/or the high-rise
elevator bank shall serve the 16th floor and, if either the mid-rise
and/or the high-rise elevator bank shall serve the 16th floor,
whether or not the same shall serve the 16th floor from the lobby,
and
(ii) Tenant shall have the right to install on the 3rd floor
of the Building doors to the low rise elevator shafts and, having
done so, the right from time to control whether the low-rise
elevators serve the 3rd floor of the Building (and Tenant
understands that doing so may increase the average waiting times
experienced throughout the low rise elevator bank).
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Two of the high-rise elevators are configured so that they serve the
plaza level and provide direct exclusive service to selected floors of the
Building, known as executive service (the "Executive Elevators"). Tenant shall
have the right from time to time, limited to special occasions or special
functions, to place one or both of the Executive Elevators into executive
service and to make exclusive use of, and control the floors served by, the
Executive Elevators.
Tenant shall have the right, subject to Article 6 (including the
provisions thereof providing for Landlord's approval of the plans and
specifications), to upgrade and/or modernize the low-rise passenger elevators
("Tenant's Low Rise Elevator Work"). Tenant shall bear all costs of Tenant's Low
Rise Elevator Work, including hard and soft costs ("Tenant's Low Rise Elevator
Work Costs"), except that Landlord shall reimburse Tenant for the first $450,000
of such costs ("Landlord's Low Rise Elevator Cost Contribution"). Landlord shall
disburse Landlord's Low Rise Elevator Cost Contribution in installments. Each
installment shall be due within twenty (20) days of Tenant's request therefor
accompanied by copies of invoices for Tenant's Low Rise Elevator Work Costs paid
by Tenant.
(b) Landlord shall keep in service (and available to Tenant) at all
times (except for breakdown and scheduled service, repairs or other work which
shall be subject to Section 11.7) the two existing shuttle elevators. Except as
otherwise provided by this Section 11.2(b), one of such shuttle elevators shall
be configured to serve only the mezzanine level of the Building and the basement
of the Building and the other shuttle elevator shall be configured to serve only
the mezzanine level of the Building and the plaza level of the Building. If and
for so long as Tenant shall so request:
(i) one or both of such shuttle elevators (as Tenant shall
request) shall be configured to serve or not serve such of the
floors of the Building as it shall be capable of serving (as Tenant
shall request), and/or
(ii) Tenant shall be provided with keys in order to call
and/or operate one or both the shuttle elevators from or to any
floor of the Building it shall be capable of serving;
provided, however, that (a) the shuttle elevators shall be subject to call for
ADA access at all times as required by Applicable Law, and (b) Tenant shall
reimburse Landlord for the actual cost of any additional security necessitated
by any shuttle elevator service requested by Tenant pursuant to clause (i) of
this sentence.
(c) If Landlord shall install any card key or other security system
on any elevator the same shall be compatible with Tenant's key card.
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(d) Landlord shall keep in service (and available to Tenant) at all
times (except for breakdown and scheduled service, repairs or other work which
shall be subject to Section 11.7) (i) two escalators between the plaza level and
the mezzanine level, and (ii) four escalators between the mezzanine level and
the 3rd floor of the Building (the "3rd Floor Escalators"); provided, however,
that
(A) prior to the Delivery Date of the 3rd/4th Floor Special
Purpose Area, Landlord shall not be required to keep the 3rd Floor
Escalators in service when none of the facilities on the 3rd floor
are in use, and
(B) from and after the Delivery Date of the 3rd/4th Floor
Special Purpose Area, (i) Tenant shall have the exclusive right to
use and to control access to and to control the operation and hours
of operation of the 3rd Floor Escalators, including the right to
shutdown one or more of such 3rd Floor Escalators, and (ii) Tenant's
right to use the 3rd Floor Escalators shall be exclusive, and (iii)
Tenant shall reimburse Landlord for the actual cost of the
Building's maintenance contract covering the 3rd Floor Escalators.
(e) From and after the Delivery Date of the 3rd/4th Floor Special
Purpose Area, (i) Landlord shall keep in service (and available to Tenant
exclusively) at all times (except for breakdown and scheduled service, repairs
or other work which shall be subject to Section 11.7) the elevator serving only
the loading dock and the 2nd, 3rd and 4th floors ("Special Purpose Elevator"),
and (ii) Tenant shall reimburse Landlord for the actual cost of the Building's
maintenance contract covering the Special Purpose Elevator.
(f) If for any Renewal Term the Premises shall not include the
3rd/4th Floor Special Purpose Area then (i) the provisions of clause (B) of the
proviso to Section 11.2(d) and the provisions of Section 11.2(e) shall be void,
and (ii) Landlord shall not be required to keep the 3rd Floor Escalators in
service when none of the facilities on the 3rd floor are in use.
11.3 Freight Elevator Service. Landlord shall supply freight elevator
service (including use of the Building loading docks) during the hours of 6:00
am through 8:30 pm on Business Days (the "Freight Elevator Hours") to each floor
that is served by the Building's freight elevators and on which the Premises
are, or any portion thereof is, located.
Except for breakdown and scheduled service, repairs and other work
which shall be subject to Section 11.11, Landlord shall keep both such freight
elevators in service (and available to Tenant) on a non-exclusive basis at all
times during Freight Elevator Hours.
If and for so long as Tenant shall be providing any cleaning under
Section 11.7, Landlord shall also provide freight elevator service during the
hours of 8:30 pm through midnight on Business Days for the purpose of
transporting Tenant's cleaning personnel and equipment.
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Freight, furniture, business equipment, merchandise and packages of
any description shall be delivered to and removed from the Premises only in the
freight elevators and through the service entrances and corridors.
Notwithstanding the foregoing, Tenant shall be permitted to use the
passenger elevators for mail (including inter-office mail) delivery, courier
services (such as Federal Express and UPS) and messengers, provided that, if and
to the extent Tenant shall require the use of carts in connection therewith,
Tenant shall only use carts with bumpers which have been approved by Landlord,
such approval not to be unreasonably withheld, so as not to damage the passenger
elevator cars.
11.4 Heating, Ventilating and Air-Conditioning. Landlord shall
(a) subject to any applicable regulations adopted by any
governmental authority, supply heat to the Premises and the public
portions of the Building during Business Hours when needed for
comfortable occupancy, and
(b) subject to any applicable regulations adopted by any
governmental authority, supply air conditioning and ventilation to
the Premises and the public portions of the Building during Business
Hours throughout the year.
Such heating, ventilating and air-conditioning shall provide:
(a) inside conditions of no more than 76 (+/-2) degrees F.
d.b. (relative humidity of no more than 50%) so long as the outside
conditions are not more than 95 degrees F. d.b. 75 degrees F. w.b.,
except to the extent arising from occupancy of the Premises by more
than one person per 100 usable square foot or average electricity
consumption in the Premises of more than 3 watts (demand) per
useable square foot;
(b) inside conditions of not less than 70 degrees F. d.b. (no
minimum humidity) so long as the outside conditions are not less
than 5 degrees F. d.b; and
(c) at least .87 cfm of conditioned air per useable square
foot (including at least .15 cfm fresh air) supplied at no greater
than 58 degrees F. d.b. at the take-offs on each floor with not less
than 1.25 inches of residual static pressure as measured downstream
of the floor shutoff/isolation dampers on both risers and as
measured when such conditioned air is being provided to all floors
of the Building; provided, however, that when the base building
chiller plant is not in operation Landlord may supply air warmer
than the aforesaid temperature provided that Landlord increases the
quantity of air
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delivered so as to provide equivalent cooling in accordance with
good operating practices.
Landlord shall maintain the heating, ventilation and air conditioning systems to
the Premises in good order and condition, except for damage occasioned by the
act of Tenant, which will be repaired by Landlord at Tenant's expense.
11.5 Supplemental Condenser Water. Landlord shall furnish to Tenant,
at all times, from the Building's condenser water system such condenser water as
Tenant shall from time to time draw for Tenant's supplemental cooling
requirements up to the Tenant's Building Condenser Water Quantity (as
hereinafter defined) of condenser water. Landlord shall furnish such condenser
water at a maximum entering water temperature of 85 degrees Fahrenheit, and
Tenant's condenser water-using equipment may cause such temperature to rise to a
maximum of 100 degrees Fahrenheit. Such condenser water shall be furnished
through the Building's condenser water riser to each floor on which the Premises
are located.
Initially Tenant's Building Condenser Water Quantity shall be 200
tons; provided, however, that by notice to Landlord given from time to time
Tenant may increase or decrease Tenant's Building Condenser Water Quantity;
provided, however, that except for any increase notice of which is given by
Tenant within 180 days of the commencement of the term of this Lease with
respect to any Accepted Offer Space and which is limited to the tonnage of
condenser water being delivered to such Accepted Offer Space prior to Tenant's
leasing the same, any such increase shall be subject to Landlord's having, at
the time of Tenant's notice of increase, such increase available.
Tenant shall pay, as additional rent to Landlord, within thirty (30)
days of being billed therefor, the Applicable Price for each ton of Tenant's
Building Condenser Water Quantity; provided, however, that for the period
commencing on the Term Commencement Date and ending on the date six (6) months
after occupancy for the conduct of business of the last of the Premises
described in Exhibit C to be occupied by Tenant, such charge shall be computed,
rather than by reference to Tenant's Building Condenser Water Quantity, by
reference to the condenser water-using equipment actually installed by Tenant
and serving the portions of the Premises in which Tenant shall have opened for
the conduct of business. There shall be no additional "tap-in" or other fees.
The charges under this paragraph shall be adjusted upon any increase or decrease
in Tenant's Building Condenser Water Quantity (and, during the period described
in the proviso the preceding sentence, upon Tenant commencing to occupy any
Applicable Portion for the conduct of business).
11.6 Cleaning By Landlord. Landlord shall clean the following areas
of the Building in accordance with the cleaning specifications annexed hereto as
Exhibit M:
(a) the common areas of the Building on or below the mezzanine
level of the Building, the fire stairs of the Building, and the
windows of the Building (both the interior and exterior thereof);
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(b) all portions of the Premises (and all common areas of the
Building) that are located on any Partial Premises Floor; and
(c) during any period for which Tenant, in accordance with the
provisions of Section 12.3, has requested that Landlord clean all
portions of the Premises (and all common, service and utility areas
of the Building) that are located on any Full Premises Floor, all
portions of the Premises (and all common, service and utility areas
of the Building that are located on such Full Premises Floor;
provided, however, that Landlord shall not be required to clean (i) any portion
of the Premises below the mezzanine level of the Building, or (ii) any portion
of the Premises that is used for preparing, dispensing or consuming food or
beverages or for storage or as an exhibition area or classroom, or as a shipping
room, mail room or for similar purposes or that is a toilet (other than the
toilets located in the core of the Building) or a shop or that is used for the
operation of computers (other than personal computers or similar equipment),
data processing, reproduction, duplicating or similar equipment or any portion
of the Premises designated by Tenant as a Secure Area under Section 7.1(c) (the
portions referred to in this clause (ii) being herein called the "Excluded
Cleaning Areas")).
With respect to the cleaning provided by Landlord under this Section
11.6, Landlord shall provide to Tenant, not less frequently than quarterly, an
advance schedule of the days on which each of the periodic non-daily cleaning
services referred to in Exhibit M will be furnished to each floor of the
Premises and each portion of the common areas of the Building.
With respect to the cleaning provided by Landlord under this Section
11.6, Tenant shall pay to Landlord, Landlord's actual cost under Landlord's
cleaning contract, of any additional cleaning of the Premises required because
of the carelessness of Tenant.
Upon the conversion of any floor of the Building from a Partial
Premises Floor to a Full Premises Floor (i.e. upon the commencement of the term
of this Lease with respect to the last portion of the leasable area of such
floor) Landlord shall cease to clean such floor, subject to the provisions of
clause (i) of Section 11.7 below.
11.7 Cleaning By Tenant. Subject to the provisions of this Section
11.7, Tenant shall clean (a) all portions of the Premises (and all common areas
of the Building) located on any Full Premises Floor at least in accordance with
the applicable portions of the cleaning specification annexed hereto as Exhibit
M, and (b) all Excluded Cleaning Areas; provided, however, that upon not less
than 90 days prior notice to Landlord from time to time Tenant
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(i) may request that Landlord clean all portions of the
Premises (and all common areas of the Building) on any Full Premises
Floor (and commencing upon the lapse of such 90 days (or such longer
period as shall be provided in Tenant notice under this clause (i))
such floor shall be cleaned pursuant to Section 11.6, rather than
this Section 11.7, and
(ii) may request that Landlord cease to clean all portions of
the Premises (and all common areas of the Building) on any Full
Premises Floor (and commencing upon the lapse of such 90 days (or
such longer period as shall be provided in Tenant's notice under
this clause (ii)) such floor shall again be cleaned pursuant to this
Section 11.7, rather than Section 11.6.
Tenant shall deposit its refuse and rubbish in the freight elevator
lobby of each Full Premises Floor which it is cleaning pursuant to this Section
11.7, and Landlord shall remove such rubbish nightly on Business Days.
11.8 Cooperation in the Selection of Cleaning Contractors. Landlord
and Tenant shall endeavor to cooperate with one another with respect to the
solicitation of bids for cleaning services to be provided by Landlord under
Section 12.2 and Tenant under Section 12.3; provided, however, that each party
shall have (i) the right to control the bidding procedures to be used by it
(and, in the case of Tenant, the right to award the contract without bidding)
and the terms and conditions of the cleaning contract to be entered into by it,
and (ii) to retain the cleaning contractor of its choice subject, in Tenant's
case, to the provision of Section 7.1(e). Subject to the foregoing, Landlord and
Tenant agree to solicit bids for the initial cleaning contract from the cleaning
contractors listed on Exhibit N.
11.9 Rubbish Removal. Landlord shall remove the refuse and rubbish
from each floor of the Premises and the Building nightly on Business Days;
provided, that in the case of any Full Premises Floor being cleaned by Tenant
pursuant to Section 11.7 Tenant shall have placed the same in the freight
elevator lobby. Tenant shall pay to Landlord, Landlord's actual cost under
Landlord's cleaning contract, of the removal from the Premises and the Building
of any of Tenant's refuse and rubbish in excess of that incident to normal
office occupancy, except wastepaper baskets left for emptying as an incident to
Landlord's normal cleaning of the Premises.
11.10 Additional Services. Landlord shall, when and to the extent
requested by Tenant upon advance notice not later than (x) 3:00 P.M., in case of
service on days other than Saturdays, Sundays and Holidays, (y) 12:00 P.M. on
Friday in case of service on Saturdays or Sundays and (z) 12:00 P.M. on the
business day preceding a Holiday in the case of service on a Holiday, furnish
(i) additional freight elevator (and loading dock) service on a dedicated basis,
(ii) additional heating, air conditioning, ventilation services, (iii)
additional cleaning services, and (iv) other additional services as listed on
Exhibit O annexed hereto, and Tenant, within twenty (20) days of Landlord's
bills therefor, shall pay Landlord the Applicable Price therefor. There shall be
no additional charge to Tenant for Tenant's use,
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during Freight Elevator Hours, of the freight elevators to bring in construction
materials for the performance of Alterations or for Tenant's move in to any
portion of the Premises. During construction of Alterations and move-in, Tenant
will have the dedicated use of one (1) freight elevator at such times as Tenant
shall request, to be manned at such times by Landlord's own union labor;
provided, however, that (i) Tenant shall reimburse Landlord for Landlord's
actual out-of-pocket cost of furnishing such Landlord's own union labor, (ii) if
the use of Landlord's own union labor shall result in any labor trouble or
jurisdictional dispute with the union labor of Tenant's contractors, the freight
elevator shall instead be manned by union labor furnished by Tenant's
contractor, and (iii) Tenant shall not be entitled to such dedicated use of one
(1) freight elevator during any periods of breakdown of the Building's other
freight elevator. In addition, during such construction, Tenant may have the
exclusive use of one (1) passenger elevator from each bank for the transport of
its construction personnel only (but not construction materials). Tenant shall
be responsible for daily cleaning and maintenance of such elevator, the public
lobby and any other area of the Building (as opposed to the Premises) affected
thereby. During all other times, if Tenant requests temporarily the dedicated
use of one (1) freight elevator, Landlord shall furnish the same and Tenant
shall pay to Landlord the Applicable Price for such service. During its move-in
Tenant shall have the right to use the passenger elevators in the low rise
elevator bank for its move provided Tenant properly protects such elevators.
Following Tenant's performance of the initial Alterations with respect to any
portion of the Premises, Landlord shall clean such portion of the Premises to
prepare the same for Tenant's occupancy, at no additional cost to Tenant,
provided that such portion is free of construction materials and debris.
11.11 Interruption in Services. Landlord reserves the right, without
any diminution or abatement of rent or any other liability to Tenant, including,
without limitation, for direct or consequential damage, or otherwise, and
without constituting any claim of constructive eviction, to stop any heating,
elevator, escalator, ventilation, air conditioning, electricity, domestic water,
condenser water, cleaning or other service and to interrupt the use of any
Building facilities, when necessary, and for as long as may reasonably be
required, by reason of accidents, strikes, the making of repairs, alterations or
improvements, lockouts, riots, acts of God, governmental preemption in
connection with a national or local emergency, inability to secure a proper
supply of fuel, steam, water, electricity, labor or supplies, laws, orders or
regulations of any governmental authority, Landlord's compliance with any
mandatory governmental energy conservation or environmental protection program
or any voluntary governmental energy conservation program, the request or
consent of Tenant, or by reason of any other cause beyond the reasonable control
of Landlord, subject to the following provisions of this Section 11.11. Landlord
shall not, however, except in an emergency (i) voluntarily effect any shutdown
or reduction of any service without at least ten (10) business days prior notice
to Tenant of the time and duration thereof, or (ii) voluntarily effect or
continue any shutdown or reduction of (x) electricity, domestic water or
condenser water other than during the hours of 8:00 a.m. Saturday through 8:00
p.m. on Sunday, or (y) any other service (excluding cleaning) during Business
Hours. Additionally, except in emergency, Tenant, by notice to Landlord given
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within five (5) business days of its receipt of Landlord's notice pursuant to
clause (i) of the preceding sentence relative to any service shutdown or
reduction, may require Landlord to postpone such service shutdown or reduction
by thirty (30) days. In case of any service shutdown or reduction arising out
of, or the ending of which requires, any work by Landlord, Landlord shall
prosecute such work diligently and continuously so as to minimize the duration
of such service shutdown or reduction. All non-emergency service, repairs and
other work to Building elevators and escalators shall be done outside Business
Hours, except for any extended repairs or other work that requires more than a
single evening; such extended repairs or other work shall be confined to one (1)
elevator or escalator per bank at any time (and the other escalator shall be
configured to run up).
11.12 Damage or Defective Condition. Tenant shall give to Landlord
prompt notice of any damage to, or defective condition in, any part or
appurtenance of the Building's sanitary, electrical, heating, air conditioning,
ventilation or other systems serving, located in, or passing through, the
Premises becoming known to Tenant's director of building operations (exclusive
of any such damage or defective condition to or in any fixtures, equipment,
improvements or installations installed by Tenant) and the damage or defective
condition shall be remedied by Landlord with reasonable diligence, provided,
however, that if the damage or defective condition was caused by, or by the
improper use of any of the systems by, Tenant or its employees, licensees or
invitees and is not coverable by an "all risk" insurance policy, the cost of the
remedy thereof shall be paid by Tenant within twenty (20) days of Landlord's
demand accompanied by appropriate supporting documentation. Tenant shall not be
entitled to claim any damages or offset in Fixed Rent or Additional Rent arising
from any such damage or defective condition, nor shall Tenant be entitled to
claim any eviction by reason of any such damage or defective condition.
11.13 Building Directory. Landlord shall maintain touch-screen
directories of tenants of the Building in the Building atrium at the Maiden Lane
and Pine Street entrances and on the mezzanine level. Landlord shall, at the
request of Tenant, maintain listings on such directories of Tenant and any other
person, firm or corporation in occupancy of the Premises or any part thereof as
permitted hereunder, and the names of any officers or employees of the
foregoing; provided, however, that the number of names so listed shall be in the
same proportion to the capacity of the Building directory as the aggregate
number of rentable square feet of the Premises is to the aggregate number of
rentable square feet of the Building, but in no event less than one per 150
square feet of rentable area of the Premises. The listing of any name other than
that of Tenant, whether on the doors or windows of the Premises, on the Building
directory, or otherwise, shall not operate to vest any right or interest in this
Lease or in the Premises or be deemed to be the consent of Landlord mentioned in
Article 12 below, nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Premises or to
the use or occupancy thereof by others.
11.14 Operation & Maintenance of the Building. Landlord shall
operate and maintain the Building and provide all services consistent with
standards for a Class A office
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building in downtown Manhattan. Landlord shall maintain in condition befitting a
Class A office building in downtown Manhattan the Building's structure and
shell, all common, service and utility areas and facilities of the Building and
the Building's electrical, heating, ventilating, air-conditioning, plumbing,
sanitary, sprinkler, fire life safety and other systems (excluding any portions
thereof installed by Tenant) (all of the foregoing being herein called the "Base
Building"), and shall make all repairs and replacements to the Base Building
required to keep the same in such condition. Landlord shall clean and police the
Building atrium and shall clean, maintain, repair and replace all personal
property therein as befitting a Class A office building in downtown Manhattan,
including the plants and landscaping therein.
11.15 Accessibility and Security (a) Landlord shall provide a
uniformed guard twenty-four (24) hour a day seven (7) days a week at the Maiden
Lane entrance to the Building for security purposes and to provide ADA
accessibility and assistance as needed.
(b) The provisions of this Section 11.15(b) shall be applicable
during Business Hours.
Persons shall be permitted to enter the Building atrium at the
Maiden Lane and Pine Street entrances and proceed to the mezzanine
level without clearing security.
Landlord shall station security personnel at both the south
security desk on the mezzanine level and the north security desk on
the mezzanine level.
Persons displaying an identification card issued by Tenant (a
"Tenant ID Card") shall be permitted to pass Landlord security at
either the north or south security desk on the mezzanine level.
Persons without a Tenant ID Card seeking to enter the Premises
shall be required to clear Landlord security on the mezzanine level
and Landlord's security personnel will notify Tenant whenever any
such person seeks access to the Premises and shall admit such person
if Tenant authorizes such entry.
Notwithstanding the preceding paragraph (i) Tenant shall have
the right to station its own security personnel at the south
security desk on the mezzanine level (in addition to Landlord's
security personnel at such desk) and (ii) so long as and whenever
Tenant stations its own security personnel at the south security
desk persons without a Tenant ID Card seeking to enter the Premises
shall be processed by Tenant's security personnel rather than
Landlord's security personnel. Tenant's security personnel may issue
a day pass to any such person and, by displaying a current day pass
issued by
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Tenant's security personnel, such person shall be permitted to pass
Landlord security at either the north or south security desk on the
mezzanine level.
(c) The provisions of this Section 11.15(c) shall be applicable
other than during Business Hours.
Persons shall be permitted to enter the Building atrium only
at the Maiden Lane entrance and shall be subject to security at that
location.
Landlord shall station security personnel at the Maiden Lane
entrance.
Persons displaying a Tenant ID Card shall be permitted to pass
Landlord security on the plaza level and proceed to the mezzanine
level.
Persons without a Tenant Employee ID Card seeking to enter the
Premises shall be required to clear security on the plaza level and
Landlord's security personnel will notify Tenant whenever any such
person seeks access to the Premises and shall admit such person if
Tenant authorizes such entry.
Notwithstanding the preceding paragraph (i) Tenant shall have
the right to install and station security personnel at its own
security desk on the plaza level, near the Maiden Lane entrance, and
(ii) so long as and whenever Tenant stations its own security
personnel on the plaza level persons without a Tenant ID Card
seeking to enter the Premises shall be processed by Tenant's
security personnel rather than Landlord's security personnel.
Tenant's security personnel may issue a day pass to any such person
and, by displaying a current day pass issued by Tenant's security
personnel, such person shall be permitted to pass Landlord security
on the plaza level (and proceed to the mezzanine level).
Either party may provide additional security at the mezzanine
level, but any person displaying a Tenant ID Card or a current day
pass issued by Tenant's security personnel shall be permitted to
pass any such additional Landlord security.
(d) Tenant shall furnish Landlord with samples of its Tenant ID Card
and day pass. Landlord shall not be responsible for verifying that any person
displaying a Tenant ID Card or a day pass issued by Tenant is in fact the
authorized holder thereof. Persons displaying a Tenant ID Card or a day pass
issued by Tenant shall not be required by Landlord to sign any register upon
leaving or entering the Building at any time.
(e) Tenant shall have the right to control access to the low-rise
elevator bank (and in the event Tenant shall ever lease all premises served by
the mid-rise elevator bank or the high-rise elevator bank, such additional
elevator bank or banks, as applicable). Tenant
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shall have the right (i) for such purpose to install (A) turnstiles and gates to
the low-rise elevator bank (and in the event Tenant shall ever lease all
premises served by the mid-rise elevator bank or the high-rise elevator bank,
such additional elevator bank or banks, as applicable), and/or (B) to install
partitions to separate any elevator bank to which Tenant has the right to
control access from any elevator bank or other area to which Tenant does not
have the right to control such access, subject, in either case, to Landlord's
prior approval of the plans therefor, which approval shall not be unreasonably
withheld, or (ii) to exercise such control by other means, subject to the
approval of Landlord which approval shall not be unreasonably withheld.
(f) Tenant shall have the right (i) to install computers and
telephones at its security desks and (ii) to run voice, data and/or electrical
conduits from the Premises or Tenant's Shafts to such computers and telephones
and to any equipment installed by Tenant to control access to any elevator bank.
Landlord shall furnish electricity to any such computers, telephones and
equipment.
11.16 Tenant's Car Service Line. Landlord shall (at no cost to
Landlord) cooperate with Tenant's efforts to sign any permit applications
requested by Tenant to enable Tenant to acquire rights to use the area directly
in front of the Maiden Lane entrance for its car service line.
11.17 Applicable Price. The term "Applicable Price" as used with
respect to each item referred to Exhibit O shall mean the price set forth
therefor on Exhibit O (the "Original Applicable Price"); provided, however, that
on January 1, 2000 and on each succeeding January 1, Landlord may adjust the
Applicable Price of each item to reflect increases in the actual cost to
Landlord of providing such item; provided, however, that in no event shall the
Applicable Price for any item any year exceed product of the Original Applicable
Price for such item multiplied by the CPI Factor for such year.
The term "CPI Factor" shall mean for any year the quotient of the
Index for January of such year divided by the Index for January 1999. The term
"Index" shall mean the Revised Consumer Price Index for All Urban Consumers
(i.e., the "CPI-U") published by the Bureau of Labor Statistics of the United
States Department of Labor ("BLS"), for New York-Northern New Jersey-Long
Island, NY-NJ-CT, All Items (1982-84 = 100). IF BLS changes the publication
frequency of Index so that an Index is not available for the month of January to
make any adjustment specified herein, the adjustment in question shall be based
on the percentage difference between the Index for the closest preceding month
for which an Index is available and the Index for the corresponding month in
1999. If BLS changes the base reference period for the Index from 1982-84 = 100,
the adjustments required hereunder shall be determined with the use of such
conversion formula or table as may be published by BLS. If BLS otherwise
substantially revises, or ceases publication of, the Index, then a substitute
index for determining the adjustments required hereunder, issued by BLS or by a
reliable governmental or other nonpartisan publication, shall be reasonably
designated by Landlord.
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11.18 Fire Alarm. Tenant shall have the right to install a new
"state of the art" micro-processor based data gathering panel (DGP) on each
floor for incorporation into the existing base building fire alarm system. The
DGPs shall be microprocessor based, and include distributed amplification and
distributed power supplier. Tenant shall have the right to install a redundant
(second) Fire Alarm System riser cable, connected to the base building system,
to serve Tenant's DGPs. In connection with this work, Tenant may relocate the
existing building fire alarm system due to its location within the CNA Closet.
In performing its work under this Section Tenant shall comply with Applicable
Law, including applicable fire regulations, and shall purchase components from
the manufacturer of the base building system.
Article 12. Assignment and Subletting.
12.1 General. Except as hereinafter provided, Tenant, for itself,
its distributees, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not, directly or indirectly, by operation of
law or otherwise, assign, mortgage or encumber this Lease or any part thereof,
or underlet, or suffer, or permit the Premises or any part thereof to be used or
occupied by others, without the prior written consent of Landlord in each
instance. If this Lease or any part thereof is assigned, or if the Premises or
any part thereof is underlet, used or occupied by anyone other than Tenant,
Landlord may, after default beyond any applicable notice or cure period by
Tenant, collect rent from the assignee, undertenant, user or occupant, and apply
the net amount collected to the rent herein reserved, but no assignment,
underletting, use, occupancy or collection shall be deemed a waiver (except to
the extent Landlord has collected Fixed Rent and Additional Rent) of the
provisions hereof, or the acceptance of the assignee, undertenant, user or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by
Landlord to an assignment, mortgage, encumbrance, underletting, use or occupancy
shall not in any way be construed to relieve Tenant or any assignee or subtenant
from obtaining the express consent in writing of Landlord to any further
assignment, mortgage, encumbrance, underletting, use or occupancy to the extent
required by the terms of this Article. Each assignee and each subtenant shall be
bound by the same obligations and entitled to the same rights as Tenant under
this Article 12, including the rights provided by Sections 12.7 and 12.8 except
that (i) the proviso to Section 12.7 shall not be applicable to any subtenant,
and (ii) when applying Section 12.8 to any subtenant the term "Related Party"
shall be defined by reference to such subtenant rather than Tenant. Tenant shall
not include in any advertisement the proposed sublease rental rate.
Notwithstanding any subletting to any subtenant or acceptance of rent or
additional rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the Fixed Rent and Additional Rent due and to
become due hereunder and for the performance of a11 the covenants, agreements,
terms, provisions and conditions contained in this Lease on the part of Tenant
to be performed and all acts and omissions of any subtenant or anyone claiming
under or through any subtenant that shall be in violation of any of the
obligations of this Lease, and any violation shall be deemed to be a violation
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by Tenant. Any amendment or modification to a sublease which shall extend the
term thereof or shall expand the premises demised thereby (other than, in either
case, pursuant to the exercise of an option or right set forth therein) shall,
as to such extension or expansion, be deemed to constitute a new sublease to
which the provisions of this Article 12 shall separately apply; any other
amendment or modification of a sublease shall not be deemed a new sublease but
Tenant shall furnish Landlord with a copy thereof prior to the effectiveness
thereof.
12.2 Request for Consent. Each request by Tenant for Landlord's
consent to any assignment of this Lease or any sublease of all or any part of
the Premises shall be accompanied by
(i) a statement of the proposed effective or commencement date
of the proposed assignment or sublease, which shall be not less than
ten (10) business days nor more than one (1) year after the giving
of the notice,
(ii) in the case of a proposed sublease, (x) a description of
the premises proposed to be sublet, including all premises covered
by any expansion rights and options proposed to be included in such
proposed sublease (together, the "Proposed Sublease Premises"), and
(y) a statement of the proposed expiration date of the proposed
sublease, assuming the exercise of any renewal options proposed to
be included in such proposed sublease (the "Proposed Sublease
Expiration Date"),
(iii) a statement setting forth in reasonable detail the
identity of the proposed assignee or subtenant and the nature of its
business,
(iv) a confirmation that the proposed primary use of the
premises to which such assignment or sublease shall relate is office
use or if such proposed primary use is not office use, then a
statement setting forth the proposed primary use of the Premises,
(v) if known to Tenant, a statement of the identity of any
broker who may be entitled to a commission in respect of the
proposed assignment or subletting,
(vi) such financial information with respect to the proposed
assignee or subtenant, as shall have been furnished to Tenant by
such assignee or subtenant (it being agreed, however, that in the
case of a proposed sublease Landlord shall not be entitled to
withhold its consent by reason of the financial condition of the
proposed subtenant), and
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(vii) in the case of a proposed assignment, such other
information reasonably requested by Landlord within five (5) days of
its receipt of the information referred to in the preceding clauses
of this sentence.
12.3 Consent Not to Be Unreasonably Withheld; Conditions. Provided
that Tenant is not in default of any of Tenant's obligations under this Lease
beyond any applicable notice or grace period, Landlord's consent to the proposed
assignment or sublease shall not be unreasonably withheld, provided that the
following conditions are satisfied:
(a) Tenant shall have complied with the provisions of Section
12.2 of this Article;
(b) The proposed assignee or subtenant is engaged in a
business that is in keeping with the standards of the Building;
(c) The proposed assignee or subtenant is a reputable entity
of good character;
(d) The proposed assignee or sublessee is not an entity with
whom Landlord is then negotiating to lease comparable space in the
Building which Landlord has available for a comparable term; and
(e) In the case of a proposed sublease, there shall not be
more than three (3) occupants (including Tenant) of each floor of
the Premises on which all or any portion of the premises proposed to
be subleased shall be located, provided that an entity, together
with its Related Parties, shall be considered a single occupant for
purposes of this Section 12.3(e).
Within ten (10) business days after receipt by Landlord of all
information required by Section 12.3 Landlord shall either (i) grant consent in
the form attached hereto as Exhibit P or (ii) furnish Tenant with a notice that
it withholds consent and of its reasons therefor. If Landlord shall fail timely
to grant such consent or furnish such notice, Landlord shall be deemed to have
granted such consent.
Tenant shall reimburse Landlord, within thirty (30) days of receipt
of an invoice from Landlord therefor, for any actual reasonable out-of-pocket
costs that may be incurred by Landlord to independent third parties in
connection with the considering Tenant's request for consent, including, without
limitation, the costs of making investigations as to the acceptability of the
proposed assignee or subtenant, and reasonable legal costs incurred in
connection with the granting of any requested consent.
If Landlord shall decline to give its consent to any proposed
assignment or sublease, Tenant shall indemnify, defend and hold harmless the
Landlord Indemnitees against and from any and all Claims that may be made
against the Landlord Indemnitees by
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the proposed assignee or sublessee or by any brokers or other persons claiming a
commission or similar compensation in connection with the proposed assignment or
sublease.
12.4 Effect of Consent.
Each consent to assignment issued by Landlord pursuant to Section
12.3 shall be effective with respect to any assignment of this Lease to the
assignee identified in Tenant's request for consent provided that such
assignment (i) is fully-executed and delivered (and a copy thereof delivered to
Landlord) within 270 days of Tenant's request for consent, and (ii) is effective
on a date no earlier than the date set forth in Tenant's request for consent. If
Tenant proposes to enter into any assignment of this Lease not conforming to the
foregoing provisions of this paragraph, Tenant shall again be required to comply
with the foregoing provisions of this Article 12.
Each consent to sublease issued by Landlord pursuant to Section 12.3
shall be effective with respect to any sublease of all or any portion of the
Proposed Sublease Premises identified in Tenant's request for consent to the
subtenant identified in Tenant's request for consent provided that such sublease
(i) is fully-executed and delivered (and a copy thereof delivered to Landlord)
within 270 days of Tenant's request for consent, (ii) commences no earlier than
the proposed commencement date set forth in Tenant's request for consent, and
(iii) expires (assuming the exercise of any renewal options provided for
therein) no later than the Proposed Sublease Expiration Date set forth in
Tenant's request for consent. If Tenant proposed to enter into any sublease of
all or any portion of the Premises not conforming to the foregoing provisions of
this paragraph, Tenant shall again be required to comply with the foregoing
provisions of this Article 12.
Tenant shall deliver to Landlord prior to the effective date of the
assignment or the commencement date of the sublease executed copies of such
assignment or sublease as well as all other agreements, if any, relating to such
assignment or sublease, and, if not fully disclosed thereby, a statement of all
consideration to be received by Tenant for or in connection with the assignment
or sublease and the terms of payment therefor.
12.5 Provisions Applicable to Every Sublease. With respect to each
and every sublease or subletting authorized by Landlord under the provisions of
this Lease or for which Landlord's consent is not required, it is further agreed
that:
(a) No subletting shall be for a term ending later than one
(1) day prior to the Expiration Date of this Lease;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of the sublease has been delivered to Landlord; and
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(c) Each sublease shall provide that it is subject (to the extent
applicable to the subleased premises and sublease term) and subordinate to
this Lease and to the matters to which this Lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess
by Landlord under this Lease Landlord may, at its option, take over all of
the right, title and interest of Tenant, as sublessor, under the sublease,
and the subtenant shall, at Landlord's option, attorn to Landlord pursuant
to the executory provisions of the sublease, except that Landlord shall
not (1) be liable for any previous act or omission of Tenant under the
sublease, (2) be subject to any offset, not expressly provided in the
sublease, that theretofore accrued to the subtenant against Tenant, or (3)
be bound by any modification of the sublease made after Landlord's so
taking over such right, title and interest unless Landlord has consented
to such modification or by any previous prepayment of more than one
month's rent.
12.6 Profit-Sharing. If Landlord shall give its consent to any
assignment of this Lease or to any sublease, Tenant shall in consideration
therefor, pay to Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to fifty percent
(50%) of all sums (excluding rent payable under this Lease, which shall be
payable directly to Landlord) and other consideration payable to Tenant by
the assignee for or by reason of the assignment (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other
personal property, less the net unamortized cost thereof determined on the
basis of generally accepted accounting principles consistently applied)
reduced (but not below zero) by (i) the actual expenses incurred in good
faith by Tenant in connection with such assignment including without
limitation, e.g., lease takeover payments and other tenant allowances,
reasonable attorney's fees, cost of initial alterations made to the
Premises (or portions thereof) for the benefit of the assignee and
brokerage and leasing commissions, and (ii) an amount equal to the Fixed
Rent and Additional Rent payable under this Lease during the period
commencing on the date the Premises was vacated by Tenant through the
effective date of the assignment, but in no event to exceed six (6)
months, payable if, as and when Tenant receives such sums, after
recoupment by Tenant of such actual expenses referred to in clause (i)
above and such amount referred to in clause (ii) above; and
(b) in the case of a sublease, fifty percent (50%) of any rents,
additional charges or other considerations payable under the sublease to
Tenant by the subtenant that are in excess of the Fixed Rent and
Additional Rent accruing during the term of the sublease in respect of the
subleased space (at the rate per square foot payable by Tenant hereunder)
pursuant to the terms hereof (including, but not limited to, sums paid for
the sale or rental of Tenant's fixtures, leasehold improvements,
equipment, furniture, furnishings or other personal property, less the net
unamortized cost thereof determined on the basis of generally accepted
accounting principles consistently
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applied) reduced (but not below zero) by (i) the actual expenses incurred
in good faith by Tenant in connection with such sublease including,
without limitation, e.g., lease takeover payments and other tenant
allowances, reasonable attorney's fees, cost of initial alterations made
to the subleased space for the benefit of the sublessee and brokerage and
leasing commissions and (ii) an amount equal to Fixed Rent and Additional
Rent payable under this Lease in respect of the subleased space for the
period commencing on the date the subleased space was vacated by Tenant
through the commencement date of the sublease, but in no event to exceed
six (6) months, payable if, as and when Tenant receives such sums, after
recoupment by Tenant of such actual expenses referred to in clause (i)
above and such amount referred to in clause (ii) above.
12.7 Changes in Control; Transactions with Successors. Sections
12.1, 12.2, 12.3, 12.4 and 12.6 of this Article shall apply to a transfer,
directly or indirectly, by one or more transfers (other than transfers of
publicly traded interests in Tenant), of a majority of the beneficial interest
of Tenant only if the primary purpose thereof is the circumvention of the
conditions and restrictions set forth in this Article 12, as if such transfer
were an assignment of this Lease. The first sentence of Section 12.1 and
Sections 12.2, 12.3, 12.4, 12.5 and 12.6 of this Article shall not apply to, and
Landlord's consent shall not be required for, transactions with a corporation or
other entity into or with which Tenant is merged or consolidated or to which all
or substantially all of Tenant's assets are transferred; provided that in either
case (1) the successor to Tenant has a net worth computed in accordance with
generally accepted accounting principles of not less than the product of
eighteen (18) multiplied by the per annum Fixed Rent then payable under this
Lease, and (2) proof reasonably satisfactory to Landlord of such net worth shall
have been delivered to Landlord no later than ten (10) days after the effective
date of the transaction.
12.8 Transactions with Related Parties. The first sentence of
Section 12.1 and Sections 12.2, 12.3, 12.4, 12.5 and 12.6 of this Article shall
not apply to, and Landlord's consent shall not be required for, any assignment
or sublease by Tenant to any Related Party or to the occupancy of any portion of
the Premises by a Related Party without a subletting or assignment. For the
purposes of this Section, a "Related Party" shall mean (x) any corporation,
partnership or other entity which, at the time of the making of such assignment
or sublease or the commencement of such occupancy, is controlled by, controls,
or is under common control with, Tenant, (y) any service provider of Tenant
(such as, for example, any consultant providing services (e.g., travel,
technology, legal or accounting services) to Tenant and/or its employees, but
not to the public) and (z) any entity that acquires one of Tenant's business
units or divisions.
12.9 Miscellaneous Provisions Regarding Assignments. Any assignment
of this Lease (other than an assignment by operation of law in connection with a
merger or consolidation), whether made with Landlord's consent pursuant to
Section 12.1 of this Article, or without Landlord's consent pursuant to Section
12.7 or 12.8 of this Article, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and
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deliver to Landlord an agreement in the form attached hereto as Exhibit Q. No
such assignment shall release any predecessor tenants, including the
original-named Tenant, from liability. The joint and several liability of Tenant
and any assignee or immediate or remote successor in interest of Tenant and the
due performance of the obligations of this Lease on Tenant's part to be
performed or observed shall not be discharged, released or impaired in any
respect by any agreement or stipulation made by Landlord extending the time of,
or modifying any of the obligations of, this Lease, or by any waiver or failure
of Landlord to enforce any of the obligations of this Lease.
Article 13. Damage by Fire, etc.
13.1 If any part of the Premises shall be damaged by fire or other
casualty, Tenant shall give prompt notice thereof to Landlord. If any part of
the Premises or of the Base Building shall be damaged by fire or other casualty
Landlord shall, subject to the provisions of Section 13.2, proceed with
reasonable diligence to repair the damage, and if any part of the Premises shall
be rendered untenantable by reason of such damage to the Premises or the Base
Building, the annual Fixed Rent and the Additional Rent on account of Real
Estate Taxes, Operating Costs and Cleaning Costs payable hereunder, to the
extent that the Fixed Rent and the Additional Rent on account of Real Estate
Taxes, Operating Costs and Cleaning Costs relates to the part of the Premises
that has been rendered untenantable, shall be abated for the period from the
date of the damage to the date when such part of the Premises shall have been
made tenantable or to any earlier date upon which the term of this Lease shall
expire or terminate. As used in this Article, the term "untenantable" shall
mean, with respect to the Premises or any portion thereof, that the same is
unsuitable for use (and is not used) in the normal manner for the purpose for
which leased, by reason of damage or destruction therein or to the Base
Building, or by reason of interruption or diminution in any of the services
otherwise ordinarily provided thereto, or by reason of not being reasonably
accessible. In the event a rent abatement occurs under this Article with respect
to a portion of the Premises then subject to another abatement of rent under
this Lease, the other abatement period shall be extended with respect to such
portion of the Premises one (1) day for each day of the abatement period under
this Article. Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from any damage
or the repair thereof. Tenant acknowledges that Landlord is not obligated to
carry insurance of any kind on Tenant's goods, furniture or furnishings or on
any fixtures, equipment, improvements, installations or appurtenances installed
by Tenant or removable by Tenant as provided in this Lease, and that Landlord
shall not be obligated to repair any damage thereto or replace the same.
13.2 If repair or restoration of the Building (excluding goods,
furniture or furnishings and any fixtures, equipment, improvements,
installations or appurtenances installed by or for any tenant or removable by
any tenant) reasonably estimated to cost at least fifty percent (50%) of the
full insurable value of the Building (excluding goods, furniture or furnishing
and any fixtures, equipment, improvements, installations or appurtenances
installed by or for any tenant or removable by any tenant) shall be required
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as a result of damage by fire or other casualty (whether or not the Premises
shall have been damaged by fire or other casualty), then this Lease and the term
and estate hereby granted may be terminated by Landlord by its giving to Tenant
within ninety (90) days after the date of the damage a notice specifying a date,
not less than thirty (30) days after the giving of the notice, for the
termination; provided, however, that, at Tenant's election, no such notice of
termination shall be effective unless Landlord shall also simultaneously
terminate all other leases of space in the Building. In the event of the giving
of notice of termination, this Lease and the term and estate hereby granted
shall expire as of the date specified therefor in the notice, with the same
effect as if that date were the Expiration Date, and the Fixed Rent and
Additional Rent payable hereunder shall be apportioned as of the date of
termination, subject to abatement, if any, as and to the extent above provided.
13.3 If because of damage by fire or other casualty more than
twenty-five percent (25%) of the floor area of the Premises shall have been
rendered untenantable, Landlord shall deliver to Tenant within forty-five (45)
days of the date of the fire or other casualty the determination of an
independent architect or engineer selected by Landlord, subject to Tenant's
approval (not to be unreasonably withheld), of the estimated time to complete
the repair and restoration required by Section 13.1 (the "Estimated Repair
Time"). If such independent architect's or engineer's determination of the
Estimated Repair Time is greater than one hundred eighty (180) days from the
date of the fire or other casualty, Tenant may terminate this Lease by giving
notice of termination to Landlord within thirty (30) days after the receipt by
Tenant of notice from Landlord specifying such independent architect's or
engineer's determination of the Estimated Repair Time. If Tenant does not
terminate this Lease as provided above or such independent architect's or
engineer's determination of the Estimated Repair Time was less than one hundred
eighty (180) days, and Landlord fails to complete the repair and restoration
required by Section 13.1 within the Estimated Repair Time plus thirty (30) days,
Tenant may terminate this Lease by giving notice of termination to Landlord
within thirty (30) days after the expiration of the Estimated Repair Time plus
thirty (30) days. If Tenant gives notice to Landlord to terminate this Lease as
provided above, this Lease shall terminate on the date provided for in the
notice by Tenant, but in no event later than twelve (12) months after the giving
of the notice, with the same effect as if the date specified in the notice was
the Expiration Date and the Fixed Rent and Additional Rent payable hereunder
shall be apportioned as of the date of termination, subject to abatement, if
any, as and to the extent above provided.
13.4 Nothing herein contained shall relieve Tenant from any
liability to Landlord in connection with any damage to the Premises or the
Building or Landlord's property therein by fire or other casualty if Tenant
shall be legally liable therefor, except, however, that Landlord hereby releases
Tenant with respect to any liability that Tenant might otherwise have had to
Landlord for any damage to the Premises or the Building or Landlord's property
therein by fire 6r other casualty occurring during the term of this Lease to the
extent arising from a casualty or other event coverable by an "all risk"
insurance policy.
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13.5 This Lease shall be considered an express agreement governing
any case of damage to or destruction of, or any part of, the Building or the
Premises by fire or other casualty, and Section 227 of the Real Property Law of
the State of New York providing for a contingency in the absence of express
agreement, and any other law of like import now or hereafter in force, shall
have no application hereunder.
Article 14. Condemnation.
14.1 In the event that the whole of the Premises shall be lawfully
condemned or taken in any manner for any public or quasi-public use, this Lease
and the term and estate hereby granted shall forthwith cease and terminate as of
the date of vesting of title as a result of the condemnation or taking.
14.2 In the event that only a part of the Premises shall be
condemned or taken, then the term and estate hereby granted with respect to that
part of the Premises shall forthwith cease and terminate as of the date of
vesting of title as a result of the condemnation or taking and the Fixed Rent
and the Additional Rent on account of Real Estate Taxes, Operating Costs and
Cleaning Costs payable hereunder, to the extent that the Fixed Rent and the
Additional Rent on account of Real Estate Taxes, Operating Costs and Cleaning
Costs relate to that part of the Premises, shall be abated for the period from
the date of the vesting of title to the Expiration Date with respect to that
part of the Premises. In the event a rent abatement occurs under this Article
with respect to a portion of the Premises then subject to another abatement of
rent under this Lease, the other abatement period shall be extended with respect
to such portion of the Premises one (1) day for each day of the abatement period
under this Article.
14.3 In the event that only a part of the Building shall be
condemned or taken, then (i) if more than twenty-five percent (25%) of the floor
area of the Building has been condemned or taken (whether or not the Premises
are affected), this Lease and the term and estate hereby granted may be
terminated by Landlord by giving to Tenant, within sixty (60) days following the
date on which Landlord shall have received notice of the vesting of title,
written notice specifying a date, not less than thirty (30) days after the
giving by Landlord of the notice, for the termination, and (ii) if the
condemnation or taking shall be of a substantial part of the Premises or of a
substantial part of the means of access thereto, this Lease and the term and
estate hereby granted may be terminated by Tenant by giving to Landlord, within
sixty (60) days following the date upon which Tenant shall have received notice
of the vesting of title, written notice specifying a date, not less than thirty
(30) days after the giving by Tenant of the notice, for the termination, or
(iii) if neither Landlord nor Tenant elects to terminate this Lease as
aforesaid, this Lease shall be and remain unaffected by the condemnation or
taking, except that this Lease and the term and estate hereby granted with
respect to the part of the Premises so condemned or taken shall expire on the
date of the vesting of title to that part and except that the Fixed Rent and the
Additional Rent payable with respect to Real Estate Taxes, Operating Costs and
Cleaning Costs payable hereunder shall be abated to the extent, if any,
hereinabove provided in this Article. In the event that
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only a part of the Premises shall be condemned or taken and this Lease and the
term and estate hereby granted with respect to the remaining portion of the
Premises are not terminated as hereinabove provided, landlord will proceed with
reasonable diligence to restore the remaining portion of the Premises as nearly
as practicable to the same condition it was in prior to the condemnation or
taking.
14.4 The termination of this Lease and the term and estate hereby
granted in any of the cases hereinabove provided shall be with the same effect
as if the date of the termination were the Expiration Date, and the Fixed Rent
and Additional Rent payable hereunder shall be apportioned as of the date of
termination.
14.5 In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including, without
limitation, any award made for the value of the estate vested by this Lease in
Tenant, and Tenant hereby expressly assigns to Landlord any and all right, title
and interest of Tenant now or hereafter arising in or to any award or any part
thereof, and Tenant shall be entitled to receive no part of any award; provided,
however, that nothing herein contained shall be deemed to preclude Tenant from
intervening for Tenant's own interest in any condemnation proceeding to claim or
receive from the condemning authority any compensation to which Tenant may
otherwise lawfully be entitled in respect of property owned by Tenant and
removable by it under Article 9 hereof.
14.6 The provisions of this Article shall not be applicable to any
condemnation or taking for governmental occupancy for a limited period.
Article 15. Compliance with Laws.
15.1 Tenant shall comply with all laws, including without limitation
the Americans with Disabilities Act, and ordinances and all rules, orders,
regulations and requirements of all governmental authorities (collectively,
"Applicable Laws") at any time duly issued and in force requiring compliance in,
to or upon the Premises or any part thereof except that Tenant shall not be
under any obligation to comply with any Applicable Law requiring any structural
Alteration of or to the Premises unless the requirement for compliance arises
out of either (i) a condition that has been created by, or at the instance of,
Tenant, or (ii) a breach of any covenant, agreement, term, provision or
condition hereof on the part of Tenant to be kept, observed or performed.
Landlord shall comply with all Applicable Laws at any time duly
issued and in force (a) requiring compliance in, to or upon the Base Building,
or (b) requiring any structural Alterations of or to the Premises which, by
reason of the exception set forth therein, Tenant is not required by the
preceding paragraph to make.
The provisions of this Section 15.1 shall be applicable to any
requirement for compliance arising out of or being a condition to any
Alterations in or to or use of the
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Premises made or proposed to be made by Tenant, except that if any such
compliance is required in, to or upon the Base Building by reason of Tenant's
using or proposing to use any portion of the Premises for any use not permitted
by the now-existing Certificate of Occupancy for the Building, Tenant shall be
required to effect such compliance; provided, however, that this sentence shall
not be applicable to any circumstance governed by the last paragraph of Section
5.1.
