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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
x OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11166
THE EQUITABLE COMPANIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------------------- ---------------------------------------
Common Stock, Par Value $.01 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 26, 1997, was approximately $2.16 billion.
As of March 26, 1997, 186,515,276 shares of the registrant's Common Stock were
outstanding.
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This document consists of ______ pages.
Exhibit index begins on page E-1 .
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I
<S> <C> <C>
Item 1. Business................................................................ 1-1
Insurance Operations.................................................... 1-1
Investment Services..................................................... 1-5
Discontinued Operations................................................. 1-10
Closed Block............................................................ 1-10
General Account Investment Portfolio.................................... 1-11
Holding Company Group Investment Portfolio.............................. 1-16
Competition............................................................. 1-17
Regulation.............................................................. 1-18
Principal Shareholder................................................... 1-24
Item 2. Properties.............................................................. 2-1
Item 3. Legal Proceedings....................................................... 3-1
Item 4. Submission of Matters to a Vote of Security Holders..................... 4-1
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters... 5-1
Item 6. Selected Consolidated Financial Information............................. 6-1
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 7-1
Item 8. Financial Statements and Supplementary Data............................. FS-1
Item 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.................................................. 9-1
Part III
Item 10. Directors and Executive Officers of the Registrant...................... 10-1
Item 11. Executive Compensation.................................................. 11-1
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 12-1
Item 13. Certain Relationships and Related Transactions.......................... 13-1
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 14-1
Signatures ........................................................................ S-1
Index to Exhibits ........................................................................ E-1
</TABLE>
TOC-1
<PAGE>
Part I, Item 1.
BUSINESS 1
General. The Equitable is a diversified financial services organization serving
a broad spectrum of insurance, investment management and investment banking
customers. It is one of the world's largest investment managers, with total
assets under management of approximately $239.8 billion at December 31, 1996.
The Equitable's insurance business, which comprises the Insurance Operations
segment, has been conducted principally by its life insurance subsidiaries,
Equitable Life and EVLICO. Effective January 1, 1997, EVLICO was merged into
Equitable Life, which continues to conduct The Equitable's insurance business.
The Equitable's investment management and investment banking business, which
comprises the Investment Services segment, is conducted principally by Alliance,
DLJ and Equitable Real Estate. For additional information on The Equitable's
business segments, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Combined Results of Continuing Operations
by Segment" and Note 21 of Notes to Consolidated Financial Statements. Since
Equitable Life's demutualization in 1992, AXA-UAP ("AXA"), a French holding
company for an international group of insurance and related financial services
companies, has been the Holding Company's largest shareholder. For more
information on Equitable Life's demutualization, including the establishment of
the Closed Block, see Notes 2 and 6 of Notes to Consolidated Financial
Statements and "Principal Shareholder".
Segment Information
Insurance Operations
General. The Insurance Operations segment accounted for approximately $3.74
billion or 45.1% of consolidated revenue for the year ended December 31, 1996.
It offers a variety of life insurance and annuity products, mutual funds and
other investment products, as well as disability income products and association
plans. These products are marketed in all 50 states by a career agency force of
over 7,200 agents (except association plans, which are marketed directly to
clients by the Insurance Group). The Insurance Group's Income Manager series of
annuity products, which was introduced in May, 1995, is also distributed through
securities firms, financial planners and banks, as well as the career agency
force. As of December 31, 1996, the Insurance Group had over two million policy
or contractholders. Equitable Life, which was established in the State of New
York in 1859, has been among the largest life insurance companies in the United
States for more than 100 years. For additional information on the Insurance
Operations segment, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Combined Results of Continuing Operations
by Segment - Insurance Operations," Note 21 of Notes to Consolidated Financial
Statements, as well as "Employees and Agents", "Competition" and "Regulation".
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1 As used in this Form 10-K, the term "The Equitable" refers to The Equitable
Companies Incorporated, a Delaware corporation (the "Holding Company"), and
its consolidated subsidiaries including The Equitable Life Assurance Society
of the United States ("Equitable Life"). The term "Holding Company Group"
refers collectively to the Holding Company and its non-operating
subsidiaries, the EQ Asset Trust 1993 (the "Trust") and The Equitable
Companies Incorporated Stock Trust (the "SECT"). The term "Insurance Group"
refers collectively to Equitable Life and its wholly owned subsidiary, The
Equitable of Colorado, Inc. ("EOC") and, prior to January 1, 1997, Equitable
Variable Life Insurance Company ("EVLICO"). The term "Investment
Subsidiaries" refers collectively to Equitable Life's wholly owned
subsidiary, Equitable Real Estate Investment Management, Inc., together with
its affiliates Equitable Agri-Business, Inc. and EQ Services, Inc.
(collectively referred to herein as "Equitable Real Estate"), to The
Equitable's majority owned publicly traded subsidiaries, Alliance Capital
Management L.P. ("Alliance"), and Donaldson, Lufkin & Jenrette, Inc. ("DLJ")
and in each case their respective subsidiaries. The term "General Account"
refers to the assets held in the respective general accounts of Equitable
Life, EOC and, prior to January 1, 1997, EVLICO and all of the investment
assets held in certain of Equitable Life's separate accounts on which the
Insurance Group bears the investment risk. The term "Separate Accounts"
refers to the Separate Account investment assets of Equitable Life and,
prior to January 1, 1997, EVLICO, excluding the assets held in those
separate accounts on which the Insurance Group bears the investment risk.
The term "General Account Investment Assets" refers to assets held in the
General Account associated with the Insurance Group's continuing operations
(which includes the Closed Block) and does not include assets held in the
General Account associated with the Insurance Group's discontinued
guaranteed interest contract ("GIC") Segment which are referred to herein as
"GIC Segment Investment Assets".
1-1
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Products. The Insurance Group emphasizes the sale of individual variable life
insurance products and individual variable annuity products (both tax-qualified
and non-qualified). These products are designed to meet the life insurance,
asset accumulation, retirement funding and estate planning needs of the
Insurance Group's targeted markets. They offer multiple Separate Account
investment options, including bond funds, domestic and global equity funds, a
balanced fund, and a series of asset allocation funds, as well as General
Account guaranteed interest options. The range of investment options creates
flexibility in meeting individual customer needs. The Insurance Group's Separate
Accounts and the underlying funds in which they invest are managed principally
by Alliance. In 1997, funds managed by unaffiliated managers will be added.
In 1995, the Insurance Group introduced its Income Manager series of retirement
products which are annuities designed to provide for both the accumulation and
distribution of retirement assets. In addition to a choice of variable funds,
these products offer 10 market value adjusted fixed rate options held in a
Separate Account which provide a guaranteed interest rate to a fixed maturity
date and a market value adjustment for withdrawals or transfers prior to such
date. In 1996, Income Manager accumulation products added a guaranteed minimum
income benefit which, subject to certain restrictions and limitations, provides
a guaranteed minimum life annuity regardless of investment performance. The
distribution products offer the guarantee of a lifetime income similar to
traditional immediate annuities, while giving the annuitant access to cash
values during the early years following retirement.
To fund the pension plans (both defined benefit and defined contribution) of
small to medium-sized employers, the Insurance Group offers annuity products
tailored to the small pension market. These products offer both Separate Account
and General Account investment options.
The overall growth of Separate Account assets is a strategic objective of The
Equitable. To the extent the investment funds associated with variable life
insurance and variable annuity products are placed in the Separate Accounts
rather than in the General Account, the investment risk (and reward) is
transferred to policyholders while The Equitable earns fee income from the
management of assets held in the Separate Accounts. Management believes this fee
income produces a more predictable income stream than the spread income from
traditional products. In addition, variable products, because they involve less
risk to the Insurance Group than traditional products, require less capital.
Separate Account options also permit policyholders to choose more personalized
investment strategies without affecting the composition of General Account
assets. Over the past five years, Separate Account balances for individual
variable life and variable annuities have increased by $11.99 billion to $17.66
billion at December 31, 1996.
The Insurance Group also sells traditional whole life insurance and term
insurance products, disability income products, and, through its wholly owned
broker-dealer subsidiary EQ Financial Consultants, Inc. ("EQ Financial"),
formerly known as Equico Securities, Inc., mutual funds. During 1996, the
Insurance Group's career agency force sold approximately $1.36 billion in mutual
funds and other investments through EQ Financial. In cases where the Insurance
Group does not offer an insurance product suitable for the needs of a particular
customer, the Insurance Group provides its agents with access to a number of
additional insurance products through EquiSource, Inc., a wholly owned insurance
brokerage subsidiary.
In addition to the sale of insurance products, the Insurance Group acts as a
professional retrocessionaire by assuming life, disability income and annuity
reinsurance from professional reinsurers. The Insurance Group also assumes
accident, health, group LTD, aviation and space risks by participating in
various reinsurance pools.
Effective September 15, 1992, the Insurance Group ceased to sell new individual
major medical policies. Since July 1, 1993, new disability income policies have
been 80% reinsured through an arrangement with Paul Revere Life Insurance
Company.
1-2
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The following table summarizes premiums and deposits for the Insurance
Operations segment's products combining amounts for the Closed Block and amounts
for operations outside the Closed Block.
<TABLE>
<CAPTION>
Insurance Operations
Premiums/Deposits
(In Millions)
Years Ended December 31,
----------------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Individual annuities...................................... $ 3,342.6 $ 2,847.4 $ 2,766.9
Variable and interest-sensitive life insurance............ 1,479.7 1,358.4 1,264.9
Traditional life insurance................................ 867.0 887.4 925.9
Other..................................................... 753.7 818.3 668.1
------------ ----------- -----------
Total Premiums/Deposits................................... $ 6,443.0 $ 5,911.5 $ 5,625.8
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</TABLE>
Markets. The Insurance Group's targeted customers include middle and upper
income individuals such as professionals, owners of small businesses, employees
of tax-exempt organizations and existing customers. For variable life, the
Insurance Group has targeted certain markets, particularly non-qualified
retirement planning, the estate planning market and the market for business
continuation needs (e.g., the use of variable life insurance to fund buy/sell
agreements and similar arrangements), as well as the middle-to-upper income life
protection markets. The Insurance Group's target markets for variable annuities
include the tax exempt markets (particularly retirement plans for educational
and non-profit organizations), corporate pension plans (particularly 401K
defined contribution plans covering 25 to 250 employees) and the IRA retirement
planning market. The Insurance Group's Income Manager series of annuity products
includes products designed to address the growing market of those at or near
retirement who have a need to convert retirement savings into retirement income.
Demographic studies suggest that, as the post-World War II "baby boom"
generation ages over the next decade, there will be growth in the number of
individuals who management believes are most likely to purchase the Insurance
Group's savings-oriented products. These baby boomers have indicated a strong
need for long-term planning services. Those studies also suggest that over the
next 15 years there will be significant growth in the number of new retirees.
Management believes this growth in the retiree population represents an
opportunity for the Insurance Group's Income Manager products. In addition,
management believes the trend among U.S. employers away from defined benefit
plans (under which the employer makes the investment decisions) toward
employee-directed, defined contribution retirement and savings plans (which
allow employees to choose from a variety of investment options) will continue.
Management believes the asset accumulation needs of customers in these target
markets for estate planning, the planning for and management of retirement and
education funds and other forms of long-term savings, as well as their
traditional insurance protection needs, can be satisfied by the range of
insurance and annuity products and planning services offered by the Insurance
Group.
In 1996, the Insurance Group collected premiums and deposits from policy or
contractholders in all 50 states, the District of Columbia and Puerto Rico. For
the Insurance Group, the states of New York (14.5%), New Jersey (7.7%),
Pennsylvania (7.0%), California (6.9%), Michigan (6.3%), and Illinois (6.0%)
contributed the greatest amounts of premiums (accounted for on a statutory
basis), and no other state represented more than 5% of the Insurance Group's
statutory premiums. The Insurance Group also collected premiums in Canada and
certain other foreign countries, but premiums from all foreign countries
represented less than 1% of the Insurance Group's 1996 aggregate statutory
premiums.
Distribution. Products are distributed primarily through a career agency force
of over 7,200 professionals organized into approximately 80 agencies across the
United States which are owned and managed by the Insurance Group and which
provide agents with training, marketing and sales support. After an initial
training period, agents are compensated by commissions based on product sales
1-3
<PAGE>
levels and key profitability factors, including persistency. The Insurance Group
sponsors pension and other benefit plans and sales incentive programs for its
agents to focus their sales efforts on the Insurance Group's products. Most of
the Insurance Group's career agents are not prohibited from selling traditional
insurance products offered by other companies. The Equitable's Law Department
maintains a Compliance Group staffed with compliance professionals who, working
together with attorneys in the Law Department, review and approve advertising
and sales literature prior to use by the Insurance Group's agency force and
monitor customer complaints.
As of December 31, 1996, approximately 85% of the Insurance Group's agents were
licensed to sell variable insurance and annuity products as well as certain
investment products, including mutual funds. The Insurance Group leads the
insurance industry in the number of agents and employees who hold both the
Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC)
designations, which are awarded by the American College, a professional
organization for insurance and financial planning professionals. Management
believes the professionalism of its agency force provides it with a competitive
advantage in the marketing of the Insurance Group's sophisticated insurance
products, including variable insurance and annuities.
In a continuing effort to enhance the quality of the Insurance Group's agency
force, during 1996 management continued to focus its recruiting efforts on
attracting professionals from related fields such as accounting, banking and
law. Management believes the knowledge and experience of these individuals
enables them to add significant value to client service and that recruiting more
experienced individuals has had a positive impact on the retention rate of first
year agents.
The Insurance Group, in 1995, began repositioning its career agency force for
the planning opportunities created by changing demographics. Management
implemented its new needs-based selling strategy with the introduction of its
Financial Fitness Profile in all agencies. Financial Fitness Profile is designed
to make the client's long-term financial needs the key ingredient of the sales
process and is used by the Insurance Group to identify a client's risk exposure
and financial goals in order to develop a comprehensive financial strategy
addressing the client's unique situation. Management believes its Financial
Fitness Profile adds significant value to client service and provides an
excellent foundation for building long-term relationships with the Insurance
Group's customers. In 1996, the Insurance Group, through its broker-dealer, EQ
Financial, also introduced a formal investment advisor program for qualified
associates to offer fee-based plans, products and seminars.
Equitable Life has begun to centralize its life insurance processing and
servicing functions in a new National Operations Center in Charlotte, North
Carolina. This will result in the closing of the operations facilities in Des
Moines, Iowa and Fresno, California, and should enhance service to
policyholders, streamline operations and provide cost savings.
During 1996 management made a strategic decision to create its own wholesale
distribution company to offer the Income Manager series of products to
securities firms, financial planners and banks. During the last nine months of
1996, Equitable Distributors, Inc. ("EDI") hired staff and by year end employed
26 field and 36 home office personnel. A specially designed product series was
developed for EDI during 1996, and EDI began marketing the new series in
November through a major securities firm and several regional and financial
planning firms. EDI ended the year with executed sales agreements with 70
broker-dealers. Agreements were also reached with two major banks. During 1996,
the agency force increasingly began to incorporate the Income Manager series of
products into their sales process. Nearly 1,700 agents sold an Income Manager
product during 1996.
During 1995, management also undertook a number of initiatives to increase the
efficiency and lower the costs of the Insurance Group's distribution system.
These initiatives included the consolidation of new business processing, the
implementation of a new underwriting system, and the introduction of The
Equitable Workstation which gives each agent on-line access to information about
clients, policy transactions and home office announcements.
Insurance Underwriting. The risk selection process is carried out in the
Insurance Group by underwriters who evaluate policy applications on the basis of
information provided by the applicant and other sources. Specific tests, such as
blood analysis, are used to evaluate policy applications based on the size of
the policy, the age of the applicant and other factors. Underwriting rules and
procedures established by the Insurance Group's underwriting area are designed
to produce mortality results consistent with assumptions used in product pricing
while providing for competitive risk selection.
1-4
<PAGE>
The Insurance Group limits risk retention on new policies to a maximum of $5.0
million on single-life policies, and $15.0 million on second-to-die policies.
All in-force business above those amounts has been reinsured. Automatic
reinsurance arrangements have been negotiated that permit single-life policies
to be written up to $35 million, and second-to-die policies to be written up to
$25 million. A contingent liability exists with respect to reinsurance ceded
should the reinsurers be unable to meet their obligations. The Insurance Group
evaluates the financial condition of its reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. The Insurance Group is not party
to any risk reinsurance arrangement with any reinsurer pursuant to which the
amount of reserves on reinsurance ceded to such reinsurer equals more than 1% of
the total policy reserves of the Insurance Group (including Separate Accounts).
The Insurance Group also assumes mortality risk as a reinsurer. Mortality risk
on any single life (through reinsurance assumed and directly written coverage)
is limited to $5.0 million. For additional information on the Insurance Group's
reinsurance agreements, see Note 12 of Notes to Consolidated Financial
Statements.
Insurance Liabilities. The Insurance Group has established liabilities for
policyholders' account balances and future policy benefits to meet obligations
on various policies and contracts. Policyholders' account balances for universal
life and variable life and other investment-type policies are equal to
cumulative account balances, which are the sum of net premiums or considerations
plus credited interest or net investment results, less expense, mortality and
risk charges and withdrawals. For participating traditional life policies,
future policy benefits are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the accrual of
annual dividends earned. Terminal dividends are accrued in proportion to gross
margins over the life of the contract. Future policy benefits for
non-participating traditional products are computed on the basis of assumed
investment yields, mortality, persistency, morbidity and expenses (including a
margin for adverse deviation), which are established at the time of issuance of
a policy and generally vary by product, year of issue and policy duration.
During the fourth quarter of 1996, management took reserve strengthening and
other actions which significantly affected the net performance of The Equitable
for the fourth quarter and full year 1996. For additional information on these
actions, see Note 2 of Notes to Consolidated Financial Statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Combined Results of Continuing Operations by Segment - Insurance
Operations - Disability Income", "- Group Pension Products" and "- Discontinued
Operations".
The insurance liabilities reflected in the consolidated balance sheets included
herein are prepared in accordance with GAAP and differ from the reserves
prescribed by statutory accounting practices and carried on the Insurance
Group's statutory financial statements. The variances arise from differences in
the reserve calculation methods and from the use of different mortality,
morbidity, interest rate and persistency assumptions. See Note 20 of Notes to
Consolidated Financial Statements.
Investment Services
General. The Investment Services segment, which in 1996 accounted for
approximately $4.54 billion or 54.7% of consolidated revenues, provides
investment management, investment banking, securities transaction and brokerage
services to both corporate and institutional clients, including the Insurance
Group, and to high net worth individuals. In recent years, rapid growth in sales
of mutual funds to individuals and retail clients has augmented the traditional
focus on institutional markets. This segment also includes the institutional
Separate Accounts, which provide various investment options for group clients
through pooled or single group accounts. For additional information on the
Investment Subsidiaries, including their respective results of operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Combined Results of Continuing Operations by Segment - Investment
Services" and "Regulation".
The Equitable continues to pursue its strategy of increasing third party assets
under management. The Investment Subsidiaries have steadily added to third party
assets under management, while continuing to provide investment management
services to the Insurance Group. Of the $239.8 billion of assets under
management at December 31, 1996, $184.8 billion (or 77.1%) were managed by the
Investment Subsidiaries for third parties, including domestic and overseas
investors, mutual funds, pension funds, endowment funds and, through the
Insurance Group's Separate Accounts, insurance and annuity customers of the
Insurance Group. Approximately $140.7 million (3.1%) of the revenues of the
Investment Services segment for the year ended December 31, 1996 consisted of
fees earned by the Investment Subsidiaries for investment management and other
1-5
<PAGE>
services provided to the Insurance Group and to unconsolidated real estate joint
ventures. For additional information on fees and assets under management, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Combined Results of Continuing Operations by Segment - Investment
Services - Fees From Assets Under Management".
Alliance
General - Alliance, one of the nation's largest investment advisors, provides
diversified investment management services to a variety of institutional
clients, including pension funds, endowments and foreign financial institutions,
as well as to individual investors principally through a broad line of mutual
funds. As of December 31, 1996, Alliance had approximately $182.8 billion in
assets under management (including $159.6 billion for third party clients).
Alliance's assets under management at December 31, 1996 consisted of
approximately $119.5 billion from separately managed accounts for institutional
investors and high net worth individuals and approximately $63.3 billion from
mutual fund accounts. Alliance's greatest growth in recent years has been in
products for individual investors, primarily mutual funds, which generate
relatively high management and servicing fees as compared to fees charged to
separately managed accounts. As of December 31, 1996, The Equitable owned a 1%
general partnership interest in Alliance and approximately 57.3% of the units
representing assignments of beneficial ownership of limited partnership
interests in Alliance ("Alliance Units").
On February 29, 1996, Alliance acquired substantially all of the assets and
liabilities of Cursitor Holdings, L.P. and all of the outstanding shares of
Cursitor Holdings Limited, currently Cursitor Alliance Holdings Limited
(collectively, "Cursitor") for Units, cash and notes equaling approximately
$159.0 million, and substantial additional consideration which will be
determined at a later date. Cursitor specializes in providing global asset
allocation services to U.S. and non-U.S. institutional investors. Significant
account terminations have occurred and assets under management in Cursitor
portfolios as of February 28, 1997 were less than $7 billion.
In August 1996, Alliance, Equitable Life and two principals of Albion Asset
Advisors LLC formed Albion Alliance LLC to manage private investments on behalf
of institutional and large private investors. The new joint venture will have a
global focus and will expand Alliance's existing corporate finance and private
investing business, particularly in emerging markets. For additional information
on these transactions, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Combined Results of Continuing Operations
by Segment - Investment Services".
Alliance's business can be divided into two broad categories: Separately Managed
Accounts and Mutual Funds Management. Alliance's separately managed account
business consists primarily of the active management of equity and fixed income
accounts for institutional investors and high net worth individuals. Alliance's
mutual fund management services, which developed as a diversification of its
separately managed account business, consist of the management, distribution and
servicing of mutual funds and cash management products, including money market
funds and deposit accounts.
Separately Managed Accounts - At December 31, 1996, separately managed accounts
(other than investment companies and deposit accounts) represented approximately
65.4% of Alliance's total assets under management while the fees earned from the
management of those accounts represented approximately 35.6% of Alliance's
revenues for the year ended December 31, 1996. Alliance's separately managed
account business consists primarily of the active management of equity accounts,
balanced (equity and fixed income) accounts and fixed income accounts. Alliance
also provides active management for international (non U.S.) and global
(including U.S.) equity, balanced and fixed income portfolios, asset allocation
and management for private investments, venture capital portfolios, and hedge
fund portfolios. In addition, Alliance provides "passive" management services
for equity, fixed income and international accounts.
1-6
<PAGE>
As of December 31, 1996, Alliance acted as investment manager for approximately
1,550 separately managed accounts (other than investment companies) which
include corporate employee benefit plans, public employee retirement systems,
endowment funds, foundations, foreign governments and financial and other
institutions and the General and Separate Accounts of Equitable Life and its
insurance company subsidiaries. The General and Separate Accounts of the
Insurance Group are Alliance's largest institutional clients. Alliance's
separately managed accounts are managed pursuant to written investment
management agreements between the clients and Alliance, which are usually
terminable at any time or upon relatively short notice by either party.
Mutual Funds Management - Alliance also (i) manages The Hudson River Trust which
is the funding vehicle for the individual variable life insurance and annuity
products offered by the Insurance Group; (ii) manages and sponsors a broad range
of open and closed-end mutual funds other than The Hudson River Trust ("Alliance
Mutual Funds"); and (iii) provides cash management services (money market funds
and Federally insured deposit accounts) that are marketed to individual
investors through broker-dealers, banks, insurance companies, and other
financial intermediaries. The assets comprising all Alliance Mutual Funds, The
Hudson River Trust and deposit accounts on December 31, 1996, amounted to
approximately $63.3 billion.
Other - Alliance generally is not subject to Federal, state and local income
taxes, with the exception of the New York City unincorporated business tax,
which is currently imposed at a rate of 4%. Domestic subsidiaries of Alliance
are subject to Federal, State and local income taxes. Its subsidiaries organized
and operating outside the United States are generally subject to taxes in the
foreign jurisdictions where they are located. Under the Revenue Act of 1987, the
exemption from Federal income taxes for publicly traded limited partnerships,
including Alliance, will expire on December 31, 1997. As a consequence, if
Alliance retains its current structure, it will be taxed as a corporation as of
January 1, 1998. In response to this pending loss of Alliance's partnership tax
status, the management of Equitable Life and the management of Alliance are
presently reviewing alternatives which may result in Equitable Life's Alliance
Units ceasing to be publicly traded. The management of Alliance expects to
announce its plans during the second quarter of 1997. For a discussion of the
possible effects of these matters on the valuation of Equitable Life's Alliance
Units for statutory purposes and on statutory capital, see "Management's
Discussion and Analysis of Financial Conditions and Results of Operations -
Liquidity and Capital Resources - Insurance Group - Sources of Insurance Group
Liquidity".
For additional information on Alliance, see Alliance's Annual Report on Form
10-K for the year ended December 31, 1996.
Donaldson, Lufkin & Jenrette, Inc.
DLJ is a leading integrated investment and merchant bank that serves
institutional, corporate, governmental and individual clients both domestically
and internationally. DLJ's businesses include securities underwriting, sales and
trading; merchant banking; financial advisory services; investment research;
correspondent brokerage services; and asset management. On October 30, 1995, DLJ
completed an initial public offering ("IPO") of 10.58 million shares of its
common stock and the sale of $500.0 million aggregate principal amount of its
senior notes due November 1, 2005. See Note 5 of Notes to Consolidated Financial
Statements for additional information. At December 31, 1996, following a sale on
that date by the Holding Company to AXA of 85,000 shares of DLJ's stock, The
Equitable owned approximately 79.9% of DLJ's issued and outstanding common
stock. Assuming full vesting of the forfeitable restricted stock units and the
exercise of stock options granted to certain employees in connection with DLJ's
IPO (but excluding any shares issued under employee stock options which may be
granted after the IPO), The Equitable would own approximately 63% of DLJ's
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Combined Results of Continuing Operations by Segment
- - Investment Services".
DLJ conducts its business through three principal operating groups, each of
which is an important contributor to revenues and earnings: the Banking Group,
which includes DLJ's Investment Banking, Merchant Banking and Emerging Markets
groups; the Capital Markets Group, consisting of DLJ's Fixed Income,
Institutional Equities and Equity Derivatives Divisions, Autranet, a distributor
of investment research products, and Sprout, its venture capital affiliate, and
the Financial Services Group, comprised of the Pershing Division, the Investment
Services Group and the Asset Management Group.