15.2 Landlord represents to Tenant that the Building was built after
the use of asbestos was outlawed. A copy of the most current filed ACP-5 Form
for the Building shall be delivered by Landlord to Tenant prior to the Term
Commencement Date. In the event Tenant discovers any asbestos or any other
hazardous material (as hereinafter defined) in the Premises or in other portion
of the Building in which Tenant is permitted to install property or perform work
or in the common or service areas of the Building, Tenant shall have the right,
upon ten (10) business days prior written notice to Landlord, to remove such
asbestos or other hazardous material and (unless such asbestos or hazardous
material was placed or installed in the Premises or such portion of the Building
by Tenant) Landlord shall within twenty (20) days of demand therefor,
accompanied by appropriate documentation, repay to Tenant the actual cost of
removal incurred by Tenant. The term "hazardous material" as used herein shall
mean any petroleum or petroleum products (including oil, crude oil, natural or
synthetic gas) except as used in accordance with Applicable Law in connection
with fuel tanks and generators installed in the Building by Landlord or Tenant,
radioactive materials, any asbestos or asbestos containing materials, PCBs, any
explosive or flammable materials, or any other hazardous or toxic waste,
material or substance, including, without limitation, any waster, material or
substance now or hereafter included in the definition of "hazardous substances,"
"hazardous waste," "hazardous materials," "toxic substances," "toxic waste" or
"toxic material" or similar term contain in any law or governmental regulation.
Article 16. Mortgage, Subordination, and Attornment.
16.1 This Lease and the term and estate hereby granted are and shall
be subject and subordinate to the lien of each mortgage that may now or at any
time hereafter affect the Building, the Land, or Landlord's interest therein and
to all renewals, modifications, consolidations, replacements and extensions
thereof (each, an "Underlying Mortgage") and any underlying lease that may now
or at any time hereafter affect the Land or Building and to all renewals,
modifications, consolidations, replacements and extensions thereof (each, an
"Underlying Lease"). The foregoing provision for the subordination of this Lease
and the term and estate hereby granted shall be self-operative and no further
instrument shall be required to effect the subordination. Nevertheless, Tenant
shall, upon request by Landlord, at any time or times, execute and deliver any
and all instruments that may be necessary or proper to effect, confirm or
evidence the subordination.
16.2 If Landlord's interest in the Building or the Land shall be
sold or conveyed to any person, firm or corporation upon the exercise of any
remedy provided for
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in any Underlying Mortgage or by law or equity, the person, firm or corporation
and each person, firm or corporation thereafter succeeding to its interest in
the Building or the Land shall not be
(A) liable to pay damages to Tenant caused by any
breach, act, omission or negligence of any prior landlord (including
the then defaulting landlord), but (except for the holder of any
Existing Mortgage) shall nonetheless remain subject to any and all
abatements, deductions, offsets, claims, counterclaims and/or
defenses which shall have accrued to Tenant against any prior
landlord (including the then defaulting landlord) prior to the date
that such person, firm or corporation shall have succeeded to the
rights of the landlord under the Lease, but in any case, provided,
however, such non-liability for damages shall neither diminish such
person, firm or corporation's liability for continuing obligations
of the landlord under the Lease nor diminish Tenant's right under
the Lease with respect to the continuing failure of such person,
firm or corporation to perform the obligations of the landlord under
the Lease after the date that such person, firm or corporation
succeeds to the interest of the landlord under the Lease;
(B) bound by any rent, additional rent or other items of
rental under the Lease which Tenant might have paid for more than
the current month to any prior Landlord (including the then
defaulting Landlord); or
(C) bound by the terms of any agreement amending,
modifying, supplementing or terminating the Lease (except as
contemplated by this Lease) made without the written consent of the
holder of such Underlying Mortgage, unless such consent shall have
been unreasonably withheld.
16.3 Notwithstanding the provisions of Section 16.1,
(i) the subordination of this Lease to (x) the Modified,
Amended and Restated Mortgage, Spreader and Consolidation Agreement,
dated as of January 9, 1989 and recorded on March 22, 1990 in Reel
1677 page 2057 in the Office of the Register of New York County (the
"Register's Office") in favor of the State of California - Public
Employees Retirement System and State of California - State
Teacher's Retirement System as in effect on the date hereof (the
"Existing First Mortgage") and (y) the Modified, Amended and
Restated Mortgage, Spreader and Consolidation Agreement, dated as of
January 9, 1989 and recorded on March 22, 1990 in Reel 1678 page
1918 in the Register's Office, as the same has been assigned, in
favor of First Bank National Association, (successor to the Trustees
of General Electric Pension Trust) as in effect on the date hereof
(the "Existing Second Mortgage" and,
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together with the Existing First Mortgage, the "Existing Mortgages")
shall be upon the terms and conditions set forth in Section 3.06 of
each of the Existing Mortgages and
(ii) the subordination of this Lease (x) to any Underlying
Mortgage other than the Existing Mortgages, (y) to any renewal,
modification, consolidation, replacement or extension of any of the
Existing Mortgages, or (z) to any Underlying Lease shall be subject
to the delivery to Tenant by the mortgagee or lessor, as the case
may be, of a non-disturbance agreement on the form attached hereto
as Exhibit R in any case referred to in clause (x) or (y) above or
an equivalent form in any case referred to in clause (z) above or,
in either case, another form no less favorable to Tenant in any
material respect.
Landlord represents that (a) there are currently no Underlying Mortgages other
than the Existing Mortgages and no Underlying Leases, and (b) Landlord has
repaid the principal of and all interest and prepayment charges on the Existing
First Mortgage (other than any amounts payable under Section 3.05 of the
Existing First Mortgage and Landlord believes that no such amounts are payable).
16.4 Landlord shall, within five (5) days after the full execution
and delivery of this Lease by each party, deliver by certified mail, return
receipt requested, to the mortgagee under each of the Existing Mortgages the
certificate required pursuant to the terms of Section 3.06(b) of each of the
Existing Mortgages, and copies thereof shall be simultaneously delivered to
Tenant. Copies of the signed return receipts from the delivery of the
certificates and all responses received by Landlord from the mortgagees under
the Existing Mortgages shall be immediately delivered to Tenant. If the
mortgagee under either of the Existing Mortgages shall timely reject such
certificate Landlord shall so notify Tenant and Tenant shall have the right, by
notice to Landlord given within thirty (30) days of its receipt of such notice
from Landlord, to terminate this Lease.
Article 17. Conditions of Limitation.
17.1 This Lease and the term and estate hereby granted are subject
to the limitation that:
(a) if Tenant shall default in the payment of any Fixed Rent or
Additional Rent on any date upon which the Fixed Rent or Additional Rent
becomes due and such default shall continue for ten (10) days after
Landlord shall have given to Tenant a notice specifying the default,
provided that Landlord shall not be required to give such notice with
respect to a default in payment of Fixed Rent more than two (2) times in
any twelve (12) month period;
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(b) if Tenant shall default in the due keeping, observance or
performance of any covenant, agreement, term, provision or condition of
this Lease (other than a default of the character referred to in Section
17.1(a)), and if the default shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
notice specifying the default, or, in the case of a default which cannot
with due diligence be cured within the thirty (30) day period, if Tenant
(i) shall not promptly upon the giving of the notice of default give
Landlord notice of Tenant's intention to institute all steps necessary to
remedy the default, (ii) shall not duly institute and thereafter
diligently prosecute to completion all steps necessary to remedy the
default, and (iii) shall not remedy the default within a reasonable time
after the date of the giving of the notice by Landlord; or
(c) in case any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance
of the term hereof would, by operation of law or otherwise, devolve upon
or pass to any person, firm or corporation other than Tenant, except as
permitted under Article 12 hereof,
then in the event that (a), (b) or (c) occurs, Landlord may give to Tenant a
notice of intention to end the term of this Lease at the expiration of three (3)
days from the date of the giving of the notice, and, in the event the notice is
given, this Lease and the term and estate hereby granted (whether or not the
term shall theretofore have commenced) shall terminate upon the expiration of
the three (3) days with the same effect as if the last of the three (3) days
were the Expiration Date, and Tenant shall remain liable for damages as provided
in this Lease or pursuant to law.
17.2 In addition, this Lease and the term and estate hereby granted
are subject to the limitation that whenever (a) Tenant, or any guarantor of
Tenant's obligations under this Lease (the "Guarantor"), shall commence any
case, proceeding or other action (1) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts; or (2)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or Tenant or the
Guarantor shall make a general assignment for the benefit of its creditors; or
(b) there shall be commenced against Tenant or the Guarantor any case,
proceeding or other action of a nature referred to in clause (a) above that (1)
results in the entry of an order for relief or any adjudication or appointment
or (2) remains undismissed, undischarged or unbonded for a period of sixty (60)
days; or (c) Tenant or the Guarantor shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (a) and (b) above; or (d) Tenant or the Guarantor shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; then Landlord may give Tenant a notice of
intention to end the term of this Lease at the expiration often (10) days from
the date of service of the notice of intention, and upon the
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expiration of the ten (10) day period this Lease and the term and estate hereby
granted, whether or not the term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for damages as provided in this Lease or pursuant to
law.
Article 18. Re-entry by Landlord.
18.1 If this Lease shall terminate as provided in Article 17 hereof,
Landlord or Landlord's agents and servants may immediately or at any time
thereafter re-enter the Premises, or any part thereof, either by summary
dispossess proceedings or by any suitable action or proceeding at law, without
being liable to indictment, prosecution or damages therefor, and may repossess
the Premises or any part thereof, and may remove any persons therefrom, to the
end that Landlord may have, hold and enjoy the Premises again as and of its
first estate and interest therein. The words "re-enter", "re-entry" and
"re-entering" as used in this Lease are not restricted to their technical legal
meanings.
18.2 In the event of any termination of this Lease under the
provisions of Article 17 hereof or in the event of the termination of this Lease
by or under any summary dispossess or other proceeding or action or other
measure undertaken by Landlord for the enforcement of its right of re-entry
(herein called a "Default Termination"), Tenant shall thereupon pay to Landlord
the Fixed Rent and Additional Rent up to the time of the Default Termination and
shall pay to Landlord any and all damages that, by reason of the Default
Termination, shall be payable by Tenant under this Lease or pursuant to law. In
the event of a Default Termination, Landlord also shall be entitled to retain
all money, if any, paid by Tenant to Landlord, whether as advance rent or as
security for rent, but the money shall be credited by Landlord against any Fixed
Rent and Additional Rent due from Tenant at the time of the Default Termination
or, at Landlord's option, against any damages payable by Tenant under this Lease
or pursuant to law.
18.3 Tenant, for Tenant, and on behalf of any and all persons, firms
and corporations claiming through or under Tenant, including creditors of all
kinds, does hereby waive and surrender all right and privilege that they or any
of them might have under or by reason of any present or future law to redeem the
Premises or to have a continuance of this Lease for the term hereby demised
after Tenant is dispossessed or ejected therefrom by process of law or under the
terms of this Lease or after the expiration or termination of this Lease as
provided herein or pursuant to law. Tenant also waives (a) the right of Tenant
to trial by jury in any summary dispossess or other proceeding that may
hereafter be instituted by Landlord against Tenant in respect of the Premises or
in any action that may be brought to recover rent, damages or other sums payable
hereunder, and (b) the provisions of any law relating to notice or delay in levy
of execution in case of an eviction or dispossess of a tenant for nonpayment of
rent, and of any other law of like import, now or hereafter in effect. If
Landlord commences any summary dispossess proceeding, Tenant will not interpose
any counterclaim of any nature or description in the proceeding unless Tenant
would by its failure to interpose such counterclaim lose the right to assert
such counterclaim. Landlord
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waives the right of Landlord to trial by jury in any action or proceeding
arising under this Lease.
Article 19. Damages.
19.1 In the event of a Default Termination of this Lease, Tenant
shall pay to Landlord as damages, at the election of Landlord, either:
(a) a sum that, at the time of the Default Termination, represents
the value of the excess, if any, of (i) the present value (using a
discount rate equal to the then current prime rate established by
Citibank, N.A. (the "Prime Rate")) of the aggregate of the Fixed Rent and
the Additional Rent that, had this Lease not terminated, would have been
payable by Tenant for the period commencing with the day following the
date of the Default Termination and ending with the Expiration Date over
(ii) the present value (using a discount rate equal to the then current
Prime Rate) of the aggregate fair market rent of the Premises for the same
period, or
(b) sums equal to the aggregate of the Fixed Rent and the Additional
Rent that would have been payable by Tenant had this Lease not terminated,
payable upon the due dates therefor specified herein following the date of
the Default Termination and ending with the Expiration Date; provided,
however, that if Landlord shall re-let the Premises during said period,
although Landlord shall have no obligation to do so, Landlord shall credit
Tenant with the net rents received by Landlord from such re-letting, such
net rents to be determined by first deducting from the gross rents as and
when received by Landlord from such re-letting the reasonable expenses
incurred or paid by Landlord in terminating this Lease or of re-entering
the Premises and of securing possession thereof, including, without
limitation, reasonable attorneys' fees and costs of removal and storage of
Tenant's property, as well as the reasonable expenses of re-letting,
including repairing, restoring, altering, decorating and preparing the
Premises for new tenants, "buy-out" costs paid by on account of a new
tenant's existing rent in other premises, brokers' commissions,
advertising costs, and all other similar or dissimilar reasonable expenses
chargeable against the Premises and the rental therefrom in connection
with such re-letting, it being understood that any such re-letting may be
for a period equal to or shorter or longer than the remaining term of this
Lease; provided, further, that (i) in no event shall Tenant be entitled to
receive any excess of such net rents over the sums payable by Tenant to
Landlord hereunder, (ii) in no event shall Tenant be entitled in any suit
for the collection of damages pursuant to this Section 19.1(b) to a credit
in respect of any net rents from a re-letting except to the extent such
net rents are actually received by Landlord, and (iii) if the Premises or
part thereof should be re-let in combination with other space, then proper
apportionment on a square foot area basis shall be made of the rent
received from such re-letting and of the expenses of re-letting.
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19.2 Suit or suits for the recovery of any damages payable hereunder
by Tenant, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the term of this Lease would have
expired but for a Default Termination. Nothing herein shall be construed as
limiting or precluding the recovery by Landlord against Tenant of any sums or
damages to which, in addition to the damages particularly provided above,
Landlord may lawfully be entitled by reason of any default hereunder on the part
of Tenant.
Article 20. Curing Tenant's Defaults - Additional Rent.
20.1 If Tenant shall default in the keeping, observance or
performance of any covenant, agreement, term, provision or condition herein
contained, Landlord, without thereby waiving the default, may perform the same
for the account and at the expense of Tenant
(a) immediately or at any time thereafter and without prior
notice (but with notice promptly after commencing such performance)
in the case of emergency or in case the default unreasonably
interferes with the use of the Building by any other tenant of any
space in the Building or with the efficient operation of the
Building or will result in a violation of law or cancellation of an
insurance policy maintained by Landlord,
(b) without further notice or lapse of time, in case of any
failure to procure and place any insurance required by this Lease
which has continued after the giving of notice and lapse of time
referred to in Section 22.5, and
(c) in any other case if the default continues after fifteen
(15) days from the date of the giving by Landlord to Tenant of
notice of Landlord's intention to perform the same; provided,
however, that in any case under this clause (c) relative to a
default the curing of which requires in excess of fifteen (15) days,
if within such fifteen (15) days Tenant shall commence such cure and
notify Landlord that it intends to prosecute the same to completion,
such fifteen (15) day period shall be extended so long as Tenant is
prosecuting such remedy continuously and with all due diligence.
20.2 All costs and expenses incurred by Landlord in connection with
any performance by it for the account of Tenant shall be paid by Tenant to
Landlord within twenty (20) days after demand therefor accompanied by
appropriate supporting documentation. If any such cost or expense is not paid
when due and payable above, the same shall become due and payable by Tenant as
Additional Rent hereunder. If any Fixed Rent, Additional Rent or damages payable
hereunder by Tenant to Landlord is not paid when due as provided in this Lease,
the same shall bear interest at the Interest Rate from the due date thereof
until paid and the amount of interest shall be deemed Additional Rent hereunder.
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This late payment charge will constitute liquidated damages and is intended to
compensate Landlord for its administrative costs resulting from Tenant's failure
to pay, and has been agreed upon by Landlord and Tenant, as a reasonable
estimate of the additional administrative costs. The actual cost in each
instance is extremely difficult, if not impossible, to determine.
20.3 In the event of nonpayment by Tenant of any Additional Rent
becoming due hereunder, Landlord, in addition to any other right or remedy,
shall have the same rights and remedies as in the case of default by Tenant in
the payment of the Fixed Rent. Landlord reserves the right, without liability to
Tenant and without constituting any claim of constructive eviction, to suspend
furnishing or rendering to Tenant any property, material, labor, utility or
other service, wherever Landlord is obligated to furnish or render the same at
the expense of Tenant, in the event that (but only as long as) Tenant is in
arrears in paying Landlord therefor at the expiration often (10) days after
Landlord shall have given to Tenant notice demanding the payment of the arrears
and stating that in the absence of such payment Landlord will suspend the
furnishing or rendering of such property, material, labor, utility or other
service.
Article 21. Consents.
Wherever in this Lease either party's consent or approval is
required and such party has expressly agreed in this Lease that its consent or
approval shall not be unreasonably withheld, if such party shall withhold its
consent or approval, the other party shall in no event be entitled to and shall
not make any claim, and such other party hereby waives any claim, for money
damages (including a claim for money damages by way of set-off, counterclaim or
defense) based upon any assertion by such other party that the first party
unreasonably withheld or unreasonably delayed its consent or approval. Such
other party's sole remedies in such circumstance shall be either (i) an action
or proceeding to enforce the provision by way of specific performance,
injunction or declaratory judgment or (ii) an arbitration proceeding in
accordance with Article 35 hereof. Notwithstanding the foregoing (i) Tenant
shall have the right to claim money damages in the event Landlord is found by a
court of competent jurisdiction to have acted in bad faith in withholding its
consent or approval under any provision of this Lease which requires Landlord
not unreasonably to withhold the same (and such finding becomes final subject to
no further appeal), and (ii) Landlord shall have the right to claim money
damages in the event Tenant is found by a court of competent jurisdiction to
have acted in bad faith in withholding its consent or approval under any
provision of this Lease which requires Tenant not unreasonably to withhold the
same (and such finding becomes final subject to no further appeal). Unless
otherwise expressly set forth in this Lease, it is the express intent of the
parties that any consent of either party under this Lease shall be given or
required only in the sole, absolute and unfettered discretion of such party, and
may be withheld for any reason whatsoever. In any instance in which either party
has agreed to not unreasonably withhold its consent or approval:
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(a) if no time period is specified such consent or approval
shall be given or withheld within ten days, and
(b) if such party fails to give or withhold consent or
approval within the time period specified in the applicable time
period (as specified in clause (a) or elsewhere in this Lease as the
case may be), the consent or approval of such party shall be deemed
to have been given.
Article 22. Insurance.
22.1 Tenant shall not violate, or permit the violation of, any
condition imposed by the standard property insurance policy then issued for
office buildings in the City of New York, and shall not do, suffer or permit
anything to be done, or keep, suffer or permit anything to be kept in the
Premises that would increase the property or other casualty insurance rate on
the Building or the property therein over the rate that would otherwise then be
in effect (unless Tenant pays the resulting increased amount of premium as
provided below) or that would result in insurance companies of good standing
refusing to insure the Building or any of the property therein in amounts
reasonably satisfactory to Landlord, provided, however, that Tenant shall not be
subject to any liability or obligation under this paragraph by reason of the
proper use of the Premises for the purposes permitted by Article 5.
22.2 If, by reason of any failure of Tenant to comply with the
provisions of this Lease, the rate of property insurance on the Building or
equipment or other property of Landlord or other tenants shall be higher than it
otherwise would be, Tenant shall reimburse Landlord for that part of the
premiums for property insurance paid by Landlord because of the act or omission
on the part of Tenant, which sum shall be deemed to be Additional Rent due
twenty (20) days after demand therefor accompanied by appropriate supporting
documentation, provided, however, that Tenant shall not be subject to any
liability or obligation under this paragraph by reason of the proper use of the
Premises for the purposes permitted by Article 5.
22.3 In the event that any dispute should arise between Landlord and
Tenant concerning insurance rates, a schedule or make up of rates for the
Building or the Premises, as the case may be, issued by Insurance Service
Office, Inc. or other similar body making rates for property insurance for the
Building or the Premises, shall be presumptive evidence of the facts therein
stated and of the several items and charges in the property insurance rates then
applicable to the Building or the Premises.
22.4 Tenant shall obtain and keep in full force and effect during
the term of this Lease at its own cost and expense the following insurance
coverages:
(a) for the benefit of Tenant as insured and Landlord as an
additional insured a commercial general liability insurance policy, in a
broad form policy, affording
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protection in an amount of not less than $10,000,000 combined single limit
coverage on a per occurrence basis, in respect of any and all claims for
personal injury, death or property damage occurring in, upon, adjacent to,
or connected with the Premises and any part thereof, and
(b) fire and extended coverage in an amount adequate to cover the
replacement of all personal property, fixtures, furnishings, equipment,
improvements and installations, located in the Premises.
The commercial general liability insurance policy required by this Lease to be
maintained by Tenant shall name Landlord, CNA Financial Corporation, The
Continental Corporation and their subsidiaries as additional insureds during the
term of this Lease.
22.5 Each insurance policy required by this Lease to be maintained
by Tenant shall provide that it will not be canceled, except upon thirty (30)
days advance written notice to Landlord. Each such policy shall be written by
insurance companies having a Best's rating of A or better that are admitted to
do business in the State of New York. The original insurance policies or
appropriate certificates evidencing compliance with Section 22.4 shall be
deposited with Landlord upon execution of this Lease and prior to each policy
expiration. In the event Tenant shall fail to procure and place any insurance
required by this Lease, and such failure shall continue for fifteen (15) days
after Landlord shall have given to Tenant a notice specifying such failure,
Landlord may, but shall not be obligated to, procure and place the same, in
which event the amount of the premium paid shall be reimbursed by Tenant to
Landlord upon demand and shall in each instance be collectible on the first day
of the month or any subsequent month following the date of payment by Landlord,
in the same manner as though the sums were additional rent reserved hereunder.
22.6 Each party shall use commercially reasonable efforts to secure
an appropriate clause in, or an endorsement upon, each fire or extended coverage
or all-risk policy carried by it (including any business interruption or rental
loss insurance), pursuant to which the insurance company waives subrogation or
permits the insured, prior to any loss, to agree with a third party to waive any
claim it might have against that third party. If and to the extent that for any
policy period either party (the "procuring party") (i) is unable to secure the
aforesaid waiver or permission, or (ii) can secure the aforesaid waiver or
permission only upon payment of an additional charge, the procuring party shall
notify the other party (including, in any case under clause (ii) above, the
amount of such additional charge). In any case under clause (ii) above, if,
within fifteen (15) days of its receipt of such notice, the other party shall
agree pay the charge the procuring party shall obtain the aforesaid waiver or
permission for such policy period. Within ten (10) days request by either party,
the other party shall confirm to the requesting party whether the fire or
extended coverage or all-risk policy maintained by such other party includes the
waiver or permission referred to in this paragraph.
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Insofar as the insurance policies carried by it include the waiver
or permission referred to above, each party hereby releases the other party and
the agents and employees of the other party from any claim (including a claim
for negligence or a claim under any provision of this Lease) that such party
might otherwise have against the other party or the agents and employees of the
other party for any injury or damage covered by such policies to the Building or
the Premises or any property therein (or for the repair of or the costs of
repairing any such damage) or for any loss of rents or business interruption
covered by such policies.
If either party shall fail to maintain insurance as required by this
Lease to be maintained by it, the aforesaid release shall also include any
injury or damage which would have been covered if such party had maintained
insurance as required by this Lease.
The release set forth in this Section benefitting Tenant and its
agents and employees shall also benefit any subtenant and its agents and
employees provided that such subtenant shall grant to Landlord an equivalent
release.
The release set forth in this Section shall not cover the deductible
portion of any loss; provided, however, that if the deductible limit of the
party suffering such loss exceeds $100,000 then such release shall cover the
portion of such deductible in excess of $100,000.
22.7 Landlord shall obtain and keep in full force and effect during
the term of this Lease the following insurance coverages:
(i) all-risk property insurance insuring the Building and the core
and shell portions of the Premises for an amount equal to at least the
full replacement cost value of the Building (excluding foundation and
excavation costs) and the core and shell portions of the Premises against
loss or damage due to fire and other casualties; and
(ii) for the benefit of Landlord as insured and Tenant as additional
insured a commercial general liability insurance, in a broad form policy,
affording protection in an amount of not less than $10,000,000 combined
single limit coverage on a per occurrence basis, in respect of any and all
claims for personal injury, death or property damage occurring in, upon,
adjacent to, or connected with the Building or any part thereof.
The commercial general liability insurance policy required by this Lease to be
maintained by Landlord shall name Tenant as additional insureds during the term
of this Lease.
22.8 Each insurance policy required by this Lease to be maintained
by Landlord shall provide that it will not be canceled, except upon thirty (30)
days advance written notice to Tenant. Each such policy shall be written by
insurance companies having
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a Best's rating of A or better that are admitted to do business in the State of
New York. Appropriate certificates evidencing compliance with Section 22.7 shall
be deposited with Tenant upon execution of this Lease and prior to each policy
expiration.
22.9 All proceeds of the all-risk insurance required by this Lease
to be maintained by Landlord
(i) shall be applied to the performance of Landlord's repair
and restoration obligations pursuant to Section 13.1, or
(ii) pending such application, shall be held by the holder of
any Underlying Mortgage who shall have entered into with Tenant a
non-disturbance agreement in accordance with clause (ii) of Section
16.3 (or, if there shall be no such holder, by a depositary
acceptable to Tenant) and no such proceeds shall be commingled with
any other funds or applied to any other purpose until such repair
and restoration obligations have been fully performed.
Article 23. Brokerage Commission.
Tenant represents and warrants that neither it nor any of its
partners, officers, employees or agents has dealt with any brokers in connection
with this Lease other than (i) Goldman, Sachs & Co. and The Georgetown Company
(collectively, the "Broker"), (ii) Cushman & Wakefield, Inc. ("C&W") and (iii)
Newmark & Company Real Estate, Inc. ("Newmark").
Landlord shall be responsible for the payment of the commission due
to the Broker in connection with this Lease, specifically including the
commission due under that certain agreement of even date between Landlord and
Goldman, Sachs & Co. ("GS") and, if Landlord shall fail timely to pay any amount
due to GS thereunder, the provisions of Section 39.2 shall be applicable,
mutatis mutandis.
Landlord agrees to indemnify, defend and hold the Tenant Indemnitees
harmless from and against any Claims for a brokerage, finder or other commission
or fee in connection with this Lease asserted against any Tenant Indemnitee by
Broker or C&W.
Tenant represents and warrants that Newmark has waived all rights to
a commission payable by Landlord in connection with this Lease and any renewal,
extension, expansion or termination hereof. Tenant agrees to indemnify, defend
and hold the Landlord Indemnitees harmless from and against any Claims for a
brokerage, finder or other commission or fee in connection with this Lease
asserted against any Landlord Indemnitee by any broker, agent or finder (other
than Broker and C&W) with whom Tenant has dealt in connection with this Lease,
including Newmark.
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Article 24. Satisfaction of Tenant's Remedies.
Tenant shall look only to Landlord's interest and property in the
Building and Land (or the proceeds thereof, including insurance proceeds to
which recourse is available, subject to the rights of the holder of any
Underlying Mortgage or Underlying Lease) for the satisfaction of Tenant's
remedies for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default by Landlord
hereunder, and no other property or assets of Landlord or its partners or
principals, disclosed or undisclosed, shall be subject to levy, execution, or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this Lease, the relationship of Landlord and Tenant hereunder or
Tenant's use and occupancy of the Premises.
Article 25. Landlord's Payments to Tenant.
25.1 Landlord shall pay to Tenant with respect to each portion of
the Premises the amounts provided for herein (the "Landlord Monthly Payments").
With respect to each Applicable Portion, a monthly amount, computed
at the following per annum rates: (a) during the initial Term of this Lease,
$1.65 per annum per square foot of rentable area (subject to the provisions of
the next sentence), (b) during the First Renewal Term of this Lease, an amount
per annum per square foot of rentable area equal to the Renewal Term Initial
Cleaning Cost determined pursuant to Article 27 with respect to the First
Renewal Term, and (c) during the Second Renewal Term of this Lease, an amount
per annum per square foot of rentable area equal to the Renewal Term Initial
Cleaning Cost determined pursuant to Article 27 with respect to the Second
Renewal Term. No such payments under clause (a) of this paragraph shall be
required with respect to any Applicable Portion in respect of any period prior
to the Rent Commencement Date with respect to such Applicable Portion.
With respect to each Accepted Offer Space becoming a part of the
Premises during the initial Term of this Lease, a monthly amount, computed at
the following per annum rates: (a) during the balance of such initial Term, an
amount per annum per square foot of rentable area equal to the Offer Space
Initial Cleaning Cost determined pursuant to Article 26 with respect to such
Accepted Offer Space, and (b) during the First Renewal Term of this Lease, an
amount per annum per square foot of rentable area equal to the Renewal Term
Initial Cleaning Cost determined pursuant to Article 27 with respect to the
First Renewal Term, and (c) during the Second Renewal Term of this Lease, an
amount per annum per square foot of rentable area equal to the Renewal Term
Initial Cleaning Cost determined pursuant to Article 27 with respect to the
Second Renewal Term.
With respect to each Accepted Offer Space becoming a part of the
Premises during the First Renewal Term of this Lease, a monthly amount, computed
at the following per annum rates: (a) during the balance of such First Renewal
Term, an amount per annum per square foot of rentable area equal to the Offer
Space Initial Cleaning Cost determined
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pursuant to Article 26 with respect to such Accepted Offer Space, and (b) during
the Second Renewal Term of this Lease, an amount per annum per square foot of
rentable area equal to the Renewal Term Initial Cleaning Cost determined
pursuant to Article 27 with respect to the Second Renewal Term.
With respect to each Accepted Offer Space becoming a part of the
Premises during the Second Renewal Term of this Lease, a monthly amount,
computed at the following per annum rate: during the balance of such Second
Renewal Term, an amount per annum per square foot of rentable area equal to the
Offer Space Initial Cleaning Cost determined pursuant to Article 26 with respect
to such Accepted Offer Space.
25.2 The Landlord Monthly Payments shall be due on the first day of
each month; provided, however, that (a) if the Rent Commencement Date with
respect to any Applicable Portion shall be on other than the first day of a
month, the initial Landlord Monthly Payment with respect to such Applicable
Portion shall be computed on a pro-rata basis and shall be due on such Rent
Commencement Date, and (b) if any Accepted Offer Space shall become a part of
the Premises on other than the first day of a month, the initial Landlord
Monthly Payment with respect to such Accepted Offer Space shall be computed on a
pro-rata basis and shall be due on the day on which such Accepted Offer Space
becomes a part of the Premises.
Landlord shall pay the Landlord Monthly Payment as and when the same
shall become due and payable to Tenant at its office in the United States of
America, or any other place or places in the United States of America as Tenant
shall designate to Landlord, in cash or by check, payable to Tenant in United
States currency, without demand therefor and without any setoff or deduction
whatsoever.
If any Landlord Monthly Payment is not paid when due as provided in
this Lease, (a) the same shall bear interest at the Interest Rate from the due
date thereof until paid, and (b) Tenant shall have the right to set-off the
amount thereof, and such interest, against the Fixed Rent under this Lease.
Article 26. Tenant's Right to Lease Additional Space.
26.1 Landlord shall not hereafter lease any space in the Building
(including by way of renewal, extension or expansion of any lease), other than:
(a) pursuant to the exercise by the tenant under any lease in
effect on the date of this Lease of any renewal, extension or
expansion right or option contained in such lease as of the date of
this Lease;
(b) pursuant to the exercise by the tenant under any lease
subsequently entered into by Landlord of any renewal or extension
right or
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option contained in such lease as of the date of the original
entering into of such lease; or
(c) pursuant to Section 26.4 below.
As used in this Article 26, the term "lease" shall include (i) a license or
other agreement providing for occupancy, and (ii) occupancy by Landlord or any
other person without such a lease, license or other agreement. Landlord
represents and warrants to Tenant that attached hereto as Exhibit S is a true
and accurate schedule of each lease in effect on the date of this Lease, the
premises demised thereby, the expiration date thereof, and all renewal,
extension or expansion rights or options contained therein as of the date of
this Lease.
26.2 Landlord may give one or more Offer Notices (as hereinafter
defined) to Tenant at any time. The term "Offer Notice" as used herein shall
mean a notice (a) referring to this Article 26, (b) describing the premises to
which it relates (the "Offer Space") and, if the Offer Space includes a portion
less than all of the rentable area on any floor, including an outline floor plan
of the Offer Space and a statement of the rentable area thereof in accordance
with Section 26.11, and (c) setting forth the date (which shall be (i) no
earlier than the last day on which, pursuant to Section 26.3, Tenant is entitled
to give an Acceptance Notice (as hereinafter defined) in response to such Offer
Notice and (ii) no later than 270 days after the date of the Offer Notice) on
which, if Tenant exercise its right pursuant to Section 26.3 to lease such Offer
Space, Landlord reasonably believes (on the basis of written agreements then in
effect) it will be able to deliver to Tenant vacant possession thereof (the
"Scheduled Offer Space Delivery Date"). Landlord shall give an Offer Notice with
respect to each portion of the Building no later than 30 days after the date on
which Landlord becomes entitled to do so. If pursuant to the provisions of any
other lease (a "Recapture Provision") Landlord shall become entitled to
recapture any space in the Building in connection with a proposed assignment or
sublease, Landlord shall, within three (3) business days of its receipt of the
notice from the other tenant entitling Landlord to recapture, give to Tenant an
Offer Notice with respect to such space; such Offer Notice shall, in addition to
the information required by the preceding sentence to be included therein,
indicate (a) that it relates to space which Landlord is entitled to recapture
and (b) the last day on which Landlord is permitted by the terms of the
applicable lease to exercise its recapture right (the "Landlord's Exercise
Deadline Date"). Landlord shall not waive or amend any lease so as to eliminate
any Recapture Provision. Each Offer Notice shall constitute (a) an offer by
Landlord to lease the Offer Space covered thereby to Tenant on the terms set
forth in this Article 26, and (b) a representation by Landlord that all leases
covering any of such Offer Space have expired or been terminated or, pursuant to
the terms thereof or other written agreements then in effect, will expire or
terminate on or prior to the Scheduled Offer Space Delivery Date set forth in
such Offer Notice.
26.3 Tenant shall have the right, by notice to Landlord given within
twenty (20) business days of its receipt of any Offer Notice (an "Acceptance
Notice"), to lease all or any portion of the Offer Space covered by such Offer
Notice; provided, however, that
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(a) if Tenant elects to lease and include in its Acceptance
Notice any of such Offer Space on any floor of the Building it shall
elect to lease and include in its Acceptance Notice all of such
Offer Space on such floor of the Building;
(b) if the Offer Space shall include all of three or more full
floors contiguous to one another (a "Multi-Full-Floor Contiguous
Block") and Tenant elects to lease and include in its Acceptance
Notice a portion less than all of such Multi-Full-Floor Contiguous
Block the balance thereof not so leased and included shall be either
(i) one such full floor, or (ii) two or more full floors contiguous
to one another; and
(c) in the case of any Offer Notice given under the second
sentence of Section 26.2, the Acceptance Notice must be given, if at
all, no later than the earlier of (i) the date provided for above in
this Section 26.3 and (ii) the second business day prior to
Landlord's Exercise Deadline Date set forth in the Offer Notice.
Time shall be of the essence with respect to the giving of any Acceptance
Notice. The space as to which Tenant gives a timely Acceptance Notice conforming
to the provisions of this Section 26.3 is herein called an "Accepted Offer
Space".
26.4 If in response to any Offer Notice Tenant shall fail timely to
give an Acceptance Notice then Landlord shall be permitted to lease all or any
portion of the Offer Space covered by such Offer Notice to any person or persons
for delivery no earlier than the Scheduled Offer Space Delivery Date set forth
in such Offer Notice; provided, however, that immediately subsequent to the
original entering into of any such lease the space covered thereby shall again
become subject to this Article 26 such that Landlord shall not (except as
permitted by clause (b) of Section 26.1) subsequently lease such space except
pursuant to the operation of this Section 26.4 with respect to a subsequent
Offer Notice given to Tenant with respect thereto. If in response to any Offer
Notice Tenant shall timely give an Acceptance Notice with respect to less than
all of the Offer Space covered by such Offer Notice then Landlord shall be
permitted to lease all or any portion of the balance of such Offer Space covered
by such Offer Notice to any person or persons for delivery no earlier than the
Scheduled Offer Space Delivery Date set forth in such Offer Notice; provided,
however, that immediately subsequent to the original entering into of any such
lease the space covered thereby shall again become subject to this Article 26
such that Landlord shall not (except as permitted by clause (b) of Section 26.1)
subsequently lease such space except pursuant to the operation of this Section
26.4 with respect to a subsequent Offer Notice given to Tenant with respect
thereto.
26.5 Tenant may only exercise its right to lease any Offer Space,
and an exercise thereof shall only be effective, if at the time of Tenant's
exercise of its right and on the applicable Scheduled Offer Space Delivery Date,
the following conditions are satisfied:
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(i) this Lease is in full force and effect, (ii) no monetary or material
non-monetary default on the part of Tenant continuing beyond any applicable
notice or cure period then exists under this Lease, and (iii) the rentable area
of the Premises then subject to this Lease and not then subject to any sublease
(excluding subleases made under Section 12.7 and 12.8) shall be at least 250,000
square feet of rentable area.
26.6 If Tenant shall timely give an Acceptance Notice then on the
applicable Scheduled Offer Space Delivery Date Landlord shall deliver vacant
possession of the Accepted Offer Space to Tenant and effective upon the later of
(i) such Scheduled Offer Space Delivery Date or (ii) the date of such delivery
(such later date being herein called the "Offer Space Commencement Date") the
Accepted Offer Space shall be included in the Premises, subject to all of the
terms, conditions and provisions of this Lease (including expiration date and
renewal options) except that:
(a) the Fixed Rent for such Accepted Offer Space shall be as
provided in Section 26.9;
(b) Such Accepted Offer Space shall be leased to Tenant in its then
"as is" condition;
(c) The number of rentable square feet of the Accepted Offer Space
shall be determined as provided for in Section 26.11; and
(d) Tenant's liability under Section 4.2(a) and 4.2(b) with respect
to such Accepted Offer Space shall be computed separately and, for
purposes thereof, the Base Year shall be deemed to be the calendar year in
which the Offer Space Commencement Date shall occur.
Within thirty (30) days after the Offer Space Commencement Date, if requested by
either party hereto, Landlord and Tenant shall enter into a written instrument
confirming the terms, conditions and provisions applicable to the lease of the
Accepted Offer Space as determined in accordance with this Article; provided,
however, that the failure of either party to execute such instrument shall not
affect the rights and duties of the parties hereunder.
26.7 If Landlord shall deliver vacant possession of a portion of any
Accepted Offer Space less than all thereof then Tenant shall have the right, by
notice to Landlord given no later than the later of (i) the Scheduled Offer
Space Delivery Date, or (ii) the tenth (10th) day after the day of such delivery
and notice thereof from Landlord to Tenant, to
(a) accept all of such portion or all of such portion on any
one or more floors of the Building (the space which Tenant so
accepts being herein called a "Partial Accepted Offer Space") and
reject the balance of such portion; or
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(b) reject all of such portion.
If Tenant shall give notice under clause (a) above then
(i) Section 26.6 shall be applicable to the Partial Accepted
Offer Space as of the later of (x) the Scheduled Offer Space
Delivery Date, or (y) the day of such delivery, and
(ii) Landlord shall remain obligated to deliver vacant
possession of the balance of such Accepted Offer Space in accordance
with Section 26.6 as soon as Landlord is able to do so (and Section
26.6 shall be separately applicable thereto), subject to Section
26.8 and, in the case of a subsequent delivery of only a portion of
such balance, this Section 26.7.
If Tenant shall give notice under clause (b) above then Landlord
shall remain obligated to deliver vacant possession of such Accepted Offer Space
in accordance with Section 26.6 as soon as Landlord is able to do so (and
Section 26.6 shall be applicable thereto), subject to Section 26.8 and, in the
case of a subsequent delivery of only a portion of such Accepted Offer Space,
this Section 26.7.
26.8 Landlord shall not be subject to any liability for failure to
deliver possession of all or any portion of any Accepted Offer Space in the
event that Landlord is unable to deliver to Tenant possession thereof on the
applicable Scheduled Offer Space Delivery Date by reason of the holding over in
the space by a prior tenant thereof, but Landlord shall use commercially
reasonable efforts, including prosecution of an eviction action, to obtain
possession of the Accepted Offer Space; nor shall such failure affect either the
validity of this Lease or the obligations of Landlord or Tenant hereunder.
Notwithstanding the foregoing, if for any reason Landlord shall fail
to deliver vacant possession of any portion of any Accepted Offer Space on or
before the 60th day following the applicable Scheduled Offer Space Delivery Date
then Tenant shall have the right, by notice to Landlord given at any time prior
to delivery of vacant possession of all of such Accepted Offer Space, to rescind
its Acceptance Notice as to all of such Accepted Offer Space (excluding any
Partial Accepted Offer Space theretofore accepted by Tenant) or as to all of
such Accepted Offer Space (excluding any Partial Accepted Offer Space
theretofore accepted by Tenant) on any one or more floors of the Building.
26.9 The annual Fixed Rent per square foot of rentable area for any
Accepted Offer Space shall be an amount equal to the annual fair market rental
value of such Accepted Offer Space per square foot of rentable area for a term
commencing on the Scheduled Offer Space Delivery Date and ending as provided in
this Article 26 and otherwise on the terms and conditions provided for in
Section 26.6 (the "Offer Space Fair Market Rent"), multiplied by ninety-five
percent (95%).
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The Offer Space Fair Market Rent shall be determined on the basis of
the use of the Accepted Offer Space as offices (in the case of Accepted Offer
Space on or above the mezzanine level) or as lobby or basement space (in the
case of Accepted Offer Space below the mezzanine level) assuming that (i) the
Accepted Offer Space is free and clear of all leases and tenancies, (ii) the
Accepted Offer Space is available in the then rental market for comparable
first-class office buildings in Manhattan, (iii) Landlord has had a reasonable
time to locate a tenant who rents with the knowledge of the uses to which the
Accepted Offer Space can be adapted, (iv) neither Landlord nor the prospective
tenant is under any compulsion to rent and (v) the prospective tenant has the
creditworthiness of Tenant.
If and to the extent that any lease used as a reference (or
"comparable") by the persons determining the Offer Space Fair Market Rent
provides for any payments, costs and concessions by the landlord thereunder
(including by way of example, brokerage commissions, takeover costs,
construction costs, tenant construction allowances and rent abatements), such
persons shall, in determining such Offer Space Fair Market Rent, adjust the base
rent provided for in such lease downward to reflect that in connection with the
leasing of the Offer Space to Tenant the Landlord will incur no such payments,
costs or concessions.
The persons determining the Offer Space Fair Market Rent shall (A)
assume that this Lease (i) requires Landlord to provide office cleaning to the
Accepted Offer Space, and (ii) requires Tenant to bear only the escalation in
the costs thereof in excess of the costs thereof during the calendar year in
which the Offer Space Commencement Date occurs, and (B) also determine the
estimated cost of providing office cleaning to the Accepted Offer Space during
the calendar year in which the Offer Space Commencement Date occurs (the "Offer
Space Initial Cleaning Cost").
26.10 For purposes of determining the Offer Space Fair Market Rent,
the following procedure shall apply:
(a) Landlord and Tenant shall, at the location in the County of New
York and the time on the 20th business day after the day of the Acceptance
Notice specified by Landlord reasonably in advance, exchange their
respective written determinations of (i) the Offer Space Fair Market Rent,
and (ii) the Offer Space Initial Cleaning Cost, each of which shall be
stated as a dollar amount per square foot of rentable area (Landlord's
determination of the Offer Space Fair Market Rent and the Offer Space
Initial Cleaning Cost is referred to as "Landlord's Determination" and
Tenant's determination of the Offer Space Fair Market Rent and the Offer
Space Initial Cleaning Cost is referred to as "Tenant's Determination").
If either party shall fail to tender delivery of its determination on the
date and at the time and location provided for above (or if Landlord shall
fail to so specify such time and location as provided for above), the
other party may withhold its determination and, by notice to the failing
party, may specify a new date, time and location in the County of New York
for such exchange and, if such failing party shall again fail to tender
delivery
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of its determination on such new date and at such new time and location,
then the determination of such other party shall constitute the Offer
Space Fair Market Rent and the Offer Space Initial Cleaning Cost.
(b) If the parties shall have exchanged determinations in accordance
with the foregoing, they shall attempt to agree upon the Offer Space Fair
Market Rent and the Offer Space Initial Cleaning Cost. If, within ten (10)
days after the date of such exchange, they have not so agreed they shall
attempt to agree upon an independent real estate appraiser to act
hereunder. If, within twenty (20) days after the date of such exchange,
they have not so agreed upon such an independent real estate appraiser,
such independent real estate appraiser shall be appointed by the American
Arbitration Association. The independent real estate appraiser so agreed
upon by the parties or so appointed is herein called the "Offer Space
Appraiser". The fee of the Offer Space Appraiser and of the American
Arbitration Association shall be borne equally by Landlord and Tenant.
Each party shall pay its own counsel fees and expenses, if any, in
connection with any determination under this Article.
(c) The Offer Space Appraiser shall conduct such hearings and
investigations as he or she may deem appropriate and shall, within thirty
(30) days of the date of his or her designation, choose
(i) either Landlord's Determination of the Offer Space Fair
Market Rent or Tenant's Determination of the Offer Space Fair Market
Rent, and
(ii) either Landlord's Determination of the Offer Space
Initial Cleaning Cost or Tenant's Determination of the Offer Space
Initial Cleaning Cost
(it being understood that the Offer Space Appraiser may choose Landlord's
Determination of one and Tenant's Determination of the other) and the
choice by the Appraiser shall be conclusive and binding upon Landlord and
Tenant.
(d) The Offer Space Appraiser appointed pursuant to this Article
shall be an independent real estate appraiser with at least ten (10)
years' experience in valuation of properties that are similar in character
to the Building, and a member of the Appraisal Institute (or its
successor). The Offer Space Appraiser shall not have the power to add to,
modify or change any of the provisions of this Lease.
(e) It is expressly understood that any determination of the Offer
Space Fair Market Rent and the Offer Space Initial Cleaning Cost pursuant
to this Article shall be based on the criteria stated in this Article.
26.11 The number of square feet of rentable area of any floor shall
be as set forth on Exhibit B. The number of square feet of rentable area of any
portion of any floor
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less than all thereof shall be determined by allocating of the number of square
feet of rentable area of such floor to the respective usable portions thereof,
so that the aggregate number of square feet of rentable area of all such usable
portions shall equal the number of square feet of rentable area of such floor as
set forth on Exhibit B. Any dispute with respect to the number of square feet of
rentable area of any such portion shall be subject to arbitration pursuant to
Article 35.
26.12 After a determination has been made of the Offer Space Fair
Market Rent and the Offer Space Initial Cleaning Cost for any Accepted Offer
Space, the parties shall execute and deliver to each other an instrument
setting forth the Offer Space Fair Market Rent, the Offer Space Initial Cleaning
Cost and the Offer Space Fixed Rent for such Accepted Offer space as determined
pursuant to this Article; provided however, that failure of either party to
execute a written supplement shall not affect the rights and duties of the
parties hereunder.
26.13 If the final determination of the Offer Space Fair Market Rent
and the Offer Space Initial Cleaning Cost with respect to any Accepted Offer
Space shall not be made on or before the Offer Space Commencement Date with
respect thereto, then pending such determination (and subject to retroactive
adjustment as provided below), payments of Fixed Rent and Landlord Monthly
Payment with respect to the Accepted Offer Space shall be made based upon the
assumption that the Office Space Arbitrator will choose Landlord's Determination
of the Offer Space Fair Market Rent and of the Offer Space Initial Cleaning
Cost. If the Offer Space Arbitrator chooses Tenant's Determination of the Offer
Space Fair Market Rent or the Offer Space Initial Cleaning Cost (or if the Offer
Space Fair Market Rent or Offer Space Initial Cleaning Cost as finally
determined is otherwise different from Landlord's Determination thereof), Tenant
shall be entitled to a credit against the Rent equal to the amount of Tenant's
overpayment of Fixed Rent or Landlord's underpayment of Landlord Monthly
Payment, computed retroactively to the Offer Space Commencement Date. If the
amount of such credit shall exceed $100,000 Landlord shall, if Tenant shall so
request, pay such amount to Tenant with twenty (20) days of such request.
26.14 Tenant shall have the right, upon reasonable notice to
Landlord, to enter any Offer Space at reasonable times for purposes of
inspection and measurement from time to time during the period beginning on the
date of any Offer Notice and ending on the last day on which Tenant is entitled
to give an Acceptance Notice with respect thereto; provided, however, that if
Tenant shall timely give an Acceptance Notice such right shall continue until
the Offer Space Commencement Date. Landlord may accompany Tenant during any such
entry.
Article 27. Renewal Term.
27.1 Tenant shall have the option (the "Renewal Option") to extend
the term of this Lease for two (2) additional periods of five (5) years each
(each a "Renewal Term").
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The first Renewal Term (the "First Renewal Term") shall commence on the date
immediately succeeding the Initial Term Expiration Date and shall end on the
fifth (5th) anniversary of the Initial Term Expiration Date.
The second Renewal Term (the "Second Renewal Term") shall commence
on the date immediately succeeding the fifth (5th) anniversary of the Initial
Term Expiration Date and shall end on the tenth (10th) anniversary of the
Initial Term Expiration Date
Each Renewal Option may be exercised with respect to:
(i) the entire Premises then subject to this Lease; or
(ii) the Base Premises only, if the Base Premises are then
subject to this Lease (whether or not other premises are also then
subject to this Lease); or
(iii) the Base Premises and the Special Purpose Areas then
subject to this Lease only, if the Base Premises and any or all of
the Special Purposes Areas are then subject to this Lease (whether
or not other premises are also then subject to this Lease);
provided, however, that if any Renewal Option is exercised with respect to
either (X) the premises referred to in clause (ii) above or (Y) the premises
referred to in clause (iii) above, then such Renewal Option may also be
exercised with respect to such other portions of the Premises then subject to
this Lease as Tenant shall elect, except that in making its election under this
proviso Tenant shall not exclude from the Renewal Premises any Full Premises
Floor if both the floor immediately above such Full Premises Floor and the floor
immediately below such Full Premises Floor are Full Premises Floors and are
included in such Renewal Premises.
The premises as to which Tenant exercises a Renewal Option are
herein called the "Renewal Premises" with respect to such Renewal Option.
Each Renewal Option shall be exercisable by Tenant delivering to
Landlord notice of Tenant's exercise thereof (a "Renewal Notice"), identifying
the Renewal Premises, at least 18 months prior to the first day of the Renewal
Term in question. Time is of the essence with respect to the giving of the
Renewal Notice. Upon the giving of the Renewal Notice with respect to the Second
Renewal Term, Tenant shall have no further right or option to extend or renew
the term of this Lease or any Renewal Term.
Notwithstanding the foregoing, Tenant may only exercise a Renewal
Option, and an exercise thereof shall only be effective, if at the time of
Tenant's exercise of such Renewal Option and on the day preceding the
commencement of the Renewal Term in question, the following conditions are
satisfied, (i) this Lease is in full force and effect and
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(ii) no monetary or material non-monetary default on the part of Tenant
continuing beyond any applicable notice or cure period then exists under this
Lease.
27.2 If Tenant exercises a Renewal Option, the Renewal Term shall be
upon the same terms, covenants and conditions as those contained in this Lease,
except that
(i) the Fixed Rent with respect to the Office Area being a
part of the Renewal Premises shall be the Office Area Renewal Fixed
Rent as determined pursuant to this Article 27,
(ii) the Fixed Rent with respect to the Special Purpose Areas
being a part of the Renewal Premises shall be 53% percent of the
Office Area Renewal Fixed Rent as determined pursuant to this
Article 27,
(iii) the Fixed Rent with respect to the Non-Office Areas
being a part of the Renewal Premises shall be 50% percent of the
Office Area Renewal Fixed Rent as determined pursuant to this
Article 27,
(iv) the Base Year shall be the calendar year in which the
first day of the Renewal Term occurs, and
(v) the provisions of this Article relative to Tenant's right
to renew the term of this Lease (x) shall be limited during the
First Renewal Term to the right to exercise the Renewal Option with
respect to the Second Renewal Term and (y) shall not be applicable
during the Second Renewal Term.
27.3 For annual Fixed Rent per square foot of rentable area of
Office Area for any Renewal Term (the "Office Area Renewal Fixed Rent") shall be
an amount equal the annual fair market rental value of the Office Area for a
five-year term commencing on the first day of the Renewal Term in question and
otherwise on the terms and conditions applicable to the Office Area provided for
in this Article 27 (the "Renewal Term Fair Market Rent"), multiplied by
ninety-five (95%).
The Renewal Term Fair Market Rent shall be determined on the basis
of the use of the Office Area as offices assuming that (i) the Office Area is
free and clear of all leases and tenancies (including this Lease), (ii) the
Office Area is available in the then rental market for comparable first-class
office buildings in Manhattan, (iii) Landlord has had a reasonable time to
locate a tenant who rents with the knowledge of the uses to which the Office
Area can be adapted, and (iv) neither Landlord nor the prospective tenant is
under any compulsion to rent, and (v) the prospective tenant has the
creditworthiness of Tenant.
If and to the extent that any lease used as a reference (or
"comparable") by the persons determining the Renewal Term Fair Market Rent
provides for any payments, costs and concessions by the landlord thereunder
(including by way of example, brokerage
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commissions, takeover costs, construction costs, tenant construction allowances
and rent abatements), such persons shall, in determining such Renewal Term Fair
Market Rent, adjust the base rent provided for in such lease downward to reflect
that in connection with the renewal of this Lease the Landlord will incur no
such payments, costs or concessions.
The persons determining the Renewal Term Fair Market Rent shall (A)
assume that this Lease (i) requires Landlord to provide office cleaning to the
Premises, and (ii) requires Tenant to bear only the escalation in the costs
thereof in excess of the costs thereof during the calendar year in which the
Renewal Term commences, and (B) also determine the estimated cost of providing
office cleaning to the Premises during the calendar year in which the Renewal
Term commences (the "Renewal Term Initial Cleaning Cost").
27.4 For purposes of determining the Renewal Term Fair Market Rent,
the following procedure shall apply:
(a) Landlord and Tenant shall, at the location in the County of New
York, at the time and on a business day not earlier than 20 months prior
to the first day of the Renewal Term in question and not later than 19
months prior to the first day of the Renewal Term in question specified by
Landlord (by notice to Tenant given at least thirty (30) days prior to the
date set forth therein), exchange their respective written initial
determinations of the Renewal Term Fair Market Rent and the Renewal Term
Initial Cleaning Cost, each of which shall be stated as a dollar amount
per square foot of rentable area of Office Area (Landlord's initial
determination of the Renewal Term Fair Market Rent and the Renewal Term
Initial Cleaning Cost is referred to as "Landlord's Initial Determination"
and Tenant's determination of the Renewal Term Fair Market Rent and the
Renewal Term Initial Cleaning Cost is referred to as "Tenant's Initial
Determination"). If either party shall fail to tender delivery of its
determination on the date and at the time and location provided for above
(or if Landlord shall fail to so specify such date, time and location as
provided for above), the other party may withhold its determination and,
by notice to the other party given at least five (5) days prior to the
date set forth therein, may specify a new date, time and location in the
County of New York for such exchange and, if such failing party shall
again fail to tender delivery of its determination on such new date and at
such new time and location, then the determination of such other party
shall constitute the Renewal Term Fair Market Rent and the Renewal Term
Initial Cleaning Cost.
(b) If the parties shall have exchanged determinations in accordance
with the foregoing, they shall attempt to agree upon the Renewal Term Fair
Market Rent and the Renewal Term Initial Cleaning Cost. If, within ten
(10) days after the date of such exchange, they have not so agreed they
shall attempt to agree upon an independent real estate appraiser to act
hereunder. If, within twenty (20) days after the date of such exchange,
they have not so agreed upon such an independent real estate appraiser,
such independent real estate appraiser shall be appointed by the American
Arbitration Association. The independent real estate appraiser so agreed
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upon by the parties or so appointed is herein called the "Renewal Term
Appraiser". The fee of the Renewal Term Appraiser and of the American
Arbitration Association shall be borne equally by Landlord and Tenant.
Each party shall pay its own counsel fees and expenses, if any, in
connection with any determination under this Article.
(c) The Renewal Term Appraiser, by notice to the parties, shall
establish a date, time and location in the County of New York, no earlier
than 10 days after the date of such notice, at which either party may, if
it elects, deliver to the Renewal Term Appraiser a revised written
determination of the Renewal Term Fair Market Rent and/or the Renewal Term
Initial Cleaning Cost (stated as a dollar amount per square foot of
rentable area of Office Area); provided, however, that
(a) Landlord's revised determination of the Renewal Term Fair
Market Rent shall be no higher than Landlord's Initial Determination
thereof and no lower than 95% of Landlord's Initial Determination
thereof,
(b) Landlord's revised determination of the Renewal Term
Initial Cleaning Cost shall be no lower than Landlord's Initial
Determination thereof and no higher 105% of Landlord's Initial
Determination thereof,
(c) Tenant's revised determination of the Renewal Term Fair
Market Rent shall no lower than Tenant's Initial Determination
thereof and no higher than 105% of Tenant's Initial Determination
thereof
(d) Tenant's revised determination of the Renewal Term Initial
Cleaning Cost shall be no higher than Tenant's Initial Determination
thereof and no lower than 95% of Tenant's Initial Determination
thereof.
If both parties elect to deliver revised determination, they shall do so
simultaneously. The Renewal Term Appraiser shall furnish each party with a
copy of any revised determination delivered by the other. As used herein
the term "Landlord's Final Determination" shall mean (i) if Landlord shall
have delivered a revised determination in accordance with this Section
27.4.3, such revised determination, or (ii) otherwise, Landlord's Initial
Determination. As used herein the term "Tenant's Final Determination"
shall mean (i) if Tenant shall have delivered a revised determination in
accordance with this Section 27.4.3, such revised determination, or (ii)
otherwise, Tenant's Initial Determination.
(d) The Renewal Term Appraiser shall conduct such hearings and
investigations as he or she may deem appropriate and shall, within thirty
(30) days of the date of his or her designation, choose
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(i) either Landlord's Final Determination of the Renewal Term
Fair Market Rent or Tenant's Final Determination of the Renewal
Term. Fair Market Rent and
(ii) either Landlord's Final Determination of the Renewal Term
Initial Cleaning Cost or Tenant's Final Determination of the Renewal
Term Initial Cleaning Cost
(it being understood tat the Renewal Term Appraiser may choose Landlord's
Final Determination of one and Tenant's Final Determination of the other)
and the choice by the Appraiser shall be conclusive and binding upon
Landlord and Tenant.
(e) The Renewal Term Appraiser appointed pursuant to this Article
shall be an independent real estate appraiser with at least ten (10)
years' experience in valuation of properties that are similar in character
to the Building, and a member of the Appraisal Institute (or its
successor). The Renewal Term Appraiser shall not have the power to add to,
modify or change any of the provisions of this Lease.
(f) It is expressly understood that any determination of the Renewal
Term Fair Market Rent and the Renewal Term Initial Cleaning Cost pursuant
to this Article shall be based on the criteria stated in this Article.
27.5 After a determination has been made of the Renewal Term Fair
Market Rent and the Renewal Term Initial Cleaning Cost for any Renewal Term, the
parties shall execute and deliver to each other an instrument setting forth the
Renewal Term Fair Market Rent, the Renewal Term Initial Cleaning Cost and the
Office Area Renewal Fixed Rent for the Renewal Term as determined pursuant to
this Article and, if applicable, the Fixed Rent for the Renewal Term with
respect to the Special Purpose Areas and the Non-Office Areas; provided however,
that failure of either party to execute a written supplement shall not affect
the rights and duties of the parties hereunder.
27.6 If the final determination of the Renewal Term Fair Market Rent
and the Renewal Term Initial Cleaning Cost with respect to any Renewal Term
shall not be made on or before the first day of such Renewal Term, then pending
such final determination (and subject to retroactive adjustment as provided
below), payments of Fixed Rent and Landlord Monthly Payment during the Renewal
Term shall be made based upon the assumption that the Renewal Term Appraiser
will choose Landlord's Determination of the Renewal Term Fair Market Rent and of
the Renewal Term Initial Cleaning Cost. If the Renewal Term Appraiser chooses
Tenant's Determination of the Offer Space Fair Market Rent or of the Renewal
Term Initial Cleaning Cost (or if the Renewal Term Fair Market Rent of Renewal
Term Initial Cleaning Cost as finally determined is otherwise different from
Landlord's Determination thereof), Tenant shall be entitled to a credit against
the Rent equal to the amount of Tenant's overpayment of Fixed Rent or Landlord's
underpayment of Landlord Monthly Payment, computed retroactively to the first
day of such Rental Term. It the
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amount of such credit shall exceed $100,000 Landlord shall, if Tenant shall so
request, refund the same within ten (10) days of such request.
Article 28. Notices.
All notices, demands, requests or other communications provided for
or permitted to be given pursuant to this Lease shall be in writing and shall be
deemed to have been properly given or sewed when sent to the other party at all
required addresses for such party set forth in Article 1 (or, if changed
pursuant to this Article 28, as so changed) by (a) hand delivery or (b)
overnight commercial courier service. Rejection or refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to be receipt of the notice, demand, request or other
communication sent. Any method of giving notices, demands, requests or other
communications other than that specifically provided for herein is hereby
precluded. By giving at least thirty (30) days written notice thereof, either
party shall have the right from time to time and at any time during the term of
this Lease to change either or both its respective addresses.
Article 29. Quiet Enjoyment.
If, and as long as, this Lease shall not have been terminated
pursuant to Article 17 or any other provision of this Lease providing for such
termination, Tenant shall quietly enjoy the Premises without hindrance or
molestation by Landlord or by any other person claiming the Premises, subject,
however, to the covenants, agreements, terms, provisions and conditions of this
Lease.
Article 30. Binding Authority.
Each party represents that it has full power and authority to
execute, deliver and perform this Lease. Each party agrees that it has taken all
necessary action required to authorize the execution, delivery and performance
of this Lease by such party, and this Lease has been duly authorized, executed
and delivered by such party and constitutes the legal, valid and binding
agreement of such party, enforceable against such party in accordance with its
terms.
Article 31. Governing Law; Severability.
Irrespective of the place of execution or performance, this Lease
shall be governed by and construed in accordance with the laws of the State of
New York. If any provision of this Lease or the application thereof to any
person or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, the remainder of this Lease and the application of that provision
to other persons or circumstances shall not be affected.
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Article 32. Lease Contains All Agreements - No Waivers.
32.1 This Lease and the Initial Improvements Agreement contains all
of the covenants, agreements, terms, provisions, conditions and understandings
relating to the leasing of the Premises hereunder and Landlord's and Tenant's
obligations in connection therewith and neither party (nor its any agents or
representatives) has made or is making, and the other party in executing and
delivering this Lease is not relying upon, any warranties, representations,
promises or statements whatsoever, except to the extent expressly set forth in
this Lease. All prior understandings and agreements, if any, between the parties
are merged in this Lease, which alone fully and completely expresses the
agreement of the parties.
32.2 The failure of either party to insist in any instance upon the
strict keeping, observance or performance of any covenant, agreement, term,
provision or condition of this Lease or to exercise any election herein
contained shall not be construed as a waiver or relinquishment for the future of
any covenant, agreement, term, provision, condition or election, all of which
shall continue and remain in full force and effect. No waiver or modification by
a party of any covenant, agreement, term, provision or condition of this Lease
shall be deemed to have been made unless expressed in writing and signed by such
party. No surrender of possession of the Premises or of any part thereof or of
any remainder of the term of this Lease shall release Tenant from any of its
obligations hereunder unless accepted by Landlord in writing. The receipt and
retention by Landlord of Fixed Rent or Additional Rent from anyone other than
Tenant shall not be deemed a waiver of the breach by Tenant of any covenant,
agreement, term, provision or condition herein contained, or the acceptance of
any other person as a tenant, or a release of Tenant from further keeping,
observance or performance by Tenant of the covenants, agreements, terms,
provisions and conditions herein contained. The receipt and retention by a party
of any amount payable to such party hereunder by the other party with knowledge
of the breach of any covenant, agreement, term, provision or condition herein
contained by the other party shall not be deemed a waiver of the breach by such
party.
Article 33. Parties Bound.
The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the respective successors, assigns and legal
representatives of the parties hereto with the same effect as if mentioned in
each instance where a party hereto is named or referred to, except that no
violation of the provisions of Article 12 hereof shall operate to vest any
rights in any successor, assignee or legal representative of Tenant and the
provisions of this Article shall not be construed as modifying the conditions of
limitation contained in Article 17 hereof.
Landlord agrees that none of the partners of Tenant shall have any
personal liability for the obligations of Tenant hereunder.
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The covenants and obligations on the part of Landlord under this
Lease shall not, however, be binding upon any entity now or hereafter having an
ownership interest in the Land or the Building with respect to the period
subsequent to the transfer by such entity of its such interest (the granting of
a lease with an expiration date after the expiration date of the final renewal
term of this Lease shall be deemed such a transfer but only if the lessor
thereunder shall execute and deliver to Tenant a non-disturbance agreement
conform to the requirements of clause (ii) of Section 16.3), and in the event of
such a transfer the covenants and obligations theretofore binding on the
transferor shall thereafter be binding upon the transferee until the next
transfer of the interest.
Article 34. Special Purpose Areas; 16th floor.
34.1 Special Purpose Areas -- General. Each of the following shall
constitute a "Special Purpose Area":
(i) the portion of the 41st floor of the Building now used or
occupied by Continental Club generally as shown on the 4lst floor
plan included in Exhibit D hereto (the "41st Floor Special Purpose
Area");,
(ii) the third floor of the Building and the portion of the
4th floor of the Building now used or occupied as a cafe/kitchen
generally as shown as space C on the 4th floor plan included in
Exhibit D hereto (together "3rd/4th Floor Special Purpose Area");
(iii) the portion of the mezzanine level of the Building now
used or occupied as the Ricker Auditorium or for meeting or
conference facilities generally as shown on the 2nd floor plan
included in Exhibit D hereto (the "2nd Floor Special Purpose Area");
and
(iv) the portion of the basement of the Building now used or
occupied for health and exercise facilities generally as shown as
spaces J and K on the basement plan included in Exhibit D hereto
(the "Basement Special Purpose Area").
Landlord or other persons are now operating in some or all of the Special
Purpose Areas facilities which are available to or used by some or all of the
tenants of the Building.
Landlord represents, warrants, and covenants to Tenant
(a) that no tenant or other person has any right, title or
interest in or to any of the Special Purpose Areas or any portion
thereof or any of the facilities therein, or any right to use or to
require the continued operation of such Special Purpose Area or any
portion thereof or any of the facilities therein (any such right,
title or interest or right to use or to required the
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continued operation being herein called a "Special Purpose Area
Right"), except for
(i) Stroock & Stroock & Lavan LLP ("SSL"),
(ii) the other tenants (excluding MCI and Teleport)
listed on Exhibit S hereto (the "Other Tenants"); and
(iii) any memberships granted to non-tenants in the
facilities located in 41st Floor Special Purpose Area, the
3rd/4th Floor Special Purpose Areas and/or the Basement
Special Purpose Areas all of which are terminable prior to
December 31, 1998;
(b) that SSL's Special Purpose Area Rights are only those set
forth in Article Thirty-Ninth of SSL's lease as in effect on the
date hereof a copy of which is attached hereto as Exhibit CCC (the
"SSL Special Purpose Area Lease Provision"); and
(c) that the Special Purpose Area Rights of the Other Tenants
are only those set forth in the provisions of their respective
leases is in effect on the date hereof copies of which are attached
hereto as Exhibit DDD (each respectively a "Other Special Purpose
Area Lease Provision") and that MCI and Teleport have no Special
Purpose Area Rights.
Prior to the delivery to Tenant of any Special Purpose Area,
Landlord shall
(a) terminate all leases, licenses and other agreements or
arrangements covering such Special Purpose Area and shall, and shall
cause all other persons to, vacate such Special Purpose Area and
shutdown and discontinue the operation of all facilities in such
Special Purpose Area, and
(b) terminate (or, in the case of any memberships referred to
above, cause the termination of) all of the Special Purpose Area
Rights, excluding (i) the Special Purpose Area Rights of SSL under
the SSL Special Purpose Lease Provision with respect to all of the
Special Purpose Areas, (ii) the Special Purpose Area Rights under
the Other Special Purpose Area Lease Provision relative to any
Special Purpose Area of any Other Tenant who shall not have
delivered to Landlord a Waiver with respect to such Special Purpose
Area., and (iii) the Special Purpose Area Rights under any lease
finally expiring on or before January 31, 1999 (the tenant under any
such lease referred to in this clause (iii) being herein called a
"30 Day Tenant").
Landlord represents, warrants and covenants to Tenant that the
leasing of the Special Purpose Areas to Tenant is and shall be free of all
Special Purpose Area Rights
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(other than those referred to in clauses (i), (ii) and (iii) of subparagraph (b)
of the preceding paragraph). Landlord shall indemnify and save harmless the
Tenant Indemnitees from and against any loss, cost, damage or expense arising
out of any tenant or other person having or claiming to have any right, title or
interest in or to any Special Purposes Area or any portion thereof or any of the
facilities therein, or having or claiming to have any right to use or to require
the continued operation of any Special Purpose Area or any portion thereof or
any of the facilities therein, including legal fees and expenses incurred by any
Tenant Indemnitee in the defense of any such claim, other than
(i) any claim under the SSL Special Purpose Area Lease
asserted by SSL, or
(ii) any claim under an Other Special Purpose Area Lease
Provision relative to a Special Purpose Area asserted by any Other
Tenant who shall not have delivered a Waiver with respect to such
Special Purpose Area.
This paragraph shall be applicable whether or not Tenant permits SSL, the
claimant or any other tenant or person to use any Special Purpose Area or any
portion thereof or any of the facilities therein.
Commencing promptly after the execution of this Lease, Landlord
shall endeavor to obtain from each of the Other Tenants (other than the 30 Day
Tenants) a full, complete, unqualified and unconditional waiver and surrender of
all of such Other Tenant's Special Purpose Area Rights (any such full, complete,
unqualified and unconditional waiver and surrender with respect to one or more
of the Special Purpose Areas being herein called "Waiver") and, promptly upon
receiving any such Waiver from any Other Tenant, Landlord shall furnish Tenant
with a copy thereof.
If on December 31, 1998, Landlord shall have obtained and furnished
to Tenant Waivers from fewer than all of (or from none of) the Other Tenants
(other than the 30 Day Tenants) with respect to any Special Purpose Area then
(i) the Scheduled Delivery Date with respect to such Special
Purpose Area shall be postponed until January 31, 1999, and
(ii) Tenant, by notice to Landlord given prior to January 31,
1999, shall have the right to eliminate from the Premises such
Special Purpose Area.
Notwithstanding the provisions of Section 2.3, Landlord shall not have the right
to accelerate the Delivery Date of any Special Purpose Area unless Landlord's
notice under Section 2.3 shall be given on or before November 1, 1998 and shall
be accompanied by Waivers from all of the Other Tenants (including the 30 Day
Tenants whose terms will not have expired by the accelerated Delivery Date).
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If Tenant shall so eliminate such Special Purpose Area from the
Premises then the provisions of Section 34.2, 34.3, 34.4 or 34.5, as the case
may be, shall be applicable.
If Tenant does not so eliminate such Special Purpose Area from the
Premises then the Fixed Rent payable with respect to such Special Purpose Area
shall be reduced to fifty (50%) of the Fixed Rent which would otherwise be
payable with respect thereto as provided for in this Lease; provided, however,
that if Landlord shall subsequently obtain and furnish to Tenant Waivers with
respect to such Special Purpose Area from all of the Other Tenants (other than
the 30 Day Tenants) then (a) the Fixed Rent reduction provided for in this
paragraph shall stop and thereafter the Fixed Rent payable with respect to such
Special Purpose Area shall be such amount as shall be otherwise provided for in
this Lease, and (b) if the stoppage of such reduction shall occur prior to the
Early Termination Date Landlord shall pay to Tenant, an amount equal to the
product of (i) the rentable area of the Special Purpose Area, multiplied by (ii)
$11.25, multiplied by (iii) the fraction the numerator of which is the number of
months from the date of such stoppage to the Early Termination Date and the
denominator of which is 120.
34.2 Continued Operation of 4lst Floor Special Purpose Area. If
pursuant to Section 34.1 or otherwise the Premises shall cease to include or
shall not include the 41st Floor Special Purpose Area then the provisions of
this Section 34.2 shall be effective for the balance of the term of this Lease,
including any renewal terms, subject to Landlord's right to terminate the
operation of and close the dining facility as provided for in the final
paragraph of this Section 34.2.
Landlord shall operate, or cause to be operated, the 41st Floor
Special Purpose Area as a dining facility appropriate for a class A downtown
Manhattan office building. Neither the size nor the operating hours or services
shall hereafter be reduced below the size, operating hours or services in effect
on the date hereof. In no event shall Tenant's rights in, to and with respect to
the dining facility be less, in any respect, than the rights of any other tenant
or other person. Tenant (and, if and to the extent that Tenant so elects, its
subtenants) and their respective employees and guests shall be entitled to use
such dining facility on a non-exclusive basis. Tenant shall be entitled to
separate reserved exclusive rooms and seating areas up to Tenant's Proportionate
Share of the capacity of the dining facility. At Tenant's request, Landlord
shall consult with Tenant with respect all aspects of the dining facility
operation, including menus, quality, service levels, pricing, upkeep and decor
of the facilities. Landlord shall furnish Tenant with copies of, and shall meet
with Tenant to discuss, monthly financial statements, quarterly operational
reviews, periodic (at least quarterly) sanitation reviews and all other
documentation commonly created in connection with the operation of a dining
facility appropriate for a class A office building. Landlord shall comply with
Tenant's directions and requests from time to time with respect to the dining
facility and its operations, and, if Tenant shall so request from time to time,
Landlord shall replace the operator of the dining facility with an operator
acceptable to Tenant provided, however, that (a) Tenant shall not have the right
to require Landlord to replace the operator of the dining facility within one
year of such the operator's having been previously
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replaced at Tenant request, and (b) if any such direction or request or
replacement operator would result in a net increase in Landlord's costs of
operating the dining facility, Landlord shall not be required to comply with
such direction or request or so to replace the operator of the dining facility
unless Tenant agrees to pay such net increase in costs.
Landlord shall have the right, upon not less than 120 days notice to
Tenant, to terminate the operation of and close the dining facility; provided,
however, that Tenant, by notice to Landlord given within sixty (60) days of its
receipt of Landlord's notice, shall have the right to lease the 41st Floor
Special Purpose Area commencing on the day after the closure date set forth in
Landlord's notice subject to all of the terms and conditions provided for in
Section 34.1 with the same force and effect as if Tenant had not excluded the
41st Floor Special Purpose Area from the Premises.
34.3 Continued Operation of 3rd/4th Floor Special Purpose Area. If
pursuant to Section 34.1 or otherwise the Premises shall cease to include or
shall not include the 3rd/4th Floor Special Purpose Area then the provisions of
this Section 34.4 shall be effective for the balance of the term of this Lease,
including any renewal terms, subject to Landlord's right to terminate the
operation of and close the cafeteria as provided for in the final paragraph of
this Section 34.3.
Landlord shall operate, or cause to be operated, the 3rd/4th Floor
Special Purpose Area as a cafeteria appropriate for a class A downtown Manhattan
office building. Neither the size nor the operating hours or services shall
hereafter be reduced below the size, operating hours or services in effect on
the date hereof. Tenant (and, if and to the extent that Tenant so elects, its
subtenants) and their respective employees and guests shall be entitled to use
such cafeteria on a non-exclusive basis. Tenant shall be entitled to separate
reserved exclusive rooms and seating areas up to Tenant's Proportionate Share of
the capacity of the cafeteria. At Tenant's request, Landlord shall consult with
Tenant with respect all aspects of the cafeteria operation, including menus,
quality, service levels, pricing, upkeep and decor of the facilities. Landlord
shall furnish Tenant with copies of, and shall meet with Tenant to discuss,
monthly financial statements, quarterly operational reviews, periodic (at least
quarterly) sanitation reviews and all other documentation commonly created in
connection with the operation of a cafeteria appropriate for a class A office
building. Landlord shall comply with Tenant's directions and requests from time
to time with respect to the dining facility and its operations, and, if Tenant
shall so request from time to time, Landlord shall replace the operator of the
dining facility with an operator acceptable to Tenant; provided, however, that
(a) Tenant shall not have the right to require Landlord to replace the operator
of the dining facility within one year of such the operator's having been
previously replaced at Tenant request, and (b) if any such direction or request
or replacement operator would result in a net increase in Landlord's costs of
operating the cafeteria, Landlord shall not be required to comply with such
direction or request or so to replace the operator of the cafeteria unless
Tenant agrees to pay such net increase in costs.
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Landlord shall have the right, upon not less than 120 days notice to
Tenant, to terminate the operation of and close the cafeteria; provided,
however, that Tenant, by notice to Landlord given within sixty (60) Clays of its
receipt of Landlord's notice, shall have the right to lease the 3rd/4th Floor
Special Purpose Area commencing on the day after the closure date set forth in
Landlord's notice subject to all of the terms and conditions provided for in
Section 34.1 with the same force and effect as if Tenant had not excluded the
3rd/4th Floor Special Purpose Area from the Premises pursuant to Section 34.1.
34.4 Continued Operation of 2nd Floor Special Purpose Area. If
pursuant to Section 34.2 or otherwise the Premises shall cease to include or
shall not include the 2nd Floor Special Purpose Area then the provisions of this
Section 34.4 shall be effective for balance of the term of this Lease, including
any renewal terms, including any renewal terms, subject to Landlord's right to
terminate the operation of and close the conference center as provided for in
the final paragraph of this Section 34.4.
Landlord shall operate, or cause to be operated, the 2nd Floor
Special Purpose Area as a conference center (including the Ricker auditorium)
appropriate for a class A downtown Manhattan office building. Neither the size
nor the operating hours or services shall hereafter be reduced below the size,
operating hours or services in effect on the date hereof. In no event shall
Tenant's rights in, to and with respect to the conference center be less, in any
respect, than the rights of any other tenant or other person. Tenant (and, if
and to the extent that Tenant so elects, its subtenants) and their respective
employees and guests shall be entitled to use such conference center on a
non-exclusive basis. At Tenant's request, Landlord shall consult with Tenant
with respect all aspects of the conference center operation. The facilities of
the conference center shall be subject to reservation by tenants of the Building
on a "first-reserved, first-served" basis; provided, however, that
(i) except for Tenant and SSL no tenant of the Building or
other person shall be permitted to reserve any room or facility
prior to 30 days in advance, and
(ii) Tenant and SSL shall be entitled to reserve any room or
facility as far in advance as either desires.
Landlord shall comply with Tenant's directions and requests from time to time
with respect to the conference center and its operations, and, if Tenant shall
so request from time to time, Landlord shall replace the operator of the
conference center with an operator acceptable to Tenant; provided, however, that
(a) Tenant shall not have the right to require Landlord to replace the operator
of the conference center within one year of such the operator's having been
previously replaced at Tenant request, and (b) if any such direction or request
or replacement operator would result in a net increase in Landlord's costs of
operating the conference center, Landlord shall not be required to comply with
such direction or request or replace the operator of the conference unless
Tenant agrees to pay such net increase in costs.
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Landlord shall have the right, upon not less than 120 days notice to
Tenant, to terminate the operation of and close the conference center; provided,
however, that Tenant, by notice to Landlord given within sixty (60) days of its
receipt of Landlord's notice, shall have the right to lease the 2nd Floor
Special Purpose Area subject to all of the terms and conditions provided for in
Section 34.1 with the same force and effect as if Tenant had not excluded the
2nd Floor Special Purpose Area from the Premises pursuant to Section 34.1.
34.5 Continued Operation of Basement Special Purpose Area. If
pursuant to Section 34.1 or otherwise the Premises shall cease to include or
shall not include the Basement Special Purpose Area then the provisions of this
Section 34.5 shall be effective for the balance of the term of this Lease,
including any renewal terms, including any renewal terms, subject to Landlord's
right to terminate the operation of and close the health and exercise facility
as provided for in the final paragraph of this Section 34.3..
Landlord shall operate, or cause to be operated, the Basement
Special Purpose Area as a health and exercise facility appropriate for a class A
downtown Manhattan office building. Neither the size nor the operating hours or
services shall hereafter be reduced below the size, operating hours or services
in effect on the date hereof. In no event shall Tenant's rights in, to and with
respect to the health and exercise facility be less, in any respect, than the
rights of any other tenant or other person. Tenant (and, if and to the extent
that Tenant so elects, its subtenants) and their respective employees and guests
shall be entitled to use such health and exercise facility on a non-exclusive
basis. At Tenant's request, Landlord shall consult with Tenant with respect all
aspects of the health and exercise facility operation. Landlord shall furnish
Tenant with copies of, and shall meet with Tenant to discuss, monthly financial
statements, quarterly operational reviews, periodic (at least quarterly)
sanitation reviews and all other documentation commonly created in connection
with the operation of a health and exercise facility appropriate for a class A
office building. Landlord shall comply with Tenant's directions and requests
from time to time with respect to the dining facility and its operations, and,
if Tenant shall so request from time to time, Landlord shall replace the
operator of the health and exercise facility with an operator acceptable to
Tenant; provided, however, that (a) Tenant shall not have the right to require
Landlord to replace the operator of the health and exercise facility within one
year of such the operator's having been previously replaced at Tenant request,
and (b) if any such direction or request or replacement operator would result in
a net increase in Landlord's costs of operating the health and exercise
facility, Landlord shall not be required to comply with such direction or
request or so to replace the operator of the health and exercise facility unless
Tenant agrees to pay such net increase in costs.
Landlord shall have the right, upon not less than 120 days notice to
Tenant, to terminate the operation of and close the health and exercise
facility; provided, however, that Tenant, by notice to Landlord given within
sixty (60) days of its receipt of Landlord's notice, shall have the right to
lease the Basement Special Purpose Area subject to all of the terms and
conditions provided for in Section 34.1 with the same force and effect as if
Tenant
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had not excluded the Basement Special Purpose Area from the Premises pursuant
to Section 34.1.
34.6 16th Floor - General. Landlord represents, warrants, and
covenants to Tenant that
(a) no tenant or other person has any right, title or
interest in or to the 16th floor of the Building or any
portion thereof or any of the facilities therein, or any right
to use or to require the continued operation of the 16th floor
of the Building or any portion thereof or any of the
facilities therein (any such right, title or interest or right
to use or to required the continued operation being herein
called a "16th Floor Right"), except for SSL and the Other
Tenants;
(b) that SSL has agreed that Landlord may transfer SSL's
16th Floor Right to any other premises in the Building; and
(c) that Landlord has the right, in connection with the
leasing of the 16th floor to Tenant or otherwise, to terminate
all of the 16th Floor Rights of the Other Tenants.
Prior to the delivery to Tenant of the 16th floor, Landlord shall
(a) terminate all leases, licenses and other agreements or arrangements covering
the 16th floor and shall, and shall cause all other persons to, vacate such 16th
floor and shutdown and discontinue the operation of all facilities on such 16th
floor, (b) terminate all 16th Floor Rights, and (c) demolish all facilities,
improvements, alterations, additions and installations in, to or upon the 16th
floor.
Landlord represents, warrants and covenants to Tenant that the
leasing of the 16th floor to Tenant is and shall be free of all 16th Floor
Rights. Landlord shall indemnify and save harmless the Tenant Indemnitees from
and against any loss, cost, damage or expense arising out of any tenant or other
person (including SSL and any of the Other Tenants) having or claiming to have
any right, title or interest in or to the 16th floor or any portion thereof or
any of the facilities therein, or having or claiming to have any right to use or
to require the continued operation of the 16th floor or any portion thereof or
any of the facilities therein, including legal fees and expenses incurred by any
Tenant Indemnitee in the defense of any such claim. This paragraph shall be
applicable regardless of the use to which Tenant's puts the 16th floor and
regardless of whether Tenant permits the claimant or any other tenant or person
to use the 16th floor or any portion thereof or any of the facilities therein.
Landlord shall perform and satisfy all of the obligations to SSL
under the agreement referred to in clause (b) of the first paragraph of this
Section; provided, however, that if and for so long as the 3rd/4th Floor Special
Purpose Area is part of the Premises,
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Tenant shall permit SSL to use conference facilities therein, or in any other
portion of the Premises designated by Tenant
34.7 Miscellaneous. The rights and remedies specifically provided to
Tenant by this Article are in addition to any rights and remedies available to
Tenant under any other provision of this Lease or under applicable law. Landlord
shall not hereafter grant any Special Purpose Area Rights or any 16th Floor
Rights. Notwithstanding any other provision of this Lease to the contrary,
Tenant shall be entitled to permit any or all of the tenants or occupants of the
Building to use any or all of the Special Purpose Areas.
34.8 Miscellaneous. If Tenant shall lease any Special Purpose Area
pursuant to Section 34.2 through 34.5 prior to the Early Termination Date
Landlord shall pay to Tenant on the date of such leasing an amount equal to the
product of (i) the rentable area of the Special Purpose Area, multiplied by (ii)
$22.50 or $11.25, as applicable, multiplied by (iii) the fraction the numerator
of which is the number of months from the date of such leasing to the Early
Termination Date and the denominator of which is 120.
Article 35. Arbitration.
35.1 No dispute under this Lease shall be subject to arbitration
unless specifically so provided in this Lease. Whenever this Lease shall provide
that a dispute is subject to arbitration, it shall be subject to arbitration in
accordance with the provisions contained in this Article 35. Except to the
extent inconsistent with the provisions of this Article 35, the arbitration
shall be governed by the Commercial Arbitration Rules of the American
Arbitration Association ("AAA").
35.2 The party desiring arbitration shall give notice to the other
party. If the parties shall not have agreed on a choice of an arbitrator within
fifteen (15) days after the service of such notice, either party, on behalf of
both, may request that the New York office of the AAA appoint an arbitrator to
render a resolution of said dispute or to made the determination in question. In
the absence, failure, refusal or inability of AAA to act within twenty (20)
days, then either party, on behalf of both, may apply to a Justice of the
Supreme Court of New York, New York County, for the appointment of an
arbitrator, and the other party shall not raise any question as to the court's
full power and jurisdiction to entertain the application and make the
appointment. In the event of the absence, failure, refusal or inability of an
arbitrator to act, a successor shall be appointed within ten (10) days as herein
before provided. Any arbitrator acting under this Article shall be experienced
in the issue with which the arbitration is concerned and shall have been
actively engaged in such field for a period of at least ten (10) years before
the date of the arbitrator's appointment as arbitrator hereunder.
35.3 All arbitrators chosen or appointed pursuant to this Article
shall (i) be sworn fairly and impartially to perform their respective duties as
such arbitrator, and (ii) not
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be (a) an employee or past employee of Landlord or Tenant or of any other
person, partnership, corporation or other form of business or legal association
or entity that controls, is controlled by or is under common control with
Landlord or Tenant nor (b) anyone that has or has had a business relationship
with Landlord or Tenant Within sixty (60) days after the appointment of an
arbitrator, the arbitrator shall determine the matter in dispute and shall issue
a written decision. The decision of the arbitrator shall be conclusively binding
upon the parties, and judgment upon the decision may be entered in any court
having jurisdiction.
35.4 The arbitrators shall be bound by the provisions of this Lease,
and shall not add to, subtract from or otherwise modify such provisions.
Article 36. Other Installations By Tenant
36.1 Tenant's Generator Plant and Tenant's Cooling Plant. Subject to
the terms and conditions of this Article and Article 6, Tenant shall have the
right to:
(a) construct a new bulkhead enclosure (the "New Bulkhead
Enclosure") above the roof of the existing bulkhead enclosure which
currently houses certain telecommunications equipment (the "Existing
Bulkhead Enclosure");
(b) relocate the Building's three existing emergency
generators and ancillary equipment (the "Existing Building
Generators") from the machine room on the 41st floor (the "41st
Floor Machine Room") to the New Bulkhead Enclosure and remove from
the 41st Floor Machine Room (and dispose of without accountability
to Landlord or any other person) such of the other equipment now
located therein as Tenant shall desire; provided, however, that (i)
in lieu of relocating one or more of the Existing Building
Generators Tenant may replace the same with a new generator of
comparable capacity (including a single generator in replacement for
two or three of the Existing Building Generator provided that such
single generator has a capacity comparable to the two or three
Existing Building Generators being replaced), (ii) Tenant may remove
from the 41st Floor Machine Room (and dispose of without
accountability to Landlord or any other person) any of the Existing
Building Generators so replaced, (iii) if Tenant relocates or
replaces any of the Existing Building Generators (such relocated
Existing Building Generators or replacements therefor being herein
called the "Building Generators") shall extend the Building's fuel
risers to the Building Generators;
(c) install in the New Bulkhead Enclosure additional emergency
generators and ancillary equipment ("Tenant's Generators");
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(d) remove from the Existing Bulkhead Enclosures (and dispose
of without accountability to Landlord or any other person) such of
the equipment now located therein as Tenant shall desire and
install in the Existing Bulkhead Enclosure electrical switches and
switchgear, electrical distribution panels and other electrical
equipment ("Tenant's Electrical Equipment");
(e) install on the roof of the Building a cooling tower
("Tenant's Cooling Tower") and on the roof of the Building a
loadbank ("Tenant's Loadbank");
(f) install in the 41st floor Machine Room chillers and other
mechanical equipment and ancillary equipment ("Tenant's Mechanical
Equipment"); and
(g) to relocate the Building's emergency power distribution
equipment and life safety panel;
all substantially as shown on the plans therefor attached as Exhibits AA, BB,
CC, DD, EE and LL and to install in the Building all ancillary equipment and
appurtenances necessary or appropriate in connection therewith. Tenant shall
dispose of any property removed by pursuant to subparagraph (b) above pursuant
to Applicable Law.
As used in this Lease, the term "Tenant's Generator Plant" shall mean and
refer to Tenant's Generators, Tenant's Electrical Equipment, Tenant's Loadbank,
Tenant's Fuel Tank and all ancillary equipment appurtenances installed by Tenant
pursuant to this Article or pursuant to Article 42.
As used in this Lease, the term "Tenant's Cooling Plant" shall mean and
refer to Tenant's Cooling Tower, Tenant's Mechanical Equipment and all ancillary
or other equipment installed by Tenant pursuant to this Article or pursuant to
Article 42.
Tenant's Generator Plant and Tenants Cooling Plant shall be deemed part of
the Premises for all purposes of this Lease, except for those provisions which
are inappropriate or inapplicable, including, without limitation, Articles 3 and
4 and Sections 11.4, 11.5 and 11.6.
Tenant shall comply with all Applicable Laws at any time duly issued and
in force applicable to, and obtain all permits, licenses and approvals necessary
for, the existence, use, operation or maintenance of the Tenant's Generator
Plant and Tenant's Cooling Plant Landlord shall, within two (2) business days of
Tenant's request, execute any permit, license or approval application or any
similar document required to be executed by Landlord in connection with Tenant's
obtaining any such permit, license or approval.
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If any work by Tenant pursuant to this Section shall invalidate Landlord's
roof warranty (a copy of which is attached hereto as Exhibit T), Tenant shall
take such corrective actions as shall be required to reinstate such roof
warranty or provide equivalent protection to Landlord.
Tenant have the exclusive right, but shall not be obligated, to operate,
maintain, repair and replace Tenant's Generator Plant and Tenant's Cooling
Plant, and Tenant may discontinue operation thereof at any time. Notwithstanding
the foregoing, whether or not Tenant operates or continues to operate Tenant's
Generator Plant or Tenant's Cooling Plant, Tenant shall keep the same in such
condition as shall be required to prevent damage or injury to the Building,
subject nonetheless to the release provisions of Section 22.6.
Landlord shall not take, or suffer or permit to be taken, any action which
will interfere with the proper and efficient operation, maintenance, repair and
replacement by Tenant of Tenant's Generator Plant or Tenant's Cooling Plant.
Tenant shall be permitted continuous access to all portions of Tenant's
Generator Plant and Tenant's Cooling Plant.
Tenant shall be entitled to the entire output of Tenant's Generator Plant
and Tenant's Cooling Plant. Tenant may elect to connect Tenant's Generator Plant
to the Building's electrical distribution system in such a manner that Tenant's
Generator Plant when operating furnishes backup electricity to the entire
Building, including Building systems and portions of the Building not leased to
Tenant. Any backup electricity furnished by Tenant's Generator Plant to Building
systems or portions of the Building not leased to Tenant shall be deemed
furnished solely as an accommodation by Tenant and Tenant shall have no
liability or responsibility to Landlord or any other person or entity for the
quantity or character or reliability of such electricity, or any interruption,
diminution or discontinuation thereof (whether voluntary or otherwise), or for
any notice or warning given or not given in connection therewith, all such
liability and responsibility, including any arising out of Tenant's negligence,
being hereby expressly waived. If Tenant elects to connect Tenant's Generator
Plant to the Building's electrical distribution system in the aforesaid manner
Landlord shall nonetheless remain obligated, as provided by Applicable Law or
the terms of any lease or other contractual obligation to which it is subject,
to provide emergency power to the Building's elevator, exit lighting and fire
life safety systems (and to any other area, system, equipment or facility to
which Landlord is required by Applicable Law or lease or other contractual
obligation to furnish backup electricity), and to operate, maintain, repair and
replace the Building's Generators and ancillary equipment so that upon any
interruption, diminution or discontinuation of electricity being furnished to
the Building's elevators, exit lighting and fire life safety systems by Tenant's
Generators (or to any such area, system, equipment or facility) the Building's
Generators shall furnish backup electricity thereto without interruption and
without any notice from Tenant.
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Tenant shall not sell or otherwise dispose of Tenant's Generator
Plant or Tenant's Cooling Plant other than in connection with an assignment of
this Lease, but this paragraph shall not be deemed to restrict the sale or
otherwise dispose of the output of Tenant's Generator Plant or Tenant's Cooling
Plant.
36.2 Tenant's Antenna Equipment. Subject to the terms and conditions
of this Article, Tenant shall have the right to install dishes and other
antennas, masts and related facilities and equipment (the "Tenant's Antennas")
in the locations and areas shown on Exhibits KK and MM hereto and to install in
the Building all ancillary equipment and appurtenances necessary or appropriate
in connection therewith. Landlord agrees that it shall no place or install, or
suffer or permit the placement or installation of, any equipment or improvements
on the portion of the roof between the two areas shaded on Exhibit KK. The
references in Exhibits KK and MM to "dish antennas" shall not restrict Tenant to
antennas of that type.
As used in this Lease, the term "Tenant's Antenna Equipment" shall mean
and refer to Tenant's Antennas and all ancillary equipment appurtenances
installed by Tenant pursuant to this Article or pursuant to Article 42.
Tenant shall comply with all Applicable Laws at any time duly issued and
in force applicable to, and obtain all permits, licenses and approvals necessary
for, the existence, use, operation or maintenance of the Tenant's Antenna
Equipment. Landlord shall, within two (2) business days of Tenant's request,
execute any permit, license or approval application or any similar document
required to be executed by Landlord in connection with Tenant's obtaining any
such permit, license or approval.
If any work by Tenant pursuant to this Section shall invalidate Landlord's
roof warranty, Tenant shall take such corrective actions as shall be required to
reinstate such roof warranty or provide equivalent protection to Landlord.
Tenant have the exclusive right, but shall not be obligated, to operate,
maintain, repair and replace Tenant's Antenna Equipment, and Tenant may
discontinue operation thereof at any time. Notwithstanding the foregoing,
whether or not Tenant operates or continues to operate Tenant's Antenna
Equipment, Tenant shall keep the same in such condition as shall be required to
prevent damage or injury to the Building, subject nonetheless to the release
provisions of Section 22.6.
Landlord shall not take, or suffer or permit to be taken, any action which
will interfere with the proper and efficient operation, maintenance, repair and
replacement by Tenant of Tenant's Antenna Equipment.
Tenant shall be permitted continuous access to all portions of Tenant's
Antenna Equipment.
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36.3 Tenant's Closed Circuit Television Cameras. Subject to the
terms and conditions of this Article, Tenant shall have the right to install
closed circuit television cameras in (i) such locations as shall be necessary or
appropriate to observe any or all of Tenant's installations pursuant to Article
42, Section 36.1 or Section 36.2, (i) any or all of the elevators of the
Building (unless, with respect to any of the low-rise or mid-rise passenger
elevators, any of the tenants served thereby shall object thereto in which case
Tenant shall not install the same), (iii) the loading dock, and (iv) such other
areas of the Building as Landlord shall approve (such approval not to be
unreasonably withheld) and to install in the Building all ancillary equipment
and appurtenances necessary or appropriate in connection therewith.
As used in this Lease, the term "Tenant's CCTV Equipment" shall mean and
refer to Tenant's closed circuit television cameras and all ancillary equipment
appurtenances installed by Tenant pursuant to this Article or pursuant to
Article 42.
Tenant shall comply with all Applicable Laws at any time duly issued and
in force applicable to, and obtain all permits, licenses and approvals necessary
for, the existence, use, operation or maintenance of the Tenant's Antennas.
Tenant have the exclusive right, but shall not be obligated, to operate,
maintain, repair and replace Tenant's CCTV Equipment, and Tenant may discontinue
operation thereof at anytime. In no event, even if Tenant's CCTV Equipment is in
operation, shall Tenant be obligated to provide security service to or for the
benefit of any tenant or occupant of the Building or any other person. Landlord
specifically acknowledges that Tenant may elect not to monitor or record the
output of Tenant's closed circuit television cameras or if such output is
recorded to destroy the tapes or other records without reviewing them.
Landlord shall not take, or suffer or permit to be taken, any action which
will interfere with the proper and efficient operation, maintenance, repair and
replacement by Tenant of Tenant's CCTV Equipment.
36.4 Window Film and Window Treatment. Neither Landlord nor Tenant
shall apply any film or other substance to the inside or outside of any of the
window glass of the Premises without the consent of the other. Landlord shall
not unreasonably withhold consent to any such film Tenant proposes to install
for purposes of increasing safety.
Tenant shall have the right to install such blinds or other window
treatments on or in the windows of the Premises as it shall elect, subject to
compliance with the preceding paragraph.
36.5 Use of Fire Stairs. Tenant shall have the right to use for
routine access amongst the floors on which the Premises are located either or
both of the fire stairs of the Building and, incident thereto, shall have the
right to install either or both a card-key access system and an alarm system
with respect to the doors providing access between the Premises
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on the fire stairs; provided, however, Tenant's right to use the fire stairs, or
to install any card-key or alarm system, shall be subject to the same being in
compliance with all laws and requirements of public authorities.
36.6 Tenant's Messenger Center. Landlord hereby leases to Tenant,
and Tenant hereby accepts from Landlord, the area labeled "GS&CO." on the plan
attached hereto as Exhibit U ("Tenant's Loading Dock Area") for the purpose of
installing and maintaining a messenger center or other suitable use. Tenant's
Loading Dock Area shall constitute a part of the Premises and shall be subject
to all of the terms and provisions of this Lease applicable to the balance of
the Premises, except for purposes of Articles 3 and 4. Tenant shall perform the
work shown on Exhibit U necessary to constitute Tenant's Loading Dock Area a
separately demised area. The provisions of this Section 36.6 shall continue in
effect during any Renewal Term regardless of whether Tenant refers to Tenant's
Loading Dock Area in its Renewal Notice. Tenant shall be entitled to install
appropriate signage to direct messengers to Tenant's Loading Dock Area, subject
to Landlord's approval not to be unreasonably withheld. Tenant shall have the
right to run voice, data and/or electrical conduits from Tenant's Shafts to
Tenant's Loading Dock Area.
Article 37. Tenant's Right of First Offer to Purchase.
37.1 If, at any time during the term of this Lease, Landlord either
(i) receives an offer from a third party to purchase the Land and/or the
Building that it desires to accept or (ii) desires to offer the Land and/or the
Building for sale by listing with one or more real estate brokers or directly
offering it for sale in writing to one or more principals (each, an "Offer"),
then, in either such instance, provided that Tenant is not in default under this
Lease (after expiration of applicable notice and grace periods, if any),
Landlord shall notify Tenant thereof and furnish Tenant with a copy of the
Offer (the "Landlord's Offer Notice") and shall deliver to Tenant, subject to
the provisions of Section 37.5, material containing such information as is
customarily made available to solicit offers to purchase large Manhattan office
buildings, including, at a minimum the following (the "Property Information"):
(i) complete copies of all leases, license agreements, subleases and
other occupancy agreements,
(ii) audited financial statements for the property for the preceding
three (3) years and, to the extent available, audited or unaudited
financial statements for the portion of the year then elapsed, including
income and expense statements, balance sheets, and source and application
of funds, and
(iii) statements of taxes and operating expenses under tenant leases
for the preceding two (2) years for which annual statements have been
furnished to tenants, including copies of annual escalation billing and
reconciliation for all such tenants for all such years.
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Tenant shall have a period of thirty (30) days from the date it
receives Landlord's Offer Notice and the Property Information within which to
notify Landlord that it desires to purchase the Land and/or Building, as
applicable (such Land and/or Building, the "Property"), at the Offer Price (the
"Tenant's Acceptance"). During such thirty (30) day period Tenant shall have the
right, subject to the terms and conditions of Section 37.5, to examine and copy
all pertinent books and records of Landlord and its managing agent relating to
the Property ("Books and Records").
If Tenant provides Tenant's Acceptance to Landlord, then Landlord
shall sell, and Tenant shall purchase, the Property at the price set forth in
the Offer (the "Offer Price") and otherwise on terms and conditions customary
for sales of large Manhattan office buildings. During the forty-five (45) days
after the date of this Lease, the parties shall endeavor to agree upon and
confirm in writing such terms and conditions, but the failure of the parties so
to agree shall not affect their rights and obligations under this Article 37.
After providing Tenant's Acceptance. Tenant shall have the right to
assign its right to purchase to a wholly-owned affiliate and, in such instance,
Landlord shall convey title to the assignee. If Tenant (or such wholly-owned
affiliate) shall acquire the Land or Building pursuant to this Article 37, it
shall retain title thereto for at least one year after the closing of such
acquisition.
37.2 If Tenant shall fail to give Tenant's Acceptance pursuant to
the terms set forth above, Tenant shall, subject to the last sentence of this
Section 37.2, be deemed to have conclusively waived its right to purchase the
Property at the Offer Price and Landlord shall have the right within one (1)
year of the Offer Notice to sell the Property at a price (considering the value
of other terms and conditions) which is no less favorable to the purchaser than
a sale of the Property for a cash purchase price equal to 92.5 percent of the
Offer Price on the terms and conditions provided for herein (the "Minimum
Price"); provided, however, that
(i) if the Property shall be the Land or the Building, not the
Land and the Building, than such waiver shall not be applicable to
the Building or the Land, whichever shall not be the Property, and
Tenant's rights with respect thereto shall continue in full force
and effect; and
(ii) if Landlord shall desire or propose to sell the Property
at a price (considering the value of other terms and conditions)
more favorable to the purchaser than a sale of the Property for a
cash purchase price equal to the Minimum Price, or shall desire or
propose to sell the Property after such one (1) year period,
Landlord shall be obligated to re-offer the Property to Tenant by
giving to Tenant a new Offer Notice in accordance with Section 37.1
above and to furnish then current Property Information.
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Any such new Offer Notice shall be given effect under Section 37.1 except that
if such new Offer Notice shall be given less than 90 days after the initial
Offer Notice the thirty (30) day period referred to in Section 37.1 shall be
shortened to fifteen (15) days from Tenant's receipt of the new Offer Notice and
the then current Property Information.
37.3 If Tenant provides Tenant's Acceptance to Landlord, Tenant
agrees that it shall concurrently therewith deliver to Landlord a deposit of
five percent of the Offer Price which shall be liquidated damages and,
notwithstanding any other provision of this Lease to the contrary, shall be
Landlord's sole remedy in the case of any default by Tenant under this Article
37 (exclusive of its obligation, having acquired the Property pursuant to this
Article 37, to retain title thereto for one year) or under any obligation to
purchase arising under this Article 37. The closing of such purchase shall be
the first business day which is 60 or more days after the date of Tenant's
Acceptance. Landlord and Tenant agree that closing costs will be paid in
accordance with New York custom.