1-7
<PAGE>
DLJ's Banking Group is a major participant in the raising of capital and the
providing of financial advice to companies throughout the U.S. and has
significantly expanded its activities abroad. Through its Investment Banking
group, DLJ manages and underwrites public offerings of securities, arranges
private placements and provides advisory and other services in connection with
mergers, acquisitions, restructurings and other financial transactions. Its
Merchant Banking group pursues direct investments in a variety of areas through
a number of investment vehicles funded with capital provided primarily by
institutional investors, DLJ and its employees. The Emerging Markets Group
specializes in client advisory services for mergers, acquisitions and financial
restructurings, as well as merchant banking and the underwriting, placement and
trading of equity, debt and derivative securities in Latin America, Eastern
Europe, Asia and South Africa.
The Capital Markets Group encompasses a broad range of activities including
trading, research, origination and distribution of equity and fixed income
securities, private equity investments and venture capital. Its Fixed Income
Division provides institutional clients with research, trading and sales
services for a broad range of taxable fixed income products including high yield
corporate, investment grade corporate, U.S. government and mortgage-backed
securities. The Institutional Equities Division provides institutional clients
with research, trading and sales services in U.S. listed and over the counter
equity securities. In addition, DLJ's Equity Derivatives Division provides a
broad range of equity and index options products, while Sprout is one of the
oldest and largest groups in the private equity investment and venture capital
industry. Autranet Inc., a registered broker-dealer and member firm of the New
York Stock Exchange ("NYSE"), is active in the distribution of investment
research products purchased from approximately 430 sources known as "independent
originators." Independent originators are research specialists, not primarily
employed by securities firms, and range in size and scope from large economic
consulting firms to individual freelance analysts. Autranet generates its
revenues from a client base of over 400 domestic and international institutions.
The Financial Services Group provides a broad array of services to individual
investors and the financial intermediaries which represent them. Pershing is a
leading provider of correspondent brokerage services, clearing transactions for
over 550 U.S. brokerage firms which collectively maintain over 1.4 million
client accounts. DLJ's Investment Services Group provides high net worth
individuals and medium and smaller sized institutions with access to DLJ's
equity and fixed income research, trading services and underwriting. Through its
Asset Management Group, DLJ provides cash management, investment advisory and
trust services primarily to high net worth individual and institutional
investors.
The securities industry generally experienced favorable market conditions in
1996, as strong rallies in the stock and bond markets and strong trading volumes
on all major exchanges helped fuel merger and acquisition activity as well as
underwriting activity. DLJ's principal business activities are, by their nature,
highly competitive and subject to general market conditions, volatile trading
markets and fluctuations in the volume of market activity. Consequently, DLJ's
net income and revenues have been, and are likely to continue to be, subject to
wide fluctuations, reflecting the impact of many factors beyond DLJ's control,
including securities market conditions, the level and volatility of interest
rates, competitive conditions, and the size and timing of transactions.
In January 1997, DLJ reached an agreement to acquire (the "Acquisition") a
London-based financial advisory firm, Phoenix Group Limited ("Phoenix"). Phoenix
is an international financial advisory and investment management business with
offices in London and Hong Kong. It has two principal operations, a corporate
finance and advisory business and a private equity fund management business
investing in unquoted securities. It also makes acquisitions as principal. As a
portion of the total consideration paid in connection with the Acquisition, DLJ
issued on March 26, 1997, $28,779,000 aggregate principal amount of 5% Junior
Subordinated Convertible Debentures due 2004 (the "DLJ Convertible Debentures")
to the current shareholders of Phoenix, pursuant to Regulation S under the
Securities Act of 1933, as amended. The DLJ Convertible Debentures are
convertible into common stock of DLJ beginning 40 days after issuance at a
conversion price of $42.00 per share. The Acquisition does not have a material
effect on DLJ's results of operations.
For additional information on DLJ, see DLJ's Annual Report on Form 10-K for the
year ended December 31, 1996.
1-8
<PAGE>
Equitable Real Estate
General - As of December 31, 1996, Equitable Real Estate had $24.8 billion of
assets under management (including $14.7 billion for third party clients).
Equitable Real Estate is ranked as the largest United States manager of
tax-exempt assets invested in real estate and provides real estate investment
management services, property management services (through its two COMPASS
subsidiaries), mortgage servicing and loan asset management, mortgage loan
origination (through its affiliate Column Financial, Inc.) and agricultural
investment management (through its affiliate Equitable Agri-Business, Inc.). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Combined Results of Continuing Operations by Segment - Investment
Services".
Equitable Real Estate has capabilities in a variety of major real estate
disciplines including acquisitions and financings, portfolio management, asset
management, appraisals, asset disposition and workouts and capital markets.
Equitable Real Estate offers a broad range of products and services to its
third-party client base, which includes more than 300 corporate, public and
multi-employer pension funds, insurance companies, foreign investors and
individual accounts.
In March 1997, Equitable Real Estate purchased a 50% interest in AMB Rosen Real
Estate Securities, LLC, an investment firm specializing in the management of
investment portfolios of real estate investment trust stocks. The company was
renamed ERE Rosen, LLC and has approximately $126 million in assets under
management for clients that include pension funds, endowments and foundations.
As of December 31, 1996, Equitable Real Estate managed equity and joint venture
interests in approximately 3,664 investments covering over 297 million square
feet of real estate, and managed mortgage loans with a carrying value of
approximately $7.7 billion. The equity real estate and mortgage portfolios
managed by Equitable Real Estate include investments in a range of commercial,
agricultural and industrial properties including regional and neighborhood
shopping centers, downtown and suburban office buildings, apartments, warehouse
and distribution facilities and hotels. As of December 31, 1996, Equitable Real
Estate managed one of the largest portfolios of regional shopping malls in the
United States and managed substantial holdings in major center city office
properties.
The Equitable is exploring strategic alternatives regarding Equitable Real
Estate. Such alternatives may include a possible sale of all or a portion of
Equitable Real Estate.
Institutional Account Management - As of December 31, 1996, Equitable Real
Estate managed $12.1 billion in real estate assets on behalf of approximately
253 pension funds. Equitable Real Estate's largest real estate investment
account is Prime Property Fund which had net assets of $3.0 billion as of
December 31, 1996, making it the largest open-end real estate investment fund
for pension funds in the United States.
In addition, Equitable Real Estate offers a series of special focus, closed-end
pooled funds, certain single and multi-property pooled funds, single client
accounts tailored to achieve a specific set of investment goals and certain
other accounts tailored to meet the objectives of large public pension fund
clients.
Mortgage Operations - At December 31, 1996, Equitable Real Estate managed a
mortgage portfolio on behalf of the Insurance Group with an outstanding balance
of approximately $6.3 billion. Services provided by Equitable Real Estate to the
Insurance Group and other clients include mortgage and asset management services
including due diligence, portfolio valuation, loan custody, maintenance,
reporting and cash management, loan restructuring, foreclosures, equity real
estate management and disposition.
Property Management Operations - At December 31, 1996, COMPASS Management and
Leasing and COMPASS Retail managed over 187.3 million square feet of commercial
office and retail space for The Equitable and third party clients. Services
provided by these two subsidiaries of Equitable Real Estate include property and
facilities management of commercial properties and management and development of
regional shopping centers.
1-9
<PAGE>
Other Operations - At December 31, 1996, Equitable Real Estate's International
Group managed approximately $1.3 billion in U.S. real estate investments for 35
Pacific Rim and European investors. Equitable Real Estate's international
products include direct equity real estate investments and pooled equity real
estate funds. In addition, Equitable Agri-Business offers agricultural
investment management advisory services to the Insurance Group and third party
clients. Equitable Real Estate also has various joint venture relationships,
including Column Financial, Inc., a venture with DLJ, which originates, packages
and securitizes mortgage loans, and Equitable Real Estate Hyperion Capital
Advisors, LLP., a venture with Hyperion Capital Management, Inc., which provides
advice with respect to investments in commercial mortgage-backed securities.
Institutional Separate Accounts
The Investment Services segment includes the Insurance Group's Separate Accounts
for group clients. Pooled Separate Accounts offer pension fund clients
diversification and economies of scale in asset management. Investment options
range across the risk spectrum from short-term fixed income portfolios, to
equity oriented growth and small capitalization portfolios, to real estate
funds. At December 31, 1996, assets held in the institutional Separate Accounts
totaled $11.99 billion. Alliance and Equitable Real Estate derive fee income
from management of assets invested in these institutional Separate Accounts.
Discontinued Operations
In September 1991, The Equitable discontinued the operations of the Wind-Up
Annuity and GIC lines of business, reflecting management's strategic decision to
focus its attention and capital on its core individual insurance and investment
services businesses. For additional information on recent strengthening of loss
provisions, see Note 7 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Discontinued Operations".
The GIC line of business includes several types of GIC products pursuant to
which Equitable Life is contractually obligated to credit an interest rate which
was set at the date of issue. These contracts have fixed maturity dates on which
funds are to be returned to the contractholder. Wind-Up Annuity products, the
terms of which are fixed at issue, were sold to corporate sponsors of
terminating qualified defined benefit plans. At December 31, 1996, $1.34 billion
of GIC Segment liabilities to contractholders were outstanding, of which $290.7
million were related to GIC products and the balance to Wind-Up Annuities.
Closed Block
In connection with the demutualization, Equitable Life established the Closed
Block, consisting of certain classes of individual participating policies in
respect of which Equitable Life had a dividend scale payable in 1991 and which
were in force on July 22, 1992. Since the Closed Block was funded to provide for
payment of guaranteed benefits under such policies and, in addition, for
continuation of dividends paid under 1991 dividend scales, it will not be
necessary to use general funds to pay guaranteed benefits unless the Closed
Block experiences very substantial adverse deviations in investment, mortality,
persistency or other experience factors. If the assets allocated to the Closed
Block, the cash flows therefrom and the revenues from the Closed Block prove to
be insufficient to pay the benefits guaranteed under the policies included in
the Closed Block, Equitable Life will be required to make such payments from its
general funds. In addition, if the investment, mortality, persistency or other
experience of the Closed Block was substantially worse than that of Equitable
Life's principal competitors, management might, for competitive reasons, use
Equitable Life's general funds to maintain competitive dividend levels. For more
information on the Closed Block, see Notes 2 and 6 of Notes to Consolidated
Financial Statements.
1-10
<PAGE>
General Account Investment Portfolio
General. The Insurance Group's General Account consists of a diversified
portfolio of investments. The General Account liabilities can be divided into
two primary types, participating and non-participating. For participating
products, the investment results of the underlying assets determine, to a large
extent, the return to the policyholder, and the Insurance Group's profits are
earned from investment management, mortality and other charges. For
non-participating or interest-sensitive products, the Insurance Group's profits
are earned from a positive spread between the investment return and the
crediting or reserve interest rate.
Although all the assets of the General Account of each insurer in the Insurance
Group support all of that insurer's liabilities, the Insurance Group has
developed an asset/liability management approach with separate investment
segments within each insurer for specific classes of product liabilities, such
as insurance, annuity and group pension. As part of this approach, the Insurance
Group develops investment guidelines for each product line which form the basis
for investment strategies to manage each product's return and liquidity
requirements. Specific investments frequently meet the requirements of, and are
acquired by, more than one investment segment, with each such investment segment
holding a pro rata interest in such investments and the investment return
therefrom.
The Closed Block assets are a part of continuing operations and have been
combined on a line-by-line basis with assets outside of the Closed Block. In
view of the similar asset quality characteristics of the major asset categories
in the two portfolios, management believes it is appropriate to discuss the
Closed Block assets and the assets outside of the Closed Block on a combined
basis. The General Account Investment Assets and the Holding Company Group
investment portfolio are discussed below. For further information on these
portfolios and on GIC Segment Investment Assets, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Continuing
Operations Investment Portfolio" and "- Discontinued Operations". Most
individual investments in the portfolios of the GIC Segment are also included in
General Account Investment Assets (which include the Closed Block).
The following table summarizes General Account Investment Assets by asset
category for the periods shown.
<TABLE>
<CAPTION>
General Account Investment Assets
Net Amortized Cost
(Dollars In Millions)
At December 31, 1996 At December 31, 1995
-------------------------- -------------------------
Amount % of Total Amount % of Total
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Fixed maturities(1).................... $ 21,711.6 62.6% $ 19,149.9 56.7%
Mortgages.............................. 4,513.7 13.0 5,007.1 14.8
Equity real estate..................... 3,518.6 10.1 4,130.3 12.2
Other equity investments............... 692.4 2.0 764.1 2.3
Policy loans........................... 3,962.0 11.4 3,773.6 11.2
Cash and short-term investments(2)..... 277.7 0.9 952.1 2.8
------------ ------------ ------------ ----------
Total.................................. $ 34,676.0 100.0% $ 33,777.1 100.0%
============ ============ ============ ==========
<FN>
(1) Excludes unrealized gains of $432.9 million and $857.9 million on fixed
maturities classified as available for sale at December 31, 1996 and 1995,
respectively.
(2) Comprised of "Cash and cash equivalents" and short-term investments included
within the "Other invested assets" caption on the consolidated balance
sheet.
</FN>
</TABLE>
1-11
<PAGE>
The present composition of the General Account reflects decisions made in 1990
to increase the credit quality of the investment portfolio to support the
Insurance Group's objectives of strengthening the balance sheet and improving
profitability. The Insurance Group has substantially reduced its exposure to
commercial mortgages since December 31, 1990 when they comprised $7.52 billion
or 22.4% of the net amortized cost of General Account Investment Assets to $2.84
billion or 8.2% at December 31, 1996 due to repayments and foreclosures. The
equity real estate portfolio has decreased modestly from $3.87 billion or 11.6%
of net amortized cost at the end of 1990 to $3.52 billion or 10.1% at December
31, 1996, as portfolio sales have been offset by foreclosures and capital
additions to safeguard the values in existing investments. Other equity
investments have declined from $1.30 billion or 3.9% at December 31, 1990 to
$692.4 million or 2.0% at December 31, 1996. In addition, management has reduced
the General Account's exposure to below investment grade bonds from a net
amortized cost of $3.33 billion or 9.9% of General Account Investment Assets at
December 31, 1990 to $2.72 billion or 7.8% at December 31, 1996.
Investment Surveillance. As part of the Insurance Group's investment management
process, management, with the assistance of its asset managers, constantly
monitors General Account investment performance. Fixed maturity investments are
reviewed upon receipt of the obligor's financial statements, generally
quarterly, for financial performance and compliance with financial covenants. In
situations where the trends in financial performance are negative or where
financial covenants are breached, a detailed analysis is performed. To the
extent such analysis raises concern about the quality or future performance of
the obligor, management then monitors the obligor on an ongoing basis.
Similarly, commercial and agricultural mortgage loans are carefully reviewed
monthly for the presence of certain objective and subjective characteristics
that cause management to perform additional monitoring. This process culminates
with a quarterly review of certain assets by the Insurance Group's Surveillance
Committee which decides whether values of any investments are other than
temporarily impaired, whether specific investments should be classified as
problems, potential problems or restructureds, and whether specific investments
should be put on an interest non-accrual basis. With the adoption of SFAS 121,
the valuation methodology for equity real estate is based upon management's
classification of each asset as either held for the production of income or
available for sale. For information on the valuation of assets held in the
General Account, including information on writedowns and valuation allowances
for specific classes of assets and the impact of the implementation of new
accounting standards, see Notes 2, 3 and 5 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations Continuing Operations Investment Portfolio - General
Account Investment Portfolio".
Description of General Account Investment Assets. For portfolio management
purposes, General Account Investment Assets are divided into four asset
categories: fixed maturities, mortgages, equity real estate and other equity
investments.
Fixed Maturities. As of December 31, 1996, the fixed maturities category was the
largest asset class of General Account Investment Assets with $21.71 billion in
net amortized cost or 62.6% of total General Account Investment Assets. The
fixed maturities category consists of both investment grade and below investment
grade public and private debt securities, as well as small amounts of redeemable
preferred stock. As of December 31, 1996, publicly traded debt securities
represented 72.4% of the amortized cost of the asset category, and privately
placed debt securities and redeemable preferred stock represented 26.9% and
0.7%, respectively. As of December 31, 1996, 87.5% ($18.99 billion) of the
amortized cost of fixed maturities were rated investment grade (National
Association of Insurance Commissioners ("NAIC") bond rating 1 or 2). For a
discussion of the credit quality of fixed maturities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Continuing Operations Investment Portfolio - General Account Investment
Portfolio - Investment Results of General Account Investment Assets - Fixed
Maturities".
1-12
<PAGE>
The following table summarizes fixed maturities by remaining average life as of
December 31, 1996.
<TABLE>
<CAPTION>
Fixed Maturity Investments By Remaining Average Life
(Dollars In Millions)
Amortized Cost
---------------------------------------------
Public Private % of Total
Fixed Fixed Fixed
Maturities Maturities Maturities
------------- ------------ ------------
<S> <C> <C> <C>
Remaining Average Life:(1)
Less than one year............................ $ 318.5 $ 347.7 3.1%
One or more and less than three years......... 650.8 637.0 5.9
Three or more and less than five years........ 1,547.5 1,307.0 13.1
Five or more and less than seven years........ 1,925.2 1,218.1 14.5
Seven or more and less than ten years......... 3,353.7 1,485.2 22.3
Ten or more and less than fifteen years....... 1,268.5 466.3 8.0
Fifteen or more and less than twenty years.... 553.2 99.8 3.0
More than twenty years........................ 1,492.2 147.4 7.6
------------- ------------ -----------
Subtotal................................ 11,109.6 5,708.5 77.5
Collateralized mortgage obligations(2)........ 2,416.4 132.6 11.7
Mortgage pass-through securities(2)........... 2,202.9 0.0 10.1
Redeemable preferred stock and other.......... 116.7 24.9 0.7
------------- ------------ -----------
Total......................................... $ 15,845.6 $ 5,866.0 100.0%
============= ============ ============
<FN>
(1) Assumes debt securities are not called for redemption prior to stated
maturity. Declines in prevailing interest rates may result in higher levels
of redemptions prior to maturity of fixed maturities that do not have
adequate call protection. At December 31, 1996, approximately 60.4%
(measured by amortized cost) of fixed maturities (excluding collateralized
mortgage obligations ("CMOs"), asset-backed securities, mortgage
pass-through securities and preferred stock and other) were non-callable.
An additional approximately 24.0% had call protection due to substantial
prepayment ("make-whole") premiums. Approximately 2.8% were callable bonds
with coupon rates of 7.50% or below.
(2) The average life of CMOs and mortgage pass-through securities is not
calculated due to the variability of timing of principal repayments.
Approximately 76.9% of the CMOs have underlying collateral which bears
interest at rates of 7.50% or less and 80.4% of the mortgage pass-through
securities bear interest at rates of 7.50% or less.
</FN>
</TABLE>
Investment grade fixed maturities (which include redeemable preferred stocks)
include the securities of 977 different issuers, with no individual issuer
representing more than 0.8% of investment grade fixed maturities as a whole. The
investment grade fixed maturities are also diversified by industry, with
investments in manufacturing (18.1%), banking (10.5%), finance (9.1%), utilities
(7.2%), and transportation (5.6%) representing the five largest allocations of
investment grade fixed maturities at December 31, 1996. No other industry
represented more than 5.0% of the investment grade fixed maturities portfolio at
that date.
Below investment grade fixed maturities (NAIC bond rating 3 through 6 and
redeemable preferred stocks) include the securities of over 247 different
issuers with no individual issuer representing more than 0.7% of below
investment grade fixed maturities as a whole. At December 31, 1996, the five
largest industries represented in these below investment grade fixed maturities
were manufacturing (38.7%), finance (12.4%), agricultural/mining/construction
(7.9%), banking (6.6%) and wholesale and retail (6.5%). No other industry
represented 6.1% or more of this portfolio. The General Account also has
interests in below investment grade fixed maturities through equity interests in
a number of high yield funds. See "Other Equity Investments".
1-13
<PAGE>
For information regarding problem, potential problem and restructured
investments in the fixed maturities category, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Continuing
Operations Investment Portfolio - Investment Results of General Account
Investment Assets - Fixed Maturities".
Mortgages. As of December 31, 1996, measured by amortized cost, commercial
mortgages totaled $2.90 billion (63.4% of the amortized cost of the category),
agricultural loans were $1.67 billion (36.5%) and residential loans were $4.0
million (0.1%). As of December 31, 1996, over 97.2% of all commercial mortgage
loans, measured by amortized cost, bore a fixed interest rate.
Commercial Mortgages - Commercial mortgages, substantially all of which are made
on a non-recourse basis, consist primarily of fixed rate first mortgages on
completed properties. As of December 31, 1996, first mortgages (which include
all mortgages where no other lender holds a senior position to The Equitable)
represented $2.89 billion (99.6%) of the amortized cost of the commercial
mortgage portfolio and there were no construction loans in the category. These
loans are diversified by property type. As of December 31, 1996, there were 403
individual commercial mortgage loans collateralized by office buildings, retail
properties, industrial properties, apartment buildings, hotels and land. By
dollar amount of amortized cost, loans collateralized by downtown office
buildings comprised 70.6% of the loans on office properties and regional malls
comprised 73.4% of the loans collateralized by retail properties as of such
date.
The following tables set forth the distribution, by property type and by state,
of the commercial mortgages as of December 31, 1996.
<TABLE>
<CAPTION>
Commercial Mortgages By Property Type and By State
(In Millions)
Amortized Amortized
Cost Cost
--------------- ---------------
<S> <C> <C> <C>
Property Type: State:
Office........................ $ 1,366.9 New York............................ $ 401.6
Retail........................ 764.1 Pennsylvania........................ 255.2
Hotel......................... 368.6 Texas............................... 237.1
Industrial.................... 263.8 California.......................... 223.3
Apartment..................... 121.1 Connecticut......................... 216.7
Land and other................ 16.7 Ohio................................ 196.5
---------------
Total......................... 2,901.2 Maryland............................ 179.1
Less valuation allowances..... 64.2 Virginia............................ 148.1
---------------
Carrying Value................ $ 2,837.0 Other (no state larger than 5%)..... 1,043.6
=============== ---------------
Total............................... 2,901.2
Less valuation allowances........... 64.2
---------------
Carrying Value...................... $ 2,837.0
===============
</TABLE>
Substantially all the mortgage loans in the General Account were originated by
The Equitable and not purchased from third parties. The Equitable's investment
policy with regard to the origination of new General Account mortgage loans
involves a review of the economics of the property being financed, the loan to
value ratio, adherence to guidelines that provide for diversification of The
Equitable's mortgage portfolio by property type and location and a review of
prevailing industry lending practices. In recent years, The Equitable
substantially reduced its volume of new mortgage loan originations. Management
believes the current aggregate loan-to-value ratio of commercial mortgage loans
in the problem, potential problem or the restructured categories is higher than
the current aggregate loan-to-value ratio of performing loans not in those
categories.
1-14
<PAGE>
The commercial mortgage portfolio includes both amortizing and balloon loans.
Management defines balloon loans to be mortgages for which the final principal
payment is more than half of the original loan amount. As of December 31, 1996,
22.5% of the portfolio was comprised of loans that provided for majority or
complete amortization prior to final maturity. For information on maturity and
principal repayment schedule for the commercial mortgage portfolio as of
December 31, 1996, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continuing Operations Investment Portfolio
- - General Account Investment Portfolio - Investment Results of General Account
Investment Assets".
For information regarding problem, potential problem and restructured commercial
mortgage loans, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continuing Operations Investment Portfolio - General
Account Investment Portfolio - Investment Results of General Account Investment
Assets - Mortgages".
Agricultural Mortgages - The agricultural mortgage loans add diversity to the
mortgage loan portfolio. As of December 31, 1996, there were approximately 4,373
outstanding agricultural mortgages with an aggregate amortized cost of $1.67
billion. The agricultural loans are distributed across U.S. agricultural regions
and are diversified by property type. As of December 31, 1996, 26.7%, 26.3%,
18.9%, 13.8%, 6.9% and 7.4% of these assets were collateralized by land used for
grain crops, fruit/vine/timber, general farm purposes, ranch and livestock,
agri-business and food and timber production, respectively. By state, 30.3%,
7.9%, 6.0%, 4.8% and 4.1% of the properties collateralizing these loans were
located in California, Minnesota, Texas, Florida and Arkansas, respectively. Of
the remaining properties collateralizing agricultural loans no more than 4% are
located in any single state.
Equity Real Estate. The equity real estate category consists of office, retail,
hotel, industrial and other properties. Office properties constitute the largest
component of the category and primarily are significant downtown buildings in
major cities. The retail properties are largely regional malls. As of December
31, 1996, 16.8% of the total amortized cost of equity real estate included in
General Account Investment Assets represented commercial properties acquired as
investment real estate after December 31, 1986. The remainder of the equity real
estate portfolio was acquired prior to 1987 or represents properties acquired
through foreclosure. While The Equitable historically has been an active
investor in equity real estate, it currently has a policy of not investing
substantial new funds in equity real estate, except to safeguard values in
existing investments or to honor outstanding commitments. The Equitable intends
to continue to seek to sell individual equity real estate properties on an
opportunistic basis. If a significant amount of equity real estate not currently
held for sale is sold, material investment losses would likely be incurred. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continuing Operations Investment Portfolio - Investment Results of
General Account Investment Assets - Equity Real Estate" and "- Discontinued
Operations".
1-15
<PAGE>
The following tables reflect the distribution by property type and state of the
equity real estate assets as of December 31, 1996.
<TABLE>
<CAPTION>
Equity Real Estate By Property Type and By State
(In Millions)
Amortized Amortized
Cost Cost
-------------- ---------------
<S> <C> <C> <C>
Property Type: State:
Office....................... $ 2,476.9 Massachusetts....................... $ 755.7
Retail....................... 389.9 California.......................... 540.5
Industrial................... 221.5 New York............................ 440.6
Mixed Use.................... 140.5 Georgia............................. 334.8
Agricultural................. 91.1 Illinois............................ 276.0
Hotel/Motel.................. 24.3 Pennsylvania........................ 201.6
Apartment.................... 0.3 Other (no state larger than 5%)..... 1,059.8
---------------
Other........................ 264.5 Total............................... 3,609.0
--------------
Total........................ 3,609.0 Less valuation allowances........... 90.4
---------------
Less valuation allowances.... 90.4 Carrying Value...................... $ 3,518.6
-------------- ===============
Carrying Value............... $ 3,518.6
==============
</TABLE>
Other Equity Investments. The other equity investments category consists
primarily of limited partnership interests in high yield debt and equity funds
managed by outside investment managers (the largest of which at December 31,
1996 was Acadia Partners, L.P., with a net amortized value of $124.3 million),
The Deal Flow Fund, L.P. which had an amortized cost of $78.0 million at
December 31, 1996 (the "Deal Flow Fund"), common and preferred stock acquired in
connection with private leveraged buyout transactions and other below investment
grade investments (including common stock). Management expects to explore new
equity investments as existing investments mature and distribute their realized
gains. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continuing Operations Investment Portfolio - Investment
Results of General Account Investment Assets - Other Equity Investments".