37.4 Tenant agrees that it shall not disclose any documents and
information regarding the Property which Tenant's receives under this Article 37
except to those assisting Tenant with the analysis of the Property, or Tenant's
lender, if any, and then only upon making such person aware of the obligations
contained in this Section 37.4 and procuring the agreement of such person to
abide by such obligations. In the event Tenant does not purchase the Property
for any reason whatsoever, Tenant shall return to Landlord, or cause to be
returned to Landlord, all such documents and information.
Article 38. Tenant's Termination Right.
Provided that Tenant is not in monetary default under this Lease
beyond any applicable notice or grace period on the date that the Termination
Notice (as defined below) is given, Tenant shall have a one-time option
("Tenant's Termination Option") to terminate this Lease as of the last day of
the calendar month in which shall occur the tenth (10th) anniversary of the day
preceding the Rent Commencement Date of the last to be delivered of the Base
Premises (the "Early Termination Date") with respect to all portions of the
Premises then leased by Tenant other than each Accepted Offer Space leased
pursuant to Article 26 the Scheduled Offer Space Delivery Date of which was
later than the day five (5) years prior to the Early Termination Date (such
excluded portions of the Premises being herein called the "Continuing
Premises")), provided that Tenant shall
(i) give irrevocable notice (the "Termination Notice") to
Landlord of such termination at least eighteen (18) months prior to
the Early Termination Date, and
(ii) pay to Landlord on or before the date thirty (30) days
prior to the Early Termination Date an amount equal to nine (9)
times the excess of (a) the monthly Fixed Rent then payable under
this Lease with respect to the Early Termination Premises (as
defined below) over (b) the Landlord's
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Monthly Payment then payable under this Lease with respect to the
Early Termination Premises (the "Termination Fee").
Notwithstanding the foregoing, if Tenant shall fail to pay the
Termination Fee on or before the date that is thirty (30) days prior to the
Early Termination Date or if on the date thirty (30) days prior to the Early
Termination Date Tenant is otherwise in monetary default under this Lease beyond
any applicable notice or grace period then, at the option of Landlord to be
exercised by notice to Tenant given on or before the date twenty (20) days prior
to the Early Termination Date, the Termination Notice shall be ineffective and
Tenant's option to terminate this Lease under this Article 38 shall thereupon
forever terminate.
Subject to the preceding paragraph, if Tenant shall timely exercise
Tenant's Termination Option and timely pay the Termination Fee then the term of
this Lease with respect to all portions of the Premises other than the
Continuing Premises (the "Early Termination Premises") shall end on the Early
Termination Date with the same force and effect as if such Early Termination
Date were the Expiration Date (and, with respect to the Early Termination
Premises, the parties shall have the same rights and obligations as they would
have had with respect to the Premises upon expiration of this Lease on the
Expiration Date). No such termination shall affect the Continuing Premises and
this Lease shall continue with respect to the Continuing Premises as if Tenant
had not exercised Tenant's Termination Option.
Tenant's failure to comply with the notice provision above shall be
deemed a waiver of all of Tenant's rights under this Article 38 and Tenant's
option to terminate this Lease with respect to the Early Termination Premises
shall thereupon forever terminate.
Article 39. Landlord Defaults - Tenant Right to Cure.
39.1 If
(i) Landlord shall fail to perform any of its obligations
under Article 10,11 or 15,
(ii) Landlord shall fail to make any repairs or alterations
that the Landlord is required to make pursuant to the terms of this
Lease, or
(iii) Landlord shall make any repairs or alterations in or
about the Premises or the Building, and as a result of such repairs
or alterations made by Landlord, it becomes impractical for Tenant
to (and the Tenant does not) conduct its business operations in any
portion of the Premises in substantially the same manner as
theretofore conducted
(any or all of the foregoing hereinafter sometimes referred to as a "Landlord
Failure") and, after notice thereof by Tenant to Landlord (a "Notice of Landlord
Failure"), Landlord does
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not with due diligence commence action promptly (immediately, in the case of
emergency) to remedy such Landlord Failure, or if so commenced, does not remedy
such failure within fifteen (15) days from the date of Tenant's notice or such
longer period as may be provided by the last sentence of this paragraph, then,
provided that at least 50% of the Premises then subject to this Lease shall not
then be subject to any sublease (other than any sublease entered into pursuant
to Section 12.7 or 12.8), Tenant shall have the right (the "Tenant's Self-Help
Right"), upon the giving of five (5) days' written notice to Landlord (or, in
the case of emergency, upon the giving of such notice, oral or written, as may
be reasonable under the circumstances) (the "Tenant's Self-Help Notice"), to
remedy or endeavor to remedy such Landlord Failure and, Landlord shall, within
twenty (20) days after Tenant's submission to Landlord of Tenant's bills
therefor accompanied by copies of the invoices paid by Tenant, reimburse Tenant
for the actual costs incurred by Tenant in so remedying or endeavoring to remedy
such Landlord Failure (plus interest at two percent (2%) above the Prime Rate
from the date(s) such costs were incurred until the date(s) that such costs are
finally reimbursed). Tenant agrees to use due care and good workerlike
procedures in the performance of self-help which affects any portion of the
Building outside of the Premises. With respect to any Landlord Failure the
curing of which requires in excess of fifteen (15) days, if within such fifteen
(15) days Landlord shall commence such cure and notify Tenant that it intends to
prosecute the same to completion, such fifteen (15) day period shall be extended
so long as Landlord is prosecuting such remedy continuously and with all due
diligence.
Except as provided in the next sentence, any bill rendered by Tenant
shall be deemed valid and due and owing and if not paid within the aforesaid
twenty (20) days Tenant shall have the right to set-off the amount thereof
against the Fixed Rent and Additional Rent payable under this Lease. If, by
notice to Tenant within twenty (20) days after Tenant's submission of any bill
to Landlord, Landlord shall dispute Tenant's entitlement to reimbursement
therefor, in whole or in part, then (i) pending resolution of such dispute
Tenant shall not set-off the amount in dispute, and (ii) if the such dispute is
not settled by the parties within ten (10) days of Landlord's notice of dispute,
the same shall be subject to arbitration in accordance with the provisions of
Article 35. If in arbitration it shall be determined that Tenant was not
entitled to exercise Tenant's Self Help Right, (i) Landlord shall not be require
to make any such reimbursement except to the extent of any costs which by virtue
of Tenant's activities under this Article Landlord shall have avoided, and (ii)
if and to the extent that Tenant shall have removed any repair or alteration it
was not entitled to remove, Tenant shall promptly restore the same.
Concurrently with Tenant's giving any Notice of Landlord Failure or
Tenant's SelfHelp Notice, Tenant shall give a copy thereof to the holder of any
Underlying Mortgage or the lessor of any Underlying Lease to whom Landlord has
instructed Tenant to give copies (provided that Tenant shall have been furnished
with the then current address of such holder or lessor). Such holder or lessor
shall have the same rights (but only within the same time limits and subject to
the same obligations) as Landlord to remedy the Landlord Failure to which such
notice relates.
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39.2 Landlord's Failure to Pay Costs of Initial Improvements
(a) If Tenant believes that Landlord has failed timely to pay to the
appropriate party any amount which Landlord is required by Section 4 of the
Initial Improvements Agreement to pay, then (i) Tenant may give Landlord a
notice (a "Section 39.2 Demand Notice") specifying and identifying such amount
(a "Section 39.2 Demand Amount") and containing the following statement in block
capital letters: "THIS NOTICE IS BEING GIVEN UNDER Section 39.2 OF OUR LEASE.
YOUR FAILURE TIMELY TO PAY THE COSTS HEREIN SPECIFIED AND FURNISH EVIDENCE
THEREOF TO TENANT WILL RESULT IN TENANT HAVING THE RIGHT TO PAY SUCH COSTS AND
OFFSET THE AMOUNT SO PAID AGAINST RENT DUE UNDER THE LEASE" and (ii) at any time
on or after the 10th day after the giving of such Section 39.2 Demand Notice
Tenant may pay the Section 39.2 Demand Amount or any portion thereof to the
appropriate party (together with all interest, penalties, late charges and
similar fees thereon or with respect thereto) provided, that if within 10 days
after the giving of the Section 39.2 Demand Notice Landlord notifies Tenant that
Landlord has paid all of such Section 39.2 Demand Amount to the appropriate
party (together with all interest, penalties, late charges and similar fees
thereon or with respect thereto) (which notice shall include evidence of such
payment) and Landlord has actually done so Tenant shall not be entitled to make
payment of the Section 39.2 Demand Amount or any portion thereof and if within
10 days after the giving of such Section 39.2 Demand Notice Landlord notifies
Tenant that Landlord has paid a portion identified and specified in such notice
of the Section 39.2 Demand Amount to the appropriate party (together with all
interest, penalties, late charges and similar fees thereon or with respect
thereto) (which notice shall include evidence of such payment) and Landlord has
actually done so Tenant may pay only the balance of such Section 39.2 Demand
Amount not so paid by Landlord or any portion of such balance to the
appropriate party (together with all interest, penalties, late charges and
similar fees thereon or with respect thereto). The amount paid by Tenant
pursuant to this Section 39.2(a) is called an "Section 39.2 Advance").
(b) If Tenant makes an Section 39.2 Advance in accordance with
Section 39.2(a) then, except as otherwise provided in Section 39.2(c), (i)
Landlord shall reimburse to Tenant within 15 days after Tenant's demand therefor
the amount of the Section 39.2 Advance, together with interest thereon at the
Interest Rate from the date of payment by Tenant to the date on which Landlord
so reimburses Tenant, (ii) if Landlord shall fail timely to make such
reimbursement, Tenant shall have the right to setoff the amount of the Section
39.2 Advance together with such interest thereon against the Rent under this
Lease, and (iii) Landlord shall be deemed to have waived its right to claim that
such setoff was improper or constitutes a failure to pay rent or other default
under this Lease and its right to bring and maintain a separate action against
Tenant to recover all or any portion of the Section 39.2 Demand Amount.
(c) If within l0 days after the giving of the Section 39.2 Demand
Notice, Landlord notifies Tenant (an "Section 39.2 Dispute Notice") that
Landlord believes that all or a portion identified and specified in such Section
39.2 Dispute Notice of the Section 39.2
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Demand Amount is not required by Section 4 of the Initial Improvements Agreement
to be paid by Landlord or is not overdue (in either case all or such identified
and specified portion being herein called the "Disputed Section 39.2 Amount"),
then Landlord shall not be required to reimburse Tenant and Tenant shall not
have a right of set-off with respect to the Disputed Section 39.2 Amount except
to the extent that the dispute with respect thereto is resolved in Tenant's
favor in accordance with the next sentence. Tenant shall have the right, with
respect to any such dispute, to elect by notice to Landlord that such dispute be
resolved by litigation or arbitration pursuant to Article 35, but any such
election shall be irrevocable with respect to the dispute in question.
(d) Each Section 39.2 Advance shall constitute a loan from Tenant to
Landlord and notwithstanding Tenant's having made such Section 39.2 Advance the
Initial Improvements Work to which such Section 39.2 Advance shall relate, shall
nonetheless constitute the property of Landlord, a part of the Premises and
subject to the Lease.
39.3 Successor Liability Notwithstanding the provisions of Article
31, Tenant's rights under this Article 39 shall survive any transfer of any
interest in the Land and/or the Building and after any thereof shall also be
enforceable against the transferee and its transferees (other than the holder of
any Existing Mortgage), notwithstanding that the obligations or amounts to which
such rights relate were originally required to be performed or paid by the
transferor.
Article 40. Miscellaneous.
40.1 If either party shall commence an action or proceeding to
enforce this Lease or any provision thereof, then (except as otherwise
specifically provided elsewhere in this Lease) the prevailing party shall be
reimbursed by the losing party within thirty (30) days after rendering to the
losing party a bill for the reasonable counsel fees and disbursements and court
costs incurred by the prevailing party in such action or proceeding.
40.2 In the event of a breach or threatened breach on the part of
either party hereunder with respect to any of the covenants, agreements, terms,
provisions or conditions on the part of, or on behalf of, such party to be kept,
observed or performed, the other party shall also have the right of injunction.
The specified remedies to which a party may resort hereunder are cumulative and
are not intended to be exclusive of any other remedies or means of redress to
which a party may lawfully be entitled at any time, and a party may invoke any
remedy allowed at law or in equity as if specific remedies were not provided for
herein.
40.3 Whenever any right of Tenant provided for in this Lease is
subject to the condition that the area of the Premises not sublet (other than
under Section 12.7 or 12.8) shall then exceed 250,000 rentable square feet (or
other amount) (e.g. Section 7.1(b), 26.5), (or any similar condition) then for
purposes of determining whether such condition is satisfied all of the space
referred to in Exhibit C of this Lease shall be deemed leased to
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Tenant and included in the Premises on and after the Effective Date of this
Lease, notwithstanding that the Delivery Date may not have commenced with
respect to one or more Applicable Portions.
40.4 Any reference in this Lease to Tenant not being in default
beyond applicable notice and/or cure periods (or any similar reference) shall
refer to applicable notice and/or cure periods provided for in Article 17.
40.5 Whenever this Lease requires either party to pay any amount to
the other, if no other time period is specified, such amount shall be due within
ten (10) days of the other party's demand therefor accompanied by any
documentation required by the terms of this Lease. If any amount due to either
party shall not be paid when due, the same shall bear interest at the Interest
Rate from the due date until paid.
40.6 Whenever, by operation of Article 26 or otherwise, Tenant shall
lease the last usable portion of any Partial Premises Floor such floor shall be
come a Full Premises Floor and there shall be deemed included in the Premises
and leased to Tenant all common and other areas of such floor as shown on the
typical floor plan included in Exhibit B and any other comparable areas not
shown on such plan because of differences between the floor in question and the
typical floor upon which the typical floor plan is based, but the operation of
this Section 40.6 shall not result in any increase in the rentable area of the
Premises.
40.7 Landlord shall consent to any sublease to Tenant of, or any
assignment to Tenant of any lease covering, any space in the Building proposed
to be made by any tenant of any space in the Building, notwithstanding any
prohibition of such sublease or assignment contained in such other tenant's
lease and notwithstanding any provision of such lease entitling Landlord to
withhold consent.
40.8 Each party agrees that it shall not refer to the other party
hereto in any press release, publicity, advertisement or other promotional
material relative to the entering into of this Lease or the Building nor shall
it permit any broker representing it to so refer to the other party.
40.9 The headings of the Articles of this Lease are for convenience
only and are not to be considered in construing the Articles.
40.10 This Lease may be executed in any number of counterparts, and
each counterpart hereof shall be deemed to be an original instrument, but all
counterparts together shall constitute but one agreement.
Article 41. ICIP & LMEP Program
41.1 The Project: the Benefits. The parties agree that, in
connection with any work to be done either by Landlord or Tenant in the Premises
or in the Building in
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connection with Tenant's use and occupancy of the Premises (all such work,
including any Special Installations installed by Tenant, the "Project"), Tenant
intends to avail itself of, and Landlord shall use commercially reasonable
efforts to permit Tenant to avail itself of, the benefits and entitlements
provided by (x) Section 489-bbbb, Subdivision #5 of the Industrial and
Commercial Incentive Program (together with the regulations and requirements of
Sections 11-256 through 11-267 of the Administrative Code of the City of New
York, authorized by Title 2-D of Article 4 of the New York Real Property Tax Law
and all rules and regulations promulgated thereunder, the "ICIP Program"), and
(y) Section 25-bb(a), Subdivision 1 of the Lower Manhattan Energy Program
(together with the regulations and requirements of Article 2-I of the General
City Law and all rules and regulations promulgated thereunder, the "LMEP
Program"). Landlord agrees to use commercially reasonable efforts to comply with
all applicable provisions of the ICIP Program and the LMEP Program with the goal
that the Building will receive the benefits and entitlements provided by both
the ICIP Program (such benefits, the "ICIP Benefits") and the LMEP Program (such
benefits, the "LMEP Benefits"; the ICIP Benefits and the LMEP Benefits being
herein sometimes collectively referred to as the "ICIP/LMEP Benefits").
41.2. Requirements to Obtain Benefits. In accordance with the
requirements of the ICIP Program and the LMEP Program, Landlord and Tenant agree
as follows:
(a) Landlord and Tenant will complete and execute, and Landlord will
file, a preliminary application for the Building (the "Preliminary ICIP
Application") for the ICIP Benefits that may be available in connection with the
Project, as and within the time periods required by the ICIP Program, and prior
to the issuance of a building permit for, or the award of construction contracts
for, or the commencement of, any work comprising part of the Project (the "ICIP
Work").
(b) Landlord and Tenant will complete and execute, and Landlord will
file, a final application for the Building (the "Final ICIP Application") for
the ICIP Benefits that may be available in connection with the Project, as and
within the time periods required by the ICIP Program.
(c) Landlord will complete, execute and file an application for the
Building (the "LMEP Application") for the LMEP Benefits that may be available in
connection with the Project, as required by the LMEP Program, concurrently with
or after the filing of the Preliminary ICIP Application and prior to the
issuance of a building permit for, or the award of construction contracts for,
or the commencement of, any ICIP Work.
(d) Landlord and Tenant will submit any proofs of expenditure,
plans, reports, certificates of continuing use and other submissions that may be
required to qualify for the ICIP/LMEP Benefits that may be available in
connection with the Project (the "ICIP/LMEP Submissions") as and within the time
periods required by the applicable rules and regulations of the City of New York
and as more particularly hereinafter set forth, including without limitation any
ICIP/LMEP Submissions required to be made to the New
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York City Department of Finance ("DOF"), the New York City Department of
Business Services ("DBS") or the New York City Office of Labor Services ("OLS"),
and will attend any meetings required by DOF, DBS or OLS or any other
governmental agency charged with administration or enforcement of the ICIP
Program or LMEP Program.
(e) Landlord shall pay the filing fees imposed in connection with
the filing of the ICIP Preliminary and Final Applications and the LMEP
Application, and any filing fees which may be imposed in connection with any
ICIP/LMEP Submissions the obligation for which is imposed on Landlord, and all
costs incurred by Landlord in connection therewith.
41.3 Requirements in Respect of Contractors. (a) Landlord and Tenant
acknowledge that the ICIP Program imposes certain requirements with respect to
the hiring and training practices, among other matters, of construction
managers, contractors and subcontractors (collectively herein called
"Contractors") engaged to perform work in connection with the Project
Accordingly, in order to reduce the likelihood that actions taken by Contractors
of Landlord or Tenant will cause the Building to fail to qualify for or to lose
the ICIP/LMEP Benefits, Landlord and Tenant, to the extent required by the ICIP
Program, shall use only such Contractors that qualify under the applicable
requirements of the ICIP Program for performance of work comprising part of the
Project.
(b) (1) To the extent required by the ICIP Program, all of the
Contractors of Landlord and Tenant employed in connection with the Project shall
be contractually required by Landlord or Tenant, as the case may be, to comply
with the provisions of the ICIP Program, including without limitation the OLS
requirements applicable to construction projects benefiting from the ICIP
Program. Such compliance, as of the date hereof, includes without limitation the
following: the submission and approval of Construction Employment Report(s), and
other periodic reports, attendance at a pre-construction conference and other
conferences with representatives of the OLS and adherence to the provisions of
Article 22 of the ICIP Rules and Regulations, the provisions of New York City
Charter Chapter 13-B and the provisions of Executive Order No. 50 (1980) and the
regulations promulgated thereunder. If Landlord or Tenant is notified of any
violation of the ICIP Program by the other party's Contractors, such party shall
promptly advise the other party (the "NonCompliant Party") and send a copy of
such notice to the Non-Compliant Party. The Non-Compliant Party will use
commercially reasonable efforts to have violations by its Contractors cured by
its Contractors, and the Non-Compliant Party (x) will have the right to promptly
take all necessary actions to cure such violations, and (y) shall have the right
to contest the determination of non-compliance and/or issuance of a penalty by
the DOF and/or the OLS. At the Non-Compliant Party's request, the other party
shall cooperate with the Non-Compliant Party in any such contest, provided that
the other party shall incur no expense or liability with respect to such
cooperation, unless the Non-Compliant Party agrees to reimburse the other party
for such costs and indemnify, defend and hold harmless the other party from and
against any such liability.
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(2) At Landlord's request, to the extent required to enable Landlord
to file annual certificates of continuing use as required by the ICIP Program
and/or to continue to receive the benefits under the ICIP Program and/or the
LMEP Program, Tenant shall (i) report to Landlord the use of the Premises, the
number of workers permanently engaged in employment in the Premises and the
number of such workers who reside in New York City, (ii) provide access to the
Premises by employees and agents of any governmental agency enforcing the ICIP
Program (including, without limitation, the DOF) at all reasonable times, upon
reasonable notice when requested by Landlord (and, if requested by Tenant, such
employees and agents shall be accompanied by a Tenant representative during such
access) and (iii) enforce the contractual obligations of Tenant's Contractors to
comply with the OLS requirements.
(3) To the extent required to enable Landlord to file annual
certificates of continuing use as required by the ICIP Program and/or to
continue to receive the benefits under the ICIP Program and/or the LMEP Program,
Landlord shall use commercially reasonable efforts to require other tenants in
the Building to (i) report to Landlord the use of the premises demised to such
other tenants, the number of workers permanently engaged in employment in the
premises demised to such other tenants and the number of such workers who reside
in New York City and (ii) provide access to the premises demised to such other
tenants by employees and agents of any governmental agency enforcing the ICIP
Program (including, without limitation, the DOF) at all reasonable times, upon
reasonable notice when requested by Landlord. Landlord shall also include
provisions in any lease renewal or amendment (with an existing tenant) or in any
new lease provisions requiring the tenant to provide to Landlord such materials
and information (generally as described in subparagraph (2) above) as shall be
required in order for Landlord to comply with its requirements under the ICIP
and LMEP Programs.
41.4 Submetering. The parties acknowledge that the LMEP program
requires that all tenants in excess of 10,000 sq. ft., and all full floor
tenants regardless of size, must be submetered. Landlord represents that all of
such tenants are submetered.
41.5 Tenant's Obtaining Direct Electric Service. In the event that
Tenant shall hereafter discontinue obtaining electric energy from Landlord and
shall instead obtain electric energy directly from the public utility furnishing
electric service to the Building or any other supplier for any reason: (i)
Tenant shall at all times have the right, in its sole and absolute discretion,
to determine the source of supply of electricity provided to the Premises, even
if such a determination made by Tenant might eliminate or diminish the LMEP
Benefits available to the Building or the Premises and (ii) Landlord shall
cooperate with Tenant, at no cost or expense to Landlord that is not reimbursed
by Tenant, to transfer to Tenant, if and to the extent then permitted by the
LMEP Program or by agreement with the City of New York, Tenant's Proportionate
Share of the LMEP Benefits then being received by the Building.
Article 42. Tenant's Shafts and Other Areas
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42.1 General. Landlord hereby grants to Tenant the right to use and
install property (including pipes, ducts, risers, conduits and associated
improvements, equipment and facilities) in
(a) the spaces cross-hatched on the plans attached
hereto as Exhibits FF, G6, HH, II and JJ, and
(b) subject to the provisions of Section 42.9 below, the
space not cross-hatched but marked "existing kitchen exhaust
flues" on the plan attached hereto as Exhibit II, including
the space between the existing duct and the core wall (the
"Existing Kitchen Exhaust Space") adjacent to the space
cross-hatched and marked "existing kitchen exhaust flues" on
the plan attached hereto as Exhibit II,
in each case, from the lowest level of the Building to the roof of the Building
(such spaces being herein called "Tenant's Shafts"), and the right to enclose
Tenant's Shafts wherever not now enclosed, the right to core or remove floor
slabs as required and the right to maintain, repair, replace, modify, alter and
remove such installations and enclosures, and the right to enter each floor of
the Building in order to access such spaces. The labels of and notations on the
plans attached hereto as Exhibits FF, GG, HH, II and JJ shall not limit the
types of installations for which Tenant may use any of Tenant's Shafts. Tenant's
right to install property in Tenant's Shafts shall be subject to compliance by
Tenant with the provisions of Article 6.
Landlord represents to Tenant that
(a) attached hereto as Exhibit AAA are the provisions of each
lease of space in the Building pertaining to Landlord's right to
enter the premises demised thereby (the "Entry Provisions");
(b) attached hereto as Exhibit BBB are the provisions of each
lease of space in the Building pertaining to Landlord's rights to
make changes or perform work (including the erection of pipes, ducts
and conduits) in the premises demised thereby (the "Pipe Erection
and Other Work Provisions");
(c) no part of the Cartlift Room (as hereinafter defined) on
any floor is leased to any tenant except on floors 36, 35, 34, 33,
32, 28, 27, 26, 21, 19 and 18 (such floors being herein called the
"Cartlift Room Leased Floors" and the applicable leases being herein
called the "Cartlift Room Leases"); and
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(d) no part of the freight elevator lobby is leased to any
tenant except on floors 36, 35, 34, 33, 32, 27, 18 and 17 (such
floors being herein called the "Freight Elevator Lobby Leased
Floors" and the applicable leases being herein called the "Freight
Elevator Lobby Leases").
42.2 CNA Closet. Tenant's right to use and install property in the
former CNA communications closet shown crosshatched on Exhibit FF (such closet
being herein called the "CNA Closet") shall be exclusive (and Tenant shall have
the right to remove and dispose of without accountability or liability to
Landlord or any other person any installations in the CNA Closet) except that:
(i) unless and until Tenant shall have relocated the
base building fire alarm riser and BMS equipment (the "Base
Building Closet Installations") from the CNA Closet, Tenant's
right to use and install property in the CNA Closet shall be
subject to the continued presence in the CNA Closet of the
Base Building Closet Installations; and
(ii) until the Last Delivery Date, Tenant's right to use
and install property in the CNA Closet shall be subject to the
continued presence in the CNA Closet of installations serving
Landlord as occupant of the Building (the "CNA Closet
Installations").
Tenant shall have the right to
(i) rearrange within the CNA Closet any or all of the
Base Building Closet Installations, or
(ii) relocate any or all of the Base Building Closet
Installations from the CNA Closet to either of the other
communications closets in the Building and to rearrange within
such other closets the existing installations in such other
closets in order to accommodate such relocation;
provided, however, that Tenant shall not, in connection with such rearrangement
or relocation, adversely affect the operation of the installations being
rearranged or relocated.
Until the Last Delivery Date, Tenant shall share use of, and access
to, the CNA Closet with Landlord as occupant of the Building and Landlord and
Tenant agree to cooperate and coordinate their use of and access to the CNA
Closet. During the period of such shared use and access, Tenant shall have the
right
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(i) to rearrange within the CNA Closet any or all of the
installations in the CNA Closet serving Landlord as occupant
of the Building, or
(ii) relocate any or all of the installations in the CNA
Closet serving Landlord as occupant of the Building to either
of the other communications closets in the Building and to
rearrange within such other closets the existing installations
in such other closets in order to accommodate such relocation;
provided, however, that Tenant shall not, in connection with such rearrangement
or relocation, adversely affect the operation of the installations being
rearranged or relocated.
Tenant shall have the right to access and enter the CNA Closet
through the door thereto on each floor of the Building; provided, however, that
Tenant's right to enter floors 39, 38, 36, 35, 34, 33, 32, 27, 25, 24, 23, 18
and 17 (the "Single Tenant Floors") for such purpose shall be subject to
compliance with the applicable Entry Provisions.
Tenant shall have the right to control access and entry to the CNA
Closet (and, in that connection, to install and/or change locks and/or
monitoring devices); provided, however, that (a) unless and until Tenant shall
have relocated the Base Building Closet Installations, Tenant shall, upon
Landlord's request, provide Landlord with reasonable access and entry to the CNA
Closet for purposes related to the Base Building Closet Installations, and (b)
until the Last Delivery Date Tenant shall, upon Landlord's request, provide
Landlord with reasonable access and entry to the CNA Closet for purposes related
to the installations therein serving Landlord as occupant of the Building.
42.3 Freight Elevator Lobby Space. Tenant's right to use and install
property in the freight elevator lobby space shown crosshatched on Exhibit FF
(such space being herein called the "Freight Elevator Lobby Space") shall be
exclusive (and Tenant shall have the right to remove and dispose of without
accountability or liability to Landlord or any other person any equipment or
installations in the Freight Elevator Lobby Space) except that Tenant's right to
use and install property in the Freight Elevator Lobby Space on any Freight
Elevator Lobby Leased Floor shall, if and for so long as such Freight Elevator
Lobby Space shall be leased under such Freight Elevator Lobby Lease (unless the
tenant under the Freight Elevator Lobby Lease shall otherwise agree), be limited
to Landlord's rights under the Pipe Erection and Other Work Provisions and the
Entry Provisions of such Freight Elevator Lobby Lease.
Landlord shall cooperate with Tenant's efforts to obtain, and shall
accept without charge, (i) the surrender of the Freight Elevator Lobby Space or
the freight elevator lobby by the tenant under any Freight Elevator Lobby Lease,
or (ii) any other agreement with the tenant under any Freight Elevator Lobby
Lease pursuant to which such tenant's rights in and to the Freight Elevator
Lobby Space or the freight elevator lobby are restricted or
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reduced or Tenant's rights in and to the Freight Elevator Lobby Space are
expanded or increased.
Landlord shall not hereafter lease (including by way of renewal,
extension or expansion of any lease) the Freight Elevator Lobby Space or the
freight elevator lobby on any floor, and shall not modify, expand, amend, renew
or extend any Freight Elevator Lobby Lease unless such modification, expansion,
amendment, renewal or extension provides for the surrender of the Freight
Elevator Lobby Space; provided, however, that this paragraph shall not be deemed
to prohibit the exercise by any tenant of any renewal or extension option now
contained in such tenant's lease.
Tenant shall have the right to access and enter the Freight Elevator
Lobby Space from the freight elevator lobby on each floor of the Building;
provided, however, that Tenant's right to enter the Single Tenant Floors and the
Freight Elevator Lobby Leased Floors for such purposes shall be subject to
compliance with the applicable Entry Provisions. Tenant shall have the right to
install in the wall facing the freight elevator lobby a door to the Freight
Elevator Lobby Space on each floor of the Building extending for substantially
all of the height and width of the Freight Elevator Lobby Space (or smaller if
Tenant shall so elect).
Tenant shall have the right to control access and entry to the
Freight Elevator Lobby Space (and, in that connection, to install and/or change
locks and/or monitor devices).
42.4 Cartlift Room. Tenant's right to use and install property in
the cartlift room (excluding the shaft now used for the cartlift conveyor
referred to in Section 41.4) shown crosshatched on Exhibit GG (such room,
excluding such shaft, being herein called the "Cartlift Room") shall be
exclusive (and Tenant shall have the right to remove and dispose of without
accountability or liability to Landlord or any other person any equipment or
installations in the Cartlift Room) except that Tenant's right to use and
install property in the Cartlift Room on any Cartlift Room Leased Floor shall,
if and for so long as such Cartlift Room shall be leased under such Cartlift
Room Lease (unless the tenant under the Cartlift Room Lease shall otherwise
agree), be limited to Landlord's rights under the Pipe Erection and Other Work
Provisions and the Entry Provisions of such Cartlift Room Lease.
Landlord shall cooperate with Tenant's efforts to obtain, and shall
accept without charge, (i) the surrender of any Cartlift Room by the tenant
under any Cartlift Room Lease, or (ii) any other agreement with the tenant under
any Cartlift Room Lease pursuant to which such tenant's rights in and to the
Cartlift Room are restricted or reduced or Tenant's rights in and to the
Cartlift Room are expanded or increased.
Landlord shall not hereafter lease (including by way of renewal,
extension or expansion of any lease) the Cartlift Room on any floor, and shall
not modify, expand, amend, renew or extend any Cartlift Room Lease unless such
modification, expansion, amendment,
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<PAGE> 133
renewal or extension provides for the surrender of the Cartlift Room; provided,
however, that this paragraph shall not be deemed to prohibit the exercise by any
tenant of any renewal or extension option now contained in such tenant's lease.
Tenant shall have the right to access and enter the Cartlift Room
from the freight elevator lobby on each floor of the Building; provided,
however, that Tenant's right to enter the Single Tenant Floors and the Cartlift
Room Leased Floors for such purposes shall be subject to compliance with the
applicable Entry Provisions.
Tenant shall have the right to control access and entry to the
Cartlift Room (and, in that connection, to install and/or change locks and/or
monitoring devices); provided, however, that Tenant shall not have the right to
control access or entry to the Cartlift Room on any Cartlift Room Leased Floor
so long as such Cartlift Room Lease shall remain in effect and cover the
Cartlift Room, unless the tenant under the Cartlift Room Lease shall otherwise
agree.
42.5 Cartlift Conveyor Shaft. Tenant's right to use and install
property in the shaft now used for the cartlift conveyor located within the
Cartlift Room shown crosshatched on Exhibit GG (such shaft being herein called
the "Cartlift Conveyor Shaft") shall be exclusive (and Tenant shall have the
right to remove and dispose of without accountability or liability to Landlord
or any other person any equipment or installations in the Cartlift Conveyor
Shaft).
Tenant shall have the right to access and enter the Cartlift
Conveyor Shaft from the Cartlift Room on each floor of the Building; provided,
however, that Tenant's right to enter the Single Tenant Floors and the Cartlift
Room Leased Floors for such purpose shall be subject to compliance with the
applicable Entry Provisions.
Tenant shall have the right to control access and entry to the
Cartlift Conveyor Shaft (and, in that connection, to install and/or change locks
and/or monitoring devices).
42.6 Fuel Oil Riser Shaft. Tenant's right to use and install
property in the shafts shown crosshatched on Exhibit HH (such shafts being
herein called the "Fuel Oil Riser Shaft") shall be exclusive (and Tenant shall
have the right to remove and dispose of without accountability or liability to
Landlord or any other person any equipment or installations in the Fuel Oil
Riser Shaft) except that Tenant's right to use and install property in the Fuel
Oil Riser Shaft shall be subject to the continued presence of the base building
fuel oil risers.
Tenant shall have the right to access and enter the Fuel Oil Riser
Shaft from the Cartlift Room on each floor of the Building; provided, however,
that Tenant's right to enter the Single Tenant Floors and the Cartlift Room
Leased Floors for such purpose shall be subject to compliance with the
applicable Entry Provisions.
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<PAGE> 134
Tenant shall have the right to control access and entry to the Fuel
Oil Riser Shaft (and, in that connection, to install and/or change locks and/or
monitor devices); provided, however, that Tenant shall, union Landlord's
request, provide Landlord with reasonable access and entry to the Fuel Oil Riser
Shaft for purposes related to the base building fuel oil risers.
42.7 Pine Space. Tenant's right to use and install property in the
shaft adjacent to SE#2 shown crosshatched on Exhibit II (such shaft being herein
called the "Pipe Space") shall be exclusive (and Tenant shall have the right to
remove and dispose of without accountability or liability to Landlord or any
other person any equipment or installations in the Pipe Space) except that
unless and until Tenant shall have relocated the base building pipes (the "Base
Building Pipes") from the Pipe Space, Tenant's right to use and install property
in the Pipe Space shall be subject to the continued presence of the Base
Building Pipes.
Tenant shall have the right to
(i) rearrange within the Pipe Space any or all of the
Base Building Pipes, or
(ii) relocate any or all of the Base Building Pipes from
the Pipe Space either to (a) any other location within
Tenant's Shafts or (b) subject to Landlord's approval not to
be unreasonably withheld, any other location in the Building's
core.
Tenant shall have the right to access and enter the Pipe Space
through either (as Tenant shall so elect) the long wall (opposite SE#2) or the
short wall (adjacent to the freight elevator lobby); provided, however, that
Tenant's right to enter the Single Tenant Floors and the Freight Elevator Lobby
Leased Floors for such purpose shall be subject to compliance with the
applicable Entry Provisions. Tenant shall have the right to install in either
(as Tenant shall so elect) the long wall (opposite SE#2) or the short wall
(adjacent to the freight elevator lobby) a door to the Pipe Space on each floor
of the Building extending for substantially all of the height and width of the
Pipe Space (or smaller if Tenant shall so elect).
Tenant shall have the right to control access and entry to the Pipe
Space (and, in that connection, to install and/or change locks and/or monitoring
devices); provided, however, that unless and until Tenant shall have relocated
the Base Building Pipes, Tenant shall, upon Landlord's request, provide
Landlord with reasonable access and entry to the Pipe Space for purposes related
to the Base Building Pipes.
42.8 Unused Exhaust Space. Tenant's right to use and install
property in the shaft adjacent to the Cartlift Room shown crosshatched on
Exhibit II (such shaft being herein called the "Unused Exhaust Space") shall be
exclusive (and Tenant shall have the
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<PAGE> 135
right to remove and dispose of without accountability or liability to Landlord
or any other person any equipment or installations in the Unused Exhaust Shaft).
Tenant shall have the right to access and enter the Unused Exhaust
Shaft through (as Tenant shall so elect) any of the walls thereto (except for
the wall bounding the Existing Kitchen Exhaust Space unless Tenant shall have
the right to use the same pursuant to Section 42.9); provided, however, that
Tenant's right to enter the Single Tenant Floors, the Cartlift Room Leased
Floors and the Freight Elevator Lobby Leased Floors for such purpose shall be
subject to compliance with the applicable Entry Provisions. Tenant shall have
the right to install in any such wall (as Tenant shall so elect) (except as
aforesaid) a door to the Unused Exhaust Space on each floor of the Building
extending for substantially all of the height and width of the Unused Exhaust
Shaft (or smaller if Tenant shall so elect).
Tenant shall have the right to control access and entry to the
Unused Exhaust Space (and, in that connection, to install and/or change locks
and/or monitoring devices).
42.9 Existing Kitchen Exhaust Space. Tenant's right to use and
install property in the Existing Kitchen Exhaust Space shall not become
effective unless and until Tenant shall have either (i) relocated the existing
kitchen exhaust from the Existing Kitchen Exhaust Space to any other location
within Tenant's Shafts or otherwise in the Building's core, or (ii) ceased
operation of the kitchen facilities requiring such exhaust. Tenant shall have
right to relocate the existing kitchen exhaust from the Existing Kitchen Exhaust
Space to any other location within Tenant's Shafts or, subject to Landlord's
approval not to be unreasonably withheld, any other location in the Building's
core; provided, however, that Tenant shall not effect such relocation into the
Cartlift Room unless and until, with respect to each Cartlift Room Leased Floor,
either the tenant under the Cartlift Room Lease shall have consented thereto or
the Cartlift Room Lease shall have expired or been terminated.
From and after the effectiveness of Tenant's right to use and
install property in the Existing Kitchen Exhaust Space:
Tenant's right to use and install property in the Existing
Kitchen Exhaust Space shall be exclusive (and Tenant shall have the
right to remove and dispose of without accountability or liability
to Landlord or any other person any equipment or installations in
the Unused Exhaust Shaft).
Tenant shall have the right to access and enter the Existing
Kitchen Exhaust Shaft through either (as Tenant shall so elect) any
of the walls thereto; provided, however, that Tenant's right to
enter the Single Tenant Floors, the Cartlift Room Lease Floors and
the Freight Elevator Lobby Leased Floors for such purpose shall be
subject to compliance with the applicable Entry Provisions. Landlord
grants to Tenant the right to install in any such wall (as Tenant
shall so elect) a door to the Existing Kitchen Exhaust Space on each
floor of the Building extending for substantially all
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<PAGE> 136
of the height and width of the Existing Kitchen Exhaust Space (or
smaller if Tenant shall so elect).
Tenant shall have the right to control access and entry to the
Existing Kitchen Exhaust Space (and, in that connection, to install
and/or change locks and/or monitoring devices).
42.10 Fire Stair Riser Space. Tenant's right to use and install
property in the shafts shown on Exhibit HH (such shafts being herein called the
"Fire Stair Riser Space") shall be exclusive (and Tenant shall have the right to
remove and dispose of without accountability or liability to Landlord or any
other person any equipment or installations in the Fire Stair Riser Shaft).
Tenant shall have the right to access and enter the Fire Stair Riser
Space through the fire stairs.
Tenant shall have the right to control access and entry to the Fire
Stair Riser Space (and, in that connection, to install and/or change locks
and/or monitoring devices).
42.11 Relocations by Tenant. Whenever pursuant to the foregoing
provisions of this Article 42, Tenant is authorized to make any relocation
Tenant shall have the right to enter the floors of the Building for such
purpose, subject to Tenant's compliance with the applicable Entry Provisions.
42.12 Other Provisions. Landlord represents to Tenant that Landlord
has the right, power and authority to grant to Tenant the rights provided for
above in this Article 42, subject to compliance by Tenant with the applicable
Entry Provisions and Pipe Erection and Other Work Provisions as provided above.
Landlord shall, within two (2) business days of Tenant's request,
give such notices and take such other actions as Tenant shall from time to time
request in order to confirm, perfect and provided for Tenant's exercise and
enjoyment of the rights provided for above in this Article 42.
Without limiting the foregoing, if Tenant shall so request,
Landlord, within two (2) business days of Tenant's request shall exercise the
rights reserved to Landlord under the Entry Provisions and/or the Pipe Erection
and Other Work Provisions as Tenant shall from time to time request, including,
if Tenant shall so request, retaining any contractors designated by Tenant to
perform any work designated by Tenant, at Tenant's cost and expense (subject to
compliance with the provisions of this Article and Article 6).
Landlord shall be entitled to a key to Tenant's Shafts for emergency
access thereto.
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<PAGE> 137
If due to limitations in the Entry Provisions or the Pipe Entry or
Other Work Provisions or other reasons Tenant's rights under this Article are
insufficient for Tenant's needs, Landlord shall cooperate with Tenant's in
identifying and providing additional riser space for Tenant, in the manner
most-cost effective to Tenant.
42.13 Telecommunications Points of Entry. Landlord hereby grants to
Tenant the right (i) to create, in the locations shown on Exhibit EE, two (2)
new communication points of entry in the lower level of the Building, and (ii)
to install conduits in such lower level from such points of entry to Tenant's
Shafts, and the right to maintain, repair, replace, modify, alter and remove
such installations, and the right to enter the basement and other areas of the
Building in order to access such installations.
42.14 Tenant's Fuel Tank. Landlord hereby grants to Tenant the right
(i) to install a fuel tank or tanks (up to the maximum size permitted by
applicable law) and associated improvements, equipment and facilities in any
part of the basement of the Building included in the Premises, and (ii) to
install supply and return pipes and conduits from such tank to Tenant's Shafts
and feed and vent pipes from such tank to the street or other fuel supply point,
and the right to maintain, repair, replace, modify, alter and remove such
installations, and the right to enter the basement and other areas of the
Building in order to access such installations. Whether or not Tenant operates
or continues to operate Tenant's Generator Plant, Tenant shall keep any fuel
tank installed by it in such condition as shall be required to prevent damage or
injury to the Building, subject nonetheless to the release provisions of Section
22.6.
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<PAGE> 138
IN WITNESS WHEREOF Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
LANDLORD:
TCC ACQUISITION CORP.,
AS AGENT
By: /s/ [signature]
----------------------------------------
Name: [name]
Title: Group Vice President
TENANT:
THE GOLDMAN SACHS GROUP, L.P.
By: /s/ Edward F. Markiewicz
----------------------------------------
Name: Edward F. Markiewicz
Title: Attorney in Fact
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<PAGE> 139
Exhibit A
Landlord
--------
BOSTON OLD COLONY INSURANCE COMPANY
THE BUCKEYE UNION INSURANCE COMPANY
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J.
THE CONTINENTAL INSURANCE COMPANY
THE CONTINENTAL INSURANCE COMPANY OF NEWARK, NEW JERSEY
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
THE GLENS FALLS INSURANCE COMPANY
KANSAS CITY FIRE AND MARINE INSURANCE COMPANY
THE MAYFLOWER INSURANCE COMPANY, LTD.
NATIONAL-BEN FRANKLIN INSURANCE COMPANY OF ILLINOIS
NIAGARA FIRE INSURANCE COMPANY
<PAGE> 140
Exhibit C
Premises
--------
<PAGE> 141
EXHIBIT "C"
<TABLE>
<CAPTION>
Scheduled
Portion Floor Area RSF Delivery Date
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Part 41st Floor 22,233 1/1/99
Entire 40th Floor 28,821 11/1/98
Entire 37th Floor 29,040 1/1/99
Entire 31st Floor 29,011 10/1/98
Entire 30th Floor 29.011 10/1/98
Entire 29th Floor 27,846 {15,616} Immediate
{1,208} 9/1/98
"B" {11,022} 1/1/99
Part 28th Floor "D" 6,212 9/1/98
"C" 1,208 Immediate
Part 26th Floor "C" 8,809 3/1/99
"A" 1,219 Immediate
Entire 22nd Floor 27,725 9/1/98 (1)
Part 21st Floor "E" 4,684 7/1/98 (1)
"B" 3,035 1/1/99
"D" 355 Immediate
Part 21St Floor "A" 19,368 7/1/00
"C" 338 7/1/00
Entire 20th Floor 27,780 2/1/99
Part 19th Floor "A" 17,512 {17,094} Immediate
"D" {418} 1/1/99
Entire 16th Floor 27,169 3/1/99
Entire 6-15th Floor 26,959 ea(2) 3/1/99 (3)
Entire 4th Floor "A" "B" 15,437 3/1/99
"C" 10,721 1/1199
Entire 3rd Floor 27,078 1/1/99
Part Mezzanine 8,111 1/1/99
Part Basement "I" 10,751 3/1/99
Part Basement "G" 1,406 10/1/98
Part Basement "M" 1,394 Immediate
Basement "K" 10,028 1/1/99
"J" 517 1/1/99
- -----------------------------------------------------------------------------------
TOTAL 666,409 Rentable sq. ft.
</TABLE>
(1) Subject to lease termination/buyout
(2) The RSF is for each of floors 6-15
(3) The Scheduled Delivery Date for floors 10 and 12 is Immediate
<PAGE> 142
Exhibit I
Building Rules and Regulations
1. The rights of Tenant in the sidewalks, entrances, corridors,
elevators and escalators of the Building are limited to ingress in and egress
from the Premises for Tenant and its employees, licensees and invitees and
Tenant shall not use or permit the use of said sidewalks, entrances, corridors,
elevators or escalators for any other purpose. Tenant shall not invite to the
Premises or permit the visit thereto by persons in such numbers or under such
conditions as to interfere with the use and enjoyment by others of the
sidewalks, entrances, corridors, elevators, escalators or any other facilities
of the Building. Fire exits and stairways are for emergency use only and they
shall not be used for any other purpose by Tenant, its employees, licensees or
invitees. Landlord shall have the right to regulate the use of and operate the
public portions of the Building as well as portions furnished for the common use
of Tenants in such manner as it deems best for the benefit of Tenants generally.
2. Outside of ordinary business hours, Landlord may refuse admission
to the Building to any person not having a pass issued or approved by Landlord
or not accompanied by a person presenting such a pass or not properly identified
and may require all persons admitted to or leaving the Building outside of
ordinary business hours to register. Tenant shall be responsible for all persons
for whom a pass shall be issued or approved at the request of Tenant and shall
be liable for all acts of such persons. Anything to the contrary
notwithstanding, any person whose presence in the Building at any time shall, in
the judgment of Landlord be prejudicial to the safety, character, reputation and
interests of the Building or of its tenants may be denied access to the Building
or may be ejected therefrom. In case of emergency, invasion, public excitement
or other commotion Landlord may prohibit all access to the Building during the
continuance of the same, by closing doors or otherwise, for the safety of
Tenants or protection of property in the Building. Landlord may require any
person leaving the Building with any package or other object to exhibit a pass
from the Tenant from whose Premises the package or object is being removed, but
the establishment or enforcement of such requirement shall not impose any
responsibility on Landlord for the protection of Tenant against the removal of
property from the Premises of Tenant.
3. Except in the case of a shop, no lettering, sign, advertisement,
trademark, emblem, notice or object shall be displayed in or on the windows or
doors, or on the outside of the Premises, or at any point inside the Premises
where the same might be visible outside the Premises (other than from the
elevators on the floors of the Premises) except that, on any divided floor, the
name and/or symbol of Tenant may be displayed on or adjacent to the entrance
door of the Premises and/or in or so as to be visible from the common areas on
such floor, subject to the approval of Landlord as to the locations, size, color
and style of such display (which approval shall not be unreasonably withheld).
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<PAGE> 143
4. No awnings or other projections of any kind over or around the
outside of the windows or entrances of the Premises shall be installed by Tenant
and only such window blinds and shades as are approved or supplied by Landlord
shall be used in the Premises.
5. Tenant's right to install safes and other objects of excessive
weight in the Premises shall be conditioned upon Tenant's either (i)
distributing the concentrated weight of the safe or other heavy object or (ii)
reinforcing the floor, subject to prior notice to and consent of Landlord, in
either case (which consent shall not unreasonably be withheld). No safe or other
object whose weight exceeds the lawful load for the area upon which it would
stand shall be brought into or kept upon the Premises other than in accordance
with the preceding sentence. If it is necessary to distribute the concentrated
weight of any safe or heavy object or reinforce the floor, the work involved in
such work shall be done by Tenant at its expense in such manner as Landlord
shall approve (such approval not to be unreasonably withheld). No machines,
machinery or electrical or electronic equipment or appliances of any kind shall
be placed or operated so as to disturb other tenants.
6. No noise, including the playing of any musical instrument, radio
or television which, in the judgment of Landlord, might disturb other tenants in
the Building shall be made or permitted by Tenant. No animal shall be brought on
the Premises, except seeing eye dogs. No dangerous, inflammable, combustible or
explosive object or material shall be brought into or kept in the Building by
Tenant or with the permission of Tenant, except as permitted by law and the
insurance companies insuring the Building or the property therein or except as
is necessary or appropriate for or in connection with Tenant's permitted
activities in the Building. Any cuspidors or containers or receptacles used as
such in the Premises or for garbage or similar refuse shall be emptied, cared
for and cleaned by Tenant.
7. All entrance doors in the Premises shall be kept locked by Tenant
when the Premises are not in use.
2
<PAGE> 1
EXHIBIT 10.8
DATED 25TH MARCH 1998
BRITEL FUND TRUSTEES LIMITED
and
GOLDMAN SACHS INTERNATIONAL
and
THE GOLDMAN SACHS GROUP, L.P.
and
ENGLISH PROPERTY CORPORATION plc
and
MEPC plc
AGREEMENT
relating to
One Carter Lane
London EC4
<PAGE> 2
THIS AGREEMENT made the Twenty Fifth day of March 1998
BETWEEN:
(1) BRITEL FUND TRUSTEES LIMITED (Company number 1687513) whose registered
office is at Standon House 21 Mansell Street London E1 8AA (the "LANDLORD");
(2) ENGLISH PROPERTY CORPORATION plc (Company number 640408) whose registered
office is at 12 St James's Square London SW1Y 4LB (the "DEVELOPER");
(3) GOLDMAN SACHS INTERNATIONAL (Company number 2263951) whose registered office
is at Peterborough Court 133 Fleet Street London EC4A 2BB (the "TENANT");
(4) THE GOLDMAN SACHS GROUP, L.P. whose office is at 85 Broad Street New York
New York 10004 (the "GUARANTOR"); and
(5) MEPC plc (Company number 420575) whose registered office is at 12 St
James's Square London SW1Y 4LB (the "DEVELOPER'S GUARANTOR").
WITNESSES as follows:
1 DEFINITIONS
In this Agreement unless the context otherwise requires:
CATEGORY A SPECIFICATION means the specification annexed to this Agreement
at Appendix A;
COMPLETION DATE means the date which is ten working days after the SL
Completion Date;
CONSTRUCTION MANAGER means Mace Limited of 7 Plough Yard London EC4;
COLLATERAL WARRANTIES means deeds of warranty in the form annexed to this
Agreement at Appendix B;
DEFECT means:-
(i) items or matters set out or referred to in the Snagging List;
(ii) omissions defects shrinkage or other faults arising in the Works
within twelve months of Practical Completion which are not in
accordance with the Works Specification or this Agreement;
(iii) any other defect attributable to defective design workmanship testing
investigations construction or supervision of the Works or the
materials used therein having been defective inadequate unsuitable or
incomplete or otherwise not in accordance with the Works Specification
or this Agreement;
(iv) any latent or inherent defect attributable to a breach of Clause
3.2.6;
DEVELOPMENT AGREEMENT means an agreement dated 31 July 1996 and made between
(1) the Landlord (2) the Developer and (3) the Developer's Guarantor in
respect of the Premises;
DEVELOPMENT OBLIGATIONS means the obligations on the part of the Developer
contained or referred to in Clauses 3, 4, 5, 6, and 7 (except 7.9 and 7.11)
of the Development Agreement a copy of which clauses together with the
relevant definitions, Clause 23 and Schedules 1, 2, 3, 6 and 7 are annexed
to this Agreement at Appendix C provided that as a result of modifications
and alterations during the course of the project the Approved Plans and
Specifications referred to in definition 1.1.2 have become the Works
Specifications.