Holding Company Group Investment Portfolio
At December 31, 1996, the Holding Company Group's investment portfolio's $705.7
million carrying value was made up of fixed maturities ($657.7 million or
93.2%), cash and short-term securities ($40.6 million or 5.8%) and other equity
investments ($7.4 million or 1.0%). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continuing Operations Investment
Portfolio - Holding Company Group Investment Portfolio".
Employees and Agents
As of December 31, 1996, The Equitable had approximately 14,700 employees. Of
these, approximately 4,300 were employed by the Insurance Group and
approximately 10,400 were employed by the Investment Subsidiaries. In addition,
the Insurance Group's career sales force consists of over 7,200 agents, some of
whom, including agency and district managers and newer agents compensated on a
combined salary and commission basis, are employees of the Insurance Group.
Management believes relations with employees and agents are good.
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Competition
Insurance and Annuities. There is strong competition among insurance companies
seeking clients for the types of insurance, annuity and group pension products
sold by the Insurance Group. Many other insurance companies offer one or more
products similar to those offered by the Insurance Group and in some cases
through similar marketing techniques. In addition, the Insurance Group competes
with banks and other financial institutions for sales of annuity and, to a
lesser extent, life insurance products and with mutual funds, investment
advisers and other financial entities for the investment of savings dollars.
The principal competitive factors affecting the Insurance Group's business are
price, financial and claims-paying ratings, size, strength and professionalism
of agency force, range of product lines, product quality, reputation and
visibility in the marketplace, quality of service and, with respect to variable
insurance and annuity products, investment management performance. Management
believes the registration of a large majority of its agency force with the
National Association of Securities Dealers, Inc. ("NASD") and the training
provided to agents by the Insurance Group provide the Insurance Group with a
competitive advantage in effectively penetrating and communicating with its
target markets.
Ratings are an important factor in establishing the competitive position of
insurance companies. Since Equitable Life's demutualization, the financial
strength or claims-paying ratings of Equitable Life and EVLICO have been
upgraded by each of Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P"), A.M. Best Company, Inc. and Duff & Phelps Credit Rating Co.
As of December 31, 1996, the financial strength or claims-paying rating of
Equitable Life and EVLICO was AA- from S&P (4th highest of 18 ratings), Aa3 from
Moody's (4th highest of 19 ratings), A from A.M. Best Company, Inc. (3rd highest
of 15 ratings), AA from Fitch Investors Service, L.P. (3rd highest of 18
ratings) and AA- from Duff & Phelps Credit Rating Co. (4th highest of 18
ratings). After AXA's acquisition of UAP, four of the rating agencies just named
placed Equitable Life on ratings watch. As of March 14, 1997, Moody's, S&P and
Duff & Phelps Credit Rating Co. continued the ratings watch status.
During 1997, management intends to continue to explore selective acquisition
opportunities in The Equitable's core insurance and asset management businesses.
Investment Fund Management. The investment management industry is highly
competitive and new entrants continually are attracted to it, due in part to
relatively few barriers to entry. Alliance and Equitable Real Estate are subject
to substantial competition in all aspects of their business. Pension fund,
institutional and corporate assets are managed by investment management firms,
broker-dealers, banks and insurance companies. Alliance and Equitable Real
Estate compete with these investment managers primarily on the basis of the
range of investment products offered, the investment performance of such
products and the services provided to clients. Consultants also play a major
role in the selection of managers for pension funds.
Many of the firms competing with these Investment Subsidiaries for institutional
clients also offer mutual fund shares and cash management services to individual
investors. Competitiveness in this area is chiefly a function of the investment
performance and range of mutual funds and cash management services offered, the
quality in servicing customer accounts and the capacity to provide financial
incentives to intermediaries through distribution assistance and administrative
services payments funded by "Rule 12b-1" plans and the manager's own resources.
Equitable Life is subject to New York Insurance Law limitations on the amount it
may invest in its Investment Subsidiaries (including Alliance and Equitable Real
Estate); however, these limitations do not apply to investments by the Holding
Company.
The Insurance Group and the Investment Subsidiaries compete with and are
expected to continue to compete with each other by providing investment
management services, including sponsoring mutual funds and other investment
funds and accounts. For example, Alliance's partnership agreement specifically
allows Equitable Life and its subsidiaries (other than Alliance Capital
Management Corporation, a wholly owned Equitable Life subsidiary) to compete
with Alliance and to seek to develop opportunities that also may be available to
Alliance.
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Securities and Investment Banking. DLJ encounters significant competition in all
aspects of the securities business and competes worldwide directly with other
securities firms, both domestic and foreign, a number of which have greater
capital, financial and other resources than DLJ currently has at its disposal.
In addition to competition from firms currently in the securities business,
there has been increasing competition from other sources, such as commercial
banks and investment boutiques. The principal competitive factors influencing
DLJ's business are its professional staff, the firm's reputation in the
marketplace, its existing client relationships, the ability to commit capital to
client transactions and its mix of market capabilities. DLJ's ability to compete
effectively in securities brokerage and investment banking activities will also
be influenced by the adequacy of its capital levels.
Regulation
State Supervision. The Insurance Group is licensed to transact its insurance
business in, and is subject to extensive regulation and supervision by, all 50
of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands and Canada and nine of Canada's twelve provinces and territories.
Equitable Life is domiciled in New York and is primarily regulated by the New
York Superintendent, as was EVLICO prior to its merger into Equitable Life. The
extent of state regulation varies, but most jurisdictions have laws and
regulations governing standards of solvency, levels of reserves, permitted types
and concentrations of investments, and business conduct to be maintained by
insurance companies as well as agent licensing, approval of policy forms and,
for certain lines of insurance, approval or filing of rates. The New York
Insurance Law limits sales commissions and certain other marketing expenses that
may be incurred. The Insurance Group is required to file detailed annual
financial statements, prepared on a statutory accounting basis, with supervisory
agencies in each of the jurisdictions in which it does business, and its
operations and accounts are subject to examination by such agencies at regular
intervals. During 1996 the New York Insurance Department ("NYID") conducted a
regular quinquennial examination of Equitable Life for the period from 1991
through 1995. While the report has not yet been filed, management does not
expect the results of the examination to be material to the consolidated
financial position of The Equitable.
Holding Company Regulation. Several states, including New York, regulate
transactions between an insurer and its affiliates under insurance holding
company acts. These acts contain certain reporting requirements and restrictions
on transactions such as the transfer of assets, loans or the payment of
dividends between an insurer and its affiliates. Under such laws, transfers of
assets, loans or dividends to Equitable Life by its insurance subsidiaries, or
by Equitable Life to the Holding Company, may be subject to prior notice or
approval depending on the size of such transactions or payments. Equitable Life
has agreed in an undertaking to the NYID that similar approval requirements also
apply to transactions between (i) material subsidiaries of Equitable Life and
(ii) the Holding Company (and certain affiliates, including AXA). Changes in
control (generally presumed at a threshold of 10% or more of outstanding voting
securities) are also regulated by these laws.
Guaranty Funds. Under insurance guaranty fund laws existing in all states,
insurers doing business in those states can be assessed up to prescribed limits
to protect policyholders of companies which become impaired or insolvent.
Assessments levied against the Insurance Group during each of the past five
years have not been material. While the amount of any future assessments cannot
be predicted with certainty, management believes that assessments with respect
to pending insurance company impairments and insolvencies will not be material
to the financial position of The Equitable.
Statutory Investment Valuation Reserves. Statutory accounting practices require
a life insurer to maintain two reserves, an asset valuation reserve ("AVR") and
an interest maintenance reserve ("IMR") to absorb both realized and unrealized
gains and losses on most of an insurer's invested assets.
AVR requires life insurers to establish statutory reserves for substantially all
invested assets other than policy loans and life insurance subsidiaries. AVR
generally captures all realized and unrealized gains or losses on invested
assets, other than those resulting from changes in interest rates. Each year the
amount of an insurer's AVR will fluctuate as additional gains or losses are
absorbed by the reserve. To adjust for such changes over time, an annual
contribution must be made to AVR equal to 20% of the difference between the
maximum AVR (as determined annually according to the type and quality of an
insurer's assets) and the actual AVR. In addition, voluntary contributions to
the AVR are permitted, to the extent that AVR does not exceed its maximum level.
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As of December 31, 1996, the maximum AVR for the assets of the Insurance Group
was $1.8 billion and the actual AVR was $1.3 billion. The $524.7 million
difference between the maximum and actual AVR has no statutory or regulatory
significance other than its effect on the required future contribution to AVR.
IMR captures the net gains which are realized upon the sale of fixed income
investments and which result from changes in the overall level of interest
rates. These net realized gains or losses are then amortized into income over
the remaining life of each investment sold. IMR applies to all types of fixed
income securities (bonds, preferred stocks, mortgage-backed securities and
mortgage loans).
In 1996, the AVR increased statutory surplus by $48.4 million and the IMR
decreased statutory surplus by $22.6 million, as compared to decreases of $365.7
million and $80.3 million, respectively, in 1995. The increase in statutory
surplus caused by the AVR in 1996 primarily was a result of realized capital
losses on real estate and mortgages. The decrease caused by the IMR resulted
from realized capital gains due to changes in interest rates.
Changes in statutory surplus resulting from increases or decreases in AVR and
IMR impact the funds available for shareholder dividends. See "Shareholder
Dividend Restrictions". AVR and IMR are not included in financial statements
prepared in conformity with GAAP. Asset valuation allowances reflected in
consolidated financial statements included herein are established under GAAP.
While the future effect of both AVR and IMR on the Insurance Group's statutory
surplus will depend on the actual composition (both as to type and quality) of
the Insurance Group's assets and gains/losses, management does not expect these
reserves will reduce its statutory surplus to levels that would constrain the
growth of the Insurance Group's operations. See "Regulation Insurance -
Statutory Surplus and Capital".
Surplus Relief Reinsurance. The Insurance Group uses surplus relief reinsurance,
which has no GAAP financial reporting effect other than from the associated
expense and risk charge and administrative costs. However, surplus relief
reinsurance does have the effect of increasing current statutory surplus while
reducing future statutory earnings. As of December 31, 1996, $218.7 million
(6.1%) of the Insurance Group's total statutory capital (capital, surplus and
AVR) resulted from surplus relief reinsurance. Management reduced surplus relief
reinsurance by approximately $60.2 million in 1996 and by $445.3 million since
December 31, 1992. Management currently intends to eliminate all surplus relief
reinsurance by December 31, 2000. Such reductions will reduce the amount of the
Insurance Group's statutory surplus on a dollar-for-dollar basis. The ability of
Equitable Life to pay dividends to the Holding Company may be affected by the
reduction of statutory earnings caused by reductions in the levels of surplus
relief reinsurance.
Management believes the Insurance Group's surplus relief reinsurance agreements
are in substantial compliance with all applicable regulations.
NAIC Ratios. On the basis of statutory financial statements filed with state
insurance regulators, the NAIC annually calculates a number of financial ratios
to assist state regulators in monitoring the financial condition of insurance
companies. Twelve ratios were calculated based on the 1996 statutory financial
statements. A "usual range" of results for each ratio is used as a benchmark.
Departure from the "usual range" on four or more of the ratios can lead to
inquiries from individual state insurance departments.
For Equitable Life's 1996 statutory financial statements, three ratios fell
outside of the "usual range." These ratios include (i) the ratio of net gain to
total income, (ii) the ratio of investments in affiliates to capital and
surplus, and (iii) the reserving ratio for individual life insurance products.
This result reflects (i) Equitable Life's investment performance in 1996,
including realized and unrealized capital gains and losses, (ii) the fact that
Equitable Life conducts a substantial portion of its business through
subsidiaries, and (iii) the effects of Equitable Life's reinsurance contracts
(see "Surplus Relief Reinsurance"). Based on Equitable Life's statutory
financial statements for 1995, four of eleven ratios fell outside of the "usual
range" established by the NAIC. After review, in 1995 an NAIC examiner team
designated Equitable Life as requiring second priority regulatory attention
based upon losses from operations, affiliated company transactions, investments
in affiliates, investments in mortgage loans and real estate and non-investment
grade bonds in each case as reflected in its 1995 statutory financial
statements. This designation advised state regulators to accord high priority to
Equitable Life in the surveillance process. No regulatory action by the NYID or
any other state insurance regulator occurred as a result of this designation.
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Based on EVLICO's statutory financial statements for 1996, two ratios fell
outside of the "usual range." These include (i) the ratio of net gain to total
income, and (ii) the reserving ratio for individual life insurance products.
This result reflects (i) EVLICO's investment performance in 1996, including
realized and unrealized capital gains and losses, and (ii) the effects of
EVLICO's reinsurance contracts. On the basis of its statutory financial
statements for 1995, EVLICO had three of eleven ratios outside the "usual range"
and received third priority designation by an NAIC examiner team. This
designation advised state regulators to accord high priority to EVLICO in the
surveillance process. No regulatory actions by the NYID or any other state
insurance regulator occurred as a result of this designation.
Management does not expect any 1996 designations accorded to Equitable Life or
EVLICO based on their respective statutory financial statements to have a
material adverse effect on the business or operations of Equitable Life or to
adversely affect its ratings.
Statutory Surplus and Capital. As a licensed insurer in each of the 50 states of
the United States, each member of the Insurance Group is subject to the
supervision of the regulators of each such state. Such regulators have the
discretionary authority, in connection with the continual licensing of any
member of the Insurance Group, to limit or prohibit new issuances of business to
policyholders within their jurisdiction when, in their judgment, such regulators
determine that such member is not maintaining adequate statutory surplus or
capital. The Equitable does not believe the current or anticipated levels of
statutory surplus of the Insurance Group present a material risk that any such
regulator would limit the amount of new insurance business the Insurance Group
may issue.
The NAIC has undertaken a comprehensive codification of statutory accounting
practices for life insurers. The resulting changes, once the codification
project has been completed and the new principles adopted and implemented, could
have a significant adverse impact on the Insurance Group's statutory results and
financial position. The codification is unlikely to become effective until 1998
or later. For additional information concerning Equitable Life's statutory
capital, including the possible adverse effects of a restructuring of Alliance
to address changes in its tax status, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources - Insurance Group - Risk-Based Capital".
Risk-Based Capital. Since 1993, life insurers, including Equitable Life, have
been subject to certain risk-based capital ("RBC") guidelines. The RBC
guidelines provide a method to measure the adjusted capital (statutory capital
and surplus plus AVR and other adjustments) that a life insurance company should
have for regulatory purposes taking into account the risk characteristics of the
company's investments and products. The RBC requirements establish capital
requirements for four categories of risk: asset risk, insurance risk, interest
rate risk and business risk. For each category, the capital requirement is
determined by applying factors to various asset, premium and reserve items, with
the factor being higher for those items with greater underlying risk and lower
for less risky items. The New York Insurance Law gives the insurance
commissioner explicit regulatory authority to require various actions by, or
take various actions against, insurance companies whose adjusted capital does
not meet the minimum acceptable level. Equitable Life was above its target RBC
ratio at year end 1996. Recent changes in the RBC formula that will become
effective for year end 1997 statutory financial statements and other changes
proposed to become effective for year end 1997 are not expected to affect
materially Equitable Life's RBC ratio. For additional information concerning
Equitable Life's RBC, including the possible adverse effects of a restructuring
of Alliance to address changes in its tax status, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources Insurance Group - Risk-Based Capital".
Shareholder Dividend Restrictions. Dividends from Equitable Life are not
expected to be a source of liquidity for the Holding Company for several years.
Since the demutualization, the Holding Company has not received any dividends
from Equitable Life. In addition, under the New York Insurance Law, Equitable
Life would be permitted to pay shareholder dividends to the Holding Company only
if it files notice of its intention to declare such a dividend and the amount
thereof with the New York Superintendent and the New York Superintendent does
not disapprove the distribution. The applicable statute gives the New York
Superintendent broad discretion in determining whether the financial condition
of a stock life insurance company supports the payment of dividends to its
shareholders. There can be no assurance that the New York Superintendent would
not prevent the payment of dividends to the Holding Company for several years.
See Note 20 of Notes to Consolidated Financial Statements.
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In December 1995, Equitable Life issued $600.0 million aggregate principal
amount of surplus notes (the "Surplus Notes"). See Note 8 of Notes to
Consolidated Financial Statements. Under the New York Insurance Law, interest
and principal payments on the Surplus Notes may be made only out of "free and
divisible surplus . . .with approval of the Superintendent whenever, in his
judgment, the financial condition of such insurer warrants." Accordingly, the
New York Superintendent has broad discretion in determining whether to allow
Equitable Life to make payments on the Surplus Notes. Any interest or principal
payments on the Surplus Notes by Equitable Life will reduce amounts, if any,
available for future payment of dividends to the Holding Company.
Regulation of Investments. The Insurance Group is subject to state laws and
regulations that require diversification of its investment portfolio and limit
the amount of investments in certain investment categories such as below
investment grade fixed maturities, equity real estate and other equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring statutory surplus, and, in some instances,
require divestiture. As of December 31, 1996, the Insurance Group's investments
were in substantial compliance with all such regulations.
Federal Initiatives. Although the Federal government generally does not directly
regulate the insurance business, many Federal laws do affect the business in a
variety of ways. There are a number of existing or recently proposed Federal
laws which may significantly affect the Insurance Group, including employee
benefits regulation, removal of barriers preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance companies and
the taxation of insurance products. In addition, there has been some interest
among certain members of Congress concerning possible Federal roles in the
regulation of the insurance industry. These initiatives are generally in a
preliminary stage and consequently management cannot assess their potential
impact on the Insurance Group at this time.
ERISA Considerations. The Insurance Group and the Investment Subsidiaries act as
fiduciaries and are subject to regulation by the Department of Labor ("DOL")
when providing a variety of products and services to employee benefit plans
governed by the Employee Retirement Income Security Act of 1974 ("ERISA").
Severe penalties are imposed by ERISA on fiduciaries which violate ERISA's
prohibited transaction provisions or breach their duties to ERISA-covered plans.
In a case decided by the United States Supreme Court in December, 1993 (John
Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank) the
Court concluded that an insurance company general account contract that had been
issued to a pension plan should be divided into its guaranteed and nonguaranteed
components and that certain ERISA fiduciary obligations should be applied with
respect to the assets underlying the nonguaranteed components. Although The
Equitable has not issued contracts identical to the one involved in Harris
Trust, some of its policies relating to ERISA-covered plans may be deemed to
have nonguaranteed components subject to the principles announced by the Court.
During 1994, Equitable Life added additional guarantees to certain of these
contracts.
The Supreme Court's opinion did not resolve whether the assets at issue in the
case may be subject to ERISA for some purposes and not others. Prohibited
Transaction Exemption 95-60, granted by the DOL on July 7, 1995, exempted from
the prohibited transaction rules, prospectively and retroactively to January 1,
1975, certain transactions engaged in by insurance company general accounts in
which employee benefit plans have an interest. In August 1996, Congress passed
the Small Business Job Protection Act of 1996 (Public Law 104-188) which added
Section 401(c) to ERISA. Section 401(c) provides that no later than December 31,
1997, the DOL must issue a final regulation providing guidance defining the
circumstances in which an insurer will be deemed to have plan assets in its
general account, and how Title I of ERISA will apply to general account assets.
Compliance with this anticipated regulation is intended by Congress to provide a
safe harbor from ERISA liability for general account contracts issued on or
before December 31, 1998. Thereafter, newly issued general account contracts
must comply with the applicable fiduciary provisions of ERISA. Equitable Life is
actively working with industry trade groups in the preparation of the new
regulation and is considering the operational changes it must effect to comply
with the regulation. Pending further development of these and other matters, The
Equitable is unable to determine whether the General Account will be deemed to
have plan assets, and if so, the nature and scope of resulting liability, if
any.
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Environmental Considerations. As owners and operators of real property, The
Equitable and certain Investment Subsidiaries are subject to extensive Federal,
state and local environmental laws and regulations. Inherent in such ownership
and operation is the risk there may be potential environmental liabilities and
costs in connection with any required remediation of such properties. The
Equitable routinely conducts environmental assessments for real estate being
acquired for investment and before taking title through foreclosure to real
property collateralizing mortgages held by The Equitable. Based on these
environmental assessments and compliance with The Equitable's internal
environmental procedures, management believes that any costs associated with
compliance with environmental laws and regulations regarding such properties
would not be material to the consolidated financial position of The Equitable.
Furthermore, although The Equitable and certain of its subsidiaries hold equity
positions in companies that could potentially be subject to environmental
liabilities, management believes, based on its assessment of the businesses and
properties of these companies and the level of involvement of The Equitable and
the subsidiaries in the operation and management of such companies, any
environmental liabilities with respect to these investments would not be
material to the consolidated financial position of The Equitable.
Securities Laws. The Equitable, certain of its insurance subsidiaries and
certain policies and contracts offered by them are subject to regulation under
the Federal securities laws administered by the Securities and Exchange
Commission (the "Commission") and under certain state securities laws. Certain
Separate Accounts of Equitable Life are registered as investment companies under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
Separate Account interests under certain annuity contracts and insurance
policies issued by Equitable Life are also registered under the Securities Act
of 1933, as amended (the "Securities Act"). Equitable Life, EQ Financial, EDI,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
subsidiaries of The Equitable are registered as broker-dealers (collectively the
"Broker-Dealers") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Broker-Dealers are subject to extensive regulation (as
discussed below in "Investment Banking" with reference to DLJSC), and are
members of, and subject to regulation by, the NASD and various other self
regulatory organizations ("SROs"). As a result of registration under the
Exchange Act and SRO memberships, the Broker-Dealers are subject to overlapping
schemes of regulation which cover all aspects of their securities business. Such
regulations cover matters including capital requirements, the use and
safekeeping of customers' funds and securities, recordkeeping and reporting
requirements, supervisory and organizational procedures intended to assure
compliance with securities laws and rules of the SROs and to prevent improper
trading on "material nonpublic" information, employee-related matters,
limitations on extensions of credit in securities transactions, and clearance
and settlement procedures. A particular focus of the applicable regulations
concerns the relationship between broker-dealers and their customers. As a
result, the Broker-Dealers in some instances may be required to make
"suitability" determinations as to certain customer transactions, are limited in
the amounts that they may charge customers, cannot trade ahead of their
customers and must make certain required disclosures to their customers.
Equitable Life and certain of the Investment Subsidiaries also are registered as
investment advisors under the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"). Many of the investment companies managed by the
Investment Subsidiaries, including a variety of mutual funds and other pooled
investment vehicles, are registered with the Commission under the Investment
Company Act. All aspects of Equitable Life's and the Investment Subsidiaries'
investment advisory activities are subject to various Federal and state laws and
regulations and to the law in those foreign countries in which they conduct
business. Such laws and regulations relate to, among other things, limitations
on the ability of investment advisers to charge performance-based or
non-refundable fees to clients, recordkeeping and reporting requirements,
disclosure requirements, limitations on principal transactions between an
adviser or its affiliates and advisory clients, as well as general anti-fraud
provisions. The failure to comply with such laws may result in possible
sanctions including the suspension of individual employees, limitations on the
activities in which the investment advisor may engage, suspension or revocation
of the investment advisor's registration as an advisor, censure and/or fines.
Investment Banking. DLJ's business is, and the securities industry generally is,
subject to extensive regulation in the United States at both the Federal and
state level. Various regulatory bodies are charged with safeguarding the
integrity of the securities and other financial markets and with protecting the
interests of customers participating in those markets. DLJSC is registered as a
broker-dealer with the Commission and in all 50 states and the District of
Columbia, as a futures commission merchant with the Commodities Futures Trading
Commission (the "CFTC"), as an investment advisor in certain states and with the
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Commission and is also designated a primary dealer in U.S. Government securities
by the Federal Reserve Bank of New York. It is also a member of, and subject to
regulation by, the NASD, the NYSE, the Chicago Board of Trade ("CBOT"), the
National Futures Association and various other self-regulatory organizations.
Broker-dealers are subject to regulation by state securities administrators in
those states in which they conduct business. Broker-dealers are also subject to
regulations that cover all aspects of the securities business, including sales
and trading practices, use and safekeeping of customers' funds and securities,
capital structure, record-keeping and the conduct of directors, officers and
employees. The Commission, other governmental regulatory authorities, including
state securities commissions, and SROs may institute administrative or judicial
proceedings, which may result in censure, fine, the issuance of cease-and-desist
orders, the suspension or expulsion of a broker-dealer or member, its officers
or employees or other similar consequences.
DLJ's business may be materially affected not only by regulations applicable to
it as a financial market intermediary, but also by regulations of general
application. For example, the volume of DLJ's underwriting, merger and
acquisition and merchant banking businesses in any year could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities. From time to time, various forms of anti-takeover legislation and
legislation that could affect the benefits associated with financing leveraged
transactions with high yield securities have been proposed that, if enacted,
could adversely affect the volume of merger and acquisition and merchant banking
business, which in turn could adversely affect DLJ's underwriting, advisory and
trading revenues related thereto.
As a broker-dealer registered with the Commission and a member firm of the NYSE,
DLJSC is subject to the capital requirements of the Commission and of the NYSE.
These capital requirements specify minimum levels of capital, computed in
accordance with regulatory requirements ("net capital"), that DLJSC is required
to maintain and also limit the amount of leverage that DLJSC is able to obtain
in its businesses. As a futures commission merchant, DLJSC is also subject to
the capital requirements of the CFTC and the CBOT. A failure by DLJSC to
maintain its minimum required capital would require it to cease executing
customer transactions until it came back into capital compliance, and could
cause it to lose its membership on the NYSE or other exchanges, its right to
registration with the Commission or CFTC, or require its liquidation. In
addition, the decline in DLJSC's net capital below certain "early warning
levels," even though above minimum capital requirements, could have material
adverse consequences including the imposition of a prohibition on DLJSC's
ability to pay dividends, redeem stock, prepay subordinated indebtedness or,
under certain circumstances, make principal payments in respect of subordinated
indebtedness. Compliance with the net capital requirements could limit those
operations of DLJSC that require the intensive use of capital, such as
underwriting, merchant banking and trading activities, and also could restrict
the Holding Company's ability to withdraw capital from DLJSC. Rule 15c3-1 under
the Exchange Act limits the ability of stockholders of a registered
broker-dealer to withdraw excess capital from that broker-dealer, if such
withdrawal would impair the broker-dealer's net capital. This rule could limit
the payment of dividends and the making of loans and advances to Equitable Life
by the Broker-Dealers and by Equitable Life to the Holding Company.
DLJSC is a member of the Securities Investor Protection Corporation, which
provides, in the event of the liquidation of a broker-dealer, protection for
customers' accounts held by the firm of up to $500,000 for each customer,
subject to a limitation of $100,000 for claims for cash balances. In addition,
DLJSC has excess coverage insurance purchased from an unaffiliated third party
insurer. Margin lending by certain subsidiaries of DLJ is subject to the margin
rules of the Board of Governors of the Federal Reserve System and the NYSE.
DLJSC is also subject to the Commission's Temporary Risk Assessment Rules which
require, among other things, that a broker-dealer maintain and preserve certain
information, describe risk management policies and procedures and report on the
financial condition of certain affiliates whose financial and securities
activities are reasonably likely to have a material impact on the financial and
operational condition of the broker-dealer.
DLJSC is designated a primary dealer in U.S. Government securities. Under the
Government Securities Act, which established an integrated system of regulation
of government securities brokers and dealers, the Department of the Treasury has
promulgated regulations concerning, among other things, capital adequacy,
custody and use of government securities and transfers and control of government
securities subject to repurchase transactions.
1-23
<PAGE>
In addition to being regulated in the U.S., DLJ's business is subject to
regulation by various foreign governments and regulatory bodies. DLJ has
broker-dealer subsidiaries that are subject to regulation by the Securities and
Futures Authority of the United Kingdom, the Securities and Futures Commission
of Hong Kong and the Ontario Securities Commission.
Additional legislation and regulations, including those relating to the
activities of affiliates of broker-dealers, changes in rules promulgated by the
Commission, the CFTC or other U.S. or foreign governmental regulatory
authorities and SROs or changes in the interpretations or enforcement of
existing laws and rules may adversely affect the manner of operation and
profitability of DLJ.
Principal Shareholder
AXA is the largest shareholder of the Holding Company, beneficially owning
(together with certain of its affiliates) at December 31, 1996 (i) $392.2
million stated value of Series E convertible preferred stock of the Holding
Company, and (ii) 60.8% of the outstanding shares of Common Stock of the Holding
Company (without giving effect to conversion of the Series E convertible
preferred stock beneficially owned by AXA). All shares of the Holding Company's
Common Stock and preferred stock beneficially owned by AXA have been deposited
in the voting trust referred to below. AXA, a French company, is the holding
company for an international group of insurance and related financial services
companies. AXA's insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance operations are
diverse geographically, with activities principally in Western Europe, North
America, and the Asia/Pacific area. AXA is also engaged in asset management,
investment banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States, as well as in
Western Europe and the Asia/Pacific area.
AXA acquired its interest in the Holding Company in 1992 upon Equitable Life's
demutualization. As a result of the demutualization and related transactions,
The Equitable is likely to be treated as having undergone an "ownership change"
for purposes of Sections 382 and 383 of the Internal Revenue Code of 1986 (the
"Code"). These sections generally limit the utilization for Federal income tax
purposes of any loss carryforwards and other tax benefits from before the change
to offset the Federal income tax liabilities of The Equitable for years
following the change. Although no assurance can be given because of the
uncertainties involved in applying Sections 382 and 383 to these transactions
and in determining the amount of the loss carryforwards and other tax benefits
that might be available at the time of the ownership change, management believes
it is unlikely these limitations will have a material adverse effect on the
consolidated financial position of The Equitable.
Neither AXA nor any affiliate of AXA has any obligation to provide additional
capital or credit support to The Equitable.
Preemptive Rights. Under the Standstill Agreement, AXA (or any other AXA
affiliate designated by it) has the right to acquire a percentage of each new
issuance by the Holding Company of voting securities or convertible securities
equal to the percentage of the total voting power held by AXA and its affiliates
(the "AXA Parties") immediately prior to the issuance of such voting securities
or convertible securities (assuming, in the case of convertible securities, the
conversion, exchange or exercise at such time of all convertible securities to
be issued in such issuance), except that AXA's preemptive rights do not apply to
issuances pursuant to certain employee benefit plans. AXA's preemptive rights
will be in effect until the AXA Parties own less than 10% of the total voting
power (determined as though all convertible securities owned by any AXA Party
had been converted into voting securities immediately prior to the time of
determination).
Registration Rights. Under the Standstill Agreement, AXA has the right to
require that the Holding Company register under the Securities Act any voting
securities of the Holding Company owned from time to time by any of the AXA
Parties, provided that the Holding Company will not be obligated to file a
registration statement within nine months after the initial effective date of
any registration statement requested to be filed by AXA. AXA also has the right,
subject to certain restrictions, to include such voting and other securities in
most other registrations of securities of the Holding Company under the
Securities Act. The Holding Company has agreed to pay all registration expenses
and all out-of-pocket expenses of the AXA Parties incurred in connection with
the first five registrations requested by AXA and in connection with any other
1-24
<PAGE>
registrations in which any AXA Party participates. The Holding Company has
agreed to indemnify the AXA Parties and certain related persons against any
losses or liabilities any of them may suffer as a result of any material
misstatements or omissions of fact contained in any registration statement,
except misstatements or omissions contained in written materials provided to the
Holding Company by AXA expressly for use in the registration statement, as to
which AXA has agreed to indemnify the Holding Company against losses or
liabilities.
The registration rights provisions of the Standstill Agreement will be a
continuing obligation of the Holding Company until the AXA Parties are able to
transfer, with respect to each class or series of voting securities of the
Holding Company, all securities of such class or series then owned directly or
indirectly by them in a single transaction pursuant to Rule 144 under the
Securities Act.
Limitations on AXA Acquisitions of Voting Securities. Under Article XI of the
Holding Company's By-Laws ("Article XI"), the AXA Parties are prohibited from
acquiring any voting securities of the Holding Company (including Common Stock)
if, immediately after such acquisition, the percentage of the total voting power
represented by all such voting securities then owned by the AXA Parties would
exceed 90% (the "Threshold Percentage") unless the relevant AXA Party offers to
purchase all shares of Common Stock then outstanding (other than shares owned by
the other AXA Parties) and a special committee of the Holding Company Board
(consisting of directors of the Holding Company other than nominees of AXA or
officers of the Holding Company or any of its subsidiaries) is appointed to
evaluate such offer. Article XI does not require that an offer be made to all
stockholders or that a special committee be appointed if the AXA Parties acquire
or propose to acquire less than the Threshold Percentage.
Voting Trust. In connection with AXA's application to the New York
Superintendent for approval of its acquisition of capital stock of the Holding
Company, AXA and the initial Trustees of the Voting Trust (Claude Bebear,
Patrice Garnier and Henri de Clermont-Tonnerre) have entered into a Voting Trust
Agreement dated as of May 12, 1992 (the "Voting Trust Agreement"). The Voting
Trust Agreement requires AXA and certain affiliates to deposit any shares of the
Holding Company's Common Stock and preferred stock held by them in the Voting
Trust. The Voting Trust Agreement also provides (subject to limited exceptions)
that in the event that any AXA Party acquires additional shares of such stock,
or any other stock of the Holding Company having the power to vote in the
election of directors of the Holding Company, it shall promptly deposit such
shares in the Voting Trust. Only AXA Parties and certain other affiliates of AXA
may deposit shares of Holding Company capital stock into the Voting Trust or be
holders of voting trust certificates representing deposited shares. The purpose
of the Voting Trust is to ensure for insurance regulatory purposes that certain
indirect minority shareholders of AXA will not be able to exercise control over
the Holding Company or Equitable Life.
AXA and any other holder of voting trust certificates will remain the beneficial
owner of the shares deposited by it, except that the Trustees will be entitled
to exercise all voting rights attaching to the deposited shares so long as such
shares remain subject to the Voting Trust. In voting the deposited shares, the
Trustees must act to protect the legitimate economic interests of AXA and any
other holders of voting trust certificates (but with a view to ensuring that
certain indirect minority shareholders of AXA do not exercise control over the
Holding Company or Equitable Life). All dividends and distributions (other than
those which are paid in the form of shares required to be deposited in the
Voting Trust) in respect of deposited shares will be paid directly to the
holders of voting trust certificates. If a holder of voting trust certificates
sells or transfers deposited shares to a person which is not an AXA Party and is
not (and does not, in connection with such sale or transfer, become) a holder of
voting trust certificates, the shares sold or transferred will be released from
the Voting Trust. The Voting Trust has an initial term of ten years and is
subject to extension with the prior approval of the New York Superintendent.
1-25
<PAGE>
Part I, Item 2.
PROPERTIES
In 1995 The Equitable executed a long-term lease for approximately 500,000
square feet of office space located at 1290 Avenue of the Americas, New York,
New York, which now serves as The Equitable's headquarters. Most of The
Equitable's staff has moved from 787 Seventh Avenue, New York, New York and
other Manhattan office locations into its new headquarters. The relocation is
scheduled for completion in 1999. In addition, The Equitable leases property
both domestically and abroad, the majority of which houses insurance operations.
Management believes its facilities are adequate for its present needs in all
material respects. For additional information, see Notes 18 and 19 of Notes to
Consolidated Financial Statements.
In 1996 Equitable Life subleased its office space at 1290 Avenue of the Americas
to the New York City Industrial Development Agency (the "IDA"), and
sub-subleased that space back from the IDA, in connection with the IDA's
granting of sales tax benefits to Equitable Life.
DLJ's principal executive offices are presently located at 277 Park Avenue, New
York, New York and occupy approximately 793,000 square feet under a lease
expiring in 2016. DLJ also leases space at 120 Broadway, New York, New York,
aggregating approximately 94,000 square feet. This lease expires in 2006.
Pershing also leases approximately 440,000 square feet in Jersey City, New
Jersey, under leases which expire at various dates through 2009.
DLJ also purchased land and a building with approximately 133,000 square feet in
Florham Park, New Jersey in February 1996.
DLJ leases an aggregate of approximately 500,000 square feet for its domestic
and international regional offices, the leases for which expire at various dates
through 2014. Other domestic offices are located in Atlanta, Austin, Boston,
Chicago, Dallas, Houston, Jersey City, Los Angeles, Menlo Park, Miami, Oak
Brook, Philadelphia and San Francisco. Its foreign office locations are
Bangalore, Buenos Aires, Geneva, Hong Kong, London, Lugano, Mexico City, Paris,
Sao Paulo and Tokyo. In 1996, DLJ's principal London subsidiary entered into a
lease for approximately 76,000 square feet to accommodate the expansion of its
international operations. Such lease expires in 2008.
DLJ believes that its present facilities are adequate for its current needs.
Alliance's principal executive offices at 1345 Avenue of the Americas, New York,
New York are occupied pursuant to a lease which extends until 2016. Alliance
currently occupies approximately 290,000 square feet at this location. Alliance
also occupies approximately 79,700 square feet at 135 West 50th Street, New
York, New York under leases expiring in 1998 and 1999, respectively. Alliance
also occupies approximately 22,800 square feet at 709 Westchester Avenue, White
Plans, New York, under leases expiring in 1999 and 2000, respectively. Alliance
and two of its subsidiaries occupy approximately 114,000 square feet of space in
Secaucus, New Jersey pursuant to a lease which extends until 2016. Alliance
leases substantially all of the furniture and office equipment at the New York
City and New Jersey offices.
Alliance also leases space in San Francisco, California, Chicago, Illinois,
Greenwich, Connecticut, Minneapolis, Minnesota, and Beechwood, Ohio, and its
subsidiaries lease space in Boston, Massachusetts, London, England, Paris,
France, Tokyo, Japan, Sydney, Australia, Toronto, Canada, Luxembourg, Singapore,
Bahrain, Mumbai, India, Sao Paulo, Brazil, and Istanbul, Turkey.
Equitable Real Estate Investment Management, Inc. ("ERE") and Compass Management
and Leasing, each of whose principal executive offices are in Atlanta, Georgia,
began in March to consolidate in Monarch Tower, 3424 Peachtree Road, N.E.,
Atlanta, Georgia, where they lease approximately 193,000 square feet under a
lease that extends until 2007. This consolidation is expected to be completed by
May 1, 1997.
2-1
<PAGE>
ERE also has ten regional offices with respect to which it leases approximately
147,000 square feet, under leases that expire at various dates through 2002, in
Boston, Chicago, Dallas, Irvine, New York, Philadelphia, Sacramento, San
Francisco, Seattle and Washington, D.C.
Compass Retail, Inc., a subsidiary of ERE, has principal executive offices at
5775 Peachtree Road, Atlanta Georgia of approximately 52,000 square feet held
under two separate leases which expire in 1999.
Equitable Agri-Business, Inc. has principal executive offices at 12747 Olive
Boulevard, St. Louis, Missouri, consisting of approximately 18,000 square feet
held under a lease expiring in March 2000.
2-2
<PAGE>
Part I, Item 3.
LEGAL PROCEEDINGS
The matters set forth in Note 17 of Notes to the Holding Company's Consolidated
Financial Statements for the year ended December 31, 1996 (Item 8 of this
report) are incorporated herein by reference, with the following additional
information.
The parties to the actions described therein relating to Harrah's Jazz Company
and Harrah's Jazz Finance Corp. have agreed to a settlement of such actions,
subject to the approval of the U.S. District Court for the Eastern District of
Louisiana.
3-1
<PAGE>
Part I, Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
4-1
<PAGE>
Part II, Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Holding Company's Common Stock is listed on the New York Stock Exchange
which is the principal market for the Holding Company's Common Stock. Its symbol
is EQ. As of January 31, 1997, there were approximately 588,030 record holders
of the Common Stock.
The dividends declared and the high and low reported closing sales prices on the
New York Stock Exchange with respect to the Holding Company's Common Stock for
each quarterly period for the two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
Common Stock Data
First Quarter Second Quarter Third Quarter Fourth Quarter
Price Range and Dividends 1996 1996 1996 1996
- ------------------------------- ----------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
High........................... $ 26.625 $ 25.750 $ 26.500 $ 26.625
Low............................ $ 23.000 $ 22.750 $ 22.250 $ 23.250
Dividends Declared............. $ .05 $ .05 $ .05 $ .05
</TABLE>
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
Price Range and Dividends 1995 1995 1995 1995
- -------------------------------- ----------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
High........................... $ 23.375 $ 24.375 $ 26.375 $ 24.750
Low............................ $ 17.250 $ 20.750 $ 21.000 $ 21.250
Dividends Declared............. $ .05 $ .05 $ .05 $ .05
</TABLE>
For information on the Holding Company's present and future ability to pay
dividends, see Note 20 of Notes to Consolidated Financial Statements (Item 8 of
this report), "Liquidity and Capital Resources" of Management's Discussion and
Analysis of Financial Condition and Operations (Item 7 of this report), and
"Shareholder Dividend Restrictions" of Business (Item 1 of this report).
5-1
<PAGE>
Part II, Item 6.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
-----------------------------------------------------------------------------
1996(2) 1995 1994 1993 1992
-------------- ------------- ------------- ------------- -------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Earnings Data(1)
Revenues
Universal life and investment-type
product policy fee income.............. $ 874.0 $ 788.2 $ 715.0 $ 644.5 $ 571.7
Premiums................................. 597.6 606.8 625.6 599.1 1,185.3
Net investment income(3)................. 3,308.6 3,047.4 2,838.4 2,715.0 2,681.5
Investment gains (losses), net(4)(5)..... 599.2 552.3 338.6 526.4 371.8
Commissions, fees and other income....... 2,800.5 2,142.4 1,748.4 1,851.5 1,412.5
Contribution from the Closed Block(10)... 125.0 143.2 137.0 152.2 37.2
-------------- ------------- ------------- ------------- -------------
Total revenues............................. 8,304.9 7,280.3 6,403.0 6,488.7 6,260.0
Total benefits and other deductions(2)(6)(7) 7,789.1 6,635.1 5,856.4 6,112.4 6,250.8
-------------- ------------- ------------- ------------- -------------
Earnings from continuing operations
before Federal income taxes and
minority interest........................ 515.8 645.2 546.6 376.3 9.2
Federal income tax expense................. 137.4 192.3 157.0 111.7 12.8
Minority interest in net income of
consolidated subsidiaries................ 172.4 87.5 68.3 31.9 35.0
-------------- ------------- ------------- ------------- -------------
Earnings (loss) from continuing operations. 206.0 365.4 321.3 232.7 (38.6)
Discontinued operations, net of Federal
income taxes(2)(3)(8)(9)................. (83.8) - - - -
Extraordinary charge for demutualization
expenses................................. - - - - (101.3)
Cumulative effect of accounting changes,
net of Federal income taxes.............. (23.1) - (27.1) - 4.9
-------------- ------------- ------------- ------------- -------------
Net Earnings (Loss)........................ $ 99.1 $ 365.4 $ 294.2 $ 232.7 $ (135.0)
============== ============= ============= ============= =============
Net earnings after demutualization......... $ 99.1 $ 365.4 $ 294.2 $ 232.7 $ -
Dividends on preferred stocks.............. 26.7 26.7 80.1 65.4 14.5
-------------- ------------- ------------- ------------- -------------
Net Earnings (Loss) Applicable to
Common Shares............................ $ 72.4 $ 338.7 $ 214.1 $ 167.3 $ (14.5)
============== ============= ============= ============= =============
Per Common Share:
Assuming No Dilution:
Earnings (Loss) before Cumulative
Effect of Accounting Change.......... $ .93 $ 1.83 $ 1.68 $ 1.18 $ (.10)
============== ============= ============= ============= =============
Net Earnings (Loss).................... $ .36 $ 1.83 $ 1.49 $ 1.18 $ (.10)
============== ============= ============= ============= =============
Assuming Full Dilution:
Earnings (Loss) before Cumulative
Effect of Accounting Change.......... $ .93 $ 1.74 $ 1.52 $ 1.08 $ (.10)
============== ============= ============= ============= =============
Net Earnings (Loss).................... $ .36 $ 1.74 $ 1.37 $ 1.08 $ (.10)
============== ============= ============= ============= =============
Cash Dividend Per Common Share............. $ .20 $ .20 $ .20 $ .20 $ .10
============== ============= ============= ============= =============
Consolidated Balance Sheets Data(1)
Total assets(10)(11)....................... $ 128,811.2 $ 113,716.2 $ 94,785.3 $ 100,382.3 $ 80,743.7
Long-term debt and redeemable
preferred stock.......................... 3,920.7 3,852.0 2,925.9 2,927.2 2,160.0
Total liabilities(10)(11).................. 124,823.2 109,607.5 91,605.2 96,670.9 78,010.9
Shareholders' equity....................... 3,988.0 4,108.7 3,180.1 3,446.5 2,470.7
6-1
<PAGE>
NOTES TO SELECTED CONSOLIDATED
FINANCIAL INFORMATION
<FN>
(1) In 1996, The Equitable changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed Block,
in accordance with the provisions prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 120, "Accounting and Reporting by Mutual
Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts". The financial statements for 1995,
1994, 1993 and 1992 have been restated for the change. Shareholders'
equity increased $194.9 million as of January 1, 1992 for the effect of
retroactive application of the new method. See Note 2 of Notes to
Consolidated Financial Statements.
(2) During the fourth quarter of 1996, The Equitable completed experience and
loss recognition studies of participating group annuity contracts and
conversion annuities ("Pension Par") and disability income ("DI")
products. Additionally, The Equitable's management reviewed the loss
provisions for the GIC Segment lines of business. As a result of these
studies, $145.0 million of unamortized DI deferred policy acquisition
costs ("DAC") were written off and reserves were strengthened by $248.0
million for these lines of business. Consequently, earnings from
continuing operations decreased by $255.5 million ($393.0 million pre-tax)
and net earnings decreased by $339.3 million. See Notes 2 and 7 of Notes
to Consolidated Financial Statements.
(3) Net investment income and discontinued operations included $114.3 million,
$154.6 million, $219.7 million, $197.1 million and $132.8 million, for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively,
recognized as investment income by continuing operations and as interest
expense by the GIC Segment relating to intersegment loans.
(4) Investment gains (losses), net, included additions to asset valuation
allowances and writedowns of fixed maturities and, in 1996, equity real
estate for continuing operations aggregating $178.6 million, $197.6
million, $100.5 million, $108.7 million and $278.6 million for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. As of
January 1, 1996, The Equitable implemented SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS No. 121"). The adoption of this statement resulted in
the release of valuation allowances of $152.4 million on equity real
estate and recognition of impairment losses of $144.0 million on real
estate held and used.
(5) Investment gains (losses), net for the year ended December 31, 1996
included a $79.4 million gain related to the sale of shares of one
investment in the DLJ long-term corporate development portfolio.
Investment gains (losses), net, for the year ended December 31, 1995
included a $34.7 million gain resulting from the sale of DLJ common stock.
The year ended December 31, 1994 included a $52.4 million gain resulting
from the sale of newly issued Alliance units. The year ended December 31,
1993 included a $49.3 million gain (before variable compensation and
related expenses) related to the sale of shares of that same investment in
the DLJ long-term corporate development portfolio. The year ended December
31, 1992 included a gain on that same investment of $166.2 million, which
consisted of an $82.4 million net gain on shares sold and an $83.8 million
investment gain from the recognition of an increase in fair value of the
investment.
(6) Total benefits and other deductions included corporate interest expense of
$139.6 million, $100.5 million, $50.6 million, $28.4 million and $58.4
million for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively, and interest credited to the GIC Segment of $88.2 million,
$97.7 million and $94.2 million for the years ended December 31, 1994,
1993 and 1992, respectively.
(7) Total benefits and other deductions included provisions associated with
cost reduction programs of $24.4 million, $39.2 million, $20.4 million,
$96.4 million and $24.8 million for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively.
6-2
<PAGE>
(8) Discontinued operations, net of Federal income taxes, included additions
to asset valuation allowances and writedowns of fixed maturities and, in
1996, equity real estate for the GIC Segment aggregating $36.0 million,
$38.2 million, $50.8 million, $53.0 million and $105.6 million for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
Additionally, the implementation of SFAS No. 121 as of January 1, 1996
resulted in the release of existing valuation allowances of $71.9 million
on equity real estate and recognition of impairment losses of $69.8
million on real estate held and used.
(9) Discontinued operations, net of Federal income taxes, included GIC Segment
after-tax losses of $83.8 million for the year ended December 31, 1996.
Incurred losses of $23.7 million, $25.1 million, $21.7 million, $24.7
million and $160.9 million for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively, were charged to the GIC Segment
allowance for future losses. See Note 7 of Notes to Consolidated Financial
Statements.
(10) The results of the Closed Block for the periods subsequent to July 22,
1992 are reported on one line in the consolidated statements of earnings.
Accordingly, the line-by-line statements of earnings data are not
comparable for all periods presented. Total assets and total liabilities
include the assets and liabilities of the Closed Block, respectively, and
therefore amounts are comparable for all periods presented. See Note 6 of
Notes to Consolidated Financial Statements.
(11) Assets and liabilities relating to the GIC Segment are not reflected on
the consolidated balance sheets of The Equitable, except that as of
December 31, 1996, 1995, 1994, 1993 and 1992 the net amount due to
continuing operations for intersegment loans made to the GIC Segment in
excess of continuing operations' obligations to fund the GIC Segment's
accumulated deficit is reflected as "Amounts due from discontinued GIC
Segment".
</FN>
</TABLE>
6-3
<PAGE>
Part II, Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and financial
condition of The Equitable should be read in conjunction with the Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements
included elsewhere herein. The years "1996," "1995" and "1994" refer to the
years ended December 31, 1996, 1995 and 1994, respectively.
COMBINED RESULTS OF OPERATIONS
The Closed Block contribution is reported on one line in the consolidated
statements of earnings. The results of operations of the Closed Block for 1996,
1995 and 1994 are combined with the results of operations outside of the Closed
Block in the table below. See Closed Block results as combined herein on page
7-5. Management's discussion and analysis addresses the combined results of
operations unless noted otherwise.
Combined Results of Operations
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(In Millions)
<S> <C> <C> <C>
Policy fee income and premiums.............................. $ 2,195.3 $ 2,146.2 $ 2,137.8
Net investment income....................................... 3,855.2 3,586.3 3,361.4
Investment gains, net....................................... 593.7 532.1 314.6
Commissions, fees and other income.......................... 2,801.6 2,144.6 1,749.3
----------- ----------- -----------
Total revenues........................................ 9,445.8 8,409.2 7,563.1
----------- ----------- -----------
Interest credited to policyholders' account balances........ 1,286.0 1,264.9 1,218.0
Policyholders' benefits..................................... 2,409.1 2,070.5 2,020.7
Other operating costs and expenses.......................... 5,234.9 4,428.6 3,777.8
----------- ----------- -----------
Total benefits and other deductions................... 8,930.0 7,764.0 7,016.5
----------- ----------- -----------
Earnings from continuing operations before
Federal income taxes, minority interest and
cumulative effect of accounting change.................... 515.8 645.2 546.6
Federal income taxes........................................ 137.4 192.3 157.0
Minority interest in net income of consolidated
subsidiaries.............................................. 172.4 87.5 68.3
----------- ----------- -----------
Earnings from continuing operations before
cumulative effect of accounting change.................... 206.0 365.4 321.3
Discontinued operations, net of Federal income taxes........ (83.8) - -
Cumulative effect of accounting change, net of
Federal income taxes...................................... (23.1) - (27.1)
----------- ----------- -----------
Net Earnings................................................ $ 99.1 $ 365.4 $ 294.2
=========== =========== ===========
</TABLE>
7-1
<PAGE>
The Equitable's results of operations for both continuing and discontinued
operations during 1996 were significantly affected by certain actions taken
during the fourth quarter of 1996. Continuing operations' results for 1996 were
impacted by reserve strengthenings as the result of experience and loss
recognition studies completed in the fourth quarter for the disability income
("DI") and participating pension ("Pension Par") lines of business. These
studies resulted in the need to increase DI reserves by $175.0 million, write
off $145.0 million of unamortized deferred policy acquisition costs ("DAC") on
the DI products and increase Pension Par reserves by $73.0 million. See
"Combined Results of Operations by Segment - Insurance Operations - Disability
Income" and "Group Pension Products". Additionally, during the fourth quarter of
1996, the loss allowances related to the discontinued operations comprising the
GIC Segment were strengthened by $129.0 million. See "Discontinued Operations".
Also in the fourth quarter of 1996, The Equitable adopted SFAS No. 120, which
prescribes the accounting for certain individual participating life insurance
contracts, which for The Equitable are primarily included in the Closed Block.
The methodologies required by SFAS No. 120 produce results which more closely
reflect the economics of the participating life contracts and are considered to
be preferable accounting principles as compared to the SFAS No. 60 model
previously used for this type of contract. The application of this new
methodology resulted in increases to (decreases from) pre-tax results from
continuing operations of $29.5 million, $23.4 million and $(3.6) million in
1996, 1995 and 1994, respectively, and a $240.3 million aggregate increase in
shareholders' equity at December 31, 1996. Prior years' financial results have
been restated. See "Accounting Changes and New Accounting Pronouncements" and
Note 2 of Notes to Consolidated Financial Statements.
Continuing Operations
1996 Results Compared to 1995 - Compared to 1995, the lower pre-tax results from
continuing operations for 1996 reflected the impact on Insurance Operations'
results of the aforementioned reserve strengthenings totaling $248.0 million and
the writeoff of unamortized DAC on the DI business of $145.0 million. Absent
these actions, Insurance Operations' pre-tax results would have increased by
$53.3 million in 1996 over 1995. Offsetting the lower Insurance Operations'
results were increased earnings in Investment Services and lower losses in
Corporate and Other of $196.9 million and $13.1 million, respectively. The
decrease in Federal income taxes was attributed to lower pre-tax results of
operations. The increase in minority interest in net income of consolidated
subsidiaries was primarily attributable to increased earnings at both DLJ and
Alliance and a full year's impact in 1996 of DLJ's October 1995 IPO.