FIT OUT AGREEMENT means an agreement of even date between the parties to
this Agreement and Goldman Sachs Property Management relating to the
carrying out of the Fit Out Works;
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<PAGE> 3
FIT OUT CATEGORY A WORKS means the works of completing the installation
connection and commissioning of services to and the initial fitting out of the
Premises to the extent necessary to render the Premises suitable and ready for
occupation for the use permitted by the Lease and shall comprise the Category A
Specification or such other works in substitution therefor as approved by the
Landlord pursuant to this Agreement or the Fit Out Agreement or the Licence for
Fit Out Works.
FIT OUT CATEGORY B WORKS means the works which are undertaken for the purposes
of fitting out the Premises and which are approved in accordance with the
provisions of this Agreement or the Fit out Agreement or the Licence for Fit Out
Works.
FIT OUT PLANS means the drawings and specifications annexed to this Agreement at
Appendix D setting out in outline the Tenant's proposed fitting out works.
FIT OUT WORKS means collectively the Fit Out Category A Works and the Fit Out
Category B Works or any of them as the context so requires.
LEASE means the lease of the Premises to be granted in accordance with this
Agreement in the form annexed to this Agreement at Appendix E.
LICENCE FOR FIT OUT WORKS means a licence in the form annexed to this Agreement
at Appendix F to be entered into pursuant to Clause 4.4.
MILLENNIUM COMPLIANT means the ability of plant machinery and equipment and
related computer systems and/or related hardware and/or software to provide all
the following functions:
(a) handle date information before, during and after January 1, 2000,
including, but not limited to, accepting date input, providing date
output, handling leap years after 1999 and performing calculations on
dates or portions of dates;
(b) function accurately and without interruption before, during and after
January 1, 2000, without any change in operations associated with the
advent of the year 2000 and the new century;
(c) respond to two-digit year input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
(d) process two-digit year date information in ways that are similarly
unambiguous as to century; and
(e) store and provide output of date information in ways that are similarly
unambiguous as to century.
PRACTICAL COMPLETION DATE means 12 December 1997.
PREMISES means One Carter Lane London EC4 more particularly described in the
Lease as the Premises;
PROFESSIONAL APPOINTMENTS means the appointments of the Professional Team;
PROFESSIONAL TEAM means the professional advisers appointed in connection with
the Works and listed in Part 2 of the Schedule;
PROHIBITED MATERIALS means such materials as were required by the terms of the
Trade Contracts or the appointments of the Professional Team not to be used in
the Works save as mentioned in a letter from Rolfe Judd to the Developer a copy
of which is annexed to this Agreement at Appendix G
2
<PAGE> 4
RENT COMMENCEMENT DATE means the date 15 months after 19 March 1998;
SITE means the land on which the Works have been constructed;
SL COMPLETION DATE means the date of completion of the Superior Lease as
defined in the Lease;
SNAGGING LIST means the list of omissions imperfections defects or other
faults annexed to this Agreement at Appendix H;
TENANT'S FIT OUT WORKS means the works defined as such in the Fit Out
Agreement;
TRADE CONTRACTS means the contracts with the Trade Contractors;
TRADE CONTRACTORS means the trade contractors appointed in connection with
the Works and listed in Part 1 of the Schedule;
VAT means Value Added Tax and any similar tax substituted for it or levied
in addition to it;
WORKS means the works which have been carried out by the Developer to
construct the Premises;
WORKS SPECIFICATION means the specifications and drawings (as listed)
describing the Works all as annexed to this Agreement at Appendix I and
provided by the Developer to the Tenant pursuant to Clause 3.5.
2 INTERPRETATION
In this Agreement unless the context otherwise requires:
2.1 Any reference to a statute includes any modification, extension or
re-enactment of it and any orders, regulations, directions, schemes and
rules made under it;
2.2 Any covenant by the Tenant not to do any act or thing includes an
obligation not to permit or suffer such act or thing to be done;
2.3 The clause headings in this Agreement are for ease of reference only;
2.4 The TENANT means the person so named in the Particulars and includes its
successors in title;
2.5 References to Clauses Schedules or Appendices are to clauses schedules or
appendices of this Agreement.
3 THE WORKS
3.1 DELIVERY OF COLLATERAL WARRANTIES AND CERTIFICATES
3.1.1 The Developer shall within three months of the date of this Agreement
procure the delivery of Collateral Warranties from the Trade
Contractors and Professional Team.
3.1.2 The Developer shall with the delivery of the Collateral Warranties
referred to in Clause 3.1.1 deliver to the Tenant certificates from
each member of the Professional Team addressed to the Tenant
certifying that the Works were constructed without Prohibited
Materials.
3.2 DEVELOPER'S WARRANTIES
The Developer hereby warrants to the Tenant that:-
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<PAGE> 5
3.2.1 the ground and soil conditions of the Site were appropriately
investigated and tested and prior to the Commencement of the Works
the Site was thoroughly prepared and made ready for the carrying out
of the Works;
3.2.2 the Developer is not aware of any ground or soil substance or
condition which might have prejudiced the Works;
3.2.3 the Works were constructed without Prohibited Materials provided
that the Tenant shall rely on any certificate produced by the
Developer pursuant to Clause 3.1.2 in relation to that element of
the Works the subject of such certificate instead of relying on the
Developer's warranty contained in this Clause 3.2.2;
3.2.4 so far as the Developer is aware having made due and careful enquiry
all plant and machinery forming part of the Works is and will remain
Millennium Compliant;
3.2.5 the Developer has performed and will continue to perform its duties
to the Landlord under the Development Obligations;
3.2.6 the Works set out in the Works Specification were designed in
accordance with the standards of design practice required by the
appointments of the Professional Team and the Trade Contracts.
3.3 REMEDYING OF DEFECTS
3.3.1 The Developer shall free of cost to the Tenant as soon as reasonably
practicable (or immediately in case of emergency) and using its best
endeavours to complete the same by 31 March 1998 remedy or cause to
be remedied the items or matters set out or referred to in the
Snagging List.
3.3.2 Without prejudice to the foregoing the Developer shall procure the
preparation of a schedule as provided for under the relevant Trade
Contracts listing any omissions defects shrinkages or other faults
appearing in the Works or any part thereof within 12 months after
the Practical Completion Date and promptly supply a copy thereof to
the Tenant and the Tenant shall procure that within seven days after
the expiry of the relevant defects period it shall provide the
Developer with a list of any omissions defects shrinkages or other
faults which it has observed and the Developer shall free of cost to
the Tenant as soon as reasonably practicable make good or procure to
be made good all such omissions defects shrinkages or other faults.
3.3.3 Without prejudice to any other rights or remedies of the Tenant
under this Agreement if any Defect manifests itself and is notified
in writing by the Tenant to the Developer by the third anniversary
of the Practical Completion Date then the Developer and the Tenant
shall agree a method and programme for carrying out remedial work in
accordance with Clause 3.3 and the Developer shall free of cost to
the Tenant procure the carrying out of such works as may be
necessary to remedy such Defect and any physical damage thereby
caused in accordance with such method and programme.
3.3.4 If any remedial works referred to in this Clause 3.3 are in the
reasonable opinion of the Tenant urgently required having regard to
the programme for the Tenant's Fit Out Works or the Tenant's
occupation of the Premises then the Tenant and the Developer shall
promptly consult as to the most expeditious means of remedying the
same and the Developer shall take such reasonable steps as are
within its control to make good or procure the same to be made good
where appropriate in the case of emergency as urgently as possible
provided that notwithstanding the foregoing the Tenant may, by using
the Trade Contractors and with the consent of the Landlord and the
Developer (which consents shall not be respectively unreasonably
withheld), carry out itself such
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<PAGE> 6
of the remedial works which the Developer is liable to procure under
this Clause 3.3.4 where entry by the Developer is likely to
interfere materially with the Fit-Out Works subject to the Tenant
indemnifying the Developer and the Landlord in respect of such
carrying out against any losses or claims which may arise in
relation to a breach of the warranties given by any of the Trade
Contractors or against any defences set offs or counterclaims which
the Trade Contractors may have in connection with such remedial
works.
3.3.5 The provisions of this Clause 3.3 shall apply mutatis mutandis in
respect of the Additional Works (as defined in the Development
Obligations) and without limitation the Developer shall carry out
such maintenance or other works as may be required in relation
thereto.
3.4 ACCESS TO REMEDY DEFECTS
In circumstances where the Developer has liability to remedy Defects in
accordance with Clause 3.3:
3.4.1 The Developer shall make prior arrangements with the Tenant as to
the times of access and the Developer and the Tenant shall endeavour
to agree a programme for carrying out any such remedial works.
3.4.2 The Tenant shall be entitled to request such works to be carried out
outside usual business hours and (subject to the Tenant indemnifying
the Developer in respect of any reasonable and proper additional
cost in respect of such request) the Developer shall comply with
such request.
3.4.3 The Developer shall manage and instruct each person so entering to:
(i) cause the minimum amount of interference and disruption as is
reasonably possible to the carrying out of the Fit Out Works
or any other works by the Tenant in the Premises and to the
Tenant's business;
(ii) comply with any reasonable directions and security precautions
for the Premises so long as these shall not prevent the
carrying out of the relevant works; and
(iii) be accompanied if the Tenant so requires by a representative
of the Tenant;
3.4.4 The Developer shall procure that each person so entering shall make
good as soon as reasonably practicable to the reasonable
satisfaction of the Tenant any loss damage of injury thereby caused
to the Premises the Fit Out Works or the property of the Tenant or
any other lawful occupiers or visitors in the Premises.
3.5 HANDOVER
The Developer shall as soon as reasonably practicable following the date
hereof at its own cost supply the Tenant with the following:
3.5.1 one complete reproducible set of the final as-built scale drawings
of the Works and one set of files on computer disc (where
available);
3.5.2 full and complete sets of all manuals maintenance documents product
guarantees and other information relating to all mechanical and
electrical equipment comprised within the Premises and the Works;
and
3.5.3 a full and complete copy of the health and safety file for the Works
prepared in accordance with the CDM Regulations.
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3.6 COPYRIGHT
In so far as the copyright to any drawings or other intellectual property
relevant to the Works is owned by the Developer the Developer hereby
irrevocably grants to the Tenant a non-exclusive licence to use and
reproduce the same.
3.7 VACANT POSSESSION
The Developer will ensure that:
3.7.1 all furniture and carpets from the fourth floor marketing suite are
removed from the Premises within 5 days of the date of this
Agreement; and
3.7.2 the existing contractor's site accommodation in the basement and
ground floors of the Premises is left in situ (provided that the
Tenant shall make available one office for the Construction Manager
to use in connection with clearing snagging items)
and that otherwise the Premises shall be handed to the Tenant on the date
of this Agreement with vacant possession.
4 FIT OUT WORKS
4.1 The Tenant has provided the Landlord with the Fit Out Plans and the
Landlord has approved in principle the categories (but not the details) of
those of the Fit Out Works shown in them.
4.2 The Tenant or one of its Group Companies (as defined in the Lease) shall at
its own cost prepare and submit to the Landlord further details of the
proposed Fit Out Works for approval (such approval not to be unreasonably
withheld if and to the extent that such further details shall in all
material respects be consistent with and in conformity with the Fit Out
Plans).
4.3 APPROVAL AND LICENCE
4.3.1 The Tenant shall not commence any part of the Tenant's Fit Out Works
until the details in relation to that part have been approved under
Clause 4.2;
4.3.2 The Tenant shall observe and perform its obligations set out in the
Licence for Fit Out Works pending its completion pursuant to Clause
4.4.
4.4 The Landlord the Tenant and the Guarantor shall enter into a Licence for
Fit Out Works:
4.4.1 within one month after practical completion of the Fit Out Works or
4.4.2 (if later) on the Completion Date or
4.4.3 (if such practical completion shall not have arisen 12 months after
the date of this Agreement) upon written demand by the Landlord
and four sets of as built approved plans and specifications for the Fit Out
Works shall be supplied by the Tenant to the Landlord and annexed thereto.
4.5 If Clause 4.4.3 applies, a further licence in the same form shall be
entered into by the same parties once the outstanding Fit Out Works have
been brought to practical completion.
4.6 AGREEMENT AS TO OPERATION OF LANDLORD AND TENANT ACT 1927
4.6.1 EFFECT OF SERVICE OF 1927 ACT NOTICE
The Tenant hereby agrees with the Landlord that if the Tenant services a
notice pursuant to Section 3 of the Landlord and Tenant Act 1927 ("Section
3 Notice") upon the Landlord in relation to the Fit Out Works or any part
or parts thereof the Tenant shall within 28 days following the service of
the Section 3 Notice or (if later) within 7 days after determination of the
cost (hereinafter
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<PAGE> 8
called "the Cost") of the carrying out of the works and alterations the
subject of the Section 3 Notice pay to the Landlord a sum equal to 105% of
the Cost.
4.6.2 DISPUTES AS TO THE COST
The Landlord and the Tenant shall use all reasonable endeavours to agree
the Cost but in default of agreement between them as to the amount of the
Cost then either party may at any time following the expiration of a period
of 14 days following the service of a Section 3 Notice refer the matter for
settlement to an independent expert appointed at the request of either
party by the President of the Royal Institution of Chartered Surveyors and
the costs of the parties and of such expert shall be in his award.
5 AGREEMENT TO GRANT LEASE
5.1 The Landlord shall grant and the Tenant shall accept the Lease on the
Completion Date but if the Completion Date shall not take place by six
months after the date hereof other than due to the default of the Tenant
the grant shall be made forthwith by the Developer out of its leasehold
interest in the Premises and the provision of Clauses 4, 5 and 6 shall
apply as if the Developer had been named therein as Landlord.
5.2 Completion shall take place at the London Offices of the Landlord's
solicitor and the Landlord (or the Developer as the case may require)
shall deliver the duly executed Lease to the Tenant and the Tenant shall
deliver a duly executed counterpart of the Lease to the Landlord (or the
Developer as aforesaid).
5.3 The Term Commencement Date under the Lease shall be the date of this
Agreement.
5.4 Rent due under the Lease shall be payable on and from the Rent Commencement
Date.
5.5 The Landlord and the Developer shall place their Land Certificates in
respect of the Premises on deposit at H M Land Registry for the purpose of
enabling the Tenant to register a notice of its interest in the Premises
arising under this Agreement.
6 OCCUPATION OF THE PREMISES
6.1 The Landlord shall allow the Tenant to take occupation of the Premises
on the date of this Agreement.
6.2 The Tenant shall pay to the Landlord:
6.2.1 a licence fee on and from Rent Commencement Date equal to the
Principal Rent; and
6.2.2 a licence fee on and from the date of this Agreement equal to the
insurance premiums, which would have been payable by the Tenant if
the Lease had been completed and the term granted by the Lease had
commenced;
6.2.3 sums at the same times and in the same manner as would have been
payable under Clause 6.2 of the Lease if it had been completed and
the term granted by it had commenced.
6.3 Any amount paid to the Landlord under Clause 6.2 shall be deducted by the
Landlord following the grant of the Lease from the rents or insurance
premiums (as the case may be) which would otherwise have been due under the
Lease in respect of the same period.
6.4 The Tenant shall occupy the Premises subject to the provisions contained in
the Lease and Licence for Fit Out Works as if the Lease and Licence for
Fit Out Works had been granted. Each
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<PAGE> 9
party shall comply with the convenants on its part contained in the Lease
and shall be entitled to all remedies by distress, action or otherwise for
recovering rent in arrear and for any breach of the other's obligations as
if the Lease had been granted and the licence fees were rent.
6.5 Until the grant of the Lease the Tenant shall be a licensee only.
7 VAT
7.1 Where pursuant to the terms of this Agreement, any party (the "SUPPLIER")
makes a supply to any other party (the "RECIPIENT") for VAT purposes and
VAT is chargeable on such supply, the Recipient shall pay to the Supplier
(in addition to any other consideration for such supply) a sum equal to the
amount of such VAT, such payment to be made no later than three working
days before the last day (as notified to the Recipient by the Supplier in
writing) on which the Supplier can account to H M Customs & Excise for such
VAT without incurring any interest or penalties, and the Supplier shall
provide the Recipient with a valid tax invoice for VAT purposes.
7.2 Any obligation to reimburse or pay another party's expenditure extends to
irrecoverable VAT on that expenditure and the person liable to pay shall
also reimburse or pay such VAT.
7.3 If either party (the "PAYER") has paid any amount in respect of VAT under
this Clause 7 to the other party (the "PAYEE") on the basis that:
7.3.1 The Transaction in respect of which such amount was paid gave rise
to a supply made by the Payee to the Payer for VAT purposes; and
7.3.2 such supply was a taxable supply for VAT purposes
and it subsequently transpires that no supply was made, or that such supply
was not a taxable supply, for VAT purposes, the Payee shall forthwith repay
such amount to the Payer PROVIDED THAT, if the payee has already accounted
to H M Customs & Excise for VAT in respect of the said transaction on the
basis that such transaction gave rise to a taxable supply for VAT purposes,
the Payee shall only be obliged to repay such amount to the Payer if and to
the extent that it is able to obtain repayment or credit from H M Customs &
Excise in respect of the VAT it has accounted to them, and in such a case,
the Payee shall use all reasonable endeavours to obtain such repayment or
credit from H M Customs & Excise, and the Payee shall only be obliged to
repay such amount to the Payer as aforesaid within three working days
following receipt by the Payee of the said repayment from H M Customs &
Excise or three working days following the date on which the Payee has
fully utilised the said credit (as the case may be).
8 INTEREST ON OVERDUE SUMS
If the person entitled so to do does not receive any sum due to it by the
due date the person liable to pay it shall pay on demand interest on such
sum at 4 per cent above the current base rate of Barclays Bank Plc from the
due date until payment (both before and after any judgment).
9 NOTICES
Section 196 of the Law of Property Act 1925 shall apply to any notice which
may be served under this Agreement as if the final words of Section 196(4)
"and that service........ be delivered" were deleted and replaced by "and
that service shall be deemed to be made on the third Working Day after
posting".
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10 ENTIRE AGREEMENT
10.1 The Tenant acknowledges that it has not relied on any representation other
than any given by the Landlord's Solicitors or the Developer's Solicitors
in any written reply to any enquiry made by the Tenant's or the
Developer's solicitors before the date of this Agreement.
10.2 The parties acknowledge that:-
10.2.1 this Agreement;
10.2.2 the Fit Out Agreement; and
10.2.3 any plan or other documents referred to in this Agreement and/or
annexed to it
contain all the terms of the contract agreed between the parties and
between some of the parties and Goldman Sachs Property Management
11 DEVELOPER'S GUARANTEE
11.1 The Developer's Guarantor covenants with the Tenant as principal debtor
that:
11.1.1 The Developer will pay the sums due from it under and perform its
obligations contained in this Agreement.
11.2 The liability of the Developer's Guarantor shall not be affected by:
11.2.1 Any time given to the Developer or any failure by the Tenant to
enforce compliance with the Developer's covenants and obligations
11.2.2 Any variation of the terms of this Agreement
11.2.3 Any change in the constitution structure or powers of the
Developer's Guarantor or the Developer or the administration
liquidation or bankruptcy of the Developer or the Developer's
Guarantor
11.2.4 Any act which is beyond the powers of the Developer
11.2.5 The transfer of the reversion expectant on the term to be granted
by the Lease
11.2.6 Any other act or thing by which (but for this provision) the
Developer's Guarantor would have been released
12 THE GUARANTOR
12.1 The Guarantor covenants with the Landlord as principal debtor that:
12.1.1 The Tenant will pay the sums due from it under and perform its
obligations contained in this Agreement
12.1.2 If within 21 days after the Completion Date the Tenant has failed
to take up the lease the Guarantor will either duly execute and
deliver a counterpart and accept a lease in the same form but with
the Guarantor named as tenant therein or procure the execution of
a counterpart by another company in the Goldman Sachs group of
companies as tenant with the Guarantor guaranteeing the Tenant's
obligations contained in the Lease provided that the Landlord
shall first have approved in writing the identity of such
alternative company such approval not to be unreasonably withheld
and the Landlord shall take account of the guarantee in
considering such alternative within 21 days after written demand
and at the cost in all respects of the Guarantor
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12.2 The liability of the Guarantor shall be no greater than it would have been
if the Guarantor had been the Tenant (except for additional costs arising
from the enforcement of the guarantee) but shall not be affected by:
12.2.1 Any time given to the Tenant or any failure by the Landlord to
enforce compliance with the Tenant's covenants and obligations
12.2.2 Any variation of the terms of this Agreement
12.2.3 Any change in the constitution structure or powers of the
Guarantor the Tenant or the Developer or the administration
liquidation or bankruptcy of the Tenant the Guarantor or the
Developer
12.2.4 Any act which is beyond the powers of the Tenant
12.2.5 The transfer of the reversion expectant on the term to be granted
by the Lease
12.2.6 Any other act or thing by which (but for this provision) the
Guarantor would have been released
12.3 The Guarantor may not assign its rights or delegate its obligations under
this Guarantee in whole or in part (and any purported assignment or
delegation is void) except for an assignment and delegation of all of the
Guarantor's rights and obligations hereunder in whatever form the
Guarantor determines may be appropriate to a partnership, corporation,
trust or other organisation in whatever form (the "SUCCESSOR") that
succeeds to all or substantially all of the Guarantor's assets and
business and that assumes such obligations by contract, operation of law
or otherwise. Upon any such assignment and or assumption of obligations
the Guarantor shall give written notice thereof to the Landlord and
subject to the Landlord having received in a form reasonably satisfactory
to the Landlord, a deed executed by the Successor (accompanied by a legal
opinion in a form reasonably satisfactory to the Landlord addressed to the
Landlord from a reputable firm of lawyers in the relevant jurisdiction
confirming inter alia enforceability and due execution) whereby the
Successor assumes and covenants with the Landlord to perform all
outstanding and future obligations of the Guarantor under this Agreement,
whether such assumption is by operation of law or by virtue of such deed,
the Guarantor shall be relieved of and fully discharged from all
obligations hereunder, whether such obligations arose before or after such
delegation and assumption, but without prejudice to any antecedent breach.
13 LANDLORD'S LIABILITY
13.1 The Landlord shall be under no liability or obligation under or pursuant
to this Agreement as the other parties hereto each admit and acknowledge
save only the express obligations on the part of the Landlord contained in
or resulting from this Agreement.
13.2 The obligations of the Tenant and the Guarantor to the Landlord shall not
be affected by any breach by the Developer.
14 TENANT'S LIABILITY
To the extent that any want of repair arises from a Defect for which the
Developer is responsible to the Tenant under this Agreement the Landlord,
subject to the provisions of this Clause 14 agrees that it and its
successors in title will at the written request of the Tenant, defer
taking action to enforce the Tenant's repairing obligations contained in
the Lease in relation to that want of repair provided that:
14.1 Such deferral shall subsist only for so long as the Tenant is actively
pursuing and enforcing its rights and remedies against the Developer under
this Agreement.
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14.2 The Landlord shall not be obliged to defer such action or continue any such
deferral in the event that the Superior Landlord (as defined in the Lease)
shall require the Landlord either to take such action or to remedy the want
of repair and the Developer shall (subject always to the provisions of
Clause 15) indemnify the Landlord from and against all liability from
claims by the Superior Landlord and the tenant of the Restaurant in
relation to such want of repair and/or deferral.
14.3 The Landlord shall not be obliged to defer such action or continue such
deferral if the want of repair requires urgent attention or where any
deferral would or would be likely to materially adversely affect the
Premises.
14.4 The Tenant shall keep the Landlord fully informed in writing as to the
progress of its pursuit and enforcement of its rights against the Developer
at regular intervals as required by the Landlord.
14.5 Throughout the period of such deferral the Tenant shall keep the Landlord
fully informed in writing as to any deterioration in the Premises arising
as a result of the defect or such deferral.
14.6 No such deferral nor any time composition release or indulgence afforded to
the Tenant by the Landlord following the commencement of such deferral
shall constitute or be deemed to constitute any waiver or release by the
Landlord or its successors in title of any of its or their rights and
remedies against the Tenant or the Guarantor under the Lease or prejudice
the exercise by the Landlord or its successors of any other right and
remedies available to it under the Lease.
14.7 Immediately upon cessation of such deferral, the Tenant shall remedy the
want of repair in question with all due speed and to the reasonable
satisfaction of the Landlord and such liability shall not be limited
reduced or negated nor shall the Landlord's rights and remedies be
adversely affected by any failure by the Tenant to obtain judgment against
or otherwise recover from the Developer to the full extent of its claim.
14.8 The Landlord notwithstanding that the Tenant may be actively pursuing and
enforcing its rights against the Developer may cease such deferral and take
action to enforce the Tenant's repairing obligations, for the purpose of
preventing the Landlord's claim against the Tenant being barred by
limitation in the last year of any period for claim.
15 LIMIT OF DEVELOPER'S LIABILITY
15.1 The Developer shall be under no liability or obligation to the Tenant or
the Guarantor or any other Tenant pursuant to Clause 12.1.2 or its or their
successors in title under or pursuant to this Agreement or in respect of
the Works or the Premises save only the express obligations on the part of
the Developer contained in or resulting from this Agreement.
15.2 The liability of the Developer to the Tenant under this Agreement or in
respect of the Works or the Premises shall be limited to:
15.2.1 claims notified in writing to the Developer before the third
anniversary of the Practical Completion Date;
15.2.2 the cost of carrying out such works in such reasonable manner and
to such reasonable standards as shall be reasonably required so
that any Defect in the Works shall be remedied.
15.3 Without prejudice to any of the foregoing the Developer shall not be liable
to the Tenant or the Guarantor or any other Tenant pursuant to Clause
12.1.2 or its or their successors in title for any losses of an indirect or
consequential nature arising as a result of breach of the provisions of
this Agreement in addition to the cost of remedying any Defect in the
Works.
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16 FIT OUT AGREEMENT
16.1 For the avoidance of any doubt the parties to this Agreement and to the Fit
Out Agreement acknowledge that the Developer has no liability under or in
respect of the Fit Out Agreement except for the payment of the Maximum Sum.
16.2 The Tenant shall promptly provide or procure to be provided as soon as
practicable and in any event within 3 months of practical completion of the
Fit Out Works a reasonably detailed statement setting out the items
installed with a view to the Developer claiming the benefit of such capital
allowances for plant and machinery as are generated in respect of the
payment by the Developer of the Maximum Sum pursuant to the Fit Out
Agreement.
16.3 The Guarantor and the Tenant shall procure that no claim shall be made by
them or by Goldman Sachs Property Management or any of the Tenant's Group
Companies (as defined in the Lease) in respect of capital allowances for
plant and machinery forming part of the Developer's Fit Out Works as
defined in the Fit Out Agreement.
17 JURISDICTION AND SERVICE
The provisions of Clause 7.11 of the Lease shall apply mutatis mutandis to
this Agreement.
SIGNED by the parties or their duly authorised representatives the day and
year first before written
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THE SCHEDULE
TRADE CONTRACTORS AND PROFESSIONAL TEAM
PART 1 - TRADE CONTRACTORS
Coverite Limited - Waterproofing
PC Harrington Contractors Limited - Concrete Structure
Swift Structures Limited - Structural Steelwork
Cooperative Industriale Romagnola - Cladding Supply
S.C.A.R.L.
Sabrecastle - Cladding installation
T W Ide Limited - Entrance Glazing and Canopy
Coverite Limited - Roof Finishes
Irvine Whitlock Limited - Masonry
B R Hodgson Limited - Dry lining
H L Smith Construction Limited - Toilet Fit Out
R Glazzard (Dudley) Limited - Metalwork
Henderson Bostwick Limited - Metal Doors, Roller Shutters
A Davies Limited - Entrance Hall Fit Out
H L Smith Construction Limited - Marketing Suite Fit Out
Facade Hoists Limited - Facade Maintenance Equipment
Andrews Weatherfoil plc - Mechanical Services
Sychronised Systems Limited - Controls/BMS
Abbey Thermal Insulation Limited - Thermal Insulation and Fire Stopping
N G Bailey Limited - Electrical Services
R C Cutting Limited - Lightning protection
McNicholas plc - Hard landscaping
Otis plc - Lifts
Cerberus Limited - Fire detection/alarm
PART 2 - PROFESSIONAL TEAM
Mace Limited - Construction Manager
Rolfe Judd Architecture Limited - Architects
Ove Arup & Partners - Services
Ove Arup & Partners - Structural engineers
Charles Funke Associates - Landscape consultants
13
<PAGE> 15
Appendix A: Category A Specification
Appendix B: Forms of Collateral Warranty
Appendix C: Development Obligations
Appendix D: Fit Out Plans
Appendix E: Lease
Appendix F: License for Fit Out Works
Appendix G: Prohibited Materials Letter
Appendix H: Snagging List
Appendix I: Works Specification
SIGNED by on } /s/ [signature]
behalf of the Landlord ---------------------------
Authorised Signing Officer
SIGNED by [name] on } /s/ [signature]
behalf of the Developer
SIGNED by on }
behalf of the Tenant
SIGNED by on }
behalf of the Guarantor
- -------------------------------------------------------------------------------
14
<PAGE> 16
SIGNED by [name] on } /s/ [signature]
behalf of the Developer's Guarantor
- -------------------------------------------------------------------------------
15
<PAGE> 1
EXHIBIT 10.9
DATED 25 MARCH 1998
BRITEL FUND TRUSTEES LIMITED
AND
GOLDMAN SACHS INTERNATIONAL
AND
GOLDMAN SACHS PROPERTY MANAGEMENT
AND
THE GOLDMAN SACHS GROUP, L.P.
AND
ENGLISH PROPERTY CORPORATION plc
and
MEPC plc
FIT OUT WORKS AGREEMENT
relating to
One Carter Lane
London EC4
<PAGE> 2
THIS AGREEMENT made the Twenty Fifth day of March 1998
BETWEEN:
(1) BRITEL FUND TRUSTEES LIMITED (Company number 1687513) whose registered
office is at Standon House 21 Mansell Street London E1 8AA (the "LANDLORD");
(2) ENGLISH PROPERTY CORPORATION plc (Company number 640408) whose registered
office is at 12 St James's Square London SW1Y 4LB (the "DEVELOPER");
(3) GOLDMAN SACHS INTERNATIONAL (Company number 226395) whose registered office
is at Peterborough Court 133 Fleet Street London EC4A 2BB (the "TENANT");
(4) GOLDMAN SACHS PROPERTY MANAGEMENT (Company number 2432555) whose registered
office is at Peterborough Court 133 Fleet Street London EC4A 2BB ("GSPM")
(5) THE GOLDMAN SACHS GROUP, L.P. whose office is at 85 Broad Street New York
New York 10004 (the "GUARANTOR"); and
(6) MEPC plc whose registered office is at 12 St James's Square London SW1Y 4LB
(the "DEVELOPER'S GUARANTOR").
WHEREAS:
(A) The Developer is to carry out the Developer's Fit Out Works at its own cost
and in accordance with the provisions of the Agreement for Lease and this
Agreement.
(B) The Tenant is to carry out the Tenant's Fit Out Works at its own cost and in
accordance with the provisions of the Agreement for Lease and this
Agreement.
(C) The Developer has agreed to employ GSPM as its contractor to carry out the
Developer's Fit Out Works.
WITNESSES as follows:
1 DEFINITIONS
In this Agreement unless the context otherwise requires expressions defined
in the Agreement for Lease (as defined below) shall have the same meanings
herein and additionally the following words shall have the following
meanings:
AGREEMENT FOR LEASE means the agreement for lease of the Premises of even
date herewith made between the Landlord (1) the Developer (2) the Tenant (3)
the Guarantor (4) and the Developer's Guarantor (5);
CATEGORY A WORKS means the works to be carried out in accordance with the
Category A Specification set out at Appendix A;
CONSENTS means all licences, consents, permissions and approvals necessary
for the Landlord lawfully to carry out the Works;
DEVELOPER'S FIT OUT WORKS means items comprised in the Fit Out Works which
are acquired by the Developer in accordance with the provisions of this
Agreement.
MAXIMUM SUM means the sum of [pound sterling] 3,413,752 plus value added
tax;
PREMISES means One Carter Land London EC4 more particularly described in the
draft lease annexed to the Agreement for Lease as the Premises;
TENANT'S FIT OUT WORKS means the Fit Out Works which are not Developer's Fit
Out Works
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<PAGE> 3
VAT means Value Added Tax and any similar tax substituted for it or levied
in addition to it.
2 FIT OUT WORKS
2.1 The Developer shall acquire and complete the installation of the items
comprised in the Developer's Fit Out Works as follows:
- The Category A Fit Out Works up to pound 3,036,755
- Carpets up to pound 231,969
- Floor boxes up to pound 78,288
- Fourth floor works: pound 66,740
but in no circumstances shall its aggregate expenditure exceed the Maximum
Sum;
2.2 In order to enable the Developer's obligations to the Tenant to be
satisfied the Developer hereby employs GSPM to design and carry out the
Developer's Fit Out Works;
2.3 GSPM HEREBY COVENANTS with the Landlord to permit the Landlord (or its
surveyors) at all reasonable times to inspect the progress of the
Developer's Fit Out Works and the quality of the materials and workmanship
used therein.
3 PAYMENTS BY DEVELOPER
The Developer hereby appoints GSPM, and GSPM hereby agrees, to carry out
the Developer's Fit Out Works for the Developer. GSPM shall invoice the
Developer on 1 April 1998, 1 July 1998 and 1 October 1998 in respect of the
Developer's Fit Out Works, each such invoice to be a proper VAT invoice
addressed to the Developer for the sum of pound 1,137,917 on each occasion,
and the Developer shall pay the invoiced amount to GSPM within 1 week of
receipt of the relevant invoice.
4 APPLICATION OF PAYMENTS
4.1 GSPM shall not later than six months after the practical completion of the
Developer's Fit Out Works produce to the Developer a reasonably detailed
statement showing the actual expenditure incurred by the Developer and the
items on which it was incurred;
4.2 GSPM shall thereafter from time to time provide amended statements
reflecting any changes in the amount of such actual expenditure;
4.3 Nothing herein shall constitute a statement, warranty or representation
that the Developer or the Tenant shall be or become entitled to any capital
allowances in respect of any expenditure or contribution to expenditure
incurred or made under this Agreement.
5 OWNERSHIP OF FIT OUT
5.1 It is agreed that the Tenant has no ownership interest in the Fit Out Works
paid for by the Developer.
5.2 The parties hereby acknowledge that the Goldman Sachs group shall have no
liability to, and shall not, pay for any Developer's Fit Out Works and that
the Developer shall have no liability to, and shall not pay for any
Tenant's Fit Out Works.
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<PAGE> 4
6 NOTICES INCLUDING REQUESTS FOR PAYMENT
Notices and requests for payment shall be sent to the registered office of
the Developer (the address of which shall be notified to the Tenant from
time to time) marked for the attention of Julian Barwick or such other
person as the Developer may from time to time nominate.
7 SUB-CONTRACTOR'S CERTIFICATE
GSPM confirms that it has applied for a certificate under section 561 of
the Income and Corporation Taxes Act 1988 and acknowledges that all
payments to be made under this agreement shall be made under deduction of
tax in accordance with the provisions of Chapter IV of the Income and
Corporation Taxes Act 1988 unless at the time of such payment it has
demonstrated to the Developer's reasonable satisfaction that it is the
valid holder of a current certificate.
8 PROPER LAW AND JURISDICTION
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 judgment 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 parties hereby irrevocable agrees that any
process may be served on them by leaving a copy thereof at their respective
addresses (as referred to above).
9 DEVELOPER'S GUARANTOR
9.1 The Developer's Guarantor covenants with the Tenant as principal debtor
that the Developer will pay the sums due from it under and perform its
obligations contained in this Agreement.
9.2 The liability of the Developer's Guarantor shall not be affected by:
9.2.1 any time given to the Tenant or any failure by the Tenant to enforce
compliance with the Developer's covenants and obligations;
9.2.2 any variation of the terms of this Agreement;
9.2.3 any change in the constitution structure or powers of the
Developer's Guarantor or the Developer or the administration
liquidation or bankruptcy of the Developer or the Developer's
Guarantor;
9.2.4 any act which is beyond the powers of the Developer;
9.2.5 the transfer of the reversion expectant on the term to be granted by
the Lease;
9.2.6 any other act or thing by which (but for this provision) the
Developer's Guarantor would have been released.
10 THE GUARANTOR
10.1 The Guarantor covenants with the Landlord as principal debtor that the
Tenant will pay the sums due from it under and perform its obligations
contained in this Agreement.
10.2 The liability of the Guarantor shall be no greater than it would have been
if the Guarantor had been the Tenant (except for additional costs arising
from the enforcement of the guarantee) but shall not be affected by:
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<PAGE> 5
10.2.1 any time given to the Tenant or any failure by the Landlord to
enforce compliance with the Tenant's covenants and obligations;
10.2.2 any variation of the terms of this Agreement;
10.2.3 any change in the constitution structure or powers of the
Guarantor the Tenant or the Landlord or the administration
liquidation or bankruptcy of the Tenant or Guarantor;
10.2.4 any act which is beyond the powers of the Tenant;
10.2.5 the transfer of the reversion expectant on the term to be granted
by the Lease;
10.2.6 any other act or thing (other than the default of the Landlord)
by which (but for this provision) the Guarantor would have been
released.
10.3 The Guarantor may not assign its rights or delegate its obligations under
this Guarantee in whole or in part (and any purported assignment or
delegation is void) except for an assignment of all the Guarantor's rights
and obligations hereunder in whatever form the Guarantor determines may be
appropriate to a partnership, corporation, trust or other organisation in
whatever form (the "SUCCESSOR") that succeeds to all or substantially all
of the Guarantor's assets and business and that assumes such obligations by
contract, operation of law or otherwise. Upon any such assignment and
assumption of obligations the Guarantor shall give written notice thereof
to the Landlord and subject to the Landlord having received in a form
reasonably satisfactory to the Landlord, a deed executed by the Successor
(accompanied by a legal opinion in a form reasonably satisfactory to the
Landlord addressed to the Landlord from a reputable firm of lawyers in the
relevant jurisdiction confirming inter alia validity and due execution)
whereby the Successor assumes and covenants with the Landlord to perform
all outstanding and future obligations of the Guarantor under this
Agreement, whether such assumption is by operation of law or by virtue of
such deed, the Guarantor shall be relieved of and fully discharged from all
obligations hereunder, whether such obligations arose before or after such
delegation and assumption, but without prejudice to any antecedent breach.
11 INTEREST ON OVERDUE SUMS
If the person entitled so to do does not receive any sum due to it by the
due date the person liable to pay it shall pay on demand interest on such
sum at 4 per cent above the current base rate of Barclays Bank Plc from the
due date until payment (both before and after any judgment).
12 NOTICES
Section 196 of the Law of Property Act 1925 shall apply to any notice which
may be served under this Agreement as if the final words of Section 196(4)
"and that service.....be delivered" were deleted and replaced by "and that
service shall be deemed to be made on the third Working Day after posting".
13 AGREEMENT FOR LEASE AND LICENCE TO ALTER
This Agreement is without prejudice to the Tenant's obligations under the
Agreement for Lease and Licence to Alter.
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<PAGE> 6
SIGNED by the parties or their duly authorised representatives the day and
year first before written
SIGNED by on ) /s/ [signature]
behalf of the Landlord ) Authorised Signing Officer
)
SIGNED by [name] on ) /s/ [signature]
behalf of the Developer )
)
SIGNED by [name] on )
behalf of the Tenant )
)
SIGNED by on )
behalf of GSPM )
)
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SIGNED by on )
behalf of The Guarantor )
)
SIGNED by [name] on ) /s/ [signature]
behalf of The Developer's Guarantor )
)
6
<PAGE> 1
EXHIBIT 10.10
DATED: 1998
BRITEL FUND TRUSTEES LIMITED
- and -
GOLDMAN SACHS INTERNATIONAL
- and -
THE GOLDMAN SACHS GROUP, L.P.
UNDERLEASE
of
premises known as One Carter Lane London EC4
Linklaters & Paines
One Silk Street
London EC2Y 8HQ
Tel: 0171 456 2000
Ref: CBC/DAJR/7100675
<PAGE> 2
LEASE PARTICULARS
- --------------------------------------------------------------------------------
1. Date : 1998
- --------------------------------------------------------------------------------
2. PARTIES
2.1 Landlord : Britel Fund Trustees Limited (Company
number 1687513) whose registered office
is at
Standon House 21 Mansell Street
London E1 8AA
- --------------------------------------------------------------------------------
2.2 Tenant : Goldman Sachs International (Company
number 226395) whose registered office
is at Peterborough Court
133 Fleet Street London EC4A 2BB
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2.3 Guarantor : The Goldman Sachs Group, L.P 85 Broad
Street New York New York 10004 and
whose address for service in the UK is
c/o The Facilities Manager Goldman Sachs
International Peterborough Court
133 Fleet Street London EC4A 2BB
- --------------------------------------------------------------------------------
3. CONTRACTUAL TERM : 20 years from and including 19th March
1998
- --------------------------------------------------------------------------------
4. PRINCIPAL RENT : [(pound)5,184,982] POUNDS
per annum payable from and including
the Rent Commencement Date and subject
to increase in accordance with the
Second Schedule
- --------------------------------------------------------------------------------
5. RENT : [ ] 1999
COMMENCEMENT
DATE
- --------------------------------------------------------------------------------
6. REVIEW DATES : the 19th March in the years 2003, 2008
and 2013
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7. PERMITTED : as high class offices within Class B1(a)
of the 1987 Order and for
USE any purpose ancillary to such use as
offices
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<PAGE> 3
1 DEFINITIONS
In this Lease unless the context otherwise requires:
ADJOINING PROPERTY means the Restaurant and all other property adjoining
or neighbouring the Premises in which the Landlord or any Group Company
has or shall have during the Term a freehold or leasehold interest
whether in possession or reversion.
An "AFFILIATE" of any specified person means any other person directly or
indirectly controlled or controlled by or under common control with such
specified person (for the purposes of this paragraph and the definition
of "Group Company" `control' (including `control by' or under `common
control with') shall mean the power to direct and procure management and
policies directly or indirectly whether through the ownership of voting
securities or equity interests by contract or otherwise) for so long as
such power is exercised;)
ARBITRATION means arbitration in accordance with Clause 8.3
BASE RATE means the base rate from time to time of Royal Bank of Scotland
PLC or (if not available) such comparable rate of interest as the
Landlord shall reasonably require
CATEGORY "A" WORKS mean the works as so described in the Specification
COMMON PARTS means the paved areas shown hatched in black on plan
2897/GS/19-2005 together with the planters shown thereon
CONDUITS means any existing or future media for the passage of substances
telecommunications or energy and any ancillary apparatus attached to them
and any enclosures for them
CONTRACTUAL TERM means the term specified in paragraph 4 of the
Particulars
DETERMINATION DATE means 18th day of March 2013
ENCUMBRANCES means the matters contained or referred to in the documents
specified in Part III of the First Schedule
GROUP COMPANY means any company within the same group of companies as or
Associated with or an Affiliate of the Tenant as set out below:
(i) Any two companies shall be taken to be members of a group if one
is the subsidiary of the other or both are subsidiaries of a third
company;
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<PAGE> 4
(ii) A company corporation or partnership shall be taken to be
"ASSOCIATED" with another if and only if one is a subsidiary or
Affiliate of another or both are subsidiaries or Affiliates of a
third company corporation or partnership;
(iii) In determining whether any company is a subsidiary of another
company the word subsidiary bears the meaning assigned to it by
Section 736 of the Companies Act 1985 as originally enacted;
(iv) In determining whether any corporation (which shall be construed
in accordance with Section 740 of the Companies Act 1985 as
originally enacted) is a subsidiary of another corporation or of a
company or whether any company is a subsidiary of a corporation
the word subsidiary bears the meaning assigned to it by Section
736 of the Companies Act 1985 as originally enacted but modified
only so that `company' includes `corporation' for this purpose;
(v) A partnership (which shall be construed as including a partnership
under the laws of the United Kingdom or elsewhere) shall be taken
to be a subsidiary of another partnership or of a company or
corporation if that other partnership or company or corporation is
entitled to either (a) more than one half of the assets or (b)
more than one half of the income of the first mentioned
partnership and in either such case that other partnership or
company or corporation exercises control over the first mentioned
partnership.
(vi) A company or corporation shall be deemed to be a subsidiary of a
partnership if that partnership either (a) controls the
composition of the board of directors of the company or
corporation or (b) holds more than half in nominal value of the
issued equity share capital of the company or corporation and in
either such case the partnership exercises control over the
company or corporation;
GUARANTOR means the person (if any) so named in the Particulars and such
other person as may from time to time covenant pursuant to clause
4.15.2(ii)(c) and in the case of an individual includes his personal
representatives
INSURED RISKS means the risks from time to time required to be insured
against under the terms of the Superior Lease
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<PAGE> 5
LANDLORD means the person in whom the immediate reversion to this Lease
shall for the time being be vested being initially the person so named in
the Particulars
THIS LEASE means this lease and any document supplemental to it or
entered into pursuant to it
PARTICULARS means the descriptions and terms on the page headed LEASE
PARTICULARS which forms part of this Lease
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 and the Planning (Consequential
Provisions) Act 1990
PREMISES means the building known as One Carter Lane London EC4 shown
edged blue on Plan 1 (including at basement level the Service Bay and
Service Ramp and other ancillary accommodation) but excluding the
Restaurant including those parts of the basement forming part of the
Restaurant) and each and every part thereof and all additions and
alterations or reinstatements thereof
PRINCIPAL RENT means the rent stated in paragraph 4 of the Particulars
QUARTER DAYS means 25 March 24 June 29 September and 25 December in every
year and QUARTER DAY means any of them
RESTAURANT means premises at ground lower ground and basement levels and
shown for identification only edged red on Plans 1, 2, 3, 4 and 5 and
known as Two Old Change Court London EC4 and each and every part thereof
and all buildings from time to time thereon including the railings shown
coloured blue on Plans 6, 7 and 8
but excluding the structural elements coloured orange on Plans 2 and 3
RESTAURANT SPACES means the car, motor cycle and bicycle spaces allocated
to the Restaurant coloured green and blue on Plan 5 annexed hereto
LOADING BAY means the area within the Premises at basement level
available for use by the occupier of the Restaurant shown hatched green
on Plan 5
SERVICE AREA means the service area shown hatched purple on Plan 5
SERVICE RAMP means the access way at ground level leading from the public
highway known as Distaff Lane to the basement of the Premises and to the
Adjoining Property and shown hatched blue on Plan 5
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3
<PAGE> 6
SPECIFICATION means the Specification annexed hereto
SUPERIOR LEASE means the Lease referred to in Part IV of the First
Schedule hereto being the Lease under which the Landlord holds inter alia
the Premises
SUPERIOR LANDLORD means the person or persons for the time being entitled
to the reversion mediately or immediately expectant on the determination
of the Superior Lease (or any other superior lease or leases)
TENANT means the person so named in the Particulars and includes its
successors in title
TERM means the Contractual Term together with any continuation of the
term or the tenancy (whether by statute common law holding over or
otherwise)
VAT means Value Added Tax and any similar tax substituted for it or
levied in addition to it
1987 ORDER means the Town and Country Planning (Use Classes) Order 1987
(as originally made)
1995 ACT means the Landlord and Tenant (Covenants) Act 1995
2 INTERPRETATION
In this Lease unless the context otherwise requires:
2.1 If the Tenant or the Guarantor for the time being is more than one person
then their covenants are joint and several
2.2 Any reference to a statute (except for the 1987 Order) includes any
modification extension or reenactment of it and any orders regulations
directions schemes and rules made under it
2.3 Any covenant by any party not to do any act or thing includes an
obligation not to permit or suffer such act or thing to be done
2.4 References to the ACT OR DEFAULT OF THE TENANT include acts or default or
negligence of anyone at the Premises with the Tenant's or any
undertenant's authority
2.5 The index and Clause headings in this Lease are for ease of reference
only
2.6 References to the LAST YEAR OF THE TERM shall mean the year immediately
prior to the expiration or earlier termination of the Term
- --------------------------------------------------------------------------------
4
<PAGE> 7
2.7 References to LIABILITY include claims demands proceedings damages losses
and proper costs and expenses
2.8 References to any right of the Landlord to have access to the Premises
shall be construed as extending to the Superior Landlord and to all
persons authorised by the Landlord and the Superior Landlord (including
agents professional advisers contractors workmen and others) but in
relation to the Landlord always on the terms set out in Clause 4.21 below
2.9 Whenever the consent or approval of the Landlord is required or requested
in relation to this Lease such provisions shall be construed as also
requiring the consent or approval of the Superior Landlord where the same
shall be required except that nothing in this Lease shall be construed as
implying that any obligation is imposed upon a Superior Landlord not
unreasonably to refuse any such consent
3 DEMISE AND RENTS
The Landlord DEMISES the Premises to the Tenant TOGETHER WITH the rights
set out in Part I of the First Schedule EXCEPT AND RESERVING as mentioned
in Part II of the First Schedule for the Contractual Term subject to and
with the benefit of the Encumbrances the Tenant paying by way of rents
without any deduction counterclaim or set off:
3.1 the Principal Rent (plus VAT) by equal quarterly payments in advance on
the Quarter Days the first payment for the period from and including the
Rent Commencement Date to (but excluding) the next Quarter Day to be made
on the Rent Commencement Date
3.2 such sums as may from time to time become payable pursuant to the proviso
to clause 4.6.4
3.3 within 14 days of demand:
3.3.1 the sums specified in Clauses 4.2 [interest] and 4.5 [utilities]
3.3.2 the sums specified in Clause 7.2 (insurance]
3.4 VAT in accordance with Clause 4.4
4 TENANT'S COVENANTS
The Tenant covenants with the Landlord throughout the Term or until
released pursuant to the 1995 Act as follows:
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5
<PAGE> 8
4.1 RENTS
To pay the rents reserved by this Lease as and when required by Clause 3
4.2 INTEREST
If the Landlord does not receive any sum due to it on the due date to pay
on demand interest on such sum at 4 per cent above Base Rate (compounded
on the Quarter Days) from the due date until payment (both before and
after any judgment) provided this Clause shall not prejudice any other
right or remedy for the recovery of such sum
4.3 OUTGOINGS
To pay all existing and future rates taxes charges assessments and
outgoings in respect of the Premises (whether assessed or imposed on the
owner or the occupier) except any tax arising on any actual or deemed
dealing by the Landlord with its reversion to this Lease or any tax
(other than VAT) arising as a result of the receipt by the Landlord of
the rents payable by the Tenant under Clause 3 of this Lease
4.4 VAT
4.4.1 Obligations under this Lease to pay sums or provide consideration
to the Landlord shall be treated as exclusive of VAT and the
Tenant shall in addition pay any VAT chargeable on the same date
4.4.2 Obligations under this Lease to reimburse or pay the Landlord's
expenditure shall extend to the VAT on that expenditure which the
Landlord is not able to recover.
4.5 UTILITIES
To pay the suppliers and to indemnify the Landlord against all charges
for water electricity and gas and other services used on or in relation
to the Premises and in case the water electricity gas or other services
shall be metered or charged jointly in respect of the Premises and other
premises to pay to the Landlord on demand a fair proportion thereof.