The $1.04 billion increase in revenues for 1996 compared to 1995 was primarily
attributed to Investment Services' $644.7 million higher commissions, fees and
other income due to increased business activity and higher investment results of
$205.4 million, principally at DLJ. Insurance Operations and Corporate and Other
contributed $140.3 million and $38.3 million, respectively, to the year's
revenue growth.
Net investment income increased $268.9 million for 1996 as compared to the prior
year principally due to increases of $159.1 million and $90.6 million,
respectively, for Investment Services and Insurance Operations. The Investment
Services increase was attributable to higher business activity while the
Insurance Operations increase was due to higher overall investment yields on a
larger asset base, including the investment of proceeds received from the
issuance of $600.0 million of Surplus Notes in December 1995.
Investment gains increased by $61.6 million for 1996 from $532.1 million for
1995. Investment gains at DLJ increased by $69.8 million with increased dealer
and trading gains of $70.5 million offset by lower gains of $0.7 million on
other equity investments. The 1996 gains on other equity investments included a
gain of $79.4 million on the sale of the remaining shares of a single corporate
development portfolio investment. A gain of $20.6 million was recognized as a
result of the issuance of Alliance Units to third parties upon completion of the
Cursitor acquisition. There were investment losses of $35.8 million on General
Account Investment Assets as compared to $21.5 million in 1995. The $6.6 million
higher gains on other equity investments and the lower losses on mortgage loans
and equity real estate of $8.9 million and $2.3 million, respectively, were more
than offset by $32.0 million of lower gains on fixed maturities.
7-2
<PAGE>
For 1996, total benefits and other deductions increased by $1.17 billion from
1995, reflecting increases in other operating expenses of $622.2 million, the DI
DAC writeoff and DI and Pension Par reserve strengthenings of $393.0 million, a
$90.6 million increase in other policyholders' benefits, $39.1 million higher
Corporate interest expense and a $21.1 million increase in interest credited to
policyholders. The increase in other operating expenses was principally
attributable to increased operating costs of $653.3 million in Investment
Services associated with increased business activities. The increase in other
policyholders' benefits primarily was attributable to higher claims experience
on directly written and reinsurance assumed DI policies (before reserve
strengthening) and higher mortality experience on variable and
interest-sensitive and participating life policies, with the impact of the
higher mortality being largely offset by DAC amortization as reflected in other
operating expenses. Higher Corporate interest expense primarily resulted from
the interest on the Surplus Notes issued by Equitable Life in the fourth quarter
of 1995. The $21.1 million increase in interest credited to policyholders for
Insurance Operations primarily was due to small changes in crediting rates
applied to a larger individual life and annuity in force book of business.
1995 Results Compared to 1994 - Compared to 1994, higher pre-tax results of
operations for 1995 reflected increased earnings in Investment Services, lower
earnings in Insurance Operations and lower losses in Corporate and Other.
The $846.1 million increase in revenues for 1995 compared to 1994 was primarily
attributed to a $442.4 million increase in investment results and a $395.3
million increase in commissions, fees and other income principally due to
increased business activity within Investment Services.
Net investment income increased $224.9 million for 1995 with increases of $129.4
million and $101.6 million for Investment Services and Insurance Operations,
respectively, offset by a decrease of $4.8 million in Corporate and Other. The
Investment Services increase was attributed to higher business activity. The
increase in investment income for Insurance Operations principally was due to
higher overall yields on a larger investment asset base and income from the
investment of proceeds received on the Holding Company's issuance of $300.0
million 9% Senior Notes (the "Senior Notes") in December 1994. These positive
factors principally were offset by the investment asset base reduction due to
the $1.22 billion payment of the obligation to fund the accumulated deficit of
the GIC Segment in January 1995.
Investment gains increased by $217.5 million for 1995 from $314.6 million for
1994. Investment gains at DLJ increased by $265.3 million with increased dealer
and trading gains of $199.2 million and higher gains on other equity investments
of $66.1 million. Investment losses on General Account Investment Assets of
$21.5 million as compared to $15.4 million of investment gains in 1994 were due
to $87.9 million of losses on equity real estate as compared to gains of $19.9
million in 1994 and a $73.9 million decrease in gains on other equity
investments offset by $102.0 million in gains on fixed maturities compared with
$20.5 million in losses in 1994 and a $22.2 million decrease in losses on
mortgages. Losses on the assets in the Trust declined by $6.0 million.
Investment gains for 1995 included gains of $34.7 million recognized in
connection with the DLJ IPO and $9.4 million recognized on the sale by EQ
Services, Inc. ("EQ Services") of mortgage servicing contracts. Investment gains
for 1994 included the $43.9 million gain (net of $8.5 million of related state
income tax) recognized in the third quarter of 1994 on Alliance's sales of newly
issued Units to third parties.
During 1995, total benefits and other deductions increased by $747.5
million from 1994, primarily reflecting increases in other operating costs and
expenses of $650.8 million and a $49.8 million increase in policyholders'
benefits. The increase in other operating costs and expenses was attributable to
increased operating costs in Investment Services associated with increased
business activities and restructuring costs incurred for the wind down of DLJ's
public finance underwriting operations, offset by lower operating costs in
Insurance Operations and lower Corporate interest expense. Corporate interest
expense declined primarily as a result of the cash settlement in January 1995
with the GIC Segment. This reduction was partially offset by interest on the
Senior Notes and the Subordinated Debentures issued in December 1994. The
increase in policyholders' benefits primarily resulted from the larger in force
book of business for variable and interest-sensitive life policies and higher
7-3
<PAGE>
morbidity experience on the disability income business, offset by improved
mortality experience on term life insurance policies and policies within the
Closed Block. The $46.9 million increase in interest credited to policyholders
for Insurance Operations was primarily due to higher crediting rates applied to
a larger individual life in force book of business, partially offset by the
impact of pass-throughs of investment losses to Pension Par contractholders and
smaller policyholders' account balances.
Federal Income Taxes
Federal income taxes resulted in an expense of $137.4 million for 1996, as
compared to $192.3 million in 1995 and $157.0 million in 1994, reflecting The
Equitable's earnings pattern over the three year period. See Note 9 of Notes to
Consolidated Financial Statements. At December 31, 1996, The Equitable's
deferred income tax account reflected a net asset of $51.8 million, as compared
to a net liability of $180.8 million at December 31, 1995. Management believes
the $523.4 million gross deferred tax asset at December 31, 1996 is more likely
than not to be fully realizable and, consequently, no valuation allowance is
necessary.
Equitable Life is no longer subject to the add-on tax imposed on mutual life
insurance companies under Section 809 of the Internal Revenue Code. This tax
results from the disallowance of a portion of a mutual life insurance company's
policyholders' dividends as a deduction from taxable income. The add-on tax was
estimated each year and adjusted in subsequent years. The add-on tax provision
was a benefit of $16.8 million for 1994. The 1994 benefit resulted from revised
estimates of prior years' add-on tax.
Accounting Changes and New Accounting Pronouncements
During 1996, The Equitable adopted SFAS No. 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts". Mutual life insurers' individual
participating life insurance contracts, on which dividends are expected to be
paid to policyholders based on actual experience and whose dividends are
computed consistent with the "contribution principle," are required to be
accounted for in accordance with the provisions of SFAS No. 120 and Statement of
Position ("SOP") 95-1, "Accounting for Certain Insurance Activities of Mutual
Life Insurance Enterprises". Stock life insurance companies with comparable
contracts have the option of adopting SFAS No. 120 or continuing to apply SFAS
No. 60.
The Equitable concluded the accounting in SFAS No. 120 and SOP 95-1 is
preferable to the accounting under an SFAS No. 60 approach for contracts which
meet the SFAS No. 120 criteria because it more accurately reflects the economics
of these contracts. Therefore, The Equitable has applied SFAS No. 120 to its
qualifying participating life insurance contracts, most of which are included in
the Closed Block. In accordance with SFAS No. 120, all prior years' reported
results have been restated.
The calculations of the liabilities for future policy benefits and DAC under
SFAS No. 120 differ from SFAS No. 60. While both models use net level premium
benefit methodologies for calculating the liabilities for future policy
benefits, there are significant and complex differences in the underlying
assumptions and techniques. The liability for future policy benefits under SFAS
No. 120 is calculated using a net level premium method on the basis of actuarial
assumptions equal to guaranteed mortality and dividend fund interest rates. The
liability for annual dividends represents the accrual of annual dividends
earned. Terminal dividends are accrued in proportion to gross margins over the
life of the contracts. These compare to assumptions underlying SFAS No. 60
calculations which are experience expectations at the time the business was sold
with provisions for adverse deviation. Additionally, in applying SFAS No. 60,
the cumulative excess of the actual contribution from Closed Block policies over
the actuarially predetermined expected contribution, if any, was accrued in the
Closed Block as a liability for future dividends to be paid to the Closed Block
policyholders.
Under SFAS No. 120, DAC is amortized over the expected total life of the
contract group (40 years) as a constant percentage based on the present value of
the estimated gross margin amounts expected to be realized over the life of the
contracts using the expected investment yield. The estimated gross margin
amounts include anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve, and expected
7-4
<PAGE>
annual policyholder dividends. Deviations of actual results from estimated
experience are reflected in earnings in the period such deviations occur. Under
SFAS No. 60, DAC is amortized in proportion to anticipated premiums using
assumptions established at the date of policy issue and consistently applied
during the life of the contract.
Overall, the SFAS No. 120 methodology produces reported earnings which more
closely reflect the economics of the participating life contracts, compared to
the SFAS No. 60 model implemented upon demutualization. SFAS No. 120 reflects
the accounting The Equitable would have utilized for participating life
insurance products had these GAAP accounting standards for mutual life insurance
companies been established prior to Equitable Life's demutualization.
Additionally, amortization of DAC for contracts governed by SFAS No. 120
reflects emerging and expected future experience consistent with amortization of
DAC for other core interest-sensitive life and annuity products issued by The
Equitable which are governed by SFAS No. 97. Further, use of the SFAS No. 120
model will facilitate comparison to the business results of other companies with
comparable products, principally mutual life insurers who are required by the
FASB to utilize SFAS No. 120.
On January 1, 1996, The Equitable implemented SFAS No. 121. Upon adoption,
existing valuation allowances on equity real estate of $152.4 million and $71.9
million were released and impairment losses on real estate held and used of
$149.6 million and $69.8 million were recognized in continuing and discontinued
operations, respectively. Under SFAS No. 121, equity real estate classified as
available for sale is no longer depreciated. The SFAS No. 121 implementation
also resulted in a $23.1 million charge, net of a Federal income tax benefit of
$12.4 million, as building improvements of facilities vacated later in 1996 and
in early 1997 were written down to fair value.
For information on all the 1996 and the prior years' accounting changes, as well
as on new accounting pronouncements, see Note 2 of Notes to Consolidated
Financial Statements.
Combined Results Of Continuing Operations By Segment
Insurance Operations. The following table presents the combined results from
continuing operations for Insurance Operations:
<TABLE>
<CAPTION>
Insurance Operations
(In Millions)
1996
-------------------------------------
As Closed 1995 1994
Reported Block Combined Combined Combined
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Policy fees, premiums and other
income............................... $ 1,570.3 $ 724.8 $ 2,295.1 $ 2,230.8 $ 2,220.0
Net investment income.................. 2,078.0 546.6 2,624.6 2,534.0 2,432.4
Investment (losses) gains, net......... (30.4) (5.5) (35.9) (21.3) 15.1
Contribution from the Closed Block..... 125.0 (125.0) - - -
----------- ----------- ----------- ----------- ----------
Total revenues................... 3,742.9 1,140.9 4,883.8 4,743.5 4,667.5
Total benefits and other deductions.... 3,779.5 1,140.9 4,920.4 4,440.4 4,340.0
----------- ----------- ----------- ----------- ----------
(Loss) Earnings from Continuing
Operations before Federal
Income Taxes, Minority Interest
and Cumulative Effect of
Accounting Change.................... $ (36.6) $ - $ (36.6) $ 303.1 $ 327.5
=========== =========== =========== =========== ==========
</TABLE>
7-5
<PAGE>
1996 Results Compared to 1995 - The loss from continuing operations of $36.6
million in 1996 primarily is due to the $393.0 million of reserve
strengthenings, including the writeoff of unamortized DAC on DI products, in the
fourth quarter of 1996. If the effect of these charges was eliminated, 1996
earnings from continuing operations for Insurance Operations would have totaled
$356.4 million, an increase of $53.3 million over the prior year, reflecting an
increase in earnings in the core life and annuity lines of business, partially
offset by increased losses in the reinsurance, disability income and group
pension lines of business.
Total revenues increased by $140.3 million primarily due to a $85.7 million
increase in policy fees on variable and interest-sensitive life and individual
annuity contracts, a $76.0 million increase in investment results and a $15.3
million increase in commissions, fees and other income, offset by a decrease of
$36.7 million in premiums. The decrease in premiums principally was due to lower
traditional life premiums and lower reinsurance assumed on individual annuity
contracts. Higher investment income attributed to higher overall investment
yields on a larger asset base, which included the net proceeds from the issuance
of the Surplus Notes in December 1995, was partially offset by higher investment
losses in 1996 principally due to lower gains on fixed maturities.
Excluding the $393.0 million effect of reserve strengthenings and DAC writeoff
in 1996, total benefits and other deductions for 1996 increased by $87.0 million
from 1995. Policyholders' benefits before the reserve strengthenings increased
$90.6 million due to higher claims experience on directly written and
reinsurance assumed DI policies and higher mortality in the participating and
variable and interest-sensitive life products, partially offset by favorable
mortality experience on term life insurance. The impact of the higher mortality
in the participating and variable and interest-sensitive life products was
substantially offset by reduced DAC amortization of $51.1 million attributed to
life insurance products. Other operating expenses increased $51.7 million
principally due to higher employee benefit costs related to lower interest rate
assumptions, higher costs associated with building new distribution channels and
new product initiatives, costs related to the consolidation of insurance
operations centers, higher volume related commissions and increasing costs
associated with litigation, partially offset by lower amortization of DAC
principally attributable to the mortality noted above and $21.8 million
principally attributable to estimates of enhanced future annuity gross margins.
There was a $21.1 million increase in interest credited to policyholders
reflecting the effect of small changes in the crediting rates multiplied by the
larger in force book of interest-sensitive life and annuity business.
Disability Income
During the competitive market conditions of the 1980s, The Equitable issued a
large amount of noncancelable individual DI policies with policy terms and
underwriting criteria that were competitive at the time but are more liberal
than those available today. These policies have fixed premiums and are not
cancelable as long as premiums are paid. The majority of the DI policies issued
before 1993 provide for lifetime benefits and many include cost of living riders
and provide benefits which exceed $5,000 per month, while defining disability as
the insured's inability to perform his or her own occupation. The Equitable also
had assumed reinsurance on a block of DI policies with characteristics similar
to its own pre-1993 policies.
In an effort to improve claims management and reduce exposure on new business,
in 1993, The Equitable and Paul Revere Life Insurance Company ("Paul Revere")
entered into an agreement whereby Paul Revere provides claims adjudication and
related administrative services for Equitable Life's DI business. Paul Revere
also reinsures 80% of the risk associated with DI contracts sold by Equitable
Life after July 1, 1993. Such contracts issued after July 1, 1993 include more
restrictive terms than the policies issued earlier. From 1993 through 1996,
claims management processes continued to evolve as they were mainstreamed into
Paul Revere's systems and procedures.
During the years 1994 through 1996, DI providers, including The Equitable,
experienced claims incidence rates higher than previous industry experience.
Incidence rates have been particularly high in Florida and California.
Additionally, despite the joint expertise of Paul Revere and Equitable Life, the
first year claims termination rates on policies issued before 1993 have been
significantly lower than anticipated, particularly for certain classes of
professionals such as physicians. The Equitable had recognized pre-tax losses
from operations of $72.5 million, $50.6 million and $28.3 million in 1996, 1995
and 1994, respectively, for the DI line of business before the fourth quarter
1996 reserve strengthening.
7-6
<PAGE>
In light of recent results, particularly the lack of claims experience
improvement in 1996, during the fourth quarter, management initiated a
comprehensive experience analysis which included studies of market related data
and secular trends. Consequently, a loss recognition study of the DI business
was completed. The study incorporated management's revised estimates of future
experience with regard to morbidity, investment returns, claims and
administration expenses and other factors. Based on other DI providers'
announced reserve strengthening actions, management believes other industry
participants have likewise determined that adverse trends in claims incidence
and terminations are secular in nature. The study indicated the DAC was not
recoverable and the reserves were not sufficient. Therefore, $145.0 million of
unamortized DAC on DI policies at December 31, 1996 were written off and
reserves for directly written DI policies and DI reinsurance assumed were
strengthened by $175.0 million.
The determination of DI reserves requires making assumptions and estimates
covering a number of factors, including morbidity and interest rates, claims
experience and lapse rates based on then known facts and circumstances. Such
factors as claim incidence and termination rates can be affected by changes in
the economic, legal and regulatory environments, as well as societal factors
(e.g. work ethic). While management believes the DI reserves have been
calculated on a reasonable basis and are adequate, there can be no assurance
that they will be sufficient to provide for all future liabilities.
Group Pension Products
The Equitable has issued Pension Par products designed to provide participating
annuity guarantees and benefit payment services to corporate sponsored pension
plans. The Equitable has made no new sales of these products in several years.
Today, a significant portion of these contracts either have been converted into
non-participating contracts or effectively are non-participating because they
are unlikely to produce future dividends due to improving mortality trends and
recent poor investment performance.
Excluding the reserve strengthening effect, the group pension business produced
pre-tax losses of $24.9 million and $13.3 million in 1996 and 1995,
respectively, as compared to $15.8 million in earnings in 1994. Recent operating
losses primarily resulted from lower investment results, particularly related to
investment losses on mortgages and equity real estate and deteriorating
mortality experience as evidenced by mortality losses of $2.4 million and $6.8
million experienced in 1996 and 1995, respectively.
During the fourth quarter of 1996, a loss recognition study was completed which
incorporated management's current assumptions. These assumptions included
expected mortality improvements based upon a review of industry and social
security data and future investment returns. Management reviewed the most
recently available data on annuitant longevity and chose a single new mortality
table that better reflected that data. In addition, after reviewing 1986-1994
social security data, management selected a projection method which allows for
future improvements in mortality. The equity real estate cash flow projections
used in the study are consistent with those used in the determination of
impairment pursuant to SFAS No. 121. The study's results prompted management to
establish a premium deficiency reserve, resulting in a $73.0 million pre-tax
charge to the results of continuing operations, principally attributable to the
improved mortality assumptions.
1995 Results Compared to 1994 - Insurance Operations' pre-tax results from
continuing operations for 1995 reflected a decrease of $24.4 million from the
year-earlier period. Investment losses in 1995 as compared to gains in 1994,
higher interest credited on interest-sensitive life and individual annuity
contracts and unfavorable morbidity experience on DI policies were partially
offset by an increase in investment income.
Total revenues increased by $76.0 million primarily due to a $73.2 million
increase in policy fees and a $65.2 million increase in investment results
offset by a $64.8 million decline in premiums. The decrease in premiums
principally was due to lower traditional life and individual health premiums.
7-7
<PAGE>
Total benefits and other deductions for 1995 rose $100.4 million from 1994. The
increase principally was due to higher interest credited on policyholders'
account balances, increased death claims due to the larger in force book of
business for variable and interest-sensitive life policies (offset by lower
death claims on policies within the Closed Block) and the morbidity experience
mentioned above, offset by a decrease in other operating costs and expenses
principally due to decreases in employee related compensation and benefits.
Interest credited on policyholders' account balances in Insurance Operations
increased by $46.9 million reflecting higher crediting rates applied to a larger
in force book of business.
7-8
<PAGE>
Premiums and Deposits - The following table lists premiums and deposits,
including universal life and investment-type contract deposits, for the
Insurance Operations' major product lines.
<TABLE>
<CAPTION>
Premiums and Deposits
(In Millions)
1996 1995 1994
------------ ----------- -------------
<S> <C> <C> <C>
Individual annuities
First year....................................... $ 2,132.1 $ 1,756.7 $ 1,721.9
Renewal.......................................... 1,210.5 1,090.7 1,045.0
------------ ----------- ------------
3,342.6 2,847.4 2,766.9
Variable and interest-sensitive life
First year recurring............................. 177.2 178.3 186.4
First year optional.............................. 162.9 149.0 148.8
Renewal.......................................... 1,139.6 1,031.1 929.7
------------ ----------- ------------
1,479.7 1,358.4 1,264.9
Traditional life
First year recurring............................. 18.3 23.4 31.3
First year optional.............................. 4.5 5.5 7.6
Renewal.......................................... 844.2 858.5 887.0
------------ ----------- ------------
867.0 887.4 925.9
Other(1)
First year....................................... 29.4 75.7 27.7
Renewal.......................................... 368.8 387.9 406.0
------------ ----------- ------------
398.2 463.6 433.7
Total first year................................... 2,524.4 2,188.6 2,123.7
Total renewal...................................... 3,563.1 3,368.2 3,267.7
------------ ----------- ------------
Total individual insurance and annuity products.... 6,087.5 5,556.8 5,391.4
------------ ----------- ------------
Participating group annuities...................... 227.8 213.2 144.9
Conversion annuities............................... 2.0 1.9 1.3
Association plans.................................. 125.7 139.6 88.2
------------ ----------- ------------
Total group pension products....................... 355.5 354.7 234.4
------------ ----------- ------------
Total Premiums and Deposits........................ $ 6,443.0 $ 5,911.5 $ 5,625.8
============ =========== ============
<FN>
(1) Includes reinsurance assumed and health insurance.
</FN>
</TABLE>
First year premiums and deposits for individual insurance and annuity products
in 1996 increased from prior year levels by $335.8 million primarily due to
higher sales of individual annuities offset in part by lower reinsurance assumed
on individual annuity contracts. Renewal premiums and deposits for individual
insurance and annuity products increased by $194.9 million during 1996 over the
prior year as increases in the larger block of variable and interest-sensitive
life and individual annuity policies were partially offset by decreases in
traditional life policies and other product lines. Traditional life premiums and
deposits for 1996 decreased from the prior year by $20.4 million reflecting the
ongoing marketing emphasis on variable and interest-sensitive products and the
decline in the traditional life book of business. The 21.4% increase in first
year individual annuities' premiums and deposits in 1996 over the prior year
included $214.8 million from a line of retirement annuity products introduced in
1995 partially offset by an approximately $148.4 million decrease in premiums
related to an exchange program that offered contractholders of existing SPDA
contracts with no remaining surrender charges an opportunity to exchange their
contracts for new flexible premium variable contracts thereby retaining assets
in The Equitable and establishing new surrender charge scales. Management
believes the ongoing strategic positioning of The Equitable's insurance
7-9
<PAGE>
operations continues to impact first year life premiums and deposits. Particular
emphasis has been devoted to the implementation of a new needs based selling
approach and the establishment of consultative financial services as the
cornerstone of the sales process. Changes in agent recruitment and training
practices have resulted in retention and productivity improvements which,
management believes, are beginning to positively affect variable and
interest-sensitive life premium results.
Total premiums and deposits in 1995 increased $285.7 million over 1994 levels,
with individual business accounting for 57.9% of the increase and group products
the remaining 42.1%. First year individual business premiums and deposits for
1995 increased from prior year levels by $64.9 million primarily due to higher
sales of individual annuities and reinsurance assumed on individual annuity
contracts. Renewal premiums and deposits on individual product lines increased
by $100.5 million during 1995 over 1994 as increases in the growing block of
variable and interest-sensitive life and individual annuity policies were offset
by decreases in traditional life policies and other product lines. Traditional
life premiums and deposits for 1995 decreased from 1994 by $38.5 million due to
the marketing focus on variable and interest-sensitive products and the decline
in the traditional life book of business. First year individual annuities'
premiums and deposits included $236.9 million for 1995 as compared to $126.0
million in 1994 resulting from the exchange program mentioned above. Group
business premiums and deposits in 1995 were $120.3 million higher than in 1994
with higher deposits received for existing participating group annuity contracts
(47.1%) and for association plans (58.3%).
Surrenders and Withdrawals; Policy Loans - The following table summarizes
surrenders and withdrawals (including universal life and investment-type
contract withdrawals) for Insurance Operations' major individual insurance and
annuities' product lines.
<TABLE>
<CAPTION>
Surrenders and Withdrawals(1)
(In Millions)
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Individual Insurance and Annuities:
Individual annuities..................... $ 2,277.0 $ 2,186.8 $ 1,879.9
Variable and interest-sensitive life..... 521.3 405.0 419.2
Traditional life......................... 350.1 340.6 350.7
----------- ------------ ----------
Total.................................... $ 3,148.4 $ 2,932.4 $ 2,649.8
=========== ============ ==========
<FN>
(1) Surrendered traditional and variable and interest-sensitive life insurance
policies represented 4.4%, 4.1% and 4.5% of average surrenderable future
policy benefits and policyholders' account balances for such life insurance
contracts in force during 1996, 1995 and 1994, respectively. Surrendered
individual annuity contracts represented 10.3%, 11.5% and 10.9% of average
surrenderable policyholders' account balances for individual annuity
contracts in force during those same years, respectively.
</FN>
</TABLE>
Policy and contract surrenders and withdrawals increased $216.0 million during
1996 compared to 1995 due to the $116.3 million and $90.2 million increases in
the variable and interest-sensitive life and individual annuities' surrenders
and withdrawals, respectively. These increases primarily were due to: the $88.0
million paid in January 1996 for two small pension annuity clients who
terminated their contracts; an $81.5 million surrender of a single corporate
owned life insurance contract in the fourth quarter of 1996; and the increased
size of the books of business.
7-10
<PAGE>
During 1995, policy and contract surrenders and withdrawals increased $282.6
million compared to 1994 principally due to the $306.9 million increase in
individual annuities' surrenders and withdrawals. This increase occurred during
the first six months of 1995 and primarily was due to increased surrenders of
Equi-Vest and SPDA contracts due to the aging book of business, the effect of
the aforementioned exchange program which was designed to retain assets in The
Equitable and the maintenance of crediting rates throughout 1994 despite an
increasing interest rate environment. The 1994 total for variable and
interest-sensitive life products included a scheduled withdrawal of
approximately $52.9 million of policy cash value from a large corporate owned
life insurance plan issued by Equitable of Colorado, Inc. Excluding the effect
of the 1994 scheduled withdrawal, surrenders and withdrawals of variable and
interest-sensitive life contracts for 1995 increased by $38.7 million from the
prior year due to the larger book of business.
The persistency of life insurance and annuity products is a critical element of
their profitability. As of December 31, 1996, all in force individual life
insurance policies (other than individual life term policies without cash values
which comprise 8.8% of in force policies) and more than 89% of individual
annuity contracts (as measured by reserves) were surrenderable. However, a
surrender charge often applies in the early contract years and declines to zero
over time. Contracts without surrender provisions cannot be terminated prior to
maturity.
Policy loan balances increased to $3.96 billion at December 31, 1996, as
compared to $3.77 billion at December 31, 1995. However, since policy cash
values increased at a similar rate during these years, the ratio of outstanding
policy loans to aggregate policy cash values has been generally stable since
1990.
Margins on Individual Insurance and Annuity Products - Insurance Operations'
results significantly depend on profit margins between investment results from
General Account Investment Assets and interest credited on individual insurance
and annuity products. During 1996, such margins increased as increases in
crediting rates were more than offset by the effect of the higher investment
yields. During 1996, the crediting rate ranges were: 4.50% to 6.75% for variable
and interest-sensitive life insurance; 5.00% to 6.30% for variable deferred
annuities; and 4.65% to 8.15% for SPDA contracts; the crediting rate of 6.15%
was used for retirement investment accounts throughout 1996.
Margins on individual insurance and annuity products are affected by interest
rate fluctuations. Rising interest rates result in a decline in the market value
of assets. However, the positive cash flows from renewal premiums, investment
income and maturities of existing assets would make an early disposition of
investment assets to meet operating cash flow requirements unlikely. Rising
interest rates also would result in available cash flows from maturities being
invested at higher interest rates, which would help support a gradual increase
in new business and renewal interest rates on interest-sensitive products. A
sharp, sudden rise in the interest rate environment without a concurrent
increase in crediting rates could result in higher surrenders, particularly for
annuities. The effect of such surrenders would be to reduce earnings modestly
over the long term while increasing earnings in the period of the surrenders to
the extent surrender charges were applicable. Beginning in 1995, Equitable Life
initiated an interest rate cap program designed to hedge crediting rate
increases on interest-sensitive individual annuity contracts. At December 31,
1996, the outstanding notional amounts of contracts purchased and sold totaled
$5.05 billion and $500.0 million, respectively, up from $2.6 billion and $300.0
million, respectively, at December 31, 1995.
If interest rates fall, crediting interest rates and dividends would be adjusted
subject to competitive pressures. Only a minority of this segment's policies and
contracts have fixed interest rates locked in at issue. The majority of
contracts are adjustable, having guaranteed minimum rates ranging from
approximately 2.5% to 5.5%. More than 89% of the life policies have a minimum
rate of 4.5% or lower. Should interest rates fall below such policy minimums,
adjustments to life policies' mortality and expense charges could cover the
shortfall in most situations. Lower crediting interest rates and dividends could
result in higher surrenders.
7-11
<PAGE>
Investment Services. The following table summarizes the results of continuing
operations for Investment Services.
<TABLE>
<CAPTION>
Investment Services
(In Millions)
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Third party commissions and fees................. $ 2,634.8 $ 2,000.6 $ 1,594.5
Affiliate fees(1)................................ 140.7 138.9 149.9
Other income(2).................................. 1,764.5 1,550.3 1,164.2
----------- ----------- ----------
Total revenues................................... 4,540.0 3,689.8 2,908.6
Total costs and expenses......................... 3,876.8 3,223.5 2,533.4
----------- ----------- ----------
Earnings from Continuing Operations before
Federal Income Taxes, Minority Interest and
Cumulative Effect of Accounting Change......... $ 663.2 $ 466.3 $ 375.2
=========== =========== ==========
<FN>
(1) These fees are earned by the Investment Subsidiaries principally for
investment management and other services provided to the Insurance Group and
unconsolidated real estate joint ventures. These fees (except those related
to the GIC Segment and unconsolidated real estate joint ventures of $26.8
million, $28.1 million and $42.0 million in 1996, 1995 and 1994,
respectively) are eliminated as intercompany transactions in the
consolidated statements of earnings included elsewhere herein.
(2) Includes net dealer and trading gains, investment results and other items.
</FN>
</TABLE>
1996 Results Compared to 1995 - Investment Services earnings in 1996 were $196.9
million higher than in 1995 with higher earnings at DLJ, Alliance and Equitable
Real Estate. DLJ's revenues rose to $3.49 billion, an increase of $731.8 million
from 1995 largely due to increases in most of DLJ's major areas of activity.
Alliance revenues increased $148.5 million from 1995 to $788.2 million due to
higher investment advisory fees resulting from higher assets under management.
Total costs and expenses for Investment Services were $3.88 billion in 1996, an
increase of $653.3 million from 1995, with DLJ accounting for $562.8 million of
the increase, principally reflecting increases in compensation, interest and
other expenses at DLJ due to its increased business activity.
In April 1996, Alliance acquired the U.S. investment management business of
National Mutual Funds Management (North America) ("NMFM") for approximately $4.6
million in cash. NMFM was an indirect wholly owned subsidiary of National Mutual
Holdings Limited ("NMH"), in which AXA owns a 51% equity interest. NMFM managed
investments in North American securities of approximately $1.2 billion for NMH
affiliates and third parties at the date of acquisition.
On February 29, 1996, Alliance acquired the business of Cursitor for
approximately $159.0 million. The purchase price consisted of approximately 1.8
million Alliance Units, $94.3 million in cash and $21.5 million in notes which
are payable ratably over the next four years, as well as substantial additional
consideration which will be determined at a later date. The Equitable recognized
an investment gain of $20.6 million as a result of the issuance of Units in this
transaction. At December 31, 1996, The Equitable's ownership of Alliance Units
was approximately 57.3%.
7-12
<PAGE>
1995 Results Compared to 1994 - For 1995, pre-tax earnings for Investment
Services increased by $91.1 million from 1994 primarily due to higher earnings
for DLJ and Alliance. DLJ's earnings were higher in 1995 largely due to strong
merger and acquisition activity, increased levels of underwriting, higher dealer
and trading gains and the growth in trading volume on most major exchanges.
Total segment revenues were up $781.2 million primarily due to higher revenues
at DLJ. Revenues for the segment included a $34.7 million gain due to the DLJ
IPO in the fourth quarter of 1995 and a net gain of $43.9 million on the
issuance of additional Alliance Units during the third quarter of 1994.
Total costs and expenses increased by $690.1 million for 1995 as compared to
1994 principally reflecting increases in compensation and interest expense at
DLJ due to increased activity.
On October 30, 1995, DLJ completed an IPO of 10.58 million shares of its common
stock, which included 7.28 million of The Equitable's shares in DLJ, priced at
$27 per share. The remaining 3.30 million common shares sold in the DLJ IPO were
shares newly issued by DLJ. Upon completion of the IPO, The Equitable recognized
a net gain of $34.7 million while its ownership percentage was reduced from 100%
to 80.2%. In connection with the IPO, approximately 500 DLJ employees acquired
forfeitable restricted stock units and stock options covering common stock of
DLJ. Such restricted stock units and options will vest and become exercisable
over a four-year period beginning in February 1997. Assuming full vesting of the
forfeitable restricted stock units and the exercise of the stock options (but
excluding any shares issued under employee stock options granted in the future),
these employees would own approximately 21% of the outstanding common stock of
DLJ and The Equitable would own approximately 63% of such common stock.
Concurrently, DLJ completed the offering of $500.0 million aggregate principal
amount of 6.875% senior notes due November 1, 2005. DLJ's proceeds from this
senior debt offering totaled $493.5 million before deducting certain expenses
related to the transaction. DLJ used the net proceeds from the common stock and
debt offerings to repay certain outstanding indebtedness, effectively
lengthening the average maturity of DLJ's borrowings. DLJ did not receive any
part of the proceeds from the sale of shares by The Equitable. Prior to these
offerings, The Equitable made a capital contribution to DLJ of equity securities
with a market value of $55.0 million.
On October 27, 1995, Equitable Real Estate sold 30 securitized commercial
mortgage servicing contracts on assets under management of $7.7 billion to a
third party, recognizing a $9.4 million gain on the transaction. The contracts,
mostly Resolution Trust Corporation ("RTC") related, were managed by EQ
Services, Equitable Real Estate's mortgage servicing affiliate. Equitable Real
Estate continues to manage and service the remaining $7.5 billion mortgage
portfolios of the General and Separate Accounts.
On March 7, 1994, Alliance completed the acquisition of the business and
substantially all of the assets of Shields Asset Management, Inc. ("Shields")
and Shields' wholly owned subsidiary, Regent Investor Services, Inc. ("Regent"),
for a purchase price of approximately $74.0 million in cash. In addition,
Alliance issued new Units to key employees of Shields and Regent having an
aggregate value of approximately $15.0 million in connection with their entering
into long-term employment agreements.
7-13
<PAGE>
Results By Business Unit - The following table summarizes results of continuing
operations by business unit.
<TABLE>
<CAPTION>
Investment Services
Results of Operations by Business Unit
(In Millions)
1996 1995 1994
----------- ---------- ------------
<S> <C> <C> <C>
DLJ(1).......................................... $ 440.6 $ 271.6 $ 192.7
Alliance........................................ 198.0 159.3 134.8
Equitable Real Estate........................... 46.2 43.6 40.7
Consolidation/elimination(2)(3)................. (21.6) (8.2) 7.0
----------- ---------- -----------
Earnings from Continuing Operations before
Federal Income Taxes, Minority Interest and
Cumulative Effect of Accounting Change(4)..... $ 663.2 $ 466.3 $ 375.2
=========== ========== ===========
<FN>
(1) Excludes amortization expense of $3.8 million, $5.5 million and $5.9 million
for 1996, 1995 and 1994, respectively, on goodwill and intangible assets
related to Equitable Life's 1985 acquisition of DLJ which are included in
consolidation/elimination.
(2) Includes interest expense of $12.4 million, $18.6 million and $14.1 million
for 1996, 1995 and 1994, respectively, related to intercompany debt issued
by intermediate holding companies payable to Equitable Life.
(3) Includes a gain of $16.9 million (net of $3.7 million related to state
income tax) in 1996 on the issuance of Alliance Units to third parties upon
the completion of the Cursitor transaction in the first quarter of the year.
Also includes the $34.7 million of net gain due to the DLJ IPO during the
fourth quarter of 1995 and the $43.9 million net gain recognized in
connection with the sales of newly issued Alliance Units to third parties in
the third quarter of 1994.
(4) Pre-tax minority interest related to DLJ was $131.0 million, $28.5 million
and $17.8 million in 1996, 1995 and 1994, respectively, and $83.6 million,
$64.4 million and $50.9 million for Alliance for 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
DLJ - DLJ's earnings from operations for 1996 were $440.6 million, up $169.0
million from the prior year. Revenues increased $731.8 million to $3.49 billion
primarily due to increased underwriting revenues of $272.7 million, $162.7
million higher net investment income, higher commissions of $113.1 million, fee
increases of $100.9 million and higher dealer and trading gains of $70.5
million. DLJ's expenses were $3.05 billion for 1996, up $562.8 million from the
prior year primarily due to a $271.1 million increase in compensation and
commissions, higher interest expense of $52.6 million, a $38.7 million increase
in rent related expenditures and $33.2 million higher brokerage and exchange
fees.
During the third quarter of 1995, DLJ provided $28.8 million for a potential
loss with respect to a bridge loan aggregating $150 million to a company
experiencing financial difficulties. In October 1996, a planned acquisition of
such company was announced, which, if completed, would result in the realization
by DLJ of amounts previously reserved, plus interest. The transaction is
expected to close in 1997.
DLJ's earnings from operations for 1995 were $271.6 million, up $78.9 million
from the prior year. Revenues increased $748.6 million to $2.76 billion
primarily due to higher dealer and trading gains of $199.2 million, increased
underwriting revenues of $180.4 million, fee increases of $87.8 million, higher
commissions of $84.1 million and $66.1 million higher gains on the corporate
development portfolio. Corporate development revenue for the third quarter of
1995 included the reserve for a potential loss with respect to a bridge loan to
a company experiencing financial difficulties as mentioned above. DLJ's expenses
were $2.49 billion for 1995, up $669.7 million from the prior year primarily due
to a $369.8 million increase in compensation and commissions, higher interest
7-14
<PAGE>
expense of $176.8 million, a $35.2 million increase in rent related
expenditures, $32.5 million higher brokerage and exchange fees and a $7.2
million restructuring charge related to the wind down of its public finance
underwriting operations. During 1995, DLJ repurchased an additional $2.2 million
of certain mortgage-related securities previously underwritten by DLJ and made
advances of $25.1 million for certain expenses, bringing the total carrying
value of these securities to $278.5 million at December 31, 1995.
DLJ is engaged in various securities trading activities which resulted in net
dealer and trading gains of $435.4 million, $364.9 million and $165.7 million
for 1996, 1995 and 1994, respectively. A substantial portion of DLJ's
transactions are executed with and on behalf of DLJ's customers. DLJ's exposure
to credit risk associated with the nonperformance of these customers in
fulfilling their contractual obligations can be directly impacted by volatile
securities and credit markets and regulatory changes. DLJ manages this credit
risk by requiring customers to maintain margin collateral in compliance with
regulatory and internal guidelines. DLJ monitors compliance with these
guidelines on a daily basis.
DLJ's derivatives activities consist primarily of writing OTC options to
accommodate its customers' needs, trading in forward contracts in U.S.
government and agency issued or guaranteed securities and in futures contracts
on equity based indices and currencies, and issuing structured notes. At
December 31, 1996 and 1995, DLJ had issued long-term structured notes totaling
$216.2 million and $24.5 million, respectively. DLJ expects the volume of this
activity to increase in the future. DLJ covers its obligations on structured
notes primarily by purchasing and selling the securities to which the value of
its structured notes are linked. DLJ's involvement in swap contracts, which
generally involve greater risk and volatility, is not significant. For
information with respect to derivative financial instruments, see Note 15 of
Notes to Consolidated Financial Statements.
By their nature, DLJ's principal business activities, investment and merchant
banking, securities sales and trading and correspondent brokerage services, are
highly competitive and subject to various risks, volatile trading markets and
fluctuations in the volume of market activity. Consequently, DLJ's net income
and revenues have been, and may continue to be, subject to wide fluctuations,
reflecting the impact of many factors beyond DLJ's control, including securities
market conditions, the level and volatility of interest rates, competitive
conditions and the size and timing of transactions.
Alliance - Alliance's earnings from operations for 1996 were $198.0 million, an
increase of $38.7 million from the prior year. Revenues totaled $788.2 million
for 1996, an increase of $148.5 million from 1995, due to increased investment
advisory fees from higher assets under management and higher distribution plan
fees resulting from high average equity long-term mutual fund and cash
management assets under management. Alliance's costs and expenses increased
$109.8 million to $590.2 million for 1996 primarily due to increases in employee
compensation and benefits and other promotional expenditures.
Alliance's earnings from operations for 1995 were $159.3 million, an increase of
$24.5 million from the prior year. Revenues totaled $639.7 million for 1995, an
increase of $38.7 million from 1994, due to increased investment advisory fees,
offset by lower distribution plan fees from lower average load mutual fund
assets. Alliance's costs and expenses increased $14.2 million to $480.4 million
for 1995 primarily due to increases in rent and related costs, offset by
decreases in employee compensation and benefits, interest expense and other
promotional expenditures.
In August 1996, Alliance, the two principals of Albion Asset Advisors LLC and
Equitable Life formed Albion Alliance LLC to manage private investments on
behalf of institutional and large private investors. The new joint venture will
have a global focus and will expand Alliance's existing corporate finance and
private investing business, particularly in emerging markets.
Equitable Real Estate - The 1996 earnings from operations for Equitable Real
Estate totaled $46.2 million, a $2.6 million increase from 1995. The revenue
decrease of $19.5 million to $226.1 million in 1996 was more than offset by
$22.1 million lower operating costs in 1996 as compared to 1995. These overall
declines primarily were due to the absence from 1996 results of the EQ Services'
mortgage servicing business, sold in October 1995. Equitable Real Estate
earnings for 1996 compared to 1995, excluding the results of EQ Services, were
higher principally due to increased third party fees and disposition fees from
the General Account. Earnings for 1996 include a $2.1 million provision for
restructuring. Equitable Real Estate's earnings from operations were $43.6
million for 1995, up $2.9 million from 1994. The increase primarily was due to a
7-15
<PAGE>
$9.4 million gain on the sale by EQ Services of mortgage servicing contracts
offset by lower management fees from the General Account and $2.9 million of
restructuring charges. The results for 1994 included a $4.8 million disposition
fee received on a property sold in the first quarter of that year.
The Equitable is exploring strategic alternatives regarding Equitable Real
Estate. Such alternatives may include a possible sale of all or a portion of
Equitable Real Estate.
Fees From Assets Under Management - As the following table illustrates, third
party clients continue to constitute an important source of revenues and
earnings.
<TABLE>
<CAPTION>
Fees and Assets Under Management
(In Millions)
At or for the Years Ended December 31,
---------------------------------------
1996 1995 1994
---------- ------------ ------------
<S> <C> <C> <C>
Fees:
Third Party.................... $ 740.8 $ 613.0 $ 544.7
The Equitable.................. 128.8 128.2 138.6
----------- ------------ -----------
Total.......................... $ 869.6 $ 741.2 $ 683.3
========== ============ ===========
Assets Under Management:
Third Party(1)(2).............. $ 184,784 $ 144,441 $ 125,145
The Equitable(3)............... 54,990 50,900 47,376
----------- ------------ -----------
Total.......................... $ 239,774 $ 195,341 $ 172,521
========== =========== ==========
<FN>
(1) Includes Separate Account assets under management of $29.87 billion, $24.72
billion and $20.67 billion at December 31, 1996, 1995 and 1994,
respectively. Also includes $1.77 billion of assets managed on behalf of
other AXA affiliates at December 31, 1996. Third party assets under
management include 100% of the estimated fair value of real estate owned by
joint ventures in which third party clients own an interest.
(2) Includes $2.4 billion of performing mortgages at December 31, 1994 under a
special stand-by services contract with the RTC. Stand-by fees were received
on the entire portfolio under the contract; servicing fees were earned only
on those mortgages that are delinquent.
(3) Includes invested assets of The Equitable not managed by the Investment
Subsidiaries, principally invested assets of subsidiaries and policy loans,
totaling approximately $21.75 billion, $17.59 billion and $14.26 billion at
December 31, 1996, 1995 and 1994, respectively.
</FN>
</TABLE>
Fees for assets under management increased 17.3% during 1996 as compared to 1995
as a result of the growth in assets under management for third parties. Assets
under management increased $44.43 billion, primarily due to $34.63 billion
higher third party assets under management at Alliance. The Alliance growth in
1996 was principally due to market appreciation, the acquisitions of Cursitor
and NMFM during 1996 and net mutual fund sales. The Cursitor acquisition
increased assets under management at year end 1996 by approximately $8.2
billion. As of February 28, 1997, assets under management in the Cursitor
portfolios were less than $7.0 billion. In 1995, Alliance's third party assets
under management increased by $25.64 billion primarily due to market
appreciation and net sales of money market funds. DLJ's assets under management
increased in 1996 by $4.94 billion or 89.2% due to growth in merchant banking
funds and the Asset Management Group. Third party assets under management at
Equitable Real Estate decreased by $8.15 billion in 1995 primarily due to the
sale by EQ Services of mortgage servicing contracts.
7-16
<PAGE>
CONTINUING OPERATIONS INVESTMENT PORTFOLIO
The continuing operations investment portfolio is composed of the General
Account investment portfolio and investment assets of the Holding Company and
its non-operating subsidiaries, principally the Trust and the SECT (the Holding
Company, the Trust and the SECT, together, the "Holding Company Group"). The
Trust, a limited purpose business trust, wholly owned by the Holding Company,
was established in August 1993. At that date, the Insurance Group sold $661.0
million of primarily private below investment grade bonds to the Trust. The
Holding Company Group portfolio and the GIC Segment Investment Assets are each
discussed in separate sections following the discussion of the General Account
investment portfolio.
General Account Investment Portfolio
At December 31, 1996, Insurance Operations, including the Closed Block, had
$35.11 billion of General Account Investment Assets to support the insurance and
annuity liabilities of its continuing operations. The following discussion
analyzes the results of the major categories of General Account Investment
Assets, including the Closed Block investment assets. These categories are:
fixed maturities, which include both investment grade and below investment grade
public and private debt securities and redeemable preferred stock; mortgages,
principally on commercial and agricultural properties; equity real estate, which
includes significant investments in office and mixed use properties; and other
equity investments, which consists principally of limited partnership
investments in funds which invest in below investment grade debt and equity
securities, and other equity securities received in connection with private
below investment grade debt investments. Policy loans and cash and short-term
investments make up the remainder of General Account Investment Assets.
Insurance Operations' investment segments often hold pro rata interests in the
same investment assets and share on a pro rata basis the cash flows therefrom.
Most individual investment assets held in the GIC Segment are also held in the
General Account investment portfolio. At demutualization, General Account
Investment Assets were allocated between the Closed Block and operations outside
of the Closed Block. The Closed Block assets are a part of continuing operations
and have been combined on a line-by-line basis with assets outside of the Closed
Block for comparability purposes. In view of the similar asset quality
characteristics of the major asset categories in the two portfolios, management
believes it is appropriate to discuss the Closed Block assets and the assets
outside of the Closed Block on a combined basis. The investment results of
General Account Investment Assets and the Holding Company Group investment
assets are reflected in The Equitable's results from continuing operations;
investment results of GIC Segment Investment Assets are reflected in
discontinued operations.
7-17
<PAGE>
The following table reconciles the consolidated balance sheet asset amounts to
General Account Investment Assets.
<TABLE>
<CAPTION>
General Account Investment Asset Carrying Values
December 31, 1996
(In Millions)
General
Balance Holding Account
Sheet Closed Company Investment
Balance Sheet Captions: Total Block Other (1) Group (2) Assets
- -------------------------------- ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Available for sale(3)......... $ 18,556.2 $ 3,889.5 $ (228.0) $ 529.2 $ 22,144.5
Held to maturity.............. 178.5 - - 178.5 -
Trading account securities...... 15,728.1 - 15,728.1 - -
Securities purchased under
resale agreements............. 20,492.1 - 20,492.1 - -
Mortgage loans on real estate... 3,133.0 1,380.7 - - 4,513.7
Equity real estate.............. 3,298.4 202.8 (17.4) - 3,518.6
Policy loans.................... 2,196.1 1,765.9 - - 3,962.0
Other equity investments........ 809.1 105.0 214.3 7.4 692.4
Other invested assets........... 397.8 87.4 499.2 4.7 (18.7)
------------ ------------ ------------ ------------ -------------
Total investments............. 64,789.3 7,431.3 36,688.3 719.8 34,812.5
Cash and cash equivalents....... 755.3 (59.1) 363.9 35.9 296.4
------------ ------------ ------------ ------------ -------------
Total........................... $ 65,544.6 $ 7,372.2 $ 37,052.2 $ 755.7 $ 35,108.9
============ ============ ============ ============ =============
<FN>
(1) Assets listed in the "Other" category principally consist of assets held in
portfolios other than the Holding Company Group and the General Account
(primarily securities held in inventory or for resale by DLJ) which are not
managed as part of General Account Investment Assets and certain
reclassifications and intercompany adjustments. The "Other" category is
deducted in arriving at General Account Investment Assets.
(2) The "Holding Company Group" category includes the investment portfolio held
by the Holding Company Group. These assets are not managed as part of
General Account Investment Assets. The "Holding Company Group" category is
deducted in arriving at General Account Investment Assets.
(3) Fixed maturities available for sale are reported at estimated fair value. At
December 31, 1996, the amortized cost of the General Account's fixed
maturity portfolio was $21.71 billion compared with an estimated market
value of $22.14 billion.
</FN>
</TABLE>
Asset Valuation Allowances and Writedowns
Impairments in the value of fixed maturities or equity real estate held for the
production of income that are other than temporary are treated as direct
writedowns to the asset value and are accounted for as realized losses.
Valuation allowances on real estate available for sale are computed using the
lower of current estimated fair value or depreciated cost, net of disposition
costs. Before adopting SFAS No. 121 as of January 1, 1996, valuation allowances
on real estate held for the production of income were computed using forecasted
cash flows of the respective properties discounted at a rate equal to The
Equitable's cost of funds. The Equitable provides for other than temporary
declines in the values of mortgages and equity real estate to be disposed of
through asset valuation allowances. Additions or deductions to these allowances
are recognized in investment gains (losses) for the period in which they are
recorded. The carrying values of assets on the consolidated balance sheets are
presented net of the applicable valuation allowance at the relevant date.
7-18
<PAGE>
Management, with the assistance of its asset managers, regularly monitors the
performance of General Account Investment Assets. Based on recommendations from
these asset managers, as well as other factors, Equitable Life's Investments
Under Surveillance Committee (the "Surveillance Committee") decides on a
quarterly basis whether any investments are other than temporarily impaired. The
Surveillance Committee reviews proposed writedowns and the adequacy of the
valuation allowance for each asset category and adjusts such amounts, as
management deems appropriate, in accordance with The Equitable's valuation
policies for investments (see Note 2 of Notes to Consolidated Financial
Statements).
Fixed maturities identified as available for sale are carried at estimated fair
value while those identified as held to maturity are carried at amortized cost.
On December 1, 1995, as the result of a one-time reassessment of the
classification of fixed maturities permitted by the FASB's implementation guide
on SFAS No. 115, all General Account and GIC Segment fixed maturities then
classified as "held to maturity" were reclassified as "available for sale".
Equity real estate identified as available for sale is carried at the lower of
cost or estimated fair value less disposition costs. During the first quarter of
1996, The Equitable implemented SFAS No. 121, which prescribes the accounting
for the impairment of long-lived assets, including equity real estate. See Note
2 of Notes to Consolidated Financial Statements for discussion of the impact of
this accounting change. Equity securities are carried at estimated fair value,
with other than temporary decreases in value reflected as realized losses in the
consolidated statements of earnings. The carrying value of equity in other
limited partnership interests is based on the net assets of the partnership,
which generally are determined by the relevant partnership using estimated fair
value of the underlying assets, with changes reflected by The Equitable in
investment income in the consolidated statements of earnings.
7-19
<PAGE>
The following table shows asset valuation allowances and additions to and
deductions from such allowances for the periods indicated.