4.6 REPAIR AND MANAGEMENT
4.6.1 To keep and maintain the Premises (and all Conduits exclusively
serving the Premises) in good and substantial repair and condition
(damage by the Insured Risks excepted save to the extent that
insurance moneys are irrecoverable as a result of the act or
default of the Tenant)
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6
<PAGE> 9
4.6.2 To keep all plant and machinery apparatus and equipment comprised
within the Premises properly maintained and in good working order
and to enter into maintenance agreements with reputable
contractors for the regular servicing of all such plant and
machinery apparatus and equipment and to renew all working and
other parts as and when necessary or when recommended by such
contractors and to ensure by directions to the Tenant's staff and
otherwise that such plant and machinery apparatus and equipment
are properly operated
4.6.3 Not to do or omit to be done or suffer the same to be done or
omitted anything at or on the Premises which in any way has or
could have a material adverse affect on any contractual rights
which the Landlord has or may have (and of which the Tenant has
been notified) against any third party in respect of the design or
construction of the Premises or in respect of the installation of
any services plant machinery apparatus and equipment within the
Premises
4.6.4 Without prejudice to the generality of the other sub-clauses in
this Clause 4.6 at all times
(i) to ensure that the Premises are managed and serviced to the
standard of and appropriate for a high class office
building in the City of London
(ii) to repair maintain light clean supervise and provide such
other services for the Restaurant Spaces the Service Bay
(including the refuse compactor in it and the disposal of
refuse including the collection and compaction thereof) and
the Service Ramp and door and the maintenance of
receptacles and plant and equipment in connection therewith
all in accordance with the principles of good estate
management and to pay all taxes charges assessments and
other outgoings payable in respect thereof and all charges
assessments and outgoings for electricity gas oil and other
fuels payable in relation thereto or as the Tenant shall
from time to time reasonably consider necessary or as the
Landlord shall from time to time reasonably require the
Tenant to provide
(iii) to ensure that the Common Parts are kept in a clean and
tidy condition and that the planters are maintained and
kept adequately stocked with suitable plants and flowers
- --------------------------------------------------------------------------------
7
<PAGE> 10
(iv) to maintain inspect repair and renew the structural
elements shown coloured orange on Plans 2 and 3
Provided that in the event that and upon each such occasion the
Tenant fails to comply with any of the requirements of this clause
4.6.4 the Landlord shall be entitled but not obliged at the cost
in all respects of the Tenant to remedy such failure and to elect
to continue to have the conduct of such matters in which event
(A) the Tenant shall not have the conduct of such matters
unless and until the Landlord notifies the Tenant in
writing that the Landlord intends no longer to have such
conduct
(B) the Tenant shall pay to the Landlord from time to time
within 14 days after demand the costs incurred or to be
incurred by the Landlord in effecting such matters
(C) otherwise the provisions of clause 4.21 shall apply mutatis
mutandis
4.7 DECORATION
4.7.1 To clean prepare and paint or treat and generally redecorate all
parts of the Premises in every fifth year and in the last year of
the Term PROVIDED THAT in respect of those parts of the Premises
which by their nature construction or material require no such
treatment the Tenant shall do whatever is or may in the reasonable
opinion of the Landlord be necessary for the sake of their
appearance preservation and cleanliness
4.7.2 All the work described in Clause 4.7.1 is to be carried out
(i) in a good and workmanlike manner to the Landlord's
reasonable satisfaction
(ii) in the last year of the term internally and on every
occasion externally in colours which (if different from the
existing colour) are first approved in writing by the
Landlord (approval not to be unreasonably withheld or
delayed)
4.8 CLEANING
4.8.1 To keep the Premises clean tidy and free from rubbish
4.8.2 To clean the inside of windows and any washable surfaces at the
Premises as often as reasonably necessary
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8
<PAGE> 11
4.9 OVERLOADING AND OBSTRUCTION
Not to overload the Premises or the lifts therein nor any plant and
machinery or electrical installation of or serving the Premises nor to
cause any interference or obstruction to the Conduits or the Common Parts
or other parts of the Estate
4.10 PROHIBITED USES
Not to use the Premises
4.10.1 for any purpose which is noisy or offensive dangerous or illegal
immoral or a nuisance or causes damage or disturbance to the
Landlord or other parts of the Estate or which involves any
substance which may be harmful polluting or contaminating
4.10.2 for residential purposes
4.10.3 for any auction, public or political meeting, public exhibition or
show or as a betting office or for gaming or playing amusement
machines or as a sex shop (as defined in the Local Government
(Miscellaneous Provisions) Act 1982) or for the business of an
undertaker or for the business of a staff agency employment agency
(or similar agencies) or Government Department at which the
general public call without appointment
4.11 PERMITTED USE
Not to use the Premises otherwise than for the Permitted Use specified in
the Particulars
4.12 SIGNS ETC
4.12.1 Not to erect any sign notice advertisement which is visible
outside the Premises except such external signage the size design
appearance materials and manner of affixation of which shall first
have been approved in writing by the Landlord (such approval not
to be unreasonably withheld or delayed) Provided that the Tenant
shall be entitled with the prior approval in writing of the
Landlord (such approval not to be unreasonably withheld or
delayed) to name the office building on the Premises and to erect
on the exterior of the office building a company logo or flag
which complies with the other requirements of this Lease.
4.12.2 Not to place any aerial satellite dish or other equipment on the
roof of the Premises other than in the area designated for such
purpose and then only with the prior consent of the Landlord such
consent not to be unreasonably witheld or delayed
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9
<PAGE> 12
4.13 ALTERATIONS
4.13.1 Not to make any alterations or additions which:
(i) affect the exterior of the Premises or
(ii) adversely affect the structure (including without
limitation alterations or additions to the principal or
loadbearing walls floors beams columns roofs or
foundations) of the Premises or materially adversely affect
the Conduits or the central heating air conditioning
sprinkler electrical or other installations or the sanitary
or hot and cold water systems at the Premises
(iii) relate to the structural elements coloured orange on Plans
2 and 3
4.13.2 Not without the Landlord's written consent (not to be unreasonably
withheld or delayed and which shall be documented in substantially
the form of the draft Licence to Alter annexed hereto with such
amendments and additional provisions as the Landlord may
reasonably require having regard not only to the proposed works
but also to the requirements of institutional investors in
property similar to the Premises current for the time being in
relation to such matters) to make to the Premises any other
internal alterations or additions (whether structural or not)
PROVIDED THAT the Tenant may without obtaining the consent of the
Landlord instal alter and remove demountable partitioning (but for
the avoidance of doubt not varying the height or position of
raised floors or ceiling grids) and carry out associated minor
alterations to mechanical and electrical services in the Premises
and minor structural alterations in the nature of boreholes
conduit holes and such like provided the same are not in breach of
Clause 4.13.1 and such number (not exceeding eight) of copies as
the Landlord may require of the plans and other information
showing the layout of such partitioning and the details of such
alterations are deposited with the Landlord or its surveyors not
less than one month after commencement of the work
4.13.3 To maintain at all times a consistent external appearance in the
treatment of all windows in the Premises
4.13.4 Without prejudice to the foregoing not save in accordance with the
terms and conditions laid down by the Institution of Electrical
Engineers current at the time to make any alteration or addition
to the electrical installations in the Premises
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4.14 PRESERVATION OF EASEMENTS
4.14.1 Not to prejudice the acquisition of any right of light for the
benefit of the Premises by obstructing any window or opening or
giving any acknowledgement that the right is enjoyed by consent or
any other act or default of the Tenant
4.14.2 To preserve all rights of light and other easements enjoyed by the
Premises and not to permit or suffer anyone to acquire any right
of light or other easement or right over the Premises
4.14.3 To give the Landlord immediate notice if any easement enjoyed by
the Premises is obstructed or any new easement affecting the
Premises is made or attempted
4.14.4 All costs charges and expenses incurred in securing compliance
with the provisions of this Clause 4.14 shall be borne by the
Tenant
4.15 ALIENATION
4.15.1 Not to:
(i) assign or charge part only of the Premises nor to agree to
do so
(ii) part with the possession of the whole or part of the
Premises or agree to do so except by an assignment or
underletting permitted by this Clause 4.15
(iii) share the possession or occupation of the whole or any part
of the Premises except as permitted by this Clause 4.15
(iv) assign the whole of the Premises to any Group Company of
the Tenant where in the reasonable opinion of the Landlord
the financial standing of such Group Company is less than
that of the Tenant
4.15.2 (i) Not to assign or agree to assign the whole of the Premises unless:
(a) the circumstances and conditions set out in sub-clause
4.15.2.(ii) shall have been complied with or satisfied; and
(b) the Landlord has granted its consent such consent not to be
unreasonably withheld.
(ii) The circumstances and conditions referred to in Clause 4.15.2.(i)
are:
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(a) that the intended assignee enters into a direct covenant
with the Landlord to pay the rents and perform and observe
during the residue of the Term or until released pursuant
to the 1995 Act all the covenants and conditions on the
Tenant's part contained in this Lease
(b) that the Tenant who is to assign this Lease enters into an
Authorised Guarantee Agreement with the Landlord
guaranteeing the performance of the covenants and
conditions contained in this Lease by the intended assignee
incorporating the provisions set out in the Third Schedule
to the extent permitted by the 1995 Act but in addition
containing a provision for the release of the Tenant from
its further obligations under the Authorised Guarantee
Agreement (following written request by the Tenant) upon
the assignee producing properly and externally audited
accounts for the last 3 immediately preceding accounting
periods each of not more than 12 months showing that the
net assets of the assignee in the UK or in any country
within the European Community or in any jurisdiction where
reciprocal enforcement of judgement with England exists as
shown in the balance sheet forming part of the said audited
accounts for the said last three accounting periods as at
the end of each such period were not less than the annual
rent reserved by Clause 3.1 of this Lease at the rate
(disregarding any abatement) payable at the end of the last
such accounting period multiplied by a factor of 5 and that
the annual profits of the assignee in the UK or in any
country within the European Community or in any
jurisdiction where reciprocal enforcement of judgement with
England exists after tax as shown in the said audited
accounts for the said last three accounting periods are
each not less than the said annual rent multiplied by a
factor of 5 Provided that
(I) the Tenant shall be released immediately from its
obligations under this Lease and/or any such
authorised guarantee agreement if the tests set out
above are satisfied at the date of the proposed
assignment the Landlord will at the cost of the
Tenant within 28 days after written request
following satisfaction of the above requirements
execute a deed effective as from the date upon which
the requirements were satisfied in such form as the
Tenant may reasonably require confirming the release
of the
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<PAGE> 15
liability of the Tenant under this Lease and or the
Authorised Guarantee Agreement as the case may be
(II) any such release shall be deferred until any other
arrears of rents or other monies properly due from
the Tenant have been paid to the Landlord
(c) that such other persons as the Landlord may reasonably
require act as guarantor for the intended assignee such
guarantee to be in the form set out in the Third Schedule
with such amendments only as the Landlord may reasonably
require; and
(d) that any intended assignee shall provide such other
security as the Landlord reasonably requires (including
without limitation a rent deposit incorporating a first
legal charge on the deposit monies) for the observance and
performance of the Tenant's covenants herein contained on
such terms as the Landlord reasonably requires; and
(e) that all arrears of rent and other monetary payments
properly due under the terms of this Lease have been paid
prior to completion of the intended assignment;
4.15.3 Not to underlet or agree to underlet part of the Premises other than a
Permitted Part and in this Clause 4.15:-
(i) PERMITTED PART means
(a) a whole floor of the Premises with Security of Tenure or
(b) (except for the basement and fifth floors) any part of any floor
of the Premises without Security of Tenure provided that there are
no more than two occupiers on any one floor of the Premises nor
more than ten occupiers in the Premises (in each case including
the Tenant but excluding any occupation under clause 4.15.6 of
this Lease) at any one time
(c) in the case of the basement floor the whole or part so long as it
is demised with a Permitted Part on another floor and so that the
demise of part only of the basement floor is without Security of
Tenure and provided that there are no more than four occupiers of
the basement floor (including the Tenant but excluding any
occupation under clause 4.15.6 of this Lease)
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<PAGE> 16
in each case (unless the underlease is without Security of Tenure)
together with an appropriate proportion of the car parking,
disabled, bicycle and motor cycle spaces
(ii) SECURITY OF TENURE means that the lessees and occupiers of any
premises with Security of Tenure enjoy the benefit of Part II of
the Landlord and Tenant Act 1954 and without Security of Tenure
means that such lessees and occupiers have agreed in any
sub-underlease that the provisions of Sections 24-28 of the
Landlord and Tenant Act 1954 shall be excluded in relation to the
tenancy thereby created pursuant to a valid and effective Order of
the Court under the provisions of Section 38(4) of the said Act a
copy of which order shall have been produced to the Landlord
before the grant of the sub-underlease
4.15.4 Not to underlet or agree to underlet the whole of the Premises nor a
Permitted Part unless:-
(i) the rent payable under the underlease is:
(a) not less than the open market rent for the Premises (or in
the case of an underletting of a Permitted Part the open
market rental value of the Permitted Part) at the date of
the grant of the underlease without fine or premium
PROVIDED THAT the Tenant shall be permitted to grant to any
underlessee a rent-free period or periods or concessionary
rent period or other inducement in accordance with normal
market practice at the time of the grant of the underlease
(b) payable no more than one quarter in advance
(c) to be subject to upward only reviews at five yearly
intervals and (except only in the case of an underlease for
a term not exceeding five years without any option or right
to renew and granted without Security of Tenure)
contemporaneously with reviews under this Lease
(ii) the underlease is in a form first approved by the Landlord (whose
approval shall not be unreasonably withheld or delayed) and (so
far as is consistent with an underlease) substantially the same as
this Lease including without prejudice a covenant by the
undertenant in the same terms mutatis mutandis as that contained
in Clause 4.15.2 of this Lease and the right for the underlessor
to determine the term thereby granted on the Determination Date
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(iii) where an underletting of part of a floor of the Premises the
Permitted Part is of a layout and in a location first approved by
the Landlord (whose approval shall not be unreasonably withheld or
delayed)
(iv) if the underlease is for a term not exceeding five years it is
without Security of Tenure
(v) the undertenant covenants with the Landlord and in the underlease
(a) to observe and perform the lessee's covenants in the
underlease during the term of the underlease or until
released pursuant to the 1995 Act
(b) not to assign or charge part only of the underlet premises
or agree to do so nor to underlet share or part with
possession or occupation of any part of the underlet
premises provided that the undertenant may with the consent
of the Landlord and the Tenant (which shall in neither case
be unreasonably withheld or delayed) further underlet a
Permitted Part which is less than the whole of the underlet
premises subject to the following conditions:-
(I) there are no more than two occupiers (including the
undertenant but excluding any occupation permitted
under Clause 4.15.6 of this Lease) per floor on each
floor of the underlet premises nor more than ten
occupiers in the Premises at any one time
(II) any sub-underlease to contain a covenant by the
sub-undertenant not to underlet share or part with
possession or occupation of the whole or any part of
the sub-underlet premises in any manner whatsoever
other than by way of an assignment of the whole of
the sub-underlet premises with the consent of the
Tenant and the Landlord (not to be unreasonably
withheld or delayed);
(III) any sub-underlease of (or including) part of a floor
of the Premises to be without Security of Tenure and
a certified copy of an order of the court under the
provisions of Section 38(4) of the said Act shall be
produced to the Tenant and the Landlord in relation
to the intended sub-underlease
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(IV) any sub-undertenant to covenant with the Landlord
and the Tenant to observe and perform (so long as it
holds the sub-underlease) the tenant's covenants in
the sub-underlease
(c) not to assign or agree to assign or underlet the whole of
the underlet premises without the Landlord's prior written
consent (which shall not be unreasonably withheld or
delayed)
4.15.5 Subject and without prejudice to Clauses 4.15.3 and 4.15.4 not to
underlet the whole of the Premises nor a Permitted Part nor vary the
terms of any permitted underlease without the prior written consent of
the Landlord (which shall not be unreasonably withheld or delayed)
4.15.6 Notwithstanding the foregoing provisions of this sub-clause the Tenant
and any permitted undertenant may without the consent of the Landlord
share occupation of the whole or any part of the Premises with any Group
Company Associated Company or Affiliate of the Tenant or such permitted
undertenant Provided that:
(i) the relationship of landlord and tenant is not created and
(ii) the occupation by the Group Company Associated Company or
Affiliate ceases forthwith upon its ceasing to be a Group Company
Associated Company or Affiliate of the Tenant or such permitted
undertenant for the time being and
(iii) the Landlord is informed in writing on reasonable request of the
name of each occupier and due evidence that it is a Group Company
Associated Company or Affiliate
4.15.7 To take all necessary steps and proceedings to remedy any breach of the
covenants of the undertenant under the underlease which affects the
covenants by the Tenant hereunder or which otherwise affects the
Landlord's interest and not to permit any reduction of the rent payable
by any undertenant
4.15.8 To keep the Landlord informed of all rent review negotiations and not to
agree any new or revised rent without having first notified the Landlord
in writing at least 7 days earlier and within one month after agreement
or determination to notify the Landlord in writing of the rent so agreed
or determined
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4.16 REGISTRATION
Within 21 days to give to the Landlord's solicitors (or as the Landlord
may direct) written notice of any assignment charge underlease or other
devolution of the Premises together with a certified copy of the relevant
document and a reasonable registration fee of not less than (pound)30
4.17 STATUTORY REQUIREMENTS
To comply promptly with all notices served by any public local or
statutory authority and with the requirements of any present or future
statute or European Union law regulation or directive (whether imposed on
the owner or occupier) which affects the Premises or their use
4.18 PLANNING
4.18.1 To comply with the Planning Acts
4.18.2 Not to apply for or implement any planning permission or enter
into a planning obligation under Section 106 of the Town and
Country Planning Act 1990 affecting the Premises without first
obtaining the Landlord's written consent (such consent not to be
unreasonably withheld or delayed)
4.18.3 Where development permitted by a planning permission has begun the
Tenant shall complete all the works permitted and comply with all
the conditions imposed by the permission before the determination
of the Term including the carrying out of works stipulated to be
done whether before or after such determination
4.18.4 If the Landlord reasonably so requires to produce evidence to the
Landlord that the provisions of this Clause 4.18 have been
complied with
4.19 NOTICES
4.19.1 To supply the Landlord with a copy of any notice order or
certificate or proposal for any notice order or certificate
affecting or capable of affecting the Premises as soon as it is
received by or comes to the notice of the Tenant
4.19.2 At the request of the Landlord but at the joint cost of the
Landlord and the Tenant to make or join the Landlord in making
such objections or representations against or in respect of any
such notice order or certificate as the Landlord may reasonably
require
4.19.3 To give notice to the Landlord of any defect in the Premises which
might give rise to an obligation on the Landlord to do or refrain
from doing any act or thing in order to comply with the provisions
of this Lease or the duty of care imposed on the Landlord pursuant
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to the Defective Premises Act 1972 or otherwise and at all times
to display and maintain all necessary notices which the Landlord
may from time to time require to be displayed at the Premises
4.20 CONTAMINANTS AND DEFECTS
4.20.1 To give the Landlord immediate written notice (upon the Tenant
becoming aware of the same) of the existence of any contaminant
pollutant or harmful substance on or any defect in the Premises
4.20.2 If so requested by the Landlord to remove from the Premises or
remedy to the Landlord's reasonable satisfaction any such
contaminant pollutant or harmful substance other than any such
used in the proper and ordinary course of the Tenant's business or
normal occupation of the Premises for the Permitted Use
4.21 ENTRY BY LANDLORD
To permit the Landlord at all reasonable times and on reasonable notice
(except in emergency) to enter the Premises in order to
4.21.1 inspect and record the condition of the Premises
4.21.2 remedy any breach of the Tenant's obligations under this Lease
4.21.3 instal repair maintain clean alter replace add to or connect up to
any Conduits which serve the Adjoining Property
4.21.4 repair maintain or alter the Common Parts or the Adjoining
Property
4.21.5 comply with any of its obligations under this Lease
4.21.6 comply with the obligations on its part contained in the Superior
Lease notwithstanding that the obligation to comply with such
covenants may be imposed on the Tenant by this Lease
Provided that the Landlord shall (i) cause as little inconvenience as
reasonably practicable in the exercise of such rights and shall as soon
as reasonably practicable make good all physical damage to the Premises
(and any Tenant's chattels fixtures and fittings) caused by such entry
(ii) use all reasonable endeavours to avoid entering the occupied office
areas within the Premises during normal business hours unless otherwise
agreed by the Tenant (iii) agree in advance with the Tenant the number of
representatives of the Landlord and any others who accompany them
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who shall be permitted entry on any occasion (iv) allow the Tenant to
escort the Landlord's representatives at all times when they are within
the building on the Premises.
4.22 NOTICES TO REMEDY
To make good any failure to comply with Clauses 4.6 [repair] 4.7
[decoration] 4.12 [signs] 4.13 [alterations] 4.14 [preservation of
easements] 4.17 [statutory requirements] and 7.2.6 [insurers'
requirements] of which the Landlord has given written notice as soon as
reasonably practicable and in any event within 2 months after the date of
notice but without prejudice to the Landlord's other remedies
4.23 LANDLORD'S COSTS
To pay to the Landlord on demand as additional rent and as a debt all
costs (which shall be properly incurred and fair and reasonable) as it
may incur:
4.23.1 from any application for consent required by this Lease (including
where consent is lawfully refused or the application is withdrawn)
4.23.2 incidental to or in reasonable contemplation of the preparation
and service of a schedule of dilapidations (whether before or
within 6 months after expiry of the Term) or a notice or
proceedings under Section 146 or Section 147 of the Law of
Property Act 1925 (even if forfeiture is avoided other than by
relief granted by the Court)
4.23.3 in connection with the enforcement or remedying of any breach of
the covenants in this Lease on the part of the Tenant and any
Guarantor
4.23.4 incidental to or in reasonable contemplation of the preparation
and service of any notices under Section 17 of the 1995 Act
4.24 RELETTING NOTICES
To allow a letting or sale board to be displayed on the Premises in the
last six months of the Term unless the Tenant is exercising its rights
under the Landlord and Tenant Act 1954 (but not so that it restricts or
interferes unreasonably with the light enjoyed by the Premises) and to
allow prospective tenants or purchasers to view the Premises at
reasonable times on reasonable notice
4.25 YIELDING UP
4.25.1 Immediately before the end of the Term:
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(i) to give up the Premises repaired and decorated and
otherwise in accordance with the Tenant's covenants in this
Lease
(ii) If and to the extent that the Landlord so requires to
remove all alterations and additions which have been
permitted by the Landlord) and to reinstate the Premises to
the Landlord's reasonable satisfaction to the state set out
in the Specification Provided That the Tenant shall not be
required to reinstate any approved plant or equipment at
the Premises which adds to the letting value of the
Premises and does not detract from the value of the
Landlord's reversionary interest therein.
(iii) to remove all signs, tenant's fixtures and fittings and
other goods from the Premises and make good any damage
caused thereby to the Landlord's reasonable satisfaction
4.25.2 If the Tenant fails to comply with Clause 4.25.1 to pay to the
Landlord on demand as a debt any costs incurred by the Landlord in
reinstating the Premises
4.26 ENCUMBRANCES
To perform and observe the Encumbrances so far as they relate to the
Premises
4.27 SUPERIOR LEASE COVENANTS
To observe and perform the agreements covenants and stipulations on the
part of the tenant contained or referred to in the Superior Lease so far
as the same are not expressly assumed by the Landlord in this Lease and
not to do omit or suffer anything to be done whereby the Superior Lease
may be voided or forfeited and to indemnify and keep the Landlord
indemnified against all damages actions proceedings claims and demands in
any way relating thereto and not to do omit or suffer anything to be done
whereby the Superior Lease may be voided or forfeited
4.28 NEW GUARANTOR
Within five business days of the death during the Term of any Guarantor
or of such person committing or permitting an Act of Insolvency to give
notice of this to the Landlord and if so required by the Landlord at the
expense of the Tenant within thirty business days of such event to
procure some other person reasonably acceptable to the Landlord to
execute a guarantee in respect of the Tenant's obligations contained in
this Lease in the form of the Guarantor's covenants contained in the
Third Schedule
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4.29 CDM REGULATIONS
Without prejudice to any requirements hereunder for the Tenant to obtain
the Landlord's consent before carrying out any work upon the Premises the
Tenant shall in respect of any such work to which the Construction
(Design and Management) Regulations 1994 (THE CDM REGULATIONS) apply;
4.29.1 ensure that any person owing duties under the CDM Regulations
complies therewith;
4.29.2 make a declaration to the Health & Safety Executive in accordance
with Regulation 4 of the CDM regulations that it (and not the
Landlord) is the only "client" in respect of such work;
4.29.3 upon completion of any such work by the Tenant or any other party
supply to the Landlord (without charge and subject to an
irrevocable royalty free licence in favour of the Landlord and/or
its agents and any other person interested therein to use the same
for any purpose connected with the Premises) a copy of the health
and safety file relating to such work and any other information
relevant to health and safety; and
4.29.4 as soon as reasonably practicable after it becomes aware of any
information relevant to health and safety in relation to the
Premises provide such information to the Landlord.
5 LANDLORD'S COVENANTS
The Landlord covenants with the Tenant during the period in which the
immediate reversion to this Lease is vested in it as follows:
5.1 QUIET ENJOYMENT
That subject to the Tenant paying the rents reserved by and complying
with the terms of this Lease the Tenant may peaceably enjoy the Premises
during the Term without any interruption by the Landlord or any person
lawfully claiming under or in trust for it
5.2 SUPERIOR LEASE
5.2.1 To pay the rent reserved by the Superior Lease and to perform
(insofar as the Tenant is not liable for any such performance
under the covenants on its part herein contained) all the tenant's
covenants therein contained
5.2.2 At the reasonable request of the Tenant and at the joint cost of
the Landlord and the Tenant to use best endeavours to procure (a)
payment of the rent reserved by any lease
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superior to this Lease (other than the Superior Lease) and (b) the
performance of all covenants contained in any such lease or leases
(in so far as the Tenant is not liable for any such performance
under the covenants on its part herein contained).
5.2.3 Except in relation to Insurance (as to which Clause 7 applies)
upon receiving written notice from and at the expense of the
Tenant to take all reasonable steps to enforce the covenants on
the part of the Superior Landlord contained in the Superior Lease
and any other Lease superior to this Lease
5.2.4 To take all reasonable steps at the expense of the Tenant to
obtain the consent of the Superior Landlord whenever the Tenant
makes an application for any consent required hereunder where the
consent of both the Landlord and the Superior Landlord is needed
by virtue of this Lease and the Superior Lease except where the
Landlord proposes lawfully to refuse its consent
5.3 CONTRIBUTION TO COSTS
To pay to the Tenant within fourteen days of demand (and in default to
pay interest at 4% over Base Rate from the date of demand until the date
of payment) a fair and proper proportion reasonably and properly
allocated to the Restaurant of the reasonable costs and expenses properly
incurred by the Tenant
5.3.1 in the repair maintenance lighting cleaning and supervision and
the provision of such other services in relation thereto as the
Tenant shall from time to time reasonably consider necessary and
as shall be in accordance with the principles of good estate
management of the Restaurant Spaces the Loading Bay the Service
Area including the refuse compactor therein and the Service Ramp
and door and the costs of disposing of refuse including the
collection and compaction thereof and the maintenance of
receptacles and plant and equipment in connection therewith
5.3.2 in the maintenance of planters in the Common Parts and the plants
and trees therein, and
5.3.3 the maintenance inspection repair and renewal of the structural
elements shown coloured orange on Plans 2 and 3
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plus Value Added Tax and of any existing or future taxes charges
assessments and other outgoings payable in respect thereof and of
all charges assessments and outgoings for electricity gas oil and
other fuels payable in relation thereto
5.4 To indemnify the Tenant in respect of any Liability arising from any
injury caused to the structural elements coloured orange on Plans 2 and 3
or those structural elements within adjacent to above or below the
Restaurant by the act or default of the tenant or occupier of the
Restaurant and those under its or their control excluding (1) damage
caused by Insured Risks and (2) any consequential loss
6 The Landlord covenants that during the term hereby granted:
6.1 It shall not allow any use of the Restaurant to commence until the lessee
or other operator or occupier from time to time has provided the Tenant
with a deed of covenant in favour of the Tenant by which such lessee
operator or occupier covenants not to place any tables or chairs in the
Common Parts (other than those parts shown coloured yellow on Plan 9) and
to use all reasonable endeavours to ensure that patrons of the Restaurant
do not consume food or drink in the Common Parts (other than those parts
shown coloured yellow on Plan No 9) Provided that following the
commencement of the use of the Restaurant the Tenant may itself enforce
the provisions of such deed and the Landlord shall have no obligation or
liability for its enforcement or if there is any breach; and
6.2 It shall not without the consent of the Tenant (not to be unreasonably
withheld or delayed) having regard to the Landlord's obligations to
respond promptly to the Restaurant tenant) permit the use of the
Restaurant for any use other than as a high class restaurant or winebar
without any take-away facility for food or drinks.
7 INSURANCE
7.1 LANDLORD'S INSURANCE COVENANTS
The Landlord covenants with the Tenant as follows:
7.1.1 At the joint cost of the Landlord and the Tenant to enforce the
covenants as to insurance of the Premises on the part of the
Superior Landlord contained in the Superior Lease and if the
Tenant so requires and at the joint cost (without prejudice to the
Tenant's covenants under clause 7.2) of the Landlord and the
Tenant to use its best endeavours to procure that the Superior
Landlord adds any risks specified by the
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Tenant to the insurance policy including terrorist risk unless
insurance against terrorist risks is unavailable
7.1.2 To insure against loss of the Principal Rent and the Service
Charge and VAT payable or reasonably estimated by the Landlord to
be payable under this Lease arising from damage to the Premises by
the Insured Risks for four years or such longer period as the
Landlord may reasonably require having regard to the likely period
for reinstating the Premises
7.1.3 At the reasonable request and cost of the Tenant to produce
evidence of the terms of the insurance under this Clause 6.1 (or
an extract thereof showing that the policy is in force and its
terms)
7.1.4 If
(i) the Premises are destroyed or damaged by an Insured Risk or
(ii) the whole or substantially the whole of the Premises are
destroyed or damaged by an act of terrorism or other risk
against which in either case the Landlord has been unable
to procure insurance
then, subject to obtaining all necessary planning and other
consents to reinstate the same (other than tenant's and trade
fixtures and fittings) as quickly as reasonably practicable
substantially as they were before the destruction or damage in
modern form if appropriate but not necessarily identical in
layout;
7.1.5 Reinstatement following damage by an act of terrorism or other
risk against which in either case the Landlord has been unable to
procure insurance other than in the circumstances whereby clause
7.1.4(ii) applies shall be the responsibility of the Tenant who
shall carry out the same as quickly as reasonably practicable to
the reasonable satisfaction of the Landlord
7.2 TENANT'S INSURANCE COVENANTS
The Tenant covenants with the Landlord throughout the Term or until released
pursuant to the 1995 Act as follows:
7.2.1 To pay to the Landlord within 14 days of demand sums equal to:
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(i) a fair proportion (to be reasonably and properly determined
by the Landlord's Surveyors) in respect of insurance of the
Premises of the amount paid by the Landlord to the Superior
Landlord pursuant to Clause 2(4)(a) of the Superior Lease
in relation to the Premises and the Restaurant
(ii) the cost of any professional valuation of the Premises
properly required by the Landlord (but not more than once
in any two year period)
7.2.2 To pay to the Landlord within 14 days of demand the whole of the
amount (before deduction of any commission or allowance) which the
Landlord spends on insurance pursuant to Clause 7.1.2
7.2.3 To give the Landlord immediate written notice on becoming aware of
any event or circumstances which could reasonably be expected to
affect or lead to an insurance claim
7.2.4 Not to do anything at the Premises which would or might prejudice
or invalidate the insurance of the Premises or the Adjoining
Property nor (unless the Tenant shall have previously notified the
Landlord and agreed to pay the increased premium) cause the
insurance premium to be increased
7.2.5 To pay to the Landlord within 14 days of demand:
(i) any increased premium and any Liability incurred by the
Landlord as a result of a breach of Clause 7.2.4
(ii) any reasonable uninsured excess to which the insurance
policy may be subject and which is normal for policies in
relation to properties of this type
(iii) the whole of any irrecoverable proportion of the insurance
moneys except only to the extent that it is irrecoverable
because of the act or omission of the Landlord
7.2.6 To comply with the requirements and reasonable recommendations
made by the insurers
7.2.7 To notify the Landlord of the full reinstatement cost of any
fixtures and fittings installed at the Premises at the cost of the
Tenant which become Landlord's fixtures and fittings
7.2.8 To effect adequate insurance cover against damage to or
destruction of the Tenant's fixtures and fittings at the Premises
(or any part thereof)
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<PAGE> 28
7.2.9 Not to effect any insurance of the Premises against an Insured
Risk other than as specified in Clause 7.2.8 but if the Tenant
effects or has the benefit of any such insurance against the
Insured Risks the Tenant shall hold such moneys upon trust for the
Landlord and pay the same to the Landlord as soon as practicable
7.3 SUSPENSION OF RENT AND DETERMINATION
7.3.1 If the Premises are unfit for occupation and use because of damage
by an Insured Risk or because of damage or destruction of the
whole or substantially the whole of the Premises by an act of
terrorism or other risk against which in either case the Landlord
has been unable to procure insurance then (save to the extent
that, where the damage is due to an Insured Risk, payment of the
loss of rent insurance moneys is refused due to the act or default
of the Tenant or any undertenant) the Principal Rent (or a fair
proportion of it according to the nature and extent of the damage)
shall be suspended until the date on which the Premises are again
fit for occupation and use.
7.3.2 If the Premises are not again fit for occupation and use by the
date being 4 years after the date of such damage or destruction
referred to in clause 7.3.1 either the Landlord or the Tenant may
within 3 months thereafter (but not after the Premises are again
fit for occupation and use) determine the Term by giving to the
other not less than 6 nor more than 7 months notice in writing
7.3.3 Any dispute relating to this Clause 7.3 shall be referred to
Arbitration
7.4 TERMINATION OF SUPERIOR LEASE
If this Lease shall be subsisting at any time when the Superior Lease has
for any reason ceased to exist then with effect from the date of such
cesser:-
7.4.1 subject to the following provisions of this Clause, the covenants
and provisions of the Superior Lease incorporated herein by
reference shall nevertheless continue in force by reference to the
terms of the Superior Lease;
7.4.2 the Landlord shall observe and perform the covenants relating to
insurance on the part of the Superior Landlord contained in the
Superior Lease as if they were set out in full herein (mutatis
mutandis) as provisions of this Lease, and Clauses 7.1.1 and 7.2.1
shall cease to have effect;
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<PAGE> 29
7.4.3 the provisions of clause 7.2.1 shall be varied so as to refer
to costs incurred by the Landlord in effecting insurance
pursuant to clause 7.4.2 above.
7.5 DESTRUCTION BY ACT OF TERRORISM OR OTHER UNINSURED RISK
If the whole or substantially the whole of the Premises are destroyed or
damaged by an act of terrorism or other risk against which in either case
the Landlord (despite having used its best endeavours) has been unable to
procure insurance then the Landlord may by notice in writing to that
effect given to the Tenant within six months from the date of such damage
or destruction terminate this Lease within immediate effect (without
prejudice to any right of either party in respect of any antecedent
breach) Provide That if following receipt of such notice from the
Landlord the Tenant services a counter-notice upon the Landlord
requesting a new tenancy pursuant to the Landlord and Tenant Act 1954
then the rent suspension provisions set out in clause 7.3.1 shall cease
to operate from the date of service of such counter-notice unless and
until such counter-notice and any related applications or proceedings are
withdrawn or terminated.
8 PROVISOS
8.1 FORFEITURE
If any of the following events occurs:
8.1.1 the Tenant fails to pay any of the rents payable under this Lease
within 28 days of the due date (whether or not formally demanded)
or
8.1.2 the Tenant or Guarantor breaches any of its obligations in this
Lease or
8.1.3 execution or distress is levied on the Tenant's goods in the
Premises or
8.1.4 the Tenant or Guarantor being a company incorporated within the
United Kingdom
(i) has an Administration Order made in respect of it or
(ii) passes a resolution or makes an Order for the winding up of
the Tenant or the Guarantor otherwise than a member's
voluntary winding up of a solvent company for the purpose
of amalgamation or reconstruction or
(iii) a receiver or administrative receiver or receiver and
manager is appointed over the whole or any part of its
property assets or undertaking or
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<PAGE> 30
(iv) is struck off the Register of Companies or is dissolved or
ceases to exist under the laws of the country or state of
its incorporation or
(v) is deemed unable to pay its debts within the meaning of
Section 123 of the Insolvency Act 1986 or
8.1.5 proceedings or events analogous to those described in Clause 8.1.4
shall be instituted or shall occur where the Tenant or Guarantor
is a company incorporated outside the United Kingdom
8.1.6 the Tenant or Guarantor being an individual
(i) has a bankruptcy order made against him
(ii) appears to be unable to pay his debts within the meaning of
Section 268 of the Insolvency Act 1986
then the Landlord may re-enter the Premises or any part of the Premises
in the name of the whole and forfeit this Lease and the Term created by
this Lease shall immediately end but without prejudice to the rights of
any party in respect of any breach of the obligations contained in this
Lease
8.2 NOTICES
8.2.1 Any notice is validly given if it is in writing and either
delivered to the recipient by hand or sent by registered or
recorded delivery post addressed to the recipient at the address
given in this Lease in the case of the Tenant while this Lease is
vested in Goldman Sachs International only addressed for the
attention of The Facilities Manager or such other address as may
have been notified in writing with reference being made in such
notification to this clause of this Lease.
8.2.2 Any notice sent by registered or recorded delivery post shall be
treated as having been served on the third working day after the
date of posting
8.3 ARBITRATION
8.3.1 Where this Lease provides for reference to Arbitration then
reference shall be made in accordance with the Arbitration Act
1996 to a single arbitrator being a partner in or a director of a
leading London firm or company of Chartered Surveyors who is
experienced in the letting and/or rental valuation of office
premises in the City of
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28
<PAGE> 31
London to be agreed between the Landlord and the Tenant or in the
absence of agreement nominated on the application of either party
by the President for the time being of the Royal Institution of
Chartered Surveyors ("the President")
8.3.2 In the absence of a determination by the arbitrator as to his fees
they shall be borne equally by the Landlord and the Tenant
8.3.3 If the arbitrator is ready to make his award but is unwilling to
do so due to either the Landlord's or the Tenant's failure to pay
its share of the costs in connection with the award the other
party may serve on the defaulting party a notice requiring the
that party to pay such costs within 14 days and if the defaulting
party fails to comply with such notice the other may pay to the
arbitrator the defaulting party's costs and any amount so paid
shall be a debt due forthwith from the defaulting party to the
other
8.3.4 If the arbitrator fails to give notice of his determination of if
he dies is unwilling to act or becomes incapable of acting or if
for any other reason he is unable to act either such party may
request the President to discharge the arbitrator and appoint
another arbitrator in his place to act in the same capacity which
procedure may be repeated as many times as necessary
8.4 NO IMPLIED EASEMENTS
This Lease does not include any rights over the Adjoining Property except
those mentioned in Part I of the First Schedule and Section 62 of the Law
of Property Act 1925 is excluded from this Lease
8.5 NO WARRANTY
The Landlord does not warrant that the Permitted Use complies with the
Planning Acts
8.6 SUPERIOR LEASE
If there shall be any conflict between the terms of the Superior Lease
and the terms of this Lease then the terms of the Superior Lease shall
pro tanto prevail
8.7 DISCLAIMER
The Landlord shall not (save in the case of its negligence) be
responsible for any loss accident or damage sustained at the Premises nor
shall the Tenant have any claim against the Landlord for any stoppage of
or interruption in the provision of any services or for obstruction or
interruption of any easement or right granted by this Lease by any reason
outside the reasonable control of the
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29
<PAGE> 32
Landlord or by any works of alteration repair or replacement or by the
maintenance of the plant machinery or installations provided the Landlord
is using all reasonable efforts to restore the services in question to
minimise the obstruction or interruption and any nuisance hereby caused
to the Tenant.
8.8 TENANT'S OPTION TO DETERMINE
If (but only if) the Tenant shall
8.8.1 give to the Landlord not less than 12 months and 3 days nor more
than 18 months prior notice in writing that the Tenant desires to
determine the Term on the Determination Date (it being hereby
agreed that any such notice shall be deemed to be irrevocable
whether or not expressed as such) and
8.8.2 have paid the rent reserved by Clause 3 up to the Determination
Date and
8.8.3 yield up the whole of the Premises in accordance with Clause 4.25
and with vacant possession on the Determination Date (Provided
that the Landlord may in its absolute discretion waive any of the
requirements in this Clause 8.8 but without prejudice to its
rights and remedies as a result of the Tenant's failure to fulfil
such requirements)
the Term shall cease and determine on the Determination Date but without
prejudice to any party's rights as a result of any antecedent breach
8.9 JURISDICTION AND SERVICE
8.9.1 Each of the parties hereto irrevocably agrees for the benefit of
each of the other parties hereto that the place of performance of
the obligations under or pursuant to this Lease shall be England
and that the Courts of England shall have jurisdiction to hear and
determine any suit action or proceedings and to settle any
disputes which may arise out of or in connection with this Lease
and for such purposes irrevocably submits to the jurisdiction of
such Courts
8.9.2 The submission to the jurisdiction of the Courts referred to in
Clause 8.9.1 hereof shall not (and shall not be construed so as
to) limit the rights of the Landlord to take proceedings against
the Guarantor or the Surety in any other court of competent
jurisdiction nor shall the taking of proceedings in any one or
more jurisdictions preclude the taking of proceedings in any other
jurisdiction whether concurrently or not
8.9.3 The Landlord the Tenant and the Guarantor each hereby irrevocably
agrees that
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30
<PAGE> 33
(i) any process issued out of the High Court may for the
purposes of the Rules of the Supreme Court of England an
any notices to be served on it under this Lease may for the
purposes of this Lease be served on it in each such case by
leaving a copy by ordinary post addressed to it at the
address for service in England and Wales hereinbefore
specified or at such other address in England and Wales of
which the party to be served shall have received a notice
which itself complies in all respects with Clause
8.9.3.(ii)
(ii) any notice of change of address for service to be given by
the Landlord the Tenant and the Guarantor shall
(a) be given in writing
(b) specify the date of this Lease and the parties
hereto
(c) contain the full address of the Premises
(d) specify the last applicable address for service
hereunder either as hereinbefore specified or (as
the case may be) as last notified pursuant to Clause
8.9.3.(i) and the date of such notification and
(e) specify the new address in England and Wales for
such service as aforesaid and the date (being not
earlier than 14 days after delivery of such notice)
from which the same shall apply
and any purported notice which fails in any respect to
comply with any of the provisions of this Clause 8.9.3(ii)
shall not constitute due notice of change of address for
service for the purposes of this Clause 8.9.3(ii)
(iii) Any such service of process or notice pursuant to Clause
8.9.3.(i) shall be deemed to have been completed two days
after posting of such process or notice or upon personal
delivery
8.9.4 The Landlord the Tenant and the Guarantor each hereby irrevocably
consents generally in respect of any legal action or proceeding
arising out of or in connection with this Lease to the giving of
any relief or the issue of any process in connection with such
action or proceeding including (without limitation) the making
enforcement or execution
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31
<PAGE> 34
against any property whatsoever and wheresoever (irrespective of
its use or intended use) of any order or judgment which may be
given in such suit action or proceeding
8.9.5 To the extent that the Landlord the Tenant or the Guarantor may in
any jurisdiction claim for itself or its assets immunity from suit
execution attachment (whether in aid of execution before judgment
or otherwise) or other legal process and to the extent that in any
such jurisdiction there may be attributed to them or its assets
such immunity (whether or not claimed) the Landlord the Tenant and
the Guarantor each hereby irrevocably agrees not to claim and
hereby irrevocably waives such immunity to the full extent
permitted by the laws of such jurisdiction
9 GUARANTEE
The Guarantor covenants with the Landlord for the Term in the terms set
out in the Third Schedule
EXECUTED by the parties as a DEED the day and year first before written.
THE FIRST SCHEDULE
PART I
EASEMENTS AND OTHER RIGHTS GRANTED
1 Subject to obtaining the consent of the Landlord (such consent not to be
unreasonably withheld or delayed) and subject to obtaining all necessary
planning and other statutory consents (and complying with any conditions
specified in such consents) the right to erect and maintain any number of
aerials or satellite dishes on the roof of the Premises. (subject to
compliance with any regulations relating thereto laid down from time to
time by the Corporation of London)
2 The right to instal plant on the roof of the Premises subject to the same
qualifications as in paragraph 1 above
3 The right to enter the Restaurant at reasonable times on reasonable prior
notice (except in the case of emergency) to enable the Tenant to carry
out its obligations under this Lease in relation to the structural
elements coloured orange on Plans 2 and 3
4 The right of protection from the Adjoining Property and the right of
support from the Adjoining Property as now enjoyed
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32
<PAGE> 35
PART II
EXCEPTIONS AND RESERVATIONS
There are excepted and reserved to the Landlord and all persons
authorised by it:
1 The right to carry out or consent to the carrying out by any person of
any erection of a new building or the rebuilding demolition or altering
of the Adjoining Property notwithstanding its effect on the light and air
enjoyed by the Premises provided that the Tenant's use and enjoyment of
the Premises is not materially prejudiced
2 Rights of entry onto the Premises as referred to in Clause 4.21
3 The right of support and protection for the Adjoining Property as now
enjoyed
4 The right of way on foot and with vehicles over and along and otherwise
to use the Service Ramp and the Service Area for vehicles for the
purposes of access to and egress from the Restaurant Spaces and the
Loading Bay and for persons for all purposes reasonably connected with
the use and occupation of the Restaurant (but not members of the public
nor patrons of the Restaurant) subject to such reasonable regulations in
relation thereto as the Tenant may from time to time make and notify to
the Landlord in relation thereto
5 The Restaurant Spaces subject to such regulations as aforesaid
6 Subject to the Tenant's reasonable security requirements being satisfied,
of way on foot and in emergencies only over and along the access way
shown coloured brown on Plan No 5 annexed
7 Of free passage and running of water soil gas and electricity and other
services through the Conduits which now or may hereafter during the Term
pass through along under or over the Premises and which serve the
Adjoining Property together with the right on giving reasonable notice
(except in emergency) to enter and remain on the Premises to inspect
maintain and repair any such Conduits making good all damage caused by
such entry
8 The right to load and unload vehicles delivering goods to and from the
Restaurant from the Loading Bay subject to such reasonable regulations in
relation thereto as the Tenant may make and notify to the Landlord and
the lessee of the Restaurant
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33
<PAGE> 36
9 A right from time to time to install new Conduits within the area
coloured yellow on Plan 5 subject to the person installing such new
Conduits complying with the safety, security and other reasonable
requirements of the Tenant
10 The right for the Restaurant to use the refuse compactor (if any) within
the Service Bay subject to regulations as aforesaid
11 The right to use the Common Parts subject to regulations as aforesaid
12 A right from time to time to make alterations to the structural elements
shown coloured orange on Plans 2 and 3 subject to the Tenant's approval
not to be unreasonably withheld or delayed
PART III
ENCUMBRANCES
1 Entries 2, 3, 4 8 9 and 10 on the Charges Register of Title Number NGL
604815 as shown on office copies dated 17 February 1998 Licence to place
memorial statute dated 24 September 1991 between the Mayor and Commonalty
and Citizens of the City of London (1) English Property Corporation plc
(2) and the Trustees of the Blitz Memorial Statue (3)
2 Deed of Covenant in respect of underground telegraphs dated 29 April 1969
between the Corporation of London (1) Metropolitan Provincial Properties
Limited (2) Ralli Brothers (Bankers) Limited (3) and HM Postmaster
General (4)
3 Agreement relating to City Walkway and Lift Works dated 25 September 1995
between the Mayor and Commonalty and Citizens of the City of London (1)
English Property Corporation plc (2) MEPC plc (3)
PART IV
SUPERIOR LEASE
<TABLE>
<CAPTION>
DATE PARTIES TERM PREMISES
<S> <C> <C> <C>
[ ] The Mayor and Community 150 years from One Carter Lane and Two
and Citizens of the City of [ ] Old Change Court London
London (1) EC4 shown edged red on the
the Landlord (2) plan attached to the
Superior Lease
</TABLE>
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34
<PAGE> 37
THE SECOND SCHEDULE
(RENT REVIEW)
1 In this Schedule:
1.1 REVIEW DATE means each of the Rent Review Dates mentioned in the
Particulars and RELEVANT REVIEW DATE shall be interpreted accordingly
1.2 RACK RENTAL VALUE means the annual rent (exclusive of VAT) at which the
Premises might reasonably be expected to be let in the open market at the
Relevant Review Date
ASSUMING
1.2.1 the letting is on the same terms as those contained in this Lease
but subject to the following qualifications:
(i) the term shall be one of 10 years commencing on the
Relevant Review Date
(ii) the amount of the Principal Rent shall be disregarded but
it shall be assumed that the principal rent is subject to
review on the terms of and at the same intervals as the
Principal Rent under this Lease
1.2.2 the Premises are available to let as a whole with vacant
possession by a willing landlord to a willing tenant without
premium
1.2.3 the Premises have been constructed at the Landlord's expense in
accordance with the Specification
1.2.4 all the covenants contained in this Lease have been fully
performed and observed
1.2.5 no work has been carried out to the Premises by the Tenant or any
undertenant which has reduced the rental value of the Premises.
1.2.6 if the whole or any part of the Premises or any access thereto has
been destroyed or damaged it has been fully reinstated.
BUT DISREGARDING
1.2.7 any goodwill attached to the Premises by reason of any business
carried on there
1.2.8 any effect on rent of the fact that any Tenant and any undertenant
is or has been in occupation of the Premises
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35
<PAGE> 38
1.2.9 any effect on rent of any improvements at the Premises made with
the Landlord's consent by the Tenant or any undertenant except
improvements carried out pursuant to an obligation to the Landlord
or at the expense of the Landlord (and the Landlord and the Tenant
hereby agree for the avoidance of doubt that the Category "A"
Works shall not be disregarded on any review of the Principal Rent
payable hereunder)
Provided that the Rack Rental Value shall be that which would be payable
after the expiry of any rent free period or concessionary rent period for
fitting out purposes and after receipt of any contribution to fitting-out
works or other inducement relative to fitting out which might be made on
a letting of the Premises so that no discount reduction or allowance is
made to reflect (or compensate the tenant for the absence of) any such
rent free or concessionary rent period or contribution or other
inducement in respect of fitting out;
2 The Principal Rent shall be reviewed on each Review Date to the higher
of:
2.1 the Principal Rent payable immediately before the Relevant Review Date
(disregarding any suspension or abatement of the Principal Rent) and
2.2 the Rack Rental Value on the Relevant Review Date agreed or determined in
accordance with this Lease
3 The Rack Rental Value at any Review Date shall be:
3.1 agreed in writing between the Landlord and the Tenant or
3.2 determined by Arbitration on the application of either Landlord or Tenant
at any time not earlier than three months before the Relevant Review Date
4 If a Rack Rental Value is not agreed or determined by the Relevant Review
Date
4.1 the Principal Rent payable immediately before the Relevant Review Date
shall continue to be payable until the Rack Rental Value is ascertained
4.2 when the Rack Rental Value is ascertained
4.2.1 the Tenant shall pay within 14 days of ascertainment:
(i) any difference between the Principal Rent payable
immediately before the Relevant Review Date and the
Principal Rent which would have been payable had the Rack
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36
<PAGE> 39
Rental Value been ascertained on the Relevant Review Date
("the Balancing Payment") and
(ii) interest on the Balancing Payment at Base Rate from the
date or dates when the same would have been payable had the
Rack Rental Value been ascertained on the Relevant Review
Date
4.2.2 the Landlord and Tenant shall sign and exchange a memorandum
recording the agreed amount of the Principal Rent payable on and
from the Relevant Review Date and each party shall bear its own
costs in relation to the memorandum
5 If at any Relevant Review Date the operation of the rent review
provisions in this Lease or the normal collection and retention by the
Landlord of any increase in the rent is prohibited or modified by statute
the Landlord may elect at any time that the day next following the date
on which any relaxation of such statute takes effect shall be substituted
for the Relevant Review Date
6 Time shall not be of the essence for the purposes of this Schedule
THE THIRD SCHEDULE
(GUARANTEE)
1 The Guarantor covenants with the Landlord as principal debtor that
throughout the Term or until the Tenant is released from its covenant
pursuant to the 1995 Act the Tenant will pay the rents reserved by and
perform its obligations contained in this Lease
2 Without prejudice to paragraph 5 the liability of the Guarantor shall be
no greater than it would have been if the Guarantor had been the Tenant
(except for additional costs arising from the enforcement of the
guarantee) but shall not be affected by:
2.1 Any time given to the Tenant or any failure by the Landlord to enforce
compliance with the Tenant's covenants and obligations
2.2 The Landlord's refusal to accept rent at a time when it would or might
have been entitled to reenter the Premises
2.3 Any variation of the terms of this Lease
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37
<PAGE> 40
2.4 Any change in the constitution structure or powers of the Guarantor the
Tenant or the Landlord or the administration liquidation or bankruptcy of
the Tenant or Guarantor
2.5 Any act which is beyond the powers of the Tenant
2.6 The surrender of part of the Premises
2.7 The transfer of the reversion expectant on the Term
2.8 Any other act or thing (other than the default of the Landlord) by which
(but for this provision) the Guarantor would have been released
3 Where the Guarantor is more than one person the release of one or more of
them shall not release the others
4 The Guarantor shall not be entitled to participate in any rental deposit
held by the Landlord in respect of the Tenant's obligations or stand in
the Landlord's place in respect of such rental deposit
5 If this Lease is disclaimed or forfeited and if the Landlord within 6
months of receipt of the notice of disclaimer and forfeiture requires in
writing the Guarantor will (at the option of the Landlord) either
5.1 enter into a new lease of the Premises at the cost of the Guarantor on
the terms of this Lease (but as if this Lease had continued and so that
any outstanding matters relating to rent review or otherwise shall be
determined as between the Landlord and the Guarantor) for the residue of
the Term from and with effect from the date of the disclaimer or
forfeiture or
5.2 pay to the Landlord on demand an amount equal to the moneys which would
otherwise have been payable under the Lease until the earlier of 6 months
after the disclaimer or forfeiture and the date on which the Premises are
fully relet
6 The Guarantor may not assign its rights or delegate its obligations under
this Guarantee in whole or in part (and any purported assignment or
delegation is void) except for an assignment of all the Guarantor's
rights and obligations hereunder in whatever form the Guarantor
determines may be appropriate to a partnership, corporation, trust or
other organisation in whatever form (the "SUCCESSOR") that succeeds to
all or substantially all of the Guarantor's assets and business and that
assumes such obligations by contract, operation of law or otherwise. Upon
any such assignment and assumption of obligations the Guarantor shall
give written notice thereof to the
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38
<PAGE> 41
Landlord and subject to the Landlord having received in a form reasonably
satisfactory to the Landlord, a deed executed by the Successor
(accompanied by a legal opinion in a form reasonably satisfactory to the
Landlord addressed to the Landlord from a reputable firm of lawyers in
the relevant jurisdiction confirming inter alia validity and due
execution) whereby the Successor assumes and covenants with the Landlord
to perform all outstanding and future obligations of the Guarantor under
this Agreement, whether such assumption is by operation of law or by
virtue of such deed, the Guarantor shall be relieved of and fully
discharged from all obligations hereunder, whether such obligations arose
before or after such delegation and assumption, but without prejudice to
the antecedent breach.
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39
<PAGE> 42
ON COUNTERPART
THE COMMON SEAL of BRITEL FUND )
TRUSTEES LIMITED was hereunto )
affixed in the presence of: )
Authorised Signing Officer _______________________________
Authorised Signing Officer _______________________________
THE COMMON SEAL of GOLDMAN
SACHS INTERNATIONAL
was hereunto affixed in the presence of:
Director _______________________________
Secretary _______________________________
THE GOLDMAN SACHS GROUP _______________________________
L.P. by The Goldman Sachs
Corporation
by
Executive Vice President
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40
<PAGE> 1
EXHIBIT 10.11
DATED 5th March 1994
SHINE HILL DEVELOPMENT LIMITED
(Landlord)
and
SHINE BELT LIMITED
FAIR PAGE LIMITED
PANHY LIMITED
MAPLE COURT LIMITED
(Confirmors)
and
GOLDMAN SACHS (ASIA) FINANCE
(Tenant)
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LEASE
of
The whole of 37th Floor
of Asia Pacific Finance Tower
3 Garden Road, Hong Kong
Inland Lot No. 8888
- --------------------------------------------------------------------------------
Registered in the Land Registry by
Memorial No.
on
p. Land Registrar
Bateson Starr
in association with
Mallesons Stephen Jaques
Suite 801, Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road
Central, Hong Kong
Ref: SHIN2040-134 (HK1747)
<PAGE> 2
THIS LEASE is made this 5th day of March One Thousand Nine Hundred and
Ninety-Four
BETWEEN
(1) The party named and described as the Landlord in Part 1 of the First
Schedule hereto (hereinafter called the "Landlord" which expression shall
where the context admits include its successors and assigns);
(2) the party named and described as the "Confirmors" in Part 2 of the First
Schedule hereto (hereinafter called the "Confirmors"); and
(3) the party named and described as the "Tenant" in Part 3 of the First
Schedule hereto (hereinafter called "the Tenant").
WHEREBY IT IS AGREED as follows:-
1. DEFINITIONS
1.1 In this Lease, unless the context otherwise requires, the following
expressions shall have the following meanings ascribed to them.
"Buildings" the buildings erected on the Lot and more
particularly described in Part 1 of the Second
Schedule hereto.
"Deed of Mutual the Deed of Mutual Grant and Mutual Covenant
Covenant" and Management Agreement for the Lot and
the Buildings.
"Government" the Government of Hong Kong.
"House Rules" the rules governing or regulating the use,
operation and maintenance of the Buildings and the
services, facilities and amenities thereof and the
conduct of persons occupying, using or visiting the
same as may be prescribed by the Manager from time
to time in accordance with the Deed of Mutual
Covenant.
"Lot" All that piece or parcel of land registered in the
Land Registry as Inland Lot No.8888.
"Manager" the service company or agent for the time being
appointed as the Manager of the Lot and the
Buildings under the Deed of Mutual Covenant or the
Building Management Ordinance.
"Premises" All those premises more particularly described
[STAMP]
- -----------------------------
DUPLICATE or COUNTERPART
Original Stamped with
[name]
- -----------------------------
[STAMP] [STAMP]
<PAGE> 3
in Part 2 of the Second Schedule hereto.
"Rent" the rent more particularly described in Part 1 of
the Fourth Schedule hereto.
"Term" the term more particularly described in the Third
Schedule hereto.
1.2 References to Clauses and Schedules are references to clauses of or
schedules to this Lease.
1.3 The Index and the headings are for ease of reference only and do not form
part of this Lease or affect the construction thereof.
1.4 References to any Ordinance, regulation or other statutory provision include
references to such Ordinance, regulation or provision as modified, codified or
re-enacted from time to time.
1.5 In this Lease, if the context so permits or requires, words importing the
singular number only shall include the plural number and vice versa; words
importing the masculine gender only shall include the feminine gender and the
neuter gender and vice versa and words importing persons shall include
corporations.
2. PREMISES
2.1 The Landlord shall let and the Tenant shall take the Premises (the external
surfaces of the walls glass curtain walls windows frames and glass being
excluded) TOGETHER with the use in common with the Landlord and all others
having the like right of the entrances staircases landings passageways,
lavatories, lifts, escalators and central air-conditioning services serving the
Premises (whenever the same shall be operating) in the Buildings insofar as the
same are necessary for the proper use and enjoyment of the Premises and except
insofar as the Landlord or the Manager may from time to time restrict such use
for the purpose of replacing, renewing, repairing, decorating or maintaining the
same EXCEPT AND RESERVED unto the Landlord and all persons authorised by the
Landlord or otherwise entitled thereto:-
(a) the right of free and uninterrupted passage and running of water,
soil, gas, drainage, electricity and all other services or
supplies through such sewers, watercourses, conduits, pipes,
wires, cables and ducts as are now or may hereafter be in, on or
under the Premises or the raised flooring therein and serving or
capable of serving the Buildings or any adjoining or neighbouring
property together with the right to enter upon the Premises at all
times to inspect repair or maintain any such sewers, watercourses,
conduits, pipes, wires, cables and ducts;
(b) the exclusive right to install in or affix to any part of the
Buildings (other than the Premises) such flues, pipes,
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conduits, chimneys, aerials, plant, machinery and other apparatus,
signs, placards, posters and other advertising structures
whatsoever (whether illuminated or not) as the Landlord shall
think fit together with the right to repair maintain service
remove or replace the same;
(c) the right and liberty to enter upon the Premises in the
circumstances permitted hereunder;
(d) the right to subjacent and lateral support from the Premises for
the remainder of the Buildings;
(e) right of access to all common areas
for the Term yielding and paying therefor throughout the Term the Rent and the
management charges set out in Part 2 of the Fourth Schedule hereto which sums
shall be payable exclusive of rates and other outgoings and in advance clear of
all deductions, counterclaim or set-off whatsoever on the first day of each
calendar month; the first and the last of such payments to be apportioned
according to the number of days in the relevant month included in the Term.
3. RENT
3.1 The Tenant hereby agrees with the Landlord that the Tenant will throughout
the Term pay the Rent to the Landlord on the days and in the manner herein
provided in Hong Kong currency in the amount more particularly described in Part
1 of the Fourth Schedule hereto.
4. MANAGEMENT CHARGES & OTHERS
4.1 The Tenant hereby agrees with the Landlord that the Tenant will pay to the
Landlord in Hong Kong currency on the days and in the manner herein provided.
(a) MANAGEMENT CHARGES
(i) the monthly management charges (which include normal
air-conditioning charges) as set out in Part 2 of the
Fourth Schedule hereto subject to increase in accordance
with Clause 4.2 hereof; and
(ii) additional management charges (if any) payable by the
Tenant pursuant to the Deed of Mutual Covenant for the use
by the Tenant of those Common Facilities (as defined in the
Deed of Mutual Covenant) of the Buildings which are not
covered by the monthly management charges aforesaid and
additional air-conditioning charges (if any) payable by the
Tenant pursuant to the Deed of Mutual Covenant; and
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(b) INTEREST - by way of interest without any deduction counterclaim
or set-off whatsoever and on demand interest calculated on a daily
basis at a monthly rate equivalent to one and one-half percent (1
l/2%) on:-
(i) the Rent or any sum of money payable by the Tenant
hereunder and not received by the Landlord within fourteen
(14) days from the due date for payment (whether demanded
or not) from the due date aforesaid until the whole of such
sum is received by the Landlord;
(ii) any sum paid by the Landlord in the event of default by the
Tenant of its obligation to pay for the same under this
Lease from the date of payment by the Landlord until the
same is repaid to the Landlord; and
(iii) any sum which shall be properly declined by the Landlord so
as not to waive a breach of covenant from the due date
until acceptance following the remedying of the breach by
the Tenant.
4.2 INCREASE OF CHARGES
The monthly management charges referred to in Clause 4.1(a)(i) shall be
subject to increase at any time during the continuance of this Lease as
determined by the Manager in accordance with the Deed of Mutual Covenant and
upon the Landlord giving to the Tenant notice in writing of such increase.
4.3 RATES
(a) The Tenant further agrees with the Landlord that the Tenant will
pay and discharge all rates, taxes, water rates, assessments,
duties, impositions, charges and outgoings whatsoever (including
all charges and outgoings of a recurrent nature (if any) imposed
by the Deed of Mutual Covenant and/or the regulations prescribed
pursuant thereto to which the Premises are subject) now or
hereafter to be assessed, imposed, raised, charged or levied on
the Premises or any part thereof or upon the owner or occupier
thereof by Government, the Manager and/or other lawful authority
(Crown Rent, Property Tax and charges of a capital and
non-recurrent nature alone excepted) and pay or (if the same has
already been paid by the Landlord) refund to the Landlord on
demand in case any of the same are payable, assessed, imposed,
raised, charged or levied in respect of the Buildings as a whole
or any part thereof (which includes the Premises) a proper
proportion thereof to be reasonably determined by the Manager
and/or the Landlord as the amount attributable to the Premises.
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(b) In the event that an assessment to rates in respect of the
Premises shall be raised upon the Landlord direct, the Landlord
shall during the month immediately preceding any quarter in
respect of which such rates may fall due be at liberty to debit
the Tenant with the amount thereof and the same shall forthwith be
paid by the Tenant to the Landlord whereupon the Landlord shall
account for the same to the Government.
(c) In the event that no valuation of the Premises shall have been
made in accordance with the Rating Ordinance (Cap. 116) or any
statutory amendment or modification thereof for the time being in
force, the Landlord shall be at liberty to make an interim
valuation thereof and the Tenant shall, until such time as the
Premises are assessed to rates, pay to the Landlord quarterly and
in advance a sum equal to the rates which would be charged by the
Hong Kong Government for each quarter on the basis of such interim
valuation on account of the Tenant's liability under this Clause
4.3. Any over-payment or under-payment by the Tenant shall be
adjusted when a valuation under the Rating Ordinance shall have
been made known.
4.4 UTILITY CHARGES
The Tenant shall apply to the Hong Kong Electric Company Limited for the
provision of a separate electricity meter for the Premises and to apply to other
utility supply companies for similar provisions and pay and discharge all
deposits, installation charges and charges in respect of water gas electricity
telex and telephone as may be shown by or operated from the Tenant's own metered
supply or by accounts rendered to the Tenant in respect of all such utilities
consumed on or in the Premises PROVIDED that if the Landlord has already paid
the deposit and/or the installation charges in respect of the supply of water
gas electricity or telephone to the Premises, the Tenant shall reimburse the
Landlord on demand for such deposit and (as the case may be) pay to the Landlord
such amount as the Landlord may determine in respect of the installation charges
and the deposit, if any, shall be returned to the Tenant at the expiration of
the Term after deducting all outstanding liability for water gas electricity and
telephone charges (if any).
4.5 OTHER FACILITIES
(a) The Tenant hereby acknowledges that the Landlord has paid for the
installation of certain number of lines for "High Speed Data Link"
and that the Tenant may subscribe for the use of such lines
subject to availability thereof as determined by the Landlord in
its sole and absolute discretion. In the event that the Tenant
subscribes for the use of such lines, the Tenant shall pay to the
Landlord such amount as the Landlord may reasonably determine in
respect of the installation charges for such number of lines as
may be required by the Tenant.
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(b) The Tenant further acknowledges that facilities for the following
have been installed within the Buildings:-
(i) transmission and broadcasting of financial news and data;
(ii) video link; and
(iii) inter-floor communication.
The said facilities can, subject to availability thereof as
determined by the Landlord in its sole and absolute discretion, be
used by the Tenant upon payment by the Tenant of such reasonable
charges and upon such other terms and conditions as may from time
to time be determined or prescribed by the Landlord or other
person or persons entitled thereto Provided that the Tenant shall
be responsible for making all necessary arrangement with the
relevant service companies for the provision of the necessary
services.
5. TENANT'S POSITIVE COVENANTS
The Tenant hereby agrees with the Landlord as follows:-
5.1 COMPLIANCE WITH ORDINANCES, ETC
The Tenant hereby agrees with the Landlord that the Tenant shall obey and
comply with and shall indemnify the Landlord fully against any breach by the
Tenant of any ordinances, regulations, by-laws, rules, licences and requirements
of any Government or other competent authority insofar as they relate to or
affect the Premises or any works, additions or improvements therein or thereto
made by the Tenant or the use or occupation thereof or the conduct or carrying
on of the Tenant's business or the employment therein or any other act, deed,
matter or thing done, permitted suffered or omitted therein or thereon by the
Tenant or any servant, agent, employee, contractor or licensee (which term shall
include any person present in using or visiting the Premises with the Tenant's
consent, express or implied) of the Tenant and shall notify the Landlord
forthwith in writing of any notice received from any statutory or public
authority concerning or affecting the Premises or any services supplied thereto.
5.2 COMPLIANCE WITH CONDITIONS & DEED OF MUTUAL COVENANT
The Tenant shall observe, perform and comply with all the covenants,
terms and provisions of the Conditions of Sale or the Crown Lease under which
the Landlord holds the Premises and the Deed of Mutual Covenant and the House
Rules insofar as they relate to the Premises and indemnify the Landlord against
any breach or non-observance or non-compliance thereof by the Tenant.
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5.3 FITTING OUT
The Tenant shall fit out the interior of the Premises in accordance with
such plans and specifications as shall have been first submitted by the Tenant
to and approved in writing by the Landlord under Clause 5.3(b) hereof in a good
proper and workmanlike fashion using good quality materials and in all respects
in a style appropriate to a first class commercial office and shall maintain the
Premises including the furnishings, fixtures and fittings therein or thereto (if
any) in good and substantial repair and condition to the reasonable satisfaction
of the Landlord throughout the Term Provided That nothing herein shall make the
Landlord responsible for any damages or claims arising from any defects in the
design or quality of the fitting out carried out by the Tenant. The Tenant shall
not cause or permit to be made any variation to the approved fitting-out plans
and specifications or to the interior design or layout of the Premises without
the prior written approval of the Landlord, such approval not to be unreasonably
withheld.
For the purpose of fitting-out or redecorating or renovating the
Premises, the Tenant shall observe and comply with the following provisions:-
(a) APPROVAL OF PLANS - The Tenant shall at its own cost prepare and
submit to the Landlord for approval three (3) sets of suitable
drawings and specifications of the works proposed to be carried
out by the Tenant (hereinafter called the "TENANT'S WORKS") and
the schematic drawings illustrating the design and layout proposal
of the Tenant's Works (hereinafter collectively called the
"TENANT'S PLANS"). The Tenant shall include in the Tenant's Plans
the following:-
(i) detailed drawings, plans and specifications of or of any
changes in the electrical wiring and installations,
air-conditioning piping, ducting or vents or fire services
installation and/or other services;
(ii) details of the electricity consumption capacity, electrical
wiring and installation, telephone wiring, piping, ducting,
computer cabling, wiring and other arrangements (whether
underneath the raised flooring, above the false ceilings or
otherwise);
(iii) details of all lighting features;
(iv) details of partitioning, internal decoration, furnishings
and equipment;
(v) the position and details of any heavy equipment; and
(vi) such other relevant information as the Landlord may
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consider necessary.
(b) ACCEPTANCE OF PLANS - The Landlord will consider the Tenant's
Plans and may accept or reject the Tenant's Plans or require
modifications thereof or any part of them as it thinks fit in its
reasonable discretion and within reasonable time from the
submission of the Tenant's plans to the Landlord.
(c) FEES FOR APPROVAL & INSPECTION - The Tenant shall reimburse the
Landlord on demand the fees of all architectural, mechanical,
electrical and structural engineering consultants and other
professional's fees incurred according to fee notes or bills
rendered by any such consultants or professionals in connection
with the consideration and approval or rejection of the Tenant's
Plans and the supervision and inspection of the Tenant's Works.
The Tenant shall also pay to the Landlord on demand such amount as
the Landlord may in its absolute discretion prescribe as the
approval or vetting fees for the approval of the Tenant's Plans.
(d) COMPLIANCE WITH ORDINANCES - The Tenant shall comply with all
applicable statutes, codes, ordinances, licences and other
regulations for and shall be solely responsible for obtaining all
necessary approval from all relevant Government departments and
utility companies required for all work, performed by or on behalf
of the Tenant on the Premises. The approval by the Landlord's
agents or consultants of the Tenant's Works or the Tenant's Plans
or the inspection of the Tenant's Works shall not constitute or be
deemed to constitute any representation or certification by the
Landlord that the Tenant's Works are in compliance with the said
statutes, codes, ordinances, licences and other regulations. When
several sets of requirements must be met, the standard set by the
Landlord's consultants shall apply.
(e) PERMISSION FOR COMMENCEMENT - The Tenant will not commence the
Tenant's Works until the same shall have been approved in writing
by the Landlord and a notice shall have been given by the Landlord
that the Tenant's Works can be commenced and as soon as possible
after such approval and notice shall have been given, the Tenant
shall commence the Tenant's Works and complete them expeditiously.
(f) DESIGNATED CONTRACTORS - The following types of the Tenant's Works
shall not be carried out by any contractor other than contractors
designated by the Landlord:-
(i) the following types of the Tenant's Works relating to the
raised flooring:-
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(aa) the alignment, re-alignment or removal of the
raised flooring installation;
(bb) the creation of openings on the raised flooring
panels;
(cc) the change of the headroom or height of the raised
flooring;
(dd) the cutting or subdivision of the raised flooring
panels; and
(ee) the laying of marbles or other finishes (other than
carpet) on top of the raised flooring;
(ii) works touching or affecting the heating, ventilation and
air-conditioning system for the Buildings (including that
part of the said system installed within the Premises);
(iii) electrical works to be undertaken by the Tenant in the
common areas of the Buildings in connection with the use
and enjoyment of the Premises by the Tenant;
(iv) works touching or affecting the fire services installations
of the Building (including those within the Premises);
(v) plumbing and drainage works;
(vi) works touching or affecting the building management system
for the Buildings;
(vii) works touching or affecting the communication networks
which forms part of the Common Facilities (as defined in
the Deed of Mutual Covenant) of the Buildings; and
(viii) works touching or affecting the suspended ceiling of the
Buildings (including that within the Premises).
The contract for the above types of the Tenant's Works to be
carried out at the Premises shall be made between the Tenant and
the designated contractor. All other types of the Tenant's Works
shall be carried by contractors as approved in writing by the
Landlord, such approval not to be unreasonably withheld Provided
always that the Landlord shall not in any way be responsible or
liable for the works carried out by or the performance of such
designated or approved contractors.
(g) INFORMATION ON CONTRACTORS - The Tenant shall submit to the
Landlord by hand or via registered post at least three
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(3) days prior to the commencement of the Tenant's Works the
following information:-
(i) the name(s) and address(es) of the general contractor(s)
and other contractors designated or approved by the
Landlord whom the Tenant intends to engage for the Tenant's
Works;
(ii) the proposed commencement date of and the estimated date of
completion of the Tenant's Works; and
(iii) certificates of insurance for public liability and
workmen's compensation.
(h) COMPLIANCE WITH LANDLORD'S INSTRUCTIONS - In carrying out any
approved work under this Clause or other provisions of this Lease,
the Tenant shall cause its servants, agents, employees,
contractors, licensees and workmen to cooperate with the Landlord
and/or the Manager and all servants, agents and workmen of the
Landlord and/or the Manager and with other tenants or contractors
carrying out any work in the Buildings. The Tenant shall comply
with and cause its servants, agents, employees, contractors,
licensees and workmen to obey and comply with all reasonable
fitting out rules which may be prescribed by the Landlord or the
Manager and all reasonable instructions and directions which may
from time to time be given in connection with the carrying out of
such work by the Landlord, the Manager and all servants or agents
of the Landlord or the Manager.
(i) COMPLETION - As soon as practicable after completion of the
Tenant's Works, the Tenant shall provide the Landlord with a copy
of the "as-built" plans for the Tenant's Works.
(j) VARIATIONS - The Tenant shall not cause or permit to be made any
variation to the approved Tenant's Plans or the Tenant's Works
after the completion thereof except with the approval of the
Landlord, such approval not to be unreasonably withheld. The
Landlord may enter upon the Premises for the purpose of inspecting
the construction of the Tenant's Works. The Tenant shall forthwith
on demand by the Landlord and at its own cost and expense demolish
and remove any alteration or addition subsequently made to the
Tenant's Works in breach of the provisions of this Lease and
reinstate the Premises to the satisfaction of the Landlord.
(k) ELECTRICITY CHARGES FOR FITTING OUT - The Tenant shall be solely
responsible for all electricity and other utility charges incurred
in connection with or arising out of fitting out the Premises and
shall pay to the Landlord a service charge of such amount as the
Landlord may determine for the temporary supply of electricity and
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water and other attendance rendered during the fitting out period.
(1) REMOVAL OF GARBAGE - The Tenant shall remove from the Premises all
garbage, refuse and construction and decoration waste to such
location as may from time to time be designated by the Manager and
if the Tenant shall fail to do so, the Landlord may cause such
removal to be made at the cost and expense of the Tenant.
(m) DEPOSIT - As security for the due observance by the Tenant of the
terms and conditions of Clause 5.3, the Tenant shall pay to the
Landlord such an amount as may be required by the Landlord as a
fitting-out deposit which shall be refunded to the Tenant without
interest within thirty (30) days after the completion of the
Tenant's Works if there shall be no breach of any of the terms or
conditions contained in Clause 5.3.
5.4 TELEPHONE INSTALLATIONS
The Tenant shall make arrangement with the Hong Kong Telephone Company
Limited with respect to the installation of telephones in the Premises Provided
that subject to availability of telephone lines already installed by the
Landlord within the Buildings, such arrangement shall be made by the tenant
jointly with the Landlord and such installations shall be in accordance with the
requirements of the Hong Kong Telephone Company Limited and shall not unduly
interfere with the use and enjoyment of the Buildings (other than the Premises)
by the owners and/or tenants thereof.
5.5 GOOD REPAIR OF INTERIOR
With the exception of maintenance required as a result of inherent
defects of a structural nature, the Tenant shall keep all the interior of the
Premises including the raised flooring and cables and wirings installed
thereunder, interior plaster or other finishing material or rendering to walls,
floors and ceilings of the Premises and the Landlord's fixtures and fittings
therein and all additions thereto including all doors, windows, window frames,
electrical installations and wiring, light fittings, fire alarm and
fire-fighting installations and all cables, conduits, sanitary and water
apparatus comprised in and used solely for the benefit of the Premises
(hereinafter collectively called the Landlord's Fixtures and Installations) and
all other fixtures fittings and additions in or at the Premises in good, clean,
substantial and proper repair and condition and properly preserved and painted
as may be appropriate and when from time to time required by the Landlord or any
relevant Government authority and so maintain the same at the expense of the
Tenant and deliver up the same to the Landlord at the expiration or sooner
determination of the Term in like condition, fair wear and tear excepted.
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5.6 REPAIR OF GLASS CURTAIN WALL
The Tenant shall pay to or reimburse the Landlord such reasonable amount
as may be payable to the Manager or other owners of the Buildings (other than
the Premises) under the Deed of Mutual Covenant in respect of all broken or
damaged part or parts of the glass curtain wall corresponding to the Premises or
other part or parts of the Buildings (if any) whether used exclusively by the
Tenant or not if the damage is caused by the act, default, neglect or omission
of the Tenant or any of its servants, agents, employees, contractors or
licensees.
5.7 ELECTRICAL INSTALLATIONS
The Tenant shall repair and replace any electrical wiring, installation
or piping within the Premises or used exclusively by the Tenant if the same
becomes dangerous or unsafe unless the damages are caused by inherent defects in
the wiring, installation or piping made by the Landlord or if so required by the
Landlord or the relevant utility company and in so doing or in carrying out any
other works thereto at the Tenant's own instigation the Tenant shall use only
the contractor previously nominated or approved by the Landlord in writing for
the purpose. The Tenant shall permit the Landlord or its agents or servants to
test the Tenant's wiring and/or piping in the Premises at any time. The Tenant
shall indemnify the Landlord and hold it harmless against any cost damage claim
demand action or proceeding resulting from or attributable to any mal-function
or disrepair of the electrical installation, wiring or piping in the Premises.
The Tenant shall not, without the prior written consent of the Landlord (such
consent not to be unreasonably withheld), install or alter or permit or suffer
to be made any alterations in or additions to the electrical wiring,
installation or piping.
5.8 GOOD REPAIR OF TOILETS & WATER APPARATUS
The Tenant shall maintain all toilets sanitary and water apparatus as are
located within the Premises (or elsewhere in the Buildings if used exclusively
by the Tenant) in good, clean, substantial and proper repair and condition at
all times during the Term and in accordance with the Regulations of the Public
Health Department or other relevant Government authority, fair wear and tear
excepted.
5.9 CLEANING CONTRACTORS
The Tenant shall keep the Premises and every part thereof at all times in
a clean and sanitary state and condition and dispose of all refuse and rubbish
in accordance with the House Rules and shall not bring or keep or suffer to be
brought or kept in or on the Premises anything which in the opinion of the
Landlord is or may become unclean unsightly or detrimental to the Premises. The
Tenant shall, at its own expense, employ cleaning contractors nominated or
approved by the Manager pursuant to the Deed of Mutual Covenant for the cleaning
of the Premises. The Tenant shall enter into a separate agreement with such
cleaning contractors and make all payments direct to such cleaning contractors.
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The Landlord shall not assume any responsibility for the acts, omissions or
neglect of such cleaning contractors and the Tenant shall fully indemnify the
Landlord against all claims costs and damage rising out of the acts, omissions
or neglect of such cleaning contractors.
5.10 CLEANING OF DRAINS
The Tenant shall pay to or reimburse the Landlord forthwith on demand the
reasonable cost incurred by the Landlord in cleaning, clearing, repairing or
replacing any of the drains pipes or sanitary or plumbing apparatus choked,
blocked or stopped up owing to the improper or careless use or neglect thereof
by the Tenant or its servants, agents, employees, contractors or licensees and
keep the Landlord fully indemnified against any cost claim or damage caused
thereby or arising therefrom.
5.11 MAKING GOOD DEFECTS
The Tenant shall notify the Landlord of and make good at the expense of
the Tenant all defects or damage caused by the act, default, neglect or omission
of the Tenant or any of its servants, agents, employees, contractors or
licensees in and to the Premises and other parts of the Buildings.
5.12 NOTICE OF ENTRY FOR REPAIR OF ADJOINING PREMISES
The Tenant shall permit the Landlord, the Manager and their duly
authorized surveyor(s) or agent(s) and all other persons duly authorized by the
Landlord and/or the Manager with or without workmen or others and with or
without appliances at all reasonable times and upon written notice (except in
case of emergency) to enter upon the Premises for the purpose of executing
repairs and/or alterations on any adjoining premises.
5.13 TO PERMIT LANDLORD TO ENTER & VIEW
The Tenant shall permit the Landlord, the Manager and their respective
agents and all other persons duly authorized by the Landlord and/or the Manager
with or without workmen or others and with or without appliances at all
reasonable times and upon written notice (except in case of emergency) to enter
upon the Premises to view the condition or user thereof or to inspect any works
in progress and to take inventories of the fixtures and fittings therein. The
Landlord may serve a notice on the Tenant requiring the Tenant to execute such
repair for which the Tenant is liable hereunder and/or remedy breach of such
covenant herein contained on the part of the Tenant to be observed within
fourteen (14) of the date of the notice (or sooner if required) and the Tenant
shall pay to the Landlord forthwith on demand all the expenses (including
solicitors' costs and surveyor's fees) incurred by the Landlord in connection
with the preparation and service of such notice Provided that in the event of an
emergency the Landlord and/or the Manager or their respective servants or agents
may enter the Premises without notice, forcibly if necessary. For the better
observance of this provision, if the Tenant is requested by the Manager under
the Deed of Mutual Covenant
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to furnish to the Manager duplicate of the keys to the entrance doors of the
Premises and the Tenant is prepared to accept such request, the Tenant shall
furnish to the Manager duplicate of the keys to the entrance doors of the
Premises. The Tenant shall further inform the Landlord as to the presence and
nature of any security system installed by the Tenant in the Premises.
5.14 TO EXECUTE REPAIRS ON RECEIPTS OF NOTICE
The Tenant shall, on receipt of any notice issued by the Landlord
pursuant to Clause 5.13 specifying any works or repairs which are required to be
done and for which the Tenant is liable hereunder, forthwith comply with the
notice, put in hand and execute the same with all possible despatch. If the
Tenant shall not within fourteen (14) days of the date of the notice (or sooner
if required) proceed diligently with the execution of such works or repairs, the
Tenant shall permit the Landlord or its authorized representatives with all
necessary workmen, tools, materials, equipment and appliances to enter upon the
Premises and execute such works or repairs and the costs thereof shall be a debt
due from the Tenant to the Landlord, be repayable by the Tenant forthwith on
demand by the Landlord and be forthwith recoverable from the Tenant by action.
5.15 PROSPECTIVE TENANTS
During the last six (5) months of the Term, the Tenant shall allow the
Landlord to show the Premises to prospective tenants or purchasers and allow the
Landlord to exhibit without interference upon such part of the Premises as the
Landlord shall think fit a notice indicating that the Premises are to become
vacant and containing such other information in connection therewith as the
Landlord shall require and the Tenant shall not conceal such notice.
5.16 PROTECTION FROM TYPHOON
The Tenant shall take all reasonable precautions to protect the interior
of the Premises against damage by storm, typhoon, heavy rainfall or the like and
in particular to ensure that all exterior doors (if any) and windows are
securely fastened upon the threat of such adverse weather conditions.
5.17 SERVICE ENTRANCES
The Tenant shall load and unload goods, equipment, furniture or large or
heavy objects only at such times and through such goods lifts, entrances and
staircases as may from time to time be designated by the Landlord or the Manager
for such purposes Provided always that under no circumstances shall passenger
lifts be used at any time for delivery purpose.
5.18 COMMON AREAS
The Tenant shall indemnify the Landlord against the cost of any
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damage caused to any part of the common areas of the Buildings occasioned by
act, default, neglect or omission of the Tenant or any of its servants, agents,
employees, contractors or licensees.
5.19 TENANT'S SERVANTS AGENTS ETC
The Tenant shall be liable for the acts, defaults, neglects and omissions
of the Tenant's servants, agents, employees, contractors or licensees (including
any person present in, using or visiting the Premises with the consent of the
Tenant, express or implied) as if they were the acts, defaults, neglects and
omissions of the Tenant and indemnify fully the Landlord against all costs,
claims, demands, expenses or liability to any third party or loss in connection
therewith.
5.20 DIRECTORY BOARDS
The Tenant shall pay to the Landlord forthwith upon demand the cost of
affixing, repairing, altering or replacing as necessary the Tenant's name on the
directory boards provided by the Landlord or the Manager.
5.21 SECURITY
The Tenant shall ensure that the Tenant's own security system (if any)
within and at the entrance of the Premises is at all times compatible with and
if so required by the Landlord linked up to the security system (if any) for the
Buildings provided and operated by the Landlord and/or the Manager.
5.22 CHANGE OF NAME
Without prejudice to Clause 6.16, the Tenant shall, in the event of the
Tenant changing its name, notify the Landlord at least seven (7) days prior to
such change of name.
5.23 YIELD UP PREMISES & HANDOVER
The Tenant shall quietly yield up the Premises and hand over the same
together with the Landlord's Fixtures and Installations and other fixtures
fittings and additions (if any) therein and thereto at the expiration or sooner
determination of the Term in good, clean and substantial repair and condition
substantially the same as at the commencement of this Lease (fair wear and tear
excepted) notwithstanding any rule of law or equity to the contrary Provided
that where any alterations or installations of any fixtures or additions to the
Premises have been made during the Term with or without the Landlord's written
consent, the Landlord may at its absolute discretion require the Tenant at its
own expense to reinstate, remove or do away with such alterations fixtures or
additions or such part or portion thereof as the Landlord may require and make
good and repair in a proper and workmanlike manner any damage to the Premises
and/or the Landlord's Fixtures and Installations as a result thereof before
delivering up the Premises to the Landlord. The Landlord may at its absolute
discretion further require the Tenant at
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its own expense to remove its own trade fixtures and trade equipment and make
good all damages to the Premises to the reasonable satisfaction of the Landlord
including damage to the fixtures fittings and decoration within the Premises and
the Buildings caused by such removal.
5.24 INFORM LANDLORD OF DAMAGE
The Tenant shall give notice in writing to the Landlord and the Manager
or their respective agents immediately of any damage that may be caused to the
Premises or suffered by any person therein or thereon and of any accident to or
defects in the electrical installation, wiring or piping, fittings, fixtures or
other facilities provided by the Landlord.
5.25 INDEMNIFICATION OF LANDLORD
Except in the case of damage or injury caused by inherent defects of a
structural nature, the Tenant shall be wholly responsible for any damage or
injury caused to any person whomsoever or any property whatsoever whether
directly or indirectly through the defective or damaged condition of any part of
the interior of the Premises or any fixtures, fittings, installations and
additions therein including the Landlord's Fixtures and Installations for the
repair of which the Tenant is responsible hereunder or through or in any way
owing to the spread of fire or smoke or the leakage or overflow of water from
the Premises or any part thereof or through the act, neglect, default or
omission of the Tenant or any of its servants, agents, employees, contractors or
licensees and shall make good the same by payment or otherwise and indemnify the
Landlord against all costs, claims, demands, actions and legal proceedings
whatsoever made upon the Landlord by any person in respect of any such loss
damage or injury and all costs and expenses incidental thereto. For the better
observance of this Clause, the Landlord may, but shall not be obliged to, effect
at the Tenant's expense insurance cover in respect of such risks in accordance
with the provisions of this Clause 5.25 with a reputable insurance company
acceptable to the Landlord.
5.26 TENANT'S INSURANCE
The Tenant shall effect and maintain during the Term insurance cover in
respect of the following:-
(a) Third party liability
In respect of liability for loss injury or damage to any person or
property whatsoever caused through or by any act, neglect, default
or omission of the Tenant which might give rise to a claim for
indemnity pursuant to Clause 5.25 hereof.
(b) Glass
All glass, if any, now or hereafter on or in the Premises
excluding the glass curtain wall for its full replacement
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value.
(c) Water Damage
Against damage to the Landlord's Fixtures and Installations to the
full insurable value occurring in respect of the use or misuse of
the fire-fighting installation installed within the Premises or
the incursion of water therein.
(d) Tenants Fittings
The Tenant's fittings, goods, personal effects, stock and
equipment within the Premises against fire and extraneous perils
for their full replacement value.
The policy of insurance shall be effected with an insurance company approved by
the Landlord, such approval not to be unreasonably withheld and shall be
endorsed to show the Landlord as registered owner of the Premises and shall be
in an amount of not less than that set out in the Fifth Schedule hereto payable
on each claim and shall contain a clause to the effect that the insurance cover
thereby effected and the terms and conditions thereof shall not be cancelled,
modified or restricted without the prior written consent of the Landlord. The
Tenant hereby further undertakes to produce to the Landlord as and when required
by the Landlord such policy of insurance together with a receipt for the last
payment of premium and a certificate from the insurance company that the policy
is fully paid up and in all respects valid and subsisting.
6. TENANT'S NEGATIVE COVENANTS
6.1 INJURY TO WALLS
The Tenant shall not, without the prior written consent of the Landlord
(which may, in the absolute discretion of the Landlord, be withheld or granted
upon such terms and conditions as the Landlord may impose), cut, maim, injure,
drill into, mark or deface or permit or suffer to be cut, maimed, injured,
drilled into, marked or defaced any doors (other than those installed by the
Tenant), windows, window-frames, partition or structural walls (other than those
internal partition walls erected by the Tenant), glass curtain walls, ceilings,
raised floor, beams, structural members or other part of the fabric of the
Premises or any of the plumbing or sanitary or air-conditioning apparatus or
installations included therein or lay or use any floor covering or do anything
which may damage or penetrate the existing raised flooring or slab.
6.2 ALTERATION TO EXTERIOR
The Tenant shall not, without the prior written consent of the Landlord
(which may, in the absolute discretion of the Landlord, be withheld or granted
upon such terms and conditions as the Landlord may
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impose), affix or attach anything or paint or make any alteration whatsoever to
the exterior of the Premises or the common areas or allow anything to be
affixed, attached, painted, suspended or hung outside the Premises or drop
anything from the Premises.
6.3 INSIDE FACES OF WINDOWS
The Tenant shall not paint, spray, put on or adhere any thing or
substance on the inside or outside faces of the windows or the window frames or
the glass curtain walls of the Premises.
6.4 NUISANCE
The Tenant shall not cause or produce or suffer or permit to be produced
on or in the Premises any sound or noise or vibration (including sound produced
by broadcasting from television, radio or any apparatus or instrument capable of
producing or reproducing music or sound or vibration) or other acts or things in
or on the Premises which is or are or may be or become a nuisance or annoyance
to the tenants or occupiers of adjacent or neighbouring premises or to users or
customers of the same or to the Landlord or which in the opinion of the Landlord
may prejudicially affect or depreciate the Premises or the Buildings or any
adjacent or neighbouring premises. It is hereby agreed that a persistent breach
by the Tenant of this Clause shall amount a breach of this Lease which will
entitle the Landlord to exercise its right of re-entry hereunder.
6.5 AUCTIONS & SALES
The Tenant shall not conduct or permit any sale to the public by auction,
bankruptcy, close-out or other sale of things or properties of a similar nature
to take place on the Premises.
6.6 USER
(a) The Tenant shall not use the Premises or any part thereof for any
purpose other than as office Provided that no warranty is given or
deemed to be given by the Landlord as to the fitness of the
Premises for such use. In particular, the Tenant shall not alter
the lavatory comprised in the Premises for any other use.
(b) The Tenant shall not use or cause or permit or suffer to be used
any part of the Premises for gambling or for any illegal, immoral
or improper purpose or in any way so as to cause a nuisance,
annoyance, inconvenience, damage or danger to the Landlord or the
tenants or occupiers of adjacent or neighbouring premises.
(c) The Tenant shall not tout or cause or permit or suffer any touting
or soliciting for business or the distribution of any pamphlet,
notice or advertising matter outside the Premises or anywhere
within the Buildings (except inside
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the Premises) by any of the Tenant's servants, agents, employees,
contractors or licensees.
(d) The Tenant shall not use the Premises or any part thereof as
sleeping quarters or as domestic premises within the meaning of
the Landlord and Tenant (Consolidation) Ordinance or similar
legislation for the time being in force and the Tenant shall not
allow any person to remain on the Premises overnight other than
for working purposes and with prior notice to the Landlord or the
Manager Provided that the Tenant may post watchmen to look after
the contents of the Premises and the names of the watchmen shall
be registered with the Landlord.
(e) Except for the reheating of pre-prepared food for consumption by
the Tenant's employees by an approved microwave oven, the Tenant
shall not cook, prepare, deliver or permit or suffer to be cooked
or prepared or delivered any food in the Premises save with the
prior written consent of the Landlord or permit any offensive or
unusual odours (as determined by the Landlord absolutely) to be
produced upon or emanate from the Premises.
(f) The Tenant shall not keep or permit or suffer to be kept any
animals or pets inside the Premises and shall take all such steps
and precautions to the satisfaction of the Landlord to prevent the
Premises or any part thereof from becoming infested by termites,
rats, mice, cockroaches or any other pests or vermin and for the
better observance of this provision, the Landlord may require the
Tenant to effect pest control for the Premises at the Tenant's
cost and expense at such intervals as the Landlord or any relevant
Government authority may direct by employing such pest
extermination contractors as the Landlord may approve, such
approval not to be unreasonably withheld.
6.7 HEAVY MACHINERY
The Tenant shall not, without the prior written consent of the Landlord
(such consent not to be unreasonably withheld but may be granted subject to such
reasonable conditions as the Landlord may impose), install or cause or permit or
suffer to be installed any equipment apparatus or machinery or any part thereof
which imposes a weight on any part of the flooring in excess of five (5) KPa or
which requires any additional electrical wiring or piping or which consumes
electricity or gas not metered through the Tenant's separate meter. The Landlord
shall be entitled to prescribe the maximum weight and permitted location of
safes and other heavy equipment and to require that the same stand on supports
of such dimensions and material to distribute the weight thereof as the Landlord
may deem necessary and the Tenant shall reimburse the Landlord all costs,
charges and expenses incurred by the Landlord in making such prescription.
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6.8 MANUFACTURE & STORAGE OF MERCHANDISE
The Tenant shall not use the Premises for the manufacture of goods or
merchandise or for the storage of goods or merchandise other than as samples or
exhibits reasonably required in connection with the Tenant's business carried on
therein or keep or store or cause or permit or suffer to be kept or stored any
extra-hazardous, inflammable or dangerous goods within the meaning of the
Dangerous Goods Ordinance and the regulations thereunder.
6.9 OBSTRUCTION IN PASSAGES
The Tenant shall not place or leave or suffer or to permit to be placed
or left by any of its servants, agents, employees, contractors or licensees any
boxes, furniture, articles or rubbish in the entrance or any of the staircases,
passages or landings or other parts of the Buildings used in common with other
tenants or the Landlord or otherwise encumber the same. The Tenant hereby agrees
to keep the Landlord indemnified against all losses, claims, damages or expenses
suffered or incurred by the Landlord as a result of a breach of this Clause.
Without prejudice to any other remedy it may have under this Lease, the Landlord
or any of its servants or agents may without any prior notice to the Tenant
remove any such obstruction and dispose of the same as it may in absolute
discretion think fit without incurring any liability therefor to the Tenant or
any other person whomsoever and the Tenant shall pay to the Landlord forthwith
on demand all costs and expenses incurred in connection with such removal.
6.10 GOODS & MERCHANDISE OUTSIDE THE PREMISES
The Tenant shall not place expose or leave or permit or suffer to be
placed exposed or left for display sale or otherwise any goods or merchandise or
thing whatsoever upon or over the ground or passages outside the Premises.
6.11 AIR-CONDITIONING
(a) The Tenant shall not install air-conditioning plant, machinery or
equipment in addition to or in place of those provided by the
Landlord.
(b) Where any air-conditioning plant, machinery or equipment for
cooling or recirculating air is installed in or about the Premises
(whether by the Landlord or the Tenant with the Landlord's
approval), the Tenant shall to the extent of the Tenant's control
over the same at all times use and regulate the same to ensure
that the air-conditioning plant, machinery or equipment is
employed to the best advantage in the conditions from time to time
prevailing.
(c) Where air-conditioning service is required by the Tenant outside
the normal business hours (i.e. from 8:00 a.m. to 6:30 p.m. every
day (Sundays and public holidays excluded)
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for Mondays to Fridays and from 8:00 a.m. to 2:00 p.m. on
Saturdays which are not public holidays) and is provided by the
Manager on the Tenant giving the Manager reasonable advance notice
of the Tenant's requirements, the Tenant shall pay to the Landlord
and/or the Manager forthwith on demand or reimburse the Landlord
such amount as the Manager may, in accordance with the Deed of
Mutual Covenant, charge for such additional air-conditioning
service Provided that nothing herein shall oblige the Landlord to
arrange for such additional air-conditioning service the provision
whereof is governed by the Deed of Mutual Covenant.
6.12 SIGNS
The Tenant shall not exhibit or display on or affix to the interior or
exterior of the Premises so as to be visible from outside the Buildings any
writing, sign, signboard or other device whether illuminated or not or affix any
writing, sign, signboard or other device in, at or above any common area, lobby,
landing, passage or corridor of the Buildings Provided always that the Tenant
shall be entitled to have its name and business displayed in lettering and/or
characters to a design and standard of workmanship approved by the Landlord on a
signboard or name-plate at the entrance of the Premises. The Landlord and/or the
Manager or their respective authorized agents shall have the right to remove at
the expense of the Tenant any signboard, sign, name-plate and decorative device
associated therewith affixed or put up or displayed without the prior written
consent of the Landlord.
6.13 AERIALS
The Tenant shall not erect any aerial on the roof or walls of the
Buildings or on the ceiling or walls of the Premises or interfere with, remove,
dismantle or alter the common aerials (if any) provided by the Landlord.
6.14 PARKING
The Tenant shall not park in, obstruct or otherwise use or permit any of
its servants, agents, employees, contractors or licensees to park in, obstruct
or otherwise use those areas of the Buildings allocated to the parking or
movement of or access for vehicles or designated as loading/unloading areas
otherwise than in accordance with the permissions and directions of the Landlord
and/or the Manager or as permitted under the House Rules.
6.15 BREACH OF INSURANCE POLICY
The Tenant shall not do or cause or permit or suffer to be done any act
or thing whereby the policy or policies of insurance on the Premises and/or the
Buildings against loss or damage by fire and/or other insurable risks and/or
claims by third parties for the time being subsisting may become void or
voidable or whereby the rate of premium or
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premia thereon may be increased and the Tenant shall pay to the Landlord
forthwith on demand all sums paid by the Landlord by way of increased premium or
premia thereon and all expenses incurred by the Landlord in and about any
renewal of such policy or policies arising from or rendered necessary by a
breach by the Tenant of this Clause.
6.16 NO SUBLETTING
The Tenant shall not assign, underlet, part with the possession of or
transfer the Premises or any part thereof or any interest therein or permit or
suffer any arrangement or transaction whereby any person who is not a party to
this Lease obtains the use, possession, occupation or enjoyment of the Premises
or any part thereof irrespective of whether any rental or other consideration is
given therefor. The lease created hereby shall be personal to the Tenant named
in this Lease. Without limiting the generality of the foregoing, the following
acts and events shall, unless approved in writing by the Landlord, be deemed to
be breaches of this Clause:-
(a) In the case of the Tenant being a partnership, the taking in of
one or more new partner whether on the death or retirement of an
existing partner or otherwise.
(b) In the case of the Tenant being an individual (including a sole
surviving partner of a partnership tenant), the death, insanity or
other disability of that individual to the intent that no right to
use, possess, occupy or enjoy the Premises or any part thereof
shall vest in the executors, administrators, personal
representatives, next of kind, trustee or committee of such an
individual.
(c) In the case of the Tenant being a corporation, the take-over,
reconstruction, amalgamation, merger, voluntary liquidation or
change in the person or persons in whom the majority of its voting
shares are vested or who otherwise has/have effective control
thereof.
(d) The giving by the Tenant of a power of attorney or similar
authority whereby the donee of the power obtains the right to use,
possess, occupy and enjoy the Premises or any part thereof or does
in fact use, possess, occupy or enjoy the same.
(e) The change of the business name of the Tenant.
6.17 COMMON FACILITIES, ETC.
The Tenant shall not make any alteration to or interfere or tamper or
permit its servants, agents, employees, contractors or licensees to make any
alteration to or interfere or tamper with any of the following other than in the
manner expressly permitted hereunder:-
(a) the raised flooring within the Premises;
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(b) the heating, ventilation and air-conditioning system for the
Buildings (including that part of system installed within the
Premises);
(c) the electrical installations for the Buildings;
(d) the fire services installations of the Buildings (including those
within the Premises);
(e) the installations for plumbing and drainage for the Buildings
(including those within the Premises);
(f) the building management system of the Buildings;
(g) the communication network which forms part of the Common
Facilities (as defined in the Deed of Mutual Covenant) of the
Buildings;
(h) the suspended ceiling of the Buildings (including that within the
Premises); and
(i) the conduits, pipes, wires, cables and ducts in, on or under the
Premises or the raised flooring therein serving or intended to
serve the Buildings or any adjoining or neighbouring property.
7. LANDLORD'S OBLIGATIONS
The Landlord hereby agrees with the Tenant as follows:-
7.1 QUIET ENJOYMENT
Subject to the Tenant duly paying the Rent and the other charges
hereinbefore mentioned on the days and in manner herein provided for and
observing and performing the agreements, stipulations, terms, conditions and
obligations herein contained, the Tenant shall have quiet possession and
enjoyment of the Premises during the Term without any interruption by the
Landlord or any person lawfully claiming under or through or in trust for the
Landlord.
7.2 CROWN RENT
The Landlord shall pay the Crown Rent, Property Tax and all other
expenses of a capital and non-recurrent nature attributable to or payable in
respect of the Premises.
7.3 MAIN STRUCTURE
The Landlord shall use best endeavours to procure that the Manager shall
keep the roof of the Buildings and the main structure and walls (including the
glass curtain walls) thereof and the mains, drains, pipes and cables therein in
a proper state of repair and condition
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Provided that the Landlord shall not be liable for breach of this Clause unless
and until prior written notice of any defect or want of repair shall have been
given by the Tenant to the Landlord and the Landlord shall have failed to notify
the Manager to carry out any such necessary repair after the lapse of a
reasonable time from the service of such notice.
7.4 AIR-CONDITIONING
The Landlord shall use its best endeavours to procure that subject to the
right of the Manager under the Deed of Mutual Covenant to change the hours for
air-conditioning services, the Manager shall provide air-conditioning services
to the Premises daily from 8:00 a.m. until 6:30 p.m. everyday (Sundays and
public holidays excluded) for Mondays to Fridays and from 8:00 a.m. to 2:00 p.m.
on Saturdays (which are not public holidays). If the Tenant shall require
additional air-conditioning services outside the times specified by the
Landlord, the Landlord shall use its best endeavours to procure that the Manager
shall provide the same to the Tenant on receiving reasonable notice of the
Tenants requirements. The charges for air-conditioning outside the times
specified by the Landlord shall be determined by the Landlord and/or the Manager
and notified to the Tenant from time to time.
7.5 FACILITIES
The Landlord shall use best endeavours to procure that the Manager shall
maintain the lifts, escalators, travelators, fire and security services
equipment, central air-conditioning system and other common facilities of the
Buildings in proper working order and keep the same in good repair.
7.6 COMPLIANCE WITH CONDITIONS
The Landlord shall comply with the provisions of the Conditions of Sale
or the Crown Lease under which the Landlord holds the Premises and shall not do
or permit any act or thing to be done (or omitted to be done) which results in
the whole or any part of the Premises being or becoming subject to re-entry
under the Conditions of Sale or the Crown Lease.
7.7 LANDLORD'S REPAIRS
The Landlord shall, upon receipt of the Tenants request therefor and
within a reasonable period, effect such repairs to the interior of the Premises
as shall be necessitated by damage caused by any defects or want of repair in
the structure of the Buildings or any part thereof or any other services or
facilities if the Landlord is liable for such repairs hereunder.