<TABLE>
<CAPTION>
General Account Investment Assets
Valuation Allowances
(In Millions)
Equity Real
Mortgages Estate Total
------------- ------------ -------------
<S> <C> <C> <C>
December 31, 1996
Assets Outside of the Closed Block:
Beginning balances................... $ 65.5 $ 259.8 $ 325.3
SFAS No. 121 releases(1)............. - (152.4) (152.4)
Additions............................ 31.4 93.6 125.0
Deductions(2)........................ (46.5) (114.3) (160.8)
------------- ------------ -------------
Ending Balances........................ $ 50.4 $ 86.7 $ 137.1
============= ============ =============
Closed Block:
Beginning balances................... $ 18.4 $ 4.3 $ 22.7
Additions............................ 12.3 2.1 14.4
Deductions(2)........................ (16.9) (2.7) (19.6)
------------- ------------ -------------
Ending Balances........................ $ 13.8 $ 3.7 $ 17.5
============= ============ =============
Total:
Beginning balances................... $ 83.9 $ 264.1 $ 348.0
SFAS No. 121 releases(1)............. - (152.4) (152.4)
Additions............................ 43.7 95.7 139.4
Deductions(2)........................ (63.4) (117.0) (180.4)
------------- ------------ -------------
Ending Balances........................ $ 64.2 $ 90.4 $ 154.6
============= ============ =============
December 31, 1995
Beginning balances................... $ 110.4 $ 223.3 $ 333.7
Additions............................ 53.6 92.9 146.5
Deductions(2)........................ (80.1) (52.1) (132.2)
------------- ------------ -------------
Ending Balances........................ $ 83.9 $ 264.1 $ 348.0
============= ============ =============
December 31, 1994
Beginning balances................... $ 216.6 $ 211.8 $ 428.4
Additions............................ 47.9 24.2 72.1
Deductions(2)........................ (154.1) (12.7) (166.8)
------------- ------------ -------------
Ending Balances........................ $ 110.4 $ 223.3 $ 333.7
============= ============ =============
<FN>
(1) As a result of adopting SFAS No. 121, $152.4 million of allowances on assets
held for investment were released and impairment losses of $149.6 million
were recognized on real estate held and used.
(2) Primarily reflects releases of allowances due to asset dispositions and
writedowns.
</FN>
</TABLE>
Writedowns on fixed maturities (primarily related to below investment grade
securities) aggregated $42.7 million, $63.5 million and $46.7 million in 1996,
1995 and 1994, respectively. Writedowns on equity real estate subsequent to the
adoption of SFAS No. 121 totaled $23.7 million in 1996.
7-20
<PAGE>
General Account Investment Assets
The following table shows the major categories of General Account Investment
Assets by amortized cost, valuation allowances and net amortized cost as of
December 31, 1996 and by net amortized cost as of December 31, 1995.
<TABLE>
<CAPTION>
General Account Investment Assets
(Dollars In Millions)
December 31, 1996 December 31, 1995
--------------------------------------------------- ------------------------
% of % of
Net Total Net Net Total Net
Amortized Valuation Amortized Amortized Amortized Amortized
Cost Allowances Cost Cost Cost Cost
------------- ----------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities(1)... $ 21,711.6 $ - $ 21,711.6 62.6% $ 19,149.9 56.7%
Mortgages............. 4,577.9 64.2 4,513.7 13.0 5,007.1 14.8
Equity real estate.... 3,609.0 90.4 3,518.6 10.1 4,130.3 12.2
Other equity
investments......... 692.4 - 692.4 2.0 764.1 2.3
Policy loans.......... 3,962.0 - 3,962.0 11.4 3,773.6 11.2
Cash and short-term
investments(2)...... 277.7 - 277.7 0.9 952.1 2.8
------------- ------------ ------------ ---------- ------------ ----------
Total................. $ 34,830.6 $ 154.6 $ 34,676.0 100.0% $ 33,777.1 100.0%
============= ============ ============ ========== ============ ==========
<FN>
(1) Excludes unrealized gains of $432.9 million and $857.9 million on fixed
maturities classified as available for sale at December 31, 1996 and 1995,
respectively.
(2) Comprised of "Cash and cash equivalents" and short-term investments included
within the "Other invested assets" caption on the consolidated balance
sheet.
</FN>
</TABLE>
Management has a policy of not investing substantial new funds in equity real
estate except to safeguard values in existing investments or to honor
outstanding commitments. It is management's continuing objective to reduce the
size of the equity real estate portfolio relative to total assets over the next
several years on an opportunistic basis. Management anticipates that reductions
will depend on real estate market conditions, the level of mortgage foreclosures
and expenditures required to fund necessary or desired improvements to
properties.
In accordance with Equitable Life's plan of demutualization, new investments for
the Closed Block must consist of cash and short-term investments, fixed income
securities having an NAIC category 1 or category 2 rating and commercial and
agricultural mortgages having an "A" rating or better pursuant to an internal
rating system acceptable to the Superintendent. No new investments may be made
in equity real estate, mortgages (except as described in the preceding sentence)
or obligations rated below NAIC category 2, except to safeguard the value of
existing investments allocated to the Closed Block or to honor outstanding
commitments. The Closed Block reinvestment policies may be changed with the
Superintendent's prior approval.
Investment Results of General Account Investment Assets
For 1996, investment results from General Account Investment Assets totaled
$2.54 billion, as compared to $2.40 billion in 1995, an increase of 5.9%.
Investment yields, including investment gains and losses, increased to 7.62% in
1996 from 7.46% in 1995. Net investment income on General Account Investment
Assets was $2.58 billion in 1996, as compared to $2.42 billion in 1995. The
increase principally was due to higher income from a larger fixed maturity
portfolio and from other equity investments offset by lower income from smaller
mortgage and equity real estate portfolios. There were investment losses of
$35.8 million in 1996 as compared to $21.5 million in 1995. The $6.6 million
higher gains on other equity investments and lower losses on mortgages and
equity real estate of $8.9 million and $2.3 million, respectively, were more
than offset by $32.0 million lower gains on fixed maturities.
7-21
<PAGE>
For 1995, investment results from General Account Investment Assets totaled
$2.40 billion, as compared to $2.30 billion in 1994, an increase of 4.1%.
Investment yields, including investment gains (losses), increased to 7.46% in
1995 from 7.41% in 1994. Net investment income on General Account Investment
Assets was $2.42 billion in 1995, as compared to $2.29 billion in 1994. The
increase principally was due to higher income from fixed maturities and other
equity investments offset by lower income from mortgages and equity real estate.
There were investment losses of $21.5 million as compared to gains of $15.4
million in 1994. Investment gains on fixed maturities in 1995 totaling $102.0
million as compared to losses of $20.5 million in 1994 and a $22.2 million
decrease in losses on mortgage loans were more than offset by losses of $87.9
million in 1995 as compared to gains of $19.9 million in 1994 for the equity
real estate category and a $73.9 million decrease in gains on other equity
investments.
7-22
<PAGE>
The following table summarizes investment results by General Account Investment
Asset category for the periods indicated.
<TABLE>
<CAPTION>
Investment Results By Asset Category
(Dollars In Millions)
1996 1995 1994
-------------------------- --------------------------- -------------------------
(1) (1) (1)
Yield Amount Yield Amount Yield Amount
------------ ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Income...................... 7.94% $ 1,615.1 8.05% $ 1,447.7 8.02% $ 1,313.9
Investment Gains(Losses).... 0.35% 70.0 0.57% 102.0 (0.13)% (20.5)
------------ ------------ ----------- ------------- ------------ ------------
Total....................... 8.29% $ 1,685.1 8.62% $ 1,549.7 7.89% $ 1,293.4
Ending Assets............... $ 21,711.6 $ 19,149.9 $ 16,871.6
Mortgages:
Income...................... 8.90% $ 427.1 8.82% $ 460.1 8.91% $ 532.0
Investment Gains(Losses).... (0.72)% (34.3) (0.83)% (43.2) (1.09)% (65.4)
------------ ------------ ----------- ------------- ------------ ------------
Total....................... 8.18% $ 392.8 7.99% $ 416.9 7.82% $ 466.6
Ending Assets............... $ 4,513.7 $ 5,007.1 $ 5,582.9
Equity Real Estate(2):
Income...................... 2.91% $ 88.6 2.59% $ 92.5 2.96% $ 107.8
Investment Gains(Losses).... (2.81)% (85.6) (2.46)% (87.9) 0.55% 19.9
------------ ------------ ----------- ------------- ------------ ------------
Total....................... 0.10% $ 3.0 0.13% $ 4.6 3.51% $ 127.7
Ending Assets............... $ 2,725.5 $ 3,210.5 $ 3,717.0
Other Equity Investments:
Income...................... 17.10% $ 119.6 11.20% $ 90.0 5.69% $ 56.3
Investment Gains(Losses).... 2.01% 14.1 0.93% 7.5 8.24% 81.4
------------ ------------ ----------- ------------- ------------ ------------
Total....................... 19.11% $ 133.7 12.13% $ 97.5 13.93% $ 137.7
Ending Assets............... $ 692.4 $ 764.1 $ 846.1
Policy Loans:
Income...................... 7.00% $ 272.1 6.95% $ 256.1 6.70% $ 233.3
Ending Assets............... $ 3,962.0 $ 3,773.6 $ 3,559.1
Cash and Short-term
Investments:
Income...................... 9.00% $ 52.9 8.18% $ 72.6 6.74% $ 43.4
Investment Gains(Losses).... 0.00% 0.0 0.01% 0.1 0.00% 0.0
------------ ------------ ----------- ------------- ------------ ------------
Total....................... 9.00% $ 52.9 8.19% $ 72.7 6.74% $ 43.4
Ending Assets............... $ 277.7 $ 952.1 $ 824.2
Total:
Income(3)................... 7.72% $ 2,575.4 7.52% $ 2,419.0 7.36% $ 2,286.7
Investment Gains(Losses).... (0.10)% (35.8) (0.06)% (21.5) 0.05% 15.4
------------ ------------ ----------- ------------- ------------ ------------
Total(4).................... 7.62% $ 2,539.6 7.46% $ 2,397.5 7.41% $ 2,302.1
Ending Assets............... $ 33,882.9 $ 32,857.3 $ 31,400.9
<FN>
(1) Yields are based on the quarterly average asset carrying values, excluding
unrealized gains (losses) in the fixed maturity asset category.
(2) Equity real estate carrying values are shown, and equity real estate yields
are calculated, net of third party debt and minority interest of $793.1
million, $919.8 million and $937.7 million as of December 31, 1996, 1995 and
1994, respectively. Equity real estate income is shown net of operating
expenses, depreciation, third party interest expense and minority interest.
Third party interest expense and minority interest totaled $56.6 million,
$59.3 million and $48.1 million for 1996, 1995 and 1994, respectively.
7-23
<PAGE>
(3) Total investment income includes non-cash income from amortization,
payment-in-kind distributions and undistributed equity earnings of $69.0
million, $72.2 million and $51.2 million for 1996, 1995 and 1994,
respectively. Investment income is shown net of depreciation of $97.0
million, $126.3 million and $119.7 million for 1996, 1995 and 1994,
respectively.
(4) Total yields are shown before deducting investment fees paid to the
Investment Subsidiaries (which include asset management, acquisition,
disposition, accounting and legal fees). If such fees had been deducted,
total yields would have been 7.31%, 7.15% and 7.09% for 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
Fixed Maturities. Fixed maturities consist of publicly traded debt securities,
privately placed debt securities and small amounts of redeemable preferred
stock, which represented 72.4%, 26.9% and 0.7%, respectively, of the amortized
cost of this asset category at December 31, 1996.
Total investment results on fixed maturity investments during 1996 increased by
$135.4 million (8.7%) from results in 1995. Investment income increased $167.4
million reflecting a higher asset base and higher investment returns available
on below investment grade securities. There were investment gains of $70.0
million on fixed maturity investments in 1996 as compared to $102.0 million in
1995. The 1996 gains were due to $112.7 million of gains on sales and
prepayments offset by $42.7 million in writedowns.
The fixed maturities portfolio, which represented 62.6% of the net amortized
cost of General Account Investment Assets at December 31, 1996 (compared to
56.7% at December 31, 1995), consists largely of investment grade corporate debt
securities, including significant amounts of U.S. government and agency
obligations. As of December 31, 1996, 87.5% ($18.99 billion) of amortized cost
of fixed maturities were rated investment grade (NAIC bond rating of 1 or 2)
including $5.51 billion of publicly traded securities rated Aaa by Moody's
(34.8% of publicly traded fixed maturities). At December 31, 1995, 86.4% of
fixed maturities were investment grade and 42.6% of publicly traded fixed
maturities were rated Aaa. Using external rating agencies or an internal rating
system when a public rating does not exist, the weighted average quality of the
General Account public and private fixed maturity portfolios at December 31,
1996 was A2 and Baa1, respectively.
At December 31, 1996, The Equitable held collateralized mortgage obligations
("CMOs") with an amortized cost of $2.55 billion, including $2.42 billion in
publicly traded CMOs. About 57.1% of the public CMO holdings were collateralized
by GNMA, FNMA and FHLMC securities. Approximately 38.7% of the public CMO
holdings were in planned amortization class ("PAC") bonds. At December 31, 1996
interest only ("IO") strips amounted to $5.2 million of amortized cost. There
were no principal only strips. In addition, at December 31, 1996, The Equitable
held $2.20 billion of mortgage pass-through securities (GNMA, FNMA, or FHLMC
securities) and also held $1.15 billion of public and private asset-backed
securities, primarily backed by home equity and credit card receivables.
The Equitable reduced the net amortized cost of its below investment grade (NAIC
bond ratings 3 through 6) fixed maturity portfolio from $3.33 billion at
December 31, 1990 to $1.13 billion at December 31, 1993. In light of the
Insurance Group's significantly reduced exposure to below investment grade
securities at December 31, 1993, management increased its portfolio of below
investment grade securities in subsequent years, primarily through purchases of
below investment grade public fixed maturities. The below investment grade
securities in the fixed maturity portfolio (including redeemable preferred
stock), which had an amortized cost of $2.72 billion, or 12.5% of fixed
maturities, as of December 31, 1996 as compared to $2.61 billion (13.6%) at
December 31, 1995, primarily consisted of $2.00 billion of public below
investment grade securities and $716.3 million of privately placed debt
investments. At December 31, 1996, $773.9 million (28.5%) of the below
investment grade fixed maturities were rated NAIC 3, the highest below
investment grade rating. Of these "medium" grade assets, 65.5% were publicly
rated and the remainder were privately placed.
At December 31, 1996, the amortized costs of General Account Investment Asset
public and private fixed maturities which were investment grade when acquired
and were subsequently downgraded to below investment grade were $45.6 million
and $185.7 million, respectively.
7-24
<PAGE>
Summaries of all fixed maturities, public fixed maturities and private fixed
maturities are shown by NAIC rating in the following table.
<TABLE>
<CAPTION>
Fixed Maturities
By Credit Quality
(Dollars In Millions)
December 31, 1996 December 31, 1995
Rating Agency --------------------------------------- ---------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- ---------- ---------------------- ------------------------- ------------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Fixed Maturities:
1 Aaa/Aa/A............. $ 12,699.9 58.5% $ 12,925.9 $ 11,713.7 61.2% $ 12,307.2
2 Baa.................. 6,294.9 (1) 29.0 6,408.1 4,822.3 (1) 25.2 5,116.7
3 Ba................... 773.9 (2) 3.6 800.2 801.9 (2) 4.2 802.1
4 B.................... 1,623.5 (2) 7.5 1,684.2 1,488.9 (2) 7.8 1,461.6
5 Caa and lower........ 130.4 0.6 133.9 133.3 0.7 126.8
6 In or near default... 47.4 0.2 47.4 59.3 0.3 57.8
--------------- --------- ------------ --------------- -------- --------------
Subtotal........................ 21,570.0 99.4 21,999.7 19,019.4 99.4 19,872.2
Redeemable preferred stock
and other..................... 141.6 0.6 144.8 130.5 0.6 126.5
--------------- --------- ------------ --------------- -------- --------------
Total Fixed Maturities.......... $ 21,711.6 100.0% $ 22,144.5 $ 19,149.9 100.0% $ 19,998.7
=============== ========= ============= =============== ========= =============
Public Fixed Maturities:
1 Aaa/Aa/A............. $ 9,991.9 (3) 63.1% $ 10,145.9 $ 9,205.6 (4) 68.4% $ 9,642.2
2 Baa.................. 3,853.2 24.3 3,928.8 2,318.8 17.2 2,472.3
3 Ba................... 506.6 3.2 534.0 455.8 3.4 464.6
4 B.................... 1,230.0 7.8 1,283.4 1,275.9 9.5 1,236.6
5 Caa and lower........ 126.0 0.8 129.5 108.3 0.8 101.1
6 In or near default... 21.2 0.1 21.2 14.0 0.1 12.6
--------------- --------- ------------- --------------- --------- -------------
Subtotal........................ 15,728.9 99.3 16,042.8 13,378.4 99.4 13,929.4
Redeemable preferred stock
and other..................... 116.7 0.7 118.5 87.5 0.6 89.9
--------------- --------- ------------- --------------- --------- -------------
Total Public Fixed Maturities... $ 15,845.6 100.0% $ 16,161.3 $ 13,465.9 100.0% $ 14,019.3
=============== ========= ============= =============== ========= =============
Private Fixed Maturities:
1 Aaa/Aa/A............. $ 2,708.0 46.2% $ 2,780.0 $ 2,508.1 44.1% $ 2,665.0
2 Baa.................. 2,441.7 (1) 41.6 2,479.3 2,503.5 (1) 44.1 2,644.4
3 Ba................... 267.3 (2) 4.6 266.2 346.1 (2) 6.1 337.5
4 B.................... 393.5 (2) 6.7 400.8 213.0 (2) 3.7 225.0
5 Caa and lower........ 4.4 0.1 4.4 25.0 0.4 25.7
6 In or near default... 26.2 0.4 26.2 45.3 0.8 45.2
--------------- --------- ------------- --------------- ---------- ------------
Subtotal........................ 5,841.1 99.6 5,956.9 5,641.0 99.2 5,942.8
Redeemable preferred stock
and other..................... 24.9 0.4 26.3 43.0 0.8 36.6
--------------- --------- ------------- --------------- --------- -------------
Total Private Fixed Maturities.. $ 5,866.0 100.0% $ 5,983.2 $ 5,684.0 100.0% $ 5,979.4
=============== ========= ============= =============== ========= =============
<FN>
(1) Includes Class B Notes issued by the Trust ("Class B Notes") having an
amortized cost of $67.0 million and $100.0 million in 1996 and 1995,
respectively, eliminated in consolidation.
(2) Includes Class B Notes having an amortized cost of $50.0 million, eliminated
in consolidation.
7-25
<PAGE>
(3) Includes $5.51 billion amortized cost of Aaa rated securities (55.1% of the
NAIC 1 public fixed maturities) with an estimated market value of $5.57
billion, $852.3 million amortized cost of Aa rated securities (8.5%) with an
estimated market value of $861.7 million, and $3.47 billion amortized cost
of A rated securities (34.7%) with an estimated market value of $3.55
billion.
(4) Includes $5.74 billion amortized cost of Aaa rated securities (62.4% of the
NAIC 1 public fixed maturities) with an estimated market value of $5.95
billion, $643.2 million amortized cost of Aa rated securities (7.0%) with an
estimated market value of $680.5 million, and $2.79 billion amortized cost
of A rated securities (30.3%) with an estimated market value of $2.99
billion.
</FN>
</TABLE>
Management defines problem securities in the fixed maturity category as
securities (i) as to which principal and/or interest payments are in default or
are to be restructured pursuant to commenced negotiations or (ii) issued by a
company that went into bankruptcy subsequent to the acquisition of such
securities. The amortized cost of problem fixed maturities decreased to $50.6
million at December 31, 1996 (0.2% of the amortized cost of this category) from
$70.8 million (0.4%) at December 31, 1995, principally as assets were written
down or sold.
The Equitable does not accrue interest income on problem fixed maturities unless
management believes the full collection of principal and interest is probable.
For 1996, 1995 and 1994, investment income included $0.1 million, $0.0 million
and $1.3 million, respectively, of interest accrued on problem fixed maturities.
Interest not accrued on problem fixed maturity investments totaled $9.5 million,
$11.2 million and $10.7 million for 1996, 1995 and 1994, respectively. The
amortized cost of wholly or partially non-accruing problem fixed maturities was
$45.7 million, $70.8 million and $44.8 million at December 31, 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
Fixed Maturities
Problems, Potential Problems and Restructureds
Amortized Cost
(In Millions)
December 31,
---------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
FIXED MATURITIES (Public and Private)....... $ 21,711.6 $ 19,149.9 $ 16,871.6
Problem fixed maturities.................... 50.6 70.8 94.9
Potential problem fixed maturities.......... 0.5 43.4 96.2
Restructured fixed maturities(1)............ 3.4 7.6 38.2
<FN>
(1) Excludes restructured fixed maturities of $2.5 million, $3.5 million and
$24.0 million that are shown as problems at December 31, 1996, 1995 and
1994, respectively, and excludes $9.2 million of restructured fixed
maturities that are shown as potential problems at December 31, 1995.
</FN>
</TABLE>
The Equitable reviews all fixed maturities at least once each quarter and
identifies investments that management concludes require additional monitoring.
Among the criteria that may cause a fixed maturity security to be so identified
are (i) debt service coverage or cash flow falling below certain thresholds
which vary according to the issuer's industry and other relevant factors, (ii)
significant declines in revenues and/or margins, (iii) violation of financial
covenants, (iv) public securities trading at a substantial discount as a result
of specific credit concerns and (v) other subjective factors relating to the
issuer.
Based on its monitoring of fixed maturities, management identifies a class of
potential problem fixed maturities, which consists of fixed maturities not
currently classified as problems but for which management has serious doubts as
to the ability of the issuer to comply with the present debt payment terms and
which may result in the security becoming a problem or being restructured. The
decision whether to classify a performing fixed maturity security as a potential
7-26
<PAGE>
problem involves significant subjective judgments by management as to likely
future industry conditions and developments with respect to the issuer. The
amortized cost of potential problem fixed maturities decreased to $0.5 million
at December 31, 1996 from $43.4 million at December 31, 1995 as new potential
problems were more than offset by assets sold, classified as problems or repaid.
In certain situations, the terms of some fixed maturity assets are restructured
or modified. Management defines restructured investments in accordance with SFAS
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings".
Restructured fixed maturities decreased to $3.4 million at year end 1996 from
$7.6 million at December 31, 1995 as assets were reclassified as problems,
repaid or written down. These amounts exclude problem restructured and potential
problem restructured fixed maturities.
The foregone interest on restructured fixed maturities (including restructured
fixed maturities presented as problem or potential problem fixed maturities) for
1994 was $0.6 million. There was no foregone interest on restructured fixed
maturities in 1996 and 1995. The amortized cost of wholly or partially
non-accruing restructured fixed maturities (including restructured fixed
maturities presented as problem or potential problem fixed maturities) was $0.4
million, $2.8 million and $17.1 million at December 31, 1996, 1995 and 1994,
respectively.
Mortgages. Mortgages consist of commercial, agricultural and residential loans.
As of December 31, 1996, commercial mortgages totaled $2.90 billion (63.4% of
the amortized cost of the category), agricultural loans were $1.67 billion
(36.5%) and residential loans were $4.0 million (0.1%).
In 1996, total investment results on mortgages decreased by $24.1 million (5.8%)
from 1995 levels. The investment income decrease resulted from a declining asset
base, in large part resulting from loan repayments. There were investment losses
on mortgages of $34.3 million and $43.2 million in 1996 and 1995, respectively,
which reflected additions to asset valuation allowances of $43.7 million in 1996
as compared to $53.6 million in 1995.
At December 31, 1996 and 1995, respectively, management identified impaired
mortgage loans with a carrying value of $531.7 million and $507.2 million. The
provision for losses for these impaired loans was $59.3 million and $80.8
million at December 31, 1996 and 1995, respectively. Income earned on these
loans in 1996 and 1995, respectively, was $49.6 million and $33.8 million,
including cash received of $44.6 million and $29.7 million.
7-27
<PAGE>
<TABLE>
<CAPTION>
Mortgages
Problems, Potential Problems and Restructureds
Amortized Cost
(Dollars In Millions)
December 31,
--------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
COMMERCIAL MORTGAGES............................. $ 2,901.2 $ 3,413.7 $ 4,007.4
Problem commercial mortgages(1).................. 11.3 41.3 107.0
Potential problem commercial mortgages........... 425.7 194.7 349.4
Restructured commercial mortgages(2)............. 269.3 522.2 459.4
VALUATION ALLOWANCES............................. $ 64.2 $ 79.9 $ 106.4
As a percent of commercial mortgages............. 2.2% 2.3% 2.7%
As a percent of problem commercial mortgages..... 568.1% 193.5% 99.4%
As a percent of problem and potential problem
commercial mortgages........................... 14.7% 33.9% 23.3%
As a percent of problem, potential problem and
restructured commercial mortgages.............. 9.1% 10.5% 11.6%
AGRICULTURAL MORTGAGES........................... $ 1,672.7 $ 1,624.1 $ 1,618.5
Problem agricultural mortgages(3)................ 5.4 82.9 17.5
Potential problem agricultural mortgages......... 0.0 0.0 68.2
Restructured agricultural mortgages.............. 2.0 2.0 1.4
VALUATION ALLOWANCES............................. $ 0.0 $ 4.0 $ 4.0
<FN>
(1) Includes delinquent mortgage loans of $5.8 million, $41.3 million and $100.6
million at December 31, 1996, 1995 and 1994, respectively, and mortgage
loans in process of foreclosure of $5.5 million, $0.0 million and $6.4
million, respectively, at the same dates.
(2) Excludes restructured commercial mortgages of $1.7 million, $12.6 million
and $1.7 million that are shown as problems at December 31, 1996, 1995 and
1994, respectively, and excludes $229.5 million, $148.3 million and $180.9
million of restructured commercial mortgages that are shown as potential
problems at December 31, 1996, 1995 and 1994, respectively.
(3) Includes delinquent mortgage loans of $0.3 million, $77.2 million and $8.8
million at December 31, 1996, 1995 and 1994, respectively, and mortgage
loans in process of foreclosure of $5.1 million, $5.7 million and $8.7
million, respectively, at the same dates.
</FN>
</TABLE>
Management has a process to closely monitor the performance of its mortgage loan
portfolio and local market dynamics. When management believes a specific loan
will experience payment problems, The Equitable will discuss various
restructuring alternatives with the borrower, as well as consider foreclosure.
Because the mortgage portfolio is managed by Equitable Real Estate, which has
expertise in a variety of real estate disciplines, The Equitable is able to deal
directly and aggressively with its problem mortgages.
The volume of problem commercial mortgage loans (defined as mortgages 60 days or
more past due or mortgages in process of foreclosure) continued to decline
during 1996. At December 31, 1996, 1995 and 1994, problem commercial mortgage
loans totaled $11.3 million, $41.3 million and $107.0 million, respectively, or
0.4%, 1.2% and 2.7%, respectively, of the total amortized cost of commercial
mortgages at such dates.