8. EXCLUSIONS
8.1 It is hereby expressly agreed and declared that the Landlord
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shall not in any circumstances be liable to the Tenant or any other person
whomsoever:-
(a) Lifts, Air-Conditioning & Other Common Facilities - in respect of
any injury, loss, damage or loss of business whatsoever which may
be suffered or sustained by the Tenant or any other person or to
any property whatsoever caused by or through or in any way owing
to any malfunction, defect in or breakdown of the lifts,
escalators, travelators, fire and security services, central
air-conditioning system, satellite and the ancillary distribution
system, backbone distribution system, the "High Speed Data Link"
system or any other services or facilities provided in the
Building or any failure, malfunction, explosion, variation,
interruption or suspension of electricity or water supply or any
other services or services provided in the Building; or
(b) Fire & Overflow Water - in respect of any injury, loss, damage or
loss of business whatsoever which may be suffered or sustained by
the Tenant or any other person or to any property whatsoever
caused by or through or in any way owing to typhoon, landslide,
subsidence of the ground, the escape of fumes, smoke, fire or any
other substance or thing or the overflow of water or vibrations
from anywhere within the Buildings or in the neighborhood or the
influx of rain water or sea water into the Buildings or the
Premises or the activity of rats or other vermin in the Buildings
or the act, neglect, default or omission of the tenants and
occupiers of the other parts of the Buildings or the defective or
damaged condition of the Premises or the Landlord's Fixtures and
Installations or any part thereof or dropping or falling of any
article whatsoever from the Buildings; or
(c) Security - for the security or safekeeping of the Premises or any
contents therein and in particular but without prejudice to the
generality of the foregoing, the provision by the Landlord and/or
the Manager of watchmen and caretakers or any mechanical or
electrical alarm systems (if any) of whatever nature shall not
create any obligation on the part of the Landlord as to the
security of the Premises or any contents therein and the
responsibility for the safety of the Premises and the contents
thereof shall at all times rest with the Tenants; or
(d) Vehicles - for the supervision of or for any damage or loss to
vehicles or accessories or injury to persons or any other damage
resulting therefrom,
and the Tenant shall indemnify and keep the Landlord fully indemnified against
all claims and demands whatsoever made upon the Landlord by any
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of the servants, agents, employees, contractors or licensees of the Tenant or
any other person claiming through or under the Tenant as a result of any such
loss or damage or injury aforesaid nor shall the Rent and other charges
hereinbefore mentioned or any part thereof abate or cease to be payable on
account of the happening of any of the foregoing.
9. SUSPENSION OF RENT IN CASE OF FIRE ETC.
If:-
(a) the Premises or the Buildings or any part thereof shall at any
time during the Term be destroyed or damaged or become
inaccessible or uninhabitable owing to fire, water, storm,
typhoon, defective construction, white ants, earthquake,
subsidence of the ground or any calamity beyond the control of the
Landlord and not attributable to the act, default, neglect or
omission of the Tenant or any of its servants, agents, employees,
contractors or licensees so as to render the Premises unfit for
commercial use in accordance with Clause 2.1; or
(b) at any time during the Term the Premises or the Buildings shall be
condemned as a dangerous structure or a demolition order or
closing order shall become operative in respect of the Premises or
the Buildings so as to prevent the occupation of the Premises the
happening of which is not attributable to the act, default,
neglect or omission of the Tenant or any of its servants, agents,
employees, contractors or licensees,
then the Rent hereby reserved or a fair proportion thereof according to the
nature and extent of the damage sustained or the order made shall after the
expiration of the then current calendar month be suspended until the Premises
shall be reinstated or fit for the use as aforesaid or the said order lifted, as
the case may be, Provided that:-
(i) the Landlord shall not be obliged to reinstate the Premises or the
Buildings or carry out any repairs thereto if, by reason of the
condition of the Premises or any local regulations or other
circumstances beyond the control of the Landlord, it is not
practicable or reasonable so to do; and
(ii) should the Premises or the Buildings not have been reinstated in
the meantime, either the Landlord or the Tenant may at any time
after four (4) months from the date of occurrence of such damage
or the said order give to the other of them a notice in writing to
determine this Lease and thereupon the same and everything herein
contained shall cease and be of no effect as from the date of such
notice but without prejudice to the rights and remedies of either
party against the other in respect of any
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antecedent claim or breach of the agreements, stipulations, terms
and conditions herein contained or of the Landlord in respect of
the Rent payable hereunder prior to the date off such notice.
In the event of any disagreement between the parties hereto on the application
of this Section, the matter shall be referred to a single Chartered Surveyor
appointed by mutual agreement or failing agreement to a single Chartered
Surveyor nominated by the Chairman for the time being of the Royal Institution
of Chartered Surveyors (Hong Kong and China branch) and the decision of the
Chartered Surveyor who shall be acting as an arbitrator shall be final and
binding. The costs of such appointment of the Chartered Surveyors shall be borne
by the Landlord and the Tenant in equal shares.
10. DEFAULT
It is hereby expressly agreed and declared as follows:-
10.1 If:-
(a) the Rent and/or any of the other charges payable hereunder or any
part thereof shall be in arrear for fourteen (14) days after the
same shall have become payable (whether formally demanded or not);
or
(b) the Tenant shall suspend business without the Landlord's prior
written consent; or
(c) there shall be any other breach or non-performance of any of the
stipulations, conditions or agreements herein contained and on the
part of the Tenant to be observed or performed; or
(d) the Tenant shall become bankrupt or enter into composition with
his creditors generally or being a corporation go into liquidation
whether compulsory or voluntary (save for the purposes of
amalgamation or reconstruction approved by the Landlord) or shall
suffer a receiver to be appointed; or
(e) the Tenant shall suffer execution to be levied upon the Premises
or otherwise on the Tenant's goods in Hong Kong,
then and in any such case it shall be lawful for the Landlord at any time
thereafter to re-enter on and upon the Premises or any part thereof in the name
of the whole and thereupon this Lease shall absolutely determine but without
prejudice to any right of action by the Landlord in respect of any outstanding
breach or non-observance or non-performance by the Tenant of any of the terms of
this Lease. A written notice served by the Landlord on the Tenant to the effect
that the Landlord thereby exercises the power of re-entry herein contained shall
be a full and sufficient
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exercise of such power without physical entry on the part of the Landlord
notwithstanding any rule of law or equity to the contrary.
10.2 Notwithstanding anything herein contained if the Rent, management,
air-conditioning or other charges or moneys herein reserved or any part or parts
thereof shall be in arrears (hereinafter referred to as "the Arrears") and if
the Tenant persists in its failure to pay the same after three (3) days' notice
in writing is given by the Landlord, the Landlord shall be entitled to:-
(a) recover from the Tenant as a debt the expenses incurred by the
Landlord in the course of recovering the Arrears including without
limitation:-
(i) such sum as the Landlord shall reasonably determine being
collection charges for the additional work incurred by the
Landlord's staff and/or the Manager (as the case may be) in
collecting the Arrears;
(ii) all legal charges and expenses on an indemnity basis
incurred by the Landlord for the purpose of recovering the
Arrears;
(iii) all other fees paid to debt-collectors appointed by the
Landlord for the purpose of collecting the Arrears; and
(b) disconnect or discontinue the supply of services to the Premises
and/or to the Tenant such as air-conditioning services, water,
gas, electric power, management and other services forthwith
without incurring any liability to the Tenant for any loss or
damage suffered by the Tenant as a result thereof;
Provided Always that the rights and remedies given to the Landlord by this
Clause shall be deemed cumulative remedies and shall not prejudice any right of
action or any remedy of the Landlord for the recovery of any Rent or money due
to the Landlord from the Tenant.
10.3 Any demand for or acceptance of any Rent by the Landlord or its agents
hereunder shall not be deemed to operate as a waiver by the Landlord of any
right to proceed against the Tenant in respect of any breach, non-observance or
non-performance by the Tenant of any of the agreements, stipulations, terms and
conditions herein contained and on the part of the Tenant to be observed and
performed and any such breach, non-observance or non-performance shall be deemed
to be a continuing breach of covenant and the Tenant shall not be entitled to
set up any such demand for or acceptance of rent as a defence in any action for
forfeiture or otherwise.
10.4 For the purpose of this Lease, any act, default, neglect or omission of any
servant agent employee contractor or licensee (which term shall include any
person present in using or visiting the Premises with
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<PAGE> 30
the consent of the Tenant express or implied) of the Tenant shall be deemed to
be the act, default, neglect or omission of the Tenant and any act, default,
neglect or omission of any servant agent employee contractor or licensee of the
Landlord shall be deemed to be the act, default, neglect or omission of the
Landlord.
10.5 For the purposes of Part III of the Landlord and Tenant (Consolidation)
Ordinance or any statutory modification or re-enactment thereof for the time
being in force and of this Lease, the Rent and the management charges payable in
respect of the Premises shall be and be deemed to be in arrear if not paid in
advance at the times and in the manner hereinbefore provided for payment
thereof.
11. DEPOSIT
11.1 To secure the due payment of the Rent and the due performance and
observance of the terms and conditions herein contained and on the part of the
Tenant to be performed and observed, the Tenant shall on the signing hereof and
throughout the Term maintain a deposit ("the Deposit") in such sum as shall from
time to time be equivalent to the aggregate of:-
(a) two (2) months' Rent payable hereunder;
(b) three (3) months' management fees payable hereunder from time to
time (initially of the amount set out in Part 2 of the Fourth
Schedule hereto); and
(c) one (1) quarter's rates payable in respect of the Premises by
reference to rateable value of the Premises and pending valuation
of the Premises in accordance with the Rating Ordinance (Cap.
116), by reference to the interim valuation made by the Landlord
pursuant to Clause 4.3(c).
The Deposit shall remain deposited with the Landlord and shall not be withdrawn
throughout the Term and shall only be released as hereinafter provided. The
Landlord shall be entitled to deduct from the Deposit the amount of all losses
and damages sustained or incurred by the Landlord as a result of any breach,
non-observance or non-performance by the Tenant of any of the covenants, terms
or conditions herein contained. The Tenant shall forthwith on demand deposit
with the Landlord the amount so deducted or (as the case may be) an additional
amount to the intent that the Tenant shall at all times during the Term maintain
with the Landlord as Deposit a sum as shall be equivalent to the aggregate of:-
(i) two (2) months' Rent payable hereunder;
(ii) three (3) months' management fees payable hereunder from time to
time.
(iii) one (1) quarter's rates payable in respect of the Premises by
reference to rateable value of the Premises and pending valuation
of the Premises in accordance with the Rating
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<PAGE> 31
Ordinance (Cap. 116), by reference to the interim valuation made
by the Landlord pursuant to Clause 4.3(c).
11.2 The Deposit shall be retained by the Landlord until the expiration of the
Term and after all the Tenant's covenants terms and conditions shall have been
duly performed and observed, it shall be repaid to the Tenant without interest
or compensation within thirty (30) days from the date of the Tenant delivering
up vacant possession of the Premises together with all fixtures and fittings
therein and thereto to the Landlord or within thirty (30) days from the date of
the full and final settlement by the Tenant of all claims made by the Landlord
in respect of the Tenant's obligations hereunder whichever shall be the later
Provided that the Landlord may prior to refund of the Deposit require the Tenant
to produce receipts for rates and other utilities covering the Term or other
evidence showing that payment thereof has been made by the Tenant during the
Term.
12. BUILDING MANAGEMENT & REGULATIONS
12.1 CHANGE OF COMMON AREAS, ETC
The Landlord or the Landlord's agent shall have the right from time to
time and at any time without the same constituting an actual or constructive
eviction of the Tenant and without incurring any liability to the Tenant in
respect thereof but causing as little inconvenience as possible to the Tenant to
erect install, restrict and/or alter the arrangement and/or the location and/or
alter the arrangement and/or the accessibility of entrances, staircases,
landings, passages, doors, doorways, corridors, lobbies, lifts, escalators,
travelators, lavatories, counters, showcases or other common areas of the
Buildings or any services or apparatus or installations serving the Buildings.
12.2 CONFLICT WITH HOUSE RULES
The House Rules shall be supplementary to the terms and conditions
contained in this Lease and shall not in any way derogate from such terms and
conditions. In the event of conflict between such House Rules and the terms and
conditions of this Lease the terms and conditions of this Lease shall prevail.
12.3 NON-ENFORCEMENT
The Landlord or the Landlord's agent shall not be liable for any loss or
damage howsoever caused arising from any non-enforcement of the Deed of Mutual
Covenant or the House Rules or non-observance thereof by any person.
12.4 DESIGNATION OF COMMON AREAS
The Landlord and/or the Manager shall be entitled to restrict, designate,
cordon off and/or partition any part or parts of the common areas and/or the
common facilities for the sole use of any tenant and/or
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<PAGE> 32
the Manager and the Tenant shall not raise any objection thereto and shall not
have any recourse against the Landlord and/or the Manager in any manner
whatsoever.
12.5 ALTERATION AND DISPLAYS
The Landlord reserves the right from time to time to improve extend add
to or reduce the Buildings or any part thereof or in any manner whatsoever alter
or deal with the Buildings or any part thereof (other than the Premises)
Provided always that in exercising such right the Landlord will endeavour to
cause as little inconvenience to the Tenant as is practicable under the
circumstances.
12.6 NAME OF THE BUILDINGS
Subject to the terms of the Deed of Mutual Covenant, the Landlord hereby
reserves the right from time to time by giving not less than three (3) months'
notice to the Tenant to change the names of the two (2) blocks of office
premises and the podium comprised in the Buildings or any one or more of them
without thereby becoming liable to the Tenant, its servants, agents or licensees
for any damages, claims, costs or expenses suffered or incurred as a result of
or in connection with any such change.
12.7 PUBLIC ADDRESS SYSTEM
Notwithstanding anything herein contained or implied to the contrary, the
Landlord may provide and install a public address system throughout the common
areas and may play, relay or broadcast or permit any other person to play, relay
or broadcast recorded music or public announcement therein.
13. INTERPRETATION AND MISCELLANEOUS
13.1 CONDONATION NOT A WAIVER
No condoning, excusing or overlooking by the Landlord of any default,
breach, non-observance or non-performance by the Tenant at any time or times of
any of the agreements, stipulations, terms and conditions herein contained shall
operate as a waiver of the Landlord's rights hereunder in respect of any
continuing or subsequent default, breach, non-observance or non-performance or
so as to defeat or affect in any way the rights and remedies of the Landlord
hereunder in respect of any such continuing or subsequent default or breach and
no waiver by the Landlord shall be inferred from or implied by anything done or
omitted by the Landlord unless expressed in writing and signed by the Landlord.
Any consent given by the Landlord shall operate as a consent only for the
particular matter to which it relates and shall in no way be considered as a
waiver or release of any of the provisions hereof nor shall it be construed as
dispensing with the necessity of obtaining the specific written consent of the
Landlord in the future in respect of similar or other matters unless expressly
so provided.
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<PAGE> 33
13.2 SERVICE OF NOTICES
Any notice required to be served on the Tenant shall be sufficiently
served if delivered to or despatched by pre-paid post to or left at the Premises
or at the last known address of the Tenant. Any notice to be served on the
Landlord shall be sufficiently served if delivered to or despatched by pre-paid
post to the registered office of the Landlord. A notice sent by hand shall be
deemed to be given upon delivery to the addressee and a notice sent by pre-paid
post shall be deemed to be given two (2) days after the date of the notice.
13.3 LANDLORD AND TENANT LEGISLATION
To the extent that the Tenant may lawfully so do the Tenant hereby
expressly agrees to deprive himself of all rights (if any) to protection against
eviction or ejectment provided by any existing legislation or by any future
enactment in substitution or amendment thereof or addition thereto to the intent
that the Tenant shall deliver up vacant possession of the Premises to the
Landlord at the expiration or sooner determination of the Term hereby created
notwithstanding any rule of law or equity to the contrary.
13.4 GENDER, ETC.
In this Lease, if the context permits or requires, words importing the
singular number shall include the plural number and vice versa and words
importing the masculine feminine or neuter gender shall include the other of
them and references to any Ordinance, regulation or other statutory provision
include references to such Ordinance, regulation or provision as from time to
time modified, codified or re-enacted.
13.5 MARGINAL NOTES
The marginal notes, headings and index are intended for guidance only and
do not form a part of this lease nor shall any of the provisions of this Lease
be construed or interpreted by reference thereto or in any way affected or
limited thereby.
13.6 STAMP DUTY
The stamp duty and Land Registry registration fees payable on this Lease
and its counterpart shall be borne by the Landlord and the Tenant hereto in
equal shares. Each of the Landlord and the Tenant shall pay its own legal costs
of and incidental to the Lease and its counterpart.
13.7 EXCLUSION OF WARRANTIES
(a) This Lease and a Side Letter of even date herewith sets out the
full agreement reached between the parties hereto and no other
representations have been made or warranties given relating to the
Landlord, the Tenant, the Buildings or the Premises and if any
such representations have been
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<PAGE> 34
made or warranties given the same are hereby waived.
(b) Nothing herein contained shall confer on the Tenant any right,
interest, privilege, easement or appurtenance whatsoever mentioned
or referred to in Section 16(1) of the Conveyancing and Property
Ordinance (Chapter 219 of the Laws of Hong Kong) save those
expressly set out herein.
13.8 NO FINE OR PREMIUM PAID
The Tenant acknowledges that no fine premium key money or other
consideration has been paid by the Tenant to the Landlord or its agents for the
grant of this Lease.
13.9 INSPECTION OF PREMISES
The Tenant hereby declares and confirms that it has duly inspected the
Premises and is satisfied with the current state and condition of the Premises
and the fixtures and finishes therein. The parties hereto agree that the
Premises will be let to the Tenant by the Landlord in the state and condition as
at the date of the signing of this Lease and no warranty or representation
whatsoever has been given or is made by the Landlord or its agents regarding the
user of the Premises and the Tenant shall satisfy itself or shall be deemed to
have satisfied itself that they are suitable for the purpose for which they are
to be used and the Tenant hereby agrees that it will at its own expense apply
for any requisite licence or licences permit or permits from all Government or
Public Authorities in respect of the carrying on of the Tenant's business
therein and shall execute and comply with all ordinances, regulation, Orders,
Notices or Rules made by all competent Government or Public Authorities in
connection with the conduct of such business by the Tenant in the Premises And
the Tenant hereby further agrees to indemnify the Landlord in respect of any
breach by the Tenant of the aforesaid And in particular but without limitation
no warranty or representation is given or made by the Landlord or its agents
regarding:-
(a) the fittings and finishes or the installations and appliances (if
any) in the Premises and/or the Buildings;
(b) the state and condition of the Premises or the Buildings and the
user thereof; or
(c) the composition of the Buildings
13.10 JOINT & SEVERAL LIABILITY
Where more than one person are named in Part 3 of the First Schedule
hereto as the Tenant, the representations, warranties, agreements, undertakings
and covenants herein contained on the part of the Tenant shall be the joint and
several representations, warranties, agreements, undertakings and covenants of
such persons.
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<PAGE> 35
13.11 CONFIRMATION
The Confirmors hereby confirm that the Landlord may enter into this Lease
notwithstanding the acquisition of equitable interests over the Premises by the
Confirmors.
13.12 EARLY TERMINATION
If the Landlord shall at any time during the Term enter into an agreement
for the sale of the Buildings or any part thereof including the Premises, the
Landlord shall be entitled to give to the Tenant six (6) months' notice in
writing to terminate this Lease and immediately upon the expiration of such
notice, this Lease shall absolutely determine but without prejudice to any right
of action by the Landlord in respect of any outstanding breach or non-observance
or non-performance by the Tenant of any of the terms of this Lease.
13.13 SALE SUBJECT TO LEASE
For the avoidance of doubt, it is hereby expressly declared and agreed
that if the Landlord shall at any time during the Term sell the Premises, then
as from the date of completion of the sale of the Premises by the Landlord and
subject to novation to the purchaser of the Premises of the Landlord's
obligation in respect of the Deposit, all the rights, powers, remedies, duties,
obligations and liabilities of the Landlord hereunder shall pass to and be
vested in the purchaser of the Premises and the Landlord shall be absolutely
released and discharged from all duties, obligations and liabilities hereunder
Provided that this Clause shall not in any way prejudice or affect the rights of
the Landlord or the Tenant hereunder which shall have accrued prior to the date
of completion of the sale of the Premises by the Landlord.
13.14 SPECIAL CONDITIONS
For the avoidance of doubt, it is hereby agreed that this Lease shall be
read and construed on the basis that the special conditions, if any, set out in
the Sixth Schedule hereto form an integral part of this Lease. In the event of
conflict between such special conditions and the terms and conditions
hereinbefore provided, the special conditions shall prevail.
13.15 LAW
This Lease shall be governed by and construed in accordance with the Laws
of Hong Kong. The Tenant hereby irrevocably submits to the non-exclusive
jurisdiction of the courts of Hong Kong and the States of New York and Delaware.
The Tenant hereby agrees that a judgement in any proceedings brought in any such
court may be enforced in any other jurisdiction by suit on the judgement or in
any other manner permitted by law. The submission aforesaid is non-exclusive and
the Landlord reserves the right to proceed in any other jurisdiction having or
claiming or accepting jurisdiction in respect of this Lease.
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<PAGE> 36
THE FIRST SCHEDULE
THE LANDLORD: SHINE HILL DEVELOPMENT LIMITED whose registered office is
situate at 33rd Floor, Great Eagle Centre, 23 Harbour Road,
Hong Kong.
PART 2
THE CONFIRMORS: SHINE BELT LIMITED, FAIR PAGE LIMITED, PANHY
LIMITED and MAPLE COURT LIMITED all having their registered
offices situate at Suite 801, Asia Pacific Finance Tower,
Citibank Plaza, 3 Garden Road, Central, Hong Kong.
PART 3
THE TENANT: GOLDMAN SACHS (ASIA) FINANCE whose registered office is
situate at P.O. Box 309, Grand Cayman, Cayman Islands,
British West Indies.
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<PAGE> 37
THE SECOND SCHEDULE
PART 1
THE BUILDINGS: Two (2) towers of office/commercial buildings, one
of which consisting of forty-seven (47) storeys and
called "CITIBANK TOWER" and the other of which
consisting of thirty-seven (37) storeys and called
"ASIA PACIFIC FINANCE TOWER" together with the
podium called "CITIBANK PLAZA" on which "CITIBANK
TOWER" and "Asia Pacific Finance Tower
PART 2
THE PREMISES: All That the whole of the Thirty-seventh Floor of
"ASIA PACIFIC FINANCE TOWER" which is for the
purpose of identification shown coloured Pink on the
Plan attached hereto.
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<PAGE> 38
THE THIRD SCHEDULE
THE TERM: The period of five (5) years and seven (7) months
commencing on 15 October 1993 and expiring on 14 May
1999 (both days inclusive).
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<PAGE> 39
THE FOURTH SCHEDULE
PART 1
The Rent (excluding management charges):
<TABLE>
<CAPTION>
Rent Payable (in Hong Kong Dollars) per
Period calendar month and exclusive of rates
------ -------------------------------------
<S> <C>
From 15 October 1993
To 14 December 1993 rent free period
From 15 December 1993
To 14 May 1996 HK$931,336.00
From 15 May 1996
To 14 May 1999 New Rent determined in accordance with
Special Condition 2 of the Sixth Schedule
</TABLE>
PART 2
MANAGEMENT CHARGES: HK$62,366.25 per calendar month (subject to increase
in accordance with Clause 4.2 hereof)
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<PAGE> 40
THE FIFTH SCHEDULE
INSURED AMOUNT
(a) THIRD PARTY LIABILITY
(i) HK$5,000,000.00 for any one (1) accident; and
(ii) unlimited cover for the insured period.
(b) GLASS The insured amount to be approved by the Landlord.
(c) WATER DAMAGE AND TENANT'S FITTINGS Minimum of HK$500.00 per square foot
of lettable area or a lump sum of HK$500,000.00, whichever is the
greater.
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<PAGE> 41
THE SIXTH SCHEDULE
SPECIAL CONDITIONS
1. RENT FREE PERIOD
The Tenant shall be entitled to occupy the Premises for the first two (2)
months of the Term (i.e. from 15 October 1993 to 14 December 1993) rent-free
Provided that the Tenant shall pay management charges, rates and utility charges
in accordance with the provisions of this Lease during the said period and
Provided that any delay in the completion of the fitting out work during the
said period caused by any reason whatsoever shall not in any way release the
Tenant from its obligations hereunder to pay the Rent, management charges, rates
and utility charges in accordance with the provisions of this Lease.
2. NEW RENT
2.1 The New Rent referred to in the Fourth Schedule shall be determined in
accordance with the provisions of this Paragraph 2.
2.2 The New Rent shall be determined by agreement between the Landlord and the
Tenant and such agreement shall be recorded in writing signed by the Landlord
and the Tenant.
2.3 If such agreement cannot be reached between the Landlord and the Tenant one
(1) month before the commencement of the period in respect of which the New Rent
is payable (hereinafter called "THE NEW RENT PERIOD"), the matter shall be
referred to an independent surveyor and valuer (hereinafter called "THE VALUER")
to be appointed by the Landlord and the Tenant within one (1) month before the
commencement of the New Rent Period and failing agreement as to the appointment,
shall be appointed by the Chairman for the time being of The Royal Institute of
Chartered Surveyors (Hong Kong Branch). The Valuer shall make a decision as to
the New Rent before the commencement of the New Rent Period and subject to
approval by the mortgagee of the Premises (the approval of the mortgagee not to
be unreasonably withheld), the decision of the Valuer shall be conclusive and
binding on the parties hereto.
2.4 In determining the New Rent, the Valuer shall act as an expert and not as an
arbitrator and shall take into account the open market rent for prime office
accommodation elsewhere in Central, Hong Kong and/or in similar office buildings
in Hong Kong having attributes comparable to those of the Buildings at the
commencement of the New Rent Period Provided that the Valuer shall take into
such open market rent per se and disregard all incentives (including without
limitation rent free period and decoration or removal allowances) that may have
the effect of reducing the effective return on such open market rent. The Valuer
shall act on the assumptions that as at that date:
(a) the Premises are fit for immediate occupation and use complete and
that the works, if any, carried out by the
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<PAGE> 42
Tenant or its sub-tenants (if any and whether permitted hereunder
or otherwise) or the predecessor in title of the Tenant do not in
any way diminish or increase the rental value of the Premises and
that in case the Premises have been damaged or destroyed, they
have been fully reinstated and restored;
(b) the Premises are available for letting by a willing landlord to a
willing tenant with vacant possession and without a premium and
subject to the provisions of this Lease for a term equal to the
New Rent Period;
(c) the covenants herein contained on the part of the Tenant have been
duly performed, observed and complied with by the Tenant; and
(d) the Premises are being offered in the open market as a single
letting comprising not only the Premises but also the whole of the
33rd Floor, 36th Floor and Suites 3407, 3408, 3409, 3410 and 3411.
on the 34th Floor of Asia Pacific Finance Tower, but disregarding
the following factors:
(i) any effect on the rent of the fact that the Tenant has been
in occupation of the Premises;
(ii) any goodwill attached to the Premises by reason of the
carrying on thereat of the business of the Tenant; or
(iii) any increase in the rental value of the Premises
attributable to any improvements to the Premises or any
part thereof made during the Term including any fitting out
works carried out by and at the expense of the Tenant.
If the Valuer shall die, delay or become unwilling or incapable of acting or if
for any other reason the Chairman for the time being of the Royal Institute of
Chartered Surveyors (Hong Kong Branch) or the person acting on his behalf shall
in its absolute discretion think fit, he may by writing discharge the Valuer and
appoint another in his place.
2.5 Pending determination of the New Rent, the Tenant shall continue to pay on
account of the New Rent the Rent that was payable immediately before the
commencement of the New Rent Period and within fourteen (14) days after the
determination of the New Rent, the Tenant shall pay to the Landlord the
difference between the rent actually paid during the period pending
determination of the New Rent and the New Rent for the same period determined as
aforesaid plus such amount of interest as may be directed by the Valuer as being
reasonable.
2.6 The costs and expenses of the Valuer including the costs of his appointment
shall be borne by the Landlord and the Tenant in equal shares. The Landlord and
the Tenant shall each bear its own costs and expenses incurred in respect of or
in connection with the determination of the New Rent.
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<PAGE> 43
3. OTHER CONDITIONS
The Tenant hereby acknowledges and agrees that the lease hereby granted
is subject to the condition that on or before 18 March 1994, the Tenant shall
deliver to the Landlord the following documents and the Tenant hereby undertakes
to deliver to the Landlord the following documents within the time limit
aforesaid:
(a) a certified copy of the Board resolutions of the Tenant relating to the
execution of this Lease;
(b) a Guarantee of even date herewith ("the Guarantee") executed by The
Goldman Sachs Group, L.P. ("the Guarantor") in favour of the Landlord in
the same form as that already given by the Guarantor in favour of the
Landlord in relation to the 36th and Part of the 34th Floors of Asia
Pacific Finance Tower, let by the Landlord to the Tenant; and
(c) a legal opinion (in form and substance reasonably acceptable to the
Landlord) issued by an in-house Counsel of the Guarantor regarding the
legality, validity and enforceability of the Guarantee.
If the Tenant fails to comply with the aforesaid condition, the Landlord may, by
notice in writing to the Tenant, terminate this Lease.
4. CROSS DEFAULT
(a) By a Lease ("THE FIRST LEASE") dated 24 June 1992, registered in the Land
Registry by Memorial No.5337973 and made between (1) the Landlord; (2)
the Confirmors; and (3) Goldman Sachs (Asia) Limited ("THE OUTGOING
TENANT"), the Landlord let to the Outgoing Tenant all those premises more
particulary described in the Second Schedule thereto ("THE FIRST
PREMISES") subject to the terms and conditions thereof.
(b) By an Assignment ("THE ASSIGNMENT") dated 22 June 1993 and made between
(1) the Outgoing Tenant; (2) the Tenant; (3) the Landlord; and (4) the
Confirmors, the Outgoing Tenant assigned to the Tenant all the estate
right benefit and interest of the Outgoing Tenant in the First Premises
comprised in the First Lease and all the rights of the Outgoing Tenant
under the First Lease To Hold the same unto the Tenant for the residue of
the term created by the First Lease subject to payment of the rent
reserved by and to the observance and performance of the covenants
agreements and conditions contained in the First Lease and on the part of
the Outgoing Tenant to be observed and performed.
(c) By a Lease ("THE SECOND LEASE") dated 22 June 1993 and made between (1)
the Landlord; (2) the Confirmors; and (3) the Tenant, the Landlord let to
the Tenant all those premises more
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<PAGE> 44
particularly described in the Second Schedule thereto ("THE SECOND
PREMISES") subject to the terms and conditions thereof.
(d) By a Lease ("THE THIRD LEASE") dated 17 November 1993 and made between
(1) the Landlord; (2) the Confirmors; and (3) the Tenant, the Landlord
let to the Tenant all those premises more particularly described in the
Second Schedule thereto ("THE THIRD PREMISES") subject to the terms and
conditions thereof.
(e) The Tenant hereby expressly agrees that notwithstanding the provisions of
this Lease, the First Lease, the Second Lease and the Third Lease,
(i) the deposits made by the Tenant pursuant to Clause 11 of the First
Lease, the Second Lease and the Third Lease ("THE FIRST, SECOND
AND THIRD DEPOSITS") shall constitute security for the due payment
of the Rent payable under this Lease and the due performance and
observance by the Tenant of the terms and conditions of this Lease
as if the First, Second and Third Deposits form part of the
deposit paid by the Tenant pursuant to Clause 11 of this Lease;
and
(ii) the deposit made by the Tenant pursuant to Clause 11 of this Lease
("THE FOURTH DEPOSIT") shall constitute security for the due
payment of the Rent payable under the First Lease, the Second
Lease and the Third Lease and the due performance and observance
by the Tenant of the terms and conditions of the First Lease, the
Second Lease and the Third Lease as if the Fourth Deposit forms
part of the deposits paid by the Tenant pursuant to Clause 11 of
the First Lease, the Second Lease and the Third Lease.
(f) The Tenant further expressly agrees that any default under Clause 10.1 of
the First Lease, the Second Lease and the Third Lease will constitute a
default under Clause 10.1 of this Lease and vice versa thereby entitling
the Landlord to exercise all or any of its rights and remedies in respect
of the First Premises, the Second Premises, the Third Premises and the
Premises or any part thereof as if the First Premises, the Second
Premises, the Third Premises and the Premises had been let to the Tenant
under one single lease incorporating all the terms and conditions of this
Lease, the First Lease, the Second Lease and the Third Lease.
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<PAGE> 45
IN WITNESS whereof the parties hereto have executed this Lease the day
and year first before written.
SEALED with the Common Seal of ) [SEAL]
)
SHINE HILL DEVELOPMENT LIMITED and )
Lo Ka Shui ) /s/ [signature]
SIGNED by Lo Ka Shui )
Directors ) /s/ [signature]
whose signature(s) is/are verified by:-)
/s/ K. C. Yeung
K. C. Yeung
Solicitor, Hong Kong
SEALED with the Common Seal of ) [SEAL]
)
SHINE BELT LIMITED and SIGNED by ) /s/ [signature]
Lo Ka Shui )
Tong Chun Wan whose )
Directors ) /s/ [signature]
signature(s) is/are verified by:- )
/s/ K. C. Yeung
Solicitor, Hong Kong
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<PAGE> 46
SEALED with the Common Seal of ) [SEAL]
)
FAIR PAGE LIMITED and SIGNED by ) /s/ [signature]
Lo Ka Shui )
Tong Chun Wan whose ) /s/ [signature]
Directors )
signature(s) is/are verified by:- )
/s/ K. C. Yeung
Solicitor, Hong Kong
SEALED with the Common Seal of ) [SEAL]
)
PANHY LIMITED and SIGNED by ) /s/ [signature]
Lo Ka Shui )
Tong Chun Wan whose ) /s/ [signature]
Directors )
signature(s) is/are verified by:- )
/s/ K. C. Yeung
Solicitor, Hong Kong
SEALED with the Common Seal of ) [SEAL]
)
MAPLE COURT LIMITED and SIGNED by ) /s/ [signature]
Lo Ka Shui )
Tong Chun Wan whose ) /s/ [signature]
Directors )
signature(s) is/are verified by:- )
/s/ K. C. Yeung
Solicitor, Hong Kong
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<PAGE> 47
SEALED with the Common Seal of )
)
GOLDMAN SACHS (ASIA) FINANCE AND ) /s/ MOSES TSANG
)
SIGNED by MOSES TSANG DIRECTOR )
)
)
)
)
whose signature(s) is/are verified by:-)
PETER MALLINSON /s/ PETER MALLINSON
whose signature are verified by
/s/ Charles Picken
C.M. PICKEN
Solicitor, Hong Kong
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<PAGE> 48
[GRAPHIC OMITTED]
FLOOR PLAN 37TH FLOOR CITIBANK TOWER
<PAGE> 1
EXHIBIT 10.12
DATED 17th November 1993
- --------------------------------------------------------------------------
SHINE HILL DEVELOPMENT LIMITED
(Landlord)
and
THE GOLDMAN SACHS GROUP, L.P.
(Guarantors)
--------------------------------------------------------------
G U A R A N T E E
--------------------------------------------------------------
Bateson Harris
in association with
Mallesons Stephen Jaques
Suite 801, Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road, Central
Hong Kong
Ref: SHINZ040-116 (HK1748)
<PAGE> 2
THIS GUARANTEE AND INDEMNITY is made the 17th day of November One Thousand Nine
Hundred and Ninety-three
Between:
(1) The GOLDMAN SACHS GROUP, L.P. a limited partnership registered in the State
of Delaware and having its principal place of business at 85 Broad Street,
New York, NY10004, the United States of America ("the Guarantor"); and
(2) SHINE HILL DEVELOPMENT LIMITED a company incorporated in Hong Kong and
having its registered office is situate at 33rd Floor, Great Eagle Centre,
23 Harbour Road, Hong Kong ("the Landlord")
WHEREAS:-
(1) Goldman Sachs (Asia) Finance ("the Tenant") is a company incorporated in
the Cayman Islands.
(2) The Guarantor is the parent company of the Tenant.
(3) At the request of the Guarantor and on the condition that the Guarantor
execute this Guarantee and Indemnity ("this Guarantee") in favour of the
Landlord, the Landlord has agreed to:
(a) enter into a Lease ("the Lease") with the Tenant whereby the Landlord
would let to the Tenant all those premises more particularly described
in the Schedule here to in the form annexed hereto as Annexure I; and
(d) enter into a side letter ("the Side Letter") with the Tenant setting
out certain provisions relating to the construction of the Lease in
the form annexed hereto as Annexure II.
NOW THIS DEED WITNESSETH as follows:-
1. INTERPRETATION
1.1 In this Guarantee, unless otherwise provided herein or where the context
otherwise requires, terms defined in the Lease shall have the same meaning when
used herein.
1.2 The headings in this Guarantee are inserted for convenience only. Unless the
context otherwise requires, words denoting the singular number only shall
include the plural and vice versa and references to the masculine gender shall
include the feminine gender and neuter gender and vice versa.
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2. GUARANTEE AND INDEMNITY
2.1 In consideration of the Landlord agreeing to entering into the Lease and the
Side Letter, the Guarantor hereby IRREVOCABLY and UNCONDITIONALLY:
(a) guarantees to the Landlord:
(i) the due, full and punctual payment of rent, management fees, rates,
interest, costs charges, expenses and other sums payable by the Tenant
in respect of the Premises at the time and in the manner provided in
the Lease and the Side Letter ("the Secured Obligation");
(ii) the due, full, punctual and complete performance and observance by the
Tenant of all the covenants, agreements, conditions, obligations and
undertakings contained in t he Lease and the Side Letter to be
performed and observed by the Tenant by virtue of the Lease and the
Side Letter ("the Secured Obligations");
(b) undertakes and agrees with the Landlord that if and whenever the Tenant
shall fail to pay the Secured Indebtedness or any part thereof in
accordance with the provisions of the Lease and the Side Letter; or be in
breach of any of the Secured Obligations, the Guarantor shall, forthwith on
demand by the Landlord, pay to the Landlord all amount of the Secured
Indebtedness as may be due and outstanding as at the date of such demand or
(as the case may be) make good all such default; and
(c) undertakes to indemnify the Landlord and keep the Landlord indemnified
against all losses, damages, demands, suits, actions, proceedings, costs
and expenses that may be suffered or incurred by the Landlord by reason of
the default of the Tenant in performing or observing any of the Secured
Obligations.
2.2 In consideration of the Landlord agreeing to entering into the Lease and the
Side Letter and independently of any other terms, conditions and stipulations
herein contained, the Guarantor hereby agrees that in the event that, for any
reasons whatsoever, the obligations, undertakings and liabilities of the
Guarantor under any of the provisions of this Guarantee are or become or prove
to be unenforceable or shall be declared or adjudged to be illegal, invalid or
unenforceable or shall be declared or adjudged to be illegal, invalid or
unenforceable under any applicable law, the Guarantor shall nevertheless
indemnify the Landlord and keep the Landlord indemnified against all losses,
damages, costs and expenses suffered or incurred by the Landlord as a result of
such illegality, invalidity or unenforceability and shall forthwith on demand by
the Landlord pay to the Landlord all sums necessary to make good and to
compensate the Landlord for such losses, damages, costs and expenses.
2.3 In consideration of the Landlord agreeing to entering into the Lease and the
Side Letter and independently of any other terms, conditions and stipulations
herein contained, the Guarantor hereby agrees
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that if any sum payable by the Guarantor under this Deed or any part thereof is
not paid on demand or (as the case may be) when due, the Guarantor shall pay to
the Landlord interest on the outstanding amount of such sum at the best or prime
lending rate from time to time quoted by The Hongkong and Shanghai Banking
Corporation Limited for advances in Hong Kong Dollars from the date on which the
same is payable to the date of actual payment to the Landlord. Interest payable
under this Clause 2.3 shall be compounded on a monthly basis Provided always
that no interest shall be payable hereunder on any sum which shall at the same
time be accumulating interest under the terms of the Lease and the Side Letter.
3. REPRESENTATIONS & WARRANTIES
The Guarantor hereby represents and warrants to the Landlord as follows:
(a) the Guarantor takes full cognizance of the terms of the Lease and has
approved of the form and substance of the Lease and the Side Letter; and
(b) the Guarantor has full power and capacity and is duly qualified to enter
into and perform its obligations and undertakings under this Guarantee and
has obtained all consents, permissions and approvals required for the
Guarantor to enter into and perform its obligations and undertakings under
this Guarantee and shall such consent, permission and approvals are valid
and subsisting.
4. GENERAL PROVISIONS RELATING TO THE GUARANTOR'S COVENANTS
4.1 This Guarantee shall be a continuing guarantee and shall remain irrevocably
in full force and effect until:-
(a) fourteen (14) days after the expiration of the Term (as defined in the
Lease) and the performance and observance by the Tenant of the Secured
Obligations; or
(b) fourteen (14) days after the settlement of all claims made by the Landlord
against the Tenant in respect of non-payment of any part of the Secured
Indebtedness and/or non-observance or non-performance by the Tenant of any
of Secured Obligations whichever is the later.
4.2 The Guarantor hereby waives any right which the Guarantor may have of
requiring any proceeding first against the Tenant or any other person before
proceedings hereunder.
4.3 The obligations of the Guarantor under this Guarantee shall not be affected
by any act, omission, fact, circumstance, matter or thing which, but for this
provision, might operate to release or otherwise exonerate
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<PAGE> 5
the Guarantor from its obligations hereunder including, without limitation:
(a) any time or indulgence granted to the Tenant; or
(b) any legal limitation, disability or incapacity of the Tenant or want of
authority of any person purporting to act on behalf of the Tenant; or
(c) any amendment to or variation of the terms of the Lease and the Side
Letter;
(d) the take-over, reconstruction, amalgamation, merger, liquidation,
bankruptcy or insolvency of the Tenant or change in the person or persons
in whom the majority of the voting shares of the Tenant are vested or who
otherwise has/have effective control thereof.
4.4 All payments to be made by the Guarantor hereunder shall be paid free and
clear of any deduction or withholding on account of any tax. If the Guarantor is
required by any law or regulation to make and deduction or withholding from any
sum payable by the Guarantor hereunder on account of any tax, the then sum
payable by the Guarantor in respect of which such deduction, withholding or
payment is required to be made shall be increased to the extent necessary to
ensure that after the making of such deduction, withholding or payment, the
Landlord receives and is beneficially entitled to, free from any such charge, a
net sum equal to the sum which the Landlord would have received and been
entitled to had no such deduction, withholding or payment been made.
4.5 A certificate of the Landlord as to the amount of the rent, management fees,
rates and interest payable by the Tenant in respect of the Premises and
outstanding and due at any time shall, in the absence of manifest error, be
conclusive and binding on the Guarantor and a certificate of the Landlord as to
the amount of other items of the Secured Indebtedness shall be presumptive.
4.6 Time shall be of the essence of this Guarantee. No failure or delay on the
part of the Landlord to exercise any power, right or remedy under this Guarantee
shall operate as a waiver thereof nor shall any waiver by the Landlord of any
particular default by the Guarantor affect or prejudice the power, right or
remedy of the Landlord in respect of any other default or any subsequent default
of the same or a different kind.
4.7 If at any time any provision of this Guarantee is or becomes illegal,
invalid or unenforceable in any respect under the laws of any jurisdiction,
neither the legality, validity or enforceability of the remaining provisions of
this Guarantee no the legality, validity or enforceability of such provision
under the laws of any other jurisdiction shall in any way be affected or
impaired thereby.
4.8 This Guarantee shall ensure to the benefit of the Landlord and its
successors and assigns. The Guarantor may not assign or otherwise dispose of any
of its undertakings, obligations or liabilities hereunder except that the
Guarantor may assign all (but not part) of its
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<PAGE> 6
undertakings, obligations and liabilities hereunder to a partnership,
corporation, trust or other organization ("the Assignee") which shall have
succeeded to a substantial part of the Guarantor's business and to which a
substantial part of the Guarantor's assets shall have been transferred Provided
that:
(a) the Assignee has full power and capacity to assume the said undertakings,
obligations and liabilities; and
(b) upon the request of the Landlord, the Guarantor shall provide the Landlord
with a legal opinion as to the legality, validity and enforceability of the
assumption by the Assignee of the said undertakings, obligations and
liabilities and procure the Assignee of the said undertakings, obligations
and liabilities and procure the Assignee to give a direct covenant to the
Landlord that the Assignee has assumed the said undertakings, obligations
and liabilities.
Subject to valid assumption by the Assignee of the said undertakings,
obligations and liabilities, the Guarantor shall be discharged from and relieved
of its obligations hereunder.
4.9 The Landlord shall only be entitled to have recourse against the Guarantor
in respect of its undertakings, obligations and liabilities hereunder to the
extent of the assets of the Guarantor.
4.10 All demands and notices to be given to the Guarantor shall be in writing,
sent to the address of the Guarantor set out in this Guarantee (or such other
address as may from time or time be notified in writing by the Guarantee to the
Landlord), may be sent by courier or by personal delivery and shall be deemed to
have been duly given and received by the Guarantor (a) three (3) days after
delivery by the sender to the courier; or (b) when delivered if delivered by
personal delivery.
5. COSTS AND EXPENSES
All costs and expenses reasonably incurred by the Landlord in connection
with the preparation, execution and enforcement of this Guarantee shall be borne
by the Guarantor and shall be reimbursed by the Guarantor to the Landlord
forthwith on demand by the Landlord.
6. LAW AND JURISDICTION
6.1 This Guarantee shall be governed by and construed in accordance with the
laws of Hong Kong.
6.2 The Guarantor hereby irrevocably submits to the non-exclusive jurisdiction
of the courts of Hong Kong and the States of New York and Delaware. The
Guarantor hereby agrees that a judgement in any proceedings brought in any such
court may be enforced in any other jurisdiction by suit on the judgement or in
any other manner permitted by law. The submission aforesaid is non-exclusive and
the Landlord reserves the right to proceed in any other jurisdiction having or
claiming or accepting jurisdiction in respect of this Guarantee.
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The Schedule
The Premises
------------
All That the whole of 33rd Floor of Asia Pacific Finance Tower as shown
coloured Pink on the Plan attached to the Lease.
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<PAGE> 8
IN WITNESS whereof the Guarantor executed this Guarantee the day and year
first above written.
SIGNED SEALED and DELIVERED by )
)
/s/ [signature] )
------------------------------ )
)
for and on behalf of )
)
THE GOLDMAN SACHS GROUP, L.P. )
)
in the presence of:- )
/s/ [signature]
------------------------------
/s/ PATRICIA A. McGRAW
------------------------------
Notary Public
PATRICIA A. McGRAW
Notary Public, State of New York
No. 31-4842966
Qualified in New York County
Commission Expires September 30, 1996
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<PAGE> 1
EXHIBIT 15.1
[PricewaterhouseCoopers LLP Letterhead]
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: The Goldman Sachs Group, Inc.
Registration Statement on Form S-1
We are aware that our report dated July 14, 1997 on our review of interim
financial information of The Goldman Sachs Group, L.P. and Subsidiaries as of
and for the six-month fiscal period ended May 30, 1997 is included in the Firm's
Prospectus constituting part of this Registration Statement on Form S-1.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not
be considered a part of the Registration Statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
PricewaterhouseCoopers LLP
New York, New York
August 24, 1998.
<PAGE> 1
EXHIBIT 21.1
Significant Subsidiaries of the Registrant
The following are significant subsidiaries of The Goldman Sachs Group, L.P. as
of May 29, 1998 and the states or jurisdictions in which they are organized.
Upon consummation of the Incorporation Transactions, such subsidiaries will
become subsidiaries of The Goldman Sachs Group, Inc., as successor to The
Goldman Sachs Group, L.P. Indentation indicates the principal parent of each
subsidiary. Except as otherwise specified, in each case The Goldman Sachs Group,
L.P. owns, directly or indirectly, at least 99% of the voting securities of each
subsidiary. The names of particular subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute,
as of the end of the year covered by this report, a "significant subsidiary"
as that term is defined in Rule 1.02(w) of Regulation S-X under the Securities
Exchange Act of 1934.
<TABLE>
<CAPTION>
Name State or Jurisdiction of Entity
- ---- -------------------------------
<S> <C>
The Goldman Sachs Group, L.P. Delaware
Goldman, Sachs & Co. New York
Goldman Sachs (Asia) Finance Holdings L.L.C. Delaware
Goldman Sachs (Asia) Finance Cayman Islands
Goldman Sachs (UK) L.L.C. Delaware
Goldman Sachs Holdings (U.K.) United Kingdom
Goldman Sachs International United Kingdom
J. Aron & Company (U.K.) United Kingdom
Goldman Sachs Equity Securities (U.K.) United Kingdom
Goldman Sachs International Finance United Kingdom
Goldman Sachs Capital Markets, L.P. Delaware
Goldman Sachs (Japan) Ltd. British Virgin Islands
J. Aron Holdings, L.P. Delaware
J. Aron & Company New York
Goldman Sachs Mortgage Company New York
Goldman Sachs Canada Canada
Goldman Sachs Credit Partners, L.P. Bermuda
Goldman Sachs Holdings (Netherlands) B.V. Netherlands
Goldman Sachs Mitsui Marine Derivative Products, L.P. Delaware
GS Equity Markets, L.P. (Bermuda) Bermuda
Goldman Sachs Holdings L.L.C. Delaware
Goldman Sachs International Bank United Kingdom
</TABLE>
<PAGE> 1
[Letterhead of PricewaterhouseCoopers LLP]
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 3, 1998, relating
to the financial statements and selected historical income statement and balance
sheet data (excluding adjusted assets) of The Goldman Sachs Group, L.P. and
Subsidiaries, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the
six-month fiscal period ended May 29, 1998 and the three fiscal years in the
period ended November 28, 1997 listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included these schedules. We also consent to the references to us under the
headings "Experts", "Summary Consolidated Financial Data", and "Selected
Consolidated Financial Data" in such Prospectus.
PricewaterhouseCoopers LLP
New York, New York
August 24, 1998.
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> NOV-24-1995 NOV-29-1996 NOV-28-1997 NOV-28-1997 NOV-27-1998
<PERIOD-START> NOV-26-1994 NOV-25-1995 NOV-30-1996 NOV-30-1996 NOV-29-1997
<PERIOD-END> NOV-24-1995 NOV-29-1996 NOV-28-1997 MAY-30-1997 MAY-29-1998
<CASH> 3,740 6,441 6,231 5,373 8,252
<RECEIVABLES> 7,208 8,199 13,814 9,526 17,628
<SECURITIES-RESALE> 23,320 40,614 39,376 46,365 47,584
<SECURITIES-BORROWED> 14,631 36,654 51,058 45,253 67,343
<INSTRUMENTS-OWNED> 49,506 58,798 66,389 61,208 85,740
<PP&E> 538 628 722 673 815
<TOTAL-ASSETS> 100,066 152,046 178,401 169,200 241,852
<SHORT-TERM> 14,747 17,337 21,008 20,668 23,722
<PAYABLES> 12,328 17,767 23,947 22,034 31,070
<REPOS-SOLD> 16,706 50,012 44,057 50,058 64,499
<SECURITIES-LOANED> 6,399 11,347 17,627 15,426 22,075
<INSTRUMENTS-SOLD> 29,513 34,784 46,478 40,226 43,662
<LONG-TERM> 13,358 12,376 15,667 12,782 20,275
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 100,066<F1> 152,046<F1> 178,401<F1> 169,200<F1> 241,852<F1>
<TRADING-REVENUE> 1,916<F2> 2,496<F2> 2,303<F2> 1,362<F2> 2,426<F2>
<INTEREST-DIVIDENDS> 9,986 11,699 14,087 6,429 7,472
<COMMISSIONS> 647 727 989 455 668
<INVESTMENT-BANKING-REVENUES> 1,595 2,113 2,587 1,094 1,587
<FEE-REVENUE> 827<F3> 981<F3> 1,456<F3> 655<F3> 981<F3>
<INTEREST-EXPENSE> 9,841 11,160 12,986 5,909 7,005
<COMPENSATION> 2,005 2,421 3,097 1,528 2,589
<INCOME-PRETAX> 1,368 2,606 3,014 1,515 2,059
<INCOME-PRE-EXTRAORDINARY> 1,368 2,606 3,014 1,515 2,059
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 1,348 2,399 2,746 1,372 1,731
<EPS-PRIMARY> 0 0 0 0 0
<EPS-DILUTED> 0 0 0 0 0
<FN>
<F1>Includes Partners' Capital.
<F2>Includes revenues from investments in merchant banking funds.
<F3>Includes income from commissions.
</FN>
</TABLE>