7-28
<PAGE>
The amortized cost of wholly or partially non-accruing problem commercial
mortgages was $11.3 million, $38.7 million and $107.0 million at December 31,
1996, 1995 and 1994, respectively. For 1995, investment income included $0.1
million of interest accrued on problem loans; no interest was accrued on problem
loans in 1996 and 1994. Interest not accrued on problem commercial mortgages
totaled $0.4 million, $3.3 million and $9.4 million for 1996, 1995 and 1994,
respectively.
The Equitable reviews its commercial mortgage loan portfolio and identifies
monthly all commercial mortgage loans that management concludes require
additional monitoring. Among the criteria that may cause a loan to be so
identified are (i) borrower bankruptcies, (ii) bankruptcies of major tenants of
mortgaged properties, (iii) requests from borrowers for loan restructuring or
other relief, (iv) known or suspected cash flow deficiencies, (v) lateness of
payments, (vi) noncompliance with covenants, (vii) known or suspected loan to
value imbalances, (viii) lease rollovers affecting debt service coverage or
property value, (ix) property vacancy rates, (x) maturing loans identified as
potential refinancing risks, and (xi) other subjective factors relating to the
borrower or the mortgaged property.
Based on its monthly monitoring of commercial mortgages, management identifies a
class of potential problem mortgages, which consists of mortgage loans that are
not currently classified as problems but for which management has serious doubts
as to the ability of the borrower to comply with the present loan payment terms
and which may result in the loan becoming a problem or being restructured. The
decision whether to classify a performing mortgage loan as a potential problem
involves significant subjective judgment by management as to likely future
market conditions and developments with respect to the borrower or the
individual mortgaged property. Potential problem commercial mortgages increased
during 1996 as new potential problems more than offset removals due to
improvements and repayments.
7-29
<PAGE>
The following table shows the distribution of problem and potential problem
commercial mortgages by property type and by state.
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------
(Dollars In Millions)
Number of Amortized % of
Loans Cost Total
------------ -------------- --------
<S> <C> <C> <C>
Problem Commercial Mortgages
Property Type:
Office.................................... 1 $ 5.5 48.7%
Retail.................................... 1 4.1 36.3
Apartment................................. 1 1.7 15.0
------------ -------------- --------
Total..................................... 3 $ 11.3 100.0%
============ ============== ========
State:
Connecticut............................... $ 5.5 48.7%
Mississippi............................... 4.1 36.3
Indiana................................... 1.7 15.0
-------------- --------
Total..................................... $ 11.3 100.0%
============== ========
Potential Problem Commercial Mortgages
Property Type:
Retail.................................... 13 $ 188.4 44.3%
Hotel..................................... 5 133.0 31.2
Office.................................... 8 77.0 18.1
Industrial................................ 2 27.3 6.4
------------ -------------- --------
Total..................................... 28 $ 425.7 100.0%
============ ============== ========
State:
Illinois.................................. $ 108.8 25.6%
New York.................................. 97.3 22.9
Pennsylvania.............................. 60.0 14.1
Virginia.................................. 56.1 13.2
Massachusetts............................. 35.3 8.3
Texas..................................... 23.9 5.6
Other (no state larger than 5.0%)......... 44.3 10.3
-------------- --------
Total..................................... $ 425.7 100.0%
============== ========
</TABLE>
In certain situations, mortgages may be restructured or modified within the
meaning of SFAS Nos. 114 and 15, as amended. The amount of restructured
commercial mortgages decreased during 1996, as new restructureds were offset by
reclassification to potential problems or performing status, as well as payoffs.
The original weighted average coupon rate of the $269.3 million of restructured
commercial mortgages was 9.7%. As a result of these restructurings, the
restructured weighted average coupon rate is 8.6% and the restructured cash
payment rate is 8.3%. The foregone interest on restructured commercial mortgages
(including restructured mortgages presented as problem or potential problem
mortgages) for 1996, 1995 and 1994 was $5.9 million, $7.6 million and $5.7
million, respectively.
7-30
<PAGE>
The following table sets out the distribution, by property type and by state, of
restructured commercial mortgages.
<TABLE>
<CAPTION>
Restructured Commercial Mortgages
By Property Type and By State
December 31, 1996
(Dollars In Millions)
Number of Amortized % of
Loans Cost Total
------------- ------------ -------
<S> <C> <C> <C>
Property Type:
Office.................................. 12 $ 140.1 52.0%
Industrial.............................. 2 78.3 29.1
Hotel................................... 3 45.9 17.0
Retail.................................. 1 5.0 1.9
------------- ------------ -------
Total................................... 18 $ 269.3 100.0%
============= ============ =======
State:
Texas................................... $ 109.9 40.8%
California.............................. 70.2 26.1
New Jersey.............................. 36.1 13.4
Maryland................................ 19.6 7.3
New York................................ 19.3 7.2
Other (no state larger than 5.0%)....... 14.2 5.2
------------ -------
Total................................... $ 269.3 100.0%
============ =======
</TABLE>
For 1996, scheduled amortization payments and prepayments received on commercial
mortgage loans aggregated $291.1 million. For 1996, $355.5 million of commercial
mortgage loan maturity payments were scheduled, of which $202.6 million (57.0%)
were paid as due. Of the amount not paid, $53.3 million (15.0%) were granted
short-term extensions of up to six months, $52.7 million (14.8%) were extended
for a weighted average of 3.5 years at a weighted average interest rate of 8.8%,
$46.6 million (13.1%) were delinquent or in default for non-payment of principal
and the balance of $0.3 million (0.1%) was foreclosed upon.
During 1997, approximately $774.5 million of commercial mortgage principal
payments are scheduled, including $699.7 million of payments at maturity on
commercial mortgage balloon loans. An additional $636.8 million of commercial
mortgage principal payments, including $513.2 million of payments at maturity on
commercial mortgage balloon loans, are scheduled for 1998 and 1999. Depending on
market conditions and lending practices in future years, many maturing loans may
have to be refinanced, restructured or foreclosed upon.
During 1996, 1995 and 1994, the amortized cost of foreclosed commercial
mortgages totaled $18.3 million, $103.1 million and $469.1 million,
respectively. At the time of foreclosure, reductions in amortized cost
reflecting the writing down of these properties to estimated fair value totaled
$2.4 million, $54.4 million and $152.3 million in 1996, 1995 and 1994,
respectively.
As of December 31, 1996, problem agricultural mortgages (defined as mortgages
with payments 90 days or more past due or in foreclosure) totaled $5.4 million,
or 0.3% of the amortized cost of the agricultural mortgage portfolio, as
compared with $82.9 million (5.1%) and $17.5 million (1.1%) at December 31, 1995
and 1994, respectively. The 1996 decrease in problem agricultural mortgages was
largely due to foreclosures. There were no potential problem agricultural
mortgages at December 31, 1996 and 1995 as compared to $68.2 million (4.2%) at
December 31, 1994.
For 1996, 1995 and 1994, the amortized cost of foreclosed agricultural mortgages
totaled $64.6 million, $5.5 million and $19.8 million, respectively.
7-31
<PAGE>
Equity Real Estate. The equity real estate category consists primarily of a
diversified group of office, retail, industrial, mixed use and other properties.
Office properties constituted the largest component (68.6% of amortized cost) of
this portfolio at December 31, 1996.
In 1996, total investment results on equity real estate assets declined by $1.6
million or 34.8%. The 1996 portfolio performance was significantly lower than
the $4.6 million reported in 1995 and the $127.7 million generated in 1994.
Investment income was $88.6 million in 1996, as compared to $92.5 million and
$107.8 million in 1995 and 1994, respectively. Investment losses in 1996 were
$85.6 million, $2.3 million lower than in 1995.
During 1996, 1995 and 1994, The Equitable received proceeds from the sale of
equity real estate of $624.2 million, $587.7 million and $268.5 million,
respectively. Management establishes allowances on individual properties
identified as held for sale with the objective of fully reserving for
anticipated shortfalls between amortized cost and sales proceeds. (For a
discussion of all asset valuation allowances on equity real estate, see
"Continuing Operations Investment Portfolio - Asset Valuation Allowances and
Writedowns.") As presented below, investment gains were recognized on sales in
1996 and 1994 primarily reflecting gains realized on the sale of properties as
to which no valuation allowance had been established.
<TABLE>
<CAPTION>
Equity Real Estate Sold By Year
(In Millions)
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Amortized cost at beginning of year.............. $ 751.5 $ 635.4 $ 234.9
Writedowns and allowances:
Cumulative allowances established prior to
year of sale................................. (90.7) (17.6) (7.0)
Allowances established in year of sale......... (25.2) (29.6) (4.1)
Adoption of SFAS No. 121 writedowns at
January 1, 1996.............................. (41.5) - -
----------- ---------- -----------
Total writedowns and allowances.................. (157.4) (47.2) (11.1)
----------- ---------- -----------
Carrying value at date of sale................... 594.1 588.2 223.8
Sales proceeds................................... 624.2 587.7 268.5
----------- ---------- -----------
Gains(Losses) on Sales........................... $ 30.1 $ (0.5) $ 44.7
=========== ========== ===========
</TABLE>
As presented in the table above, due to real estate market conditions, proceeds
from the sale of most equity real estate properties have been less than
amortized cost (before SFAS No. 121 writedowns and allowances) at the date of
sale. The amortized cost of equity real estate properties held for sale at
December 31, 1996 was $465.7 million for which allowances of $90.4 million have
been established. The Equitable intends to continue to seek to sell individual
equity real estate properties on an opportunistic basis. If a significant amount
of equity real estate not currently held for sale is sold, material investment
losses would likely be incurred.
At December 31, 1996, the overall vacancy rate for The Equitable's real estate
office properties was 14.3%, with a vacancy rate of 9.8% for properties acquired
as investment real estate and 27.4% for properties acquired through foreclosure.
The national commercial office vacancy rate was 12.8% (as of September 30, 1996)
as measured by CB Commercial. Lease rollover rates for such properties for 1997,
1998 and 1999 range from 6.3% to 12.4%.
At December 31, 1996, the equity real estate category included $2.58 billion
amortized cost of properties acquired as investment real estate (or 71.6% of
amortized cost of equity real estate held) and $1.03 billion (28.4%) amortized
cost of properties acquired through foreclosure (including in-substance
foreclosure). Asset valuation allowances related to the equity real estate
7-32
<PAGE>
category at December 31, 1996 totaled $90.4 million (2.5% of amortized cost).
Cumulative writedowns recognized on foreclosed properties were $315.0 million
through December 31, 1996. As of December 31, 1996, the carrying value of the
equity real estate portfolio was 74.9% of its original cost. The amortized cost
of foreclosed equity real estate totaled $1.18 billion (26.9% of amortized cost)
and $1.36 billion (28.0%) at year end 1995 and 1994, respectively. Depending on
future real estate market conditions, there may be further acquisitions of
equity real estate through foreclosure.
The following table summarizes the distribution by property type and by state of
foreclosed equity real estate properties.
<TABLE>
<CAPTION>
Foreclosed Equity Real Estate Properties
By Property Type and By State
December 31, 1996
(Dollars In Millions)
Number of Amortized % of
Properties Cost Total
------------ ------------ --------
<S> <C> <C> <C>
Property Type:
Office.................................... 22 $ 452.2 44.1%
Retail.................................... 17 196.3 19.2
Mixed Use................................. 1 140.5 13.7
Industrial................................ 7 12.7 1.2
Apartment................................. 3 0.2 0.0*
Other..................................... 41 223.5 21.8
------------ ------------ --------
Total..................................... 91 $ 1,025.4 100.0%
============ ============ ========
State:
California................................ $ 277.0 27.0%
Pennsylvania.............................. 106.6 10.4
Georgia................................... 102.5 10.0
Illinois.................................. 100.8 9.8
Florida................................... 92.9 9.1
Ohio...................................... 75.7 7.4
Other (no state larger than 5.0%)......... 269.9 26.3
------------ --------
Total..................................... $ 1,025.4 100.0%
============ ========
<FN>
* Less than 0.05%.
</FN>
</TABLE>
Total equity real estate with an aggregate carrying value of $375.3 million was
classified as available for sale at December 31, 1996, including $144.7 million
of foreclosed real estate. At foreclosure, The Equitable assesses each property
(except those properties acquired through in-substance foreclosure which are
always classified as available for sale) and makes a determination as to whether
the property should be classified as being available for sale or held for
investment. Because of Equitable Real Estate's expertise in a variety of real
estate management disciplines, The Equitable believes it has the capability to
manage certain foreclosed assets for the production of income in the same way as
properties originally purchased as investments. This treatment of foreclosed
assets is consistent with The Equitable's periodic review of all of its equity
real estate assets, including properties that were originally purchased as
investments, to determine whether the assets should be classified as available
for sale or held for investment.
7-33
<PAGE>
Other Equity Investments. Other equity investments consist of limited
partnership interests in high yield funds managed by third parties ($485.7
million or 70.2% of amortized cost of this portfolio at December 31, 1996),
common and non-redeemable preferred stocks most of which were acquired in
connection with below investment grade fixed maturity investments ($128.7
million or 18.5%) and Equitable Deal Flow Fund, L.P., a high yield limited
partnership sponsored by Equitable Life ($78.0 million or 11.3%). The high yield
funds in which the Insurance Group holds equity interests principally invest in
below investment grade fixed maturities and associated equity securities. These
funds can create significant volatility in investment income since they are
accounted for in accordance with the equity method that treats increases and
decreases in The Equitable's allocable portion of the estimated fair value of
the underlying partnership assets, whether realized or unrealized, as investment
income or loss to The Equitable.
Returns on other equity investments have been very volatile. Total investment
results on other equity investments increased by $36.2 million in 1996 from 1995
and decreased $40.2 million in 1995 from 1994. Investment income increased by
$29.6 million in 1996 from 1995 and $33.7 million in 1995 from 1994. There were
investment gains of $14.1 million in 1996, as compared to $7.5 million in 1995
and $81.4 million in 1994. Investment gains have primarily resulted from the
gain on sale of certain common stock investments held in the portfolio.
Policy Loans. As of December 31, 1996, General Account Investment Assets
included $3.96 billion in outstanding policy loans which are collateralized by
the cash value of the underlying insurance policies. The policy loan interest
rates charged to policyholders are specified in the policies and ranged from
5.0% to 8.0% for policies with fixed rate provisions during 1996. For policies
with variable rate provisions, the loan interest rates were tied to external
indices. Interest rates charged on policy loans generally exceed interest rates
credited on the underlying policies.
Holding Company Group Investment Portfolio
At December 31, 1996, the portfolio's $705.7 million carrying value was made up
of fixed maturities ($657.7 million or 93.2%, $444.9 million with an NAIC 1
rating), cash and short-term investments ($40.6 million or 5.8%) and other
equity investments ($7.4 million or 1.0%). At December 31, 1995, the Holding
Company Group investment portfolio's carrying value was $773.1 million, which
included $410.8 million of fixed maturities ($143.3 million with an NAIC 1
rating), $46.8 million of other equity investments and $315.5 million of cash
and short-term investments. At December 31, 1996, the amortized cost of the
Holding Company Group's fixed maturity portfolio was $655.4 million compared
with an estimated market value of $674.3 million.
For 1996, the Holding Company Group investment results increased by $35.2
million from the 1995 level. This increase was primarily due to an increase in
investment income of $9.6 million for 1996 compared to 1995, an increase in
realized gains on fixed maturities of $14.4 million in 1996 compared to 1995 and
an increase in realized gains on equity securities of $11.2 million in 1996
compared to 1995. There were no writedowns on private below investment grade
fixed maturities in the portfolio during 1996.
For 1995, the Holding Company Group investment results declined by $5.4 million
from the 1994 level. This decline was primarily due to lower investment income
on Trust assets of $5.3 million and $6.5 million of losses on equity securities
partially offset by $4.6 million lower investment losses on the Trust's fixed
maturities portfolio. In 1995, there were $14.9 million of writedowns on private
below investment grade fixed maturities in the portfolio.
7-34
<PAGE>
<TABLE>
<CAPTION>
Holding Company Group Fixed Maturities
By Credit Quality
(Dollars In Millions)
December 31, 1996 December 31, 1995
Rating Agency ---------------------------------- ----------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- ---------- --------------------- ------------ -------- ------------ ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa.... $ 525.0 80.1% $ 537.8 $ 222.5 54.2% $ 241.9
3-6 Ba and lower........ 130.4 19.9 136.5 188.1 45.8 190.6
------------- --------- ------------- ----------- -------- -----------
Total........................ $ 655.4 100.0% $ 674.3 $ 410.6 100.0% $ 432.5
============= ========= ============= =========== ======== ===========
</TABLE>
At December 31, 1996, the amortized cost of potential problem fixed maturities
was $6.0 million and was $10.9 million for restructured fixed maturities. There
were no problem fixed maturities at December 31, 1996; there was no foregone
interest on restructured fixed maturities (including problem fixed maturities)
for 1996.
At December 31, 1995, the amortized cost was $21.0 million for problem fixed
maturities, $10.5 million for potential problem fixed maturities and $8.6
million for restructured fixed maturities. There was no foregone interest on
restructured fixed maturities (including problem fixed maturities) for 1995.
DISCONTINUED OPERATIONS
In 1991, management adopted a plan to discontinue the business of certain
pension operations consisting of Wind-Up Annuities and GIC lines of business.
The loss allowance and premium deficiency reserve of $569.6 million provided for
in 1991 was based on management's best judgment at that time. Since that date,
the incurred losses of these discontinued operations have been charged to the
loss allowance and reserve. At December 31, 1996, investments for discontinued
operations were $2.47 billion, primarily consisting of $1.11 billion and $925.6
million of mortgages and equity real estate, respectively. At December 31, 1996,
$1.34 billion of policyholders' liabilities were outstanding, of which $290.7
million were related to GIC products. This is a decrease from the high in
September 1986 of $14.56 billion and from $6.47 billion at December 31, 1991.
Payments of maturing GIC contracts and voluntary client withdrawals totaled
$67.0 million and $562.6 million in 1996 and 1995, respectively, with scheduled
payments of maturing GIC contracts of $270.4 million anticipated in 1997.
Therefore, discontinued operations' policyholders' liabilities are expected to
decline by the end of 1997 to $1.07 billion, of which $32.3 million will be
represented by GICs and the balance by Wind-Up Annuities.
The Equitable's quarterly process for evaluating the loss provisions applies the
current period's results of the discontinued operations against the allowance,
re-estimates future losses, and adjusts the provisions, if appropriate.
Additionally, as part of The Equitable's annual planning process which takes
place in the fourth quarter of each year, investment and benefit cash flow
projections are prepared. These projections were utilized in the fourth quarter
evaluation of the adequacy of the loss provisions.
Projected investment cash flows, which primarily relate to mortgages, equity
real estate and other equity interests, have been revised to reflect
management's current expectations. Benefit cash flow assumptions also have been
revised to incorporate the expected trend in improving mortality experience for
Wind-Up Annuities which results in longer policyholder benefit streams.
Additionally, the methodology for the projection of cash flows was refined to
incorporate the expected remaining lives of the assets in the existing portfolio
in lieu of utilizing a five-year projection of specific asset cash flows. Real
estate cash flow projections incorporated are consistent with those used in the
determination of impairment pursuant to SFAS No. 121. This refinement in
methodology more fully recognizes the long term nature of the Wind-Up Annuities.
7-35
<PAGE>
The evaluation performed in the fourth quarter utilizing the aforementioned
projections of cash flows resulted in the need to strengthen the loss provisions
by $129.0 million. The primary factors contributing to this strengthening were
changes in projected cash flows for mortgages and other equity investments due
to lower portfolio balances as the result of higher than anticipated redemptions
and repayments in 1996 and an increase in assumed mortgage defaults as well as
an increase in projected benefit payments due to the expected increase in
longevity of Wind-Up Annuities beneficiaries.
Management believes the loss provisions for Wind-Up Annuities and GIC contracts
at December 31, 1996 are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous estimates and
subjective judgments regarding the expected performance of discontinued
operations investment assets and ultimate mortality experience. There can be no
assurance the losses provided for will not differ from the losses ultimately
realized. To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates underlying the loss
provisions, the difference would be reflected as a loss on discontinued
operations within the consolidated statements of earnings. In particular, to the
extent income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
Results of Operations. In 1996, excluding the aforementioned reserve
strengthening, $23.7 million of pre-tax losses were incurred compared to $25.1
million in 1995 and $21.7 million in 1994; these pre-tax losses incurred were
charged to the GIC Segment's loss provisions. The premium deficiency reserve and
loss allowance for Wind-Up Annuities and GIC contracts totaled $262.0 million at
December 31, 1996, including the $129.0 million pre-tax reserve strengthenings.
Discontinued operations' investment income of $245.4 million was $78.2 million
lower than 1995 primarily due to the absence of a tax settlement which benefited
discontinued operations in 1995 and lower investment assets due to net
repayments of $1.02 billion of borrowings from continuing operations by the GIC
Segment in 1996, partially offset by higher yield from other equity investments.
Investment income in 1995 of $323.6 million was $70.7 million lower than 1994
primarily due to the January 1995 partial repayment of $1.16 billion of
borrowings from continuing operations by the GIC Segment and the payment of
$562.6 million of GIC contract maturities, partially offset by higher interest
related to a tax settlement. Net investment (losses) gains were $(18.9) million,
$(22.9) million and $26.8 million in 1996, 1995 and 1994, respectively.
In January 1995, continuing operations transferred $1.22 billion in cash to the
GIC Segment in settlement of its obligation to fund the accumulated deficit of
the GIC Segment. Subsequently, the GIC Segment remitted $1.16 billion in cash to
continuing operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. As a result of these
transactions, the GIC Segment's total investment income and benefits and other
deductions for 1995 were both reduced from 1994 amounts. Total investment income
within Insurance Operations and Corporate interest expense were also reduced in
1995.
Interest credited on Wind-Up Annuities and GIC contracts was $126.4 million in
1996, down $35.3 million and $86.0 million, from 1995 and 1994, respectively,
primarily due to repayments of amounts due under GIC contracts. The weighted
average crediting rates were 9.2%, 9.2% and 9.5% in 1996, 1995 and 1994,
respectively. The interest expense on intersegment borrowings by the GIC Segment
from continuing operations was $114.3 million in 1996, down $40.3 million and
$105.4 million, respectively, from 1995 and 1994 levels.
Amounts due to continuing operations of $1.08 billion and $2.10 billion at
December 31, 1996 and 1995, respectively, consisted of intersegment borrowings
by the GIC Segment from continuing operations, offset in 1996 by $83.8 million
representing the obligation of continuing operations to provide assets to fund
the GIC Segment accumulated deficit.
7-36
<PAGE>
Estimates of annual net cash flows for discontinued operations follow:
<TABLE>
<CAPTION>
Projections at December 31,
--------------------------------------------
(In Billions)
1995 1996
--------------- ---------------
<S> <C> <C>
1996..... $ 0.65 $ -
1997..... (0.11) 0.19
1998..... - 0.02
</TABLE>
Cash requirements are funded by cash flows from assets held by the GIC Segment
and new intersegment loans from continuing operations. The increase in projected
cash flows for 1997 resulted from a higher level of assumed real estate sales
and the expected settlement of $83.8 million by continuing operations of its
obligation to fund the accumulated deficit of the GIC Segment. The intersegment
loan balance at December 31, 1996 of $1.08 billion is expected to be reduced by
approximately $191.5 million during 1997 and by approximately $22.1 million and
$137.7 million in 1998 and 1999, respectively. The net cash flows for the GIC
Segment are projected to be approximately $728.8 million for the years 2000
through 2006, resulting in the complete repayment of the projected balance of
intersegment loans by December 31, 2006. The weighted average interest rate on
intersegment loans in 1996 was 7.11% as compared to 7.13% in 1995. The
projection at December 31, 1996 assumed new intersegment loans are made for a
term of three years.
Other material assumptions used in the determination of cash flow projections
follow:
(i) Future annual investment income projections on the GIC Segment investment
portfolio through maturity or assumed disposition of substantially all of
the existing investment assets ranged in the 1996 projection from 5.4% to
5.9% as compared to 6.8% to 7.2% in the 1995 projection. The decrease in
the expected yields is primarily attributable to the reduction of
projected other equity investments and mortgage investment assets, as the
balance of these asset classes decreased during 1996 due to higher than
anticipated redemptions and repayments.
(ii) Sales of equity real estate assets over time as market conditions improve,
with the proceeds therefrom and from other maturing GIC Segment Investment
Assets being used to pay maturing GIC Segment liabilities or to repay
outstanding intersegment borrowings. The assumptions underlying the equity
real estate cash flow projections are consistent with the cash flow
projections used in the determination of impairment pursuant to SFAS No.
121.
(iii)Interest to be credited to policyholders' accounts under the fixed terms
of the underlying agreements, which terms, in the case of the GIC
contracts, establish well defined liability payment schedules.
(iv) In the 1996 projections, Wind-Up Annuities' projected cash flows beyond
the year 2011 were discounted at 7.5%. In the 1995 projections, such cash
flows beyond the year 2000 were discounted at 7.43%.
(v) As a result of recent deteriorations in The Equitable's own Wind-Up
Annuities' mortality experience as evidenced by mortality losses of $3.5
million and $2.3 million experienced in 1996 and 1995, respectively, The
Equitable reviewed industry and social security population data. These
studies resulted in changes to assumptions recognizing further future
mortality improvements as applied to the 1983 GAM (Group Annuity Mortality
table). The result of improved mortality is to extend the periods that
payments will continue to be made to the annuitants and, therefore,
negatively impact the projections of future cash flows.
7-37
<PAGE>
GIC Segment Investment Portfolio
In 1996, investment results from GIC Segment Investment Assets totaled $229.0
million, unchanged from 1995 as the $4.0 million decrease in investment income
offset the $4.0 million lower investment losses. The investment income for 1996
reflected increases of $22.9 million, $9.7 million and $1.5 million for other
equity investments, equity real estate and cash and short-term investments,
respectively, which were more than offset by lower income on the mortgage loan
and fixed maturities portfolios of $24.7 million and $13.4 million,
respectively. A $2.0 million gain on mortgage loans compared to the 1995 loss of
$8.4 million and lower investment losses of $9.8 million for fixed maturities
were offset by $13.9 million higher losses on equity real estate and $2.3
million of lower gains on other equity investments. Investment yields increased
to 7.89% from 6.55% in 1995.
Investment results on the GIC Segment portfolios in 1995 declined $94.5 million
from $323.5 million in 1994. Investment income decreased $44.8 million primarily
due to $35.5 million lower income on the mortgage loan portfolio and a $9.5
million decrease on equity real estate. There were losses of $22.9 million in
1995 as compared with $26.8 million in investment gains in 1994. The decline was
due to the $26.4 million decrease in gains on other equity investments, losses
of $5.6 million on equity real estate in 1995 as compared with gains of $5.4
million in 1994 and $6.4 million and $5.9 million higher losses in 1995 on the
mortgage loan and fixed maturity portfolios, respectively. The total portfolio's
yield in 1995 was 6.55%, down from 7.71% in 1994.
Total investment income included non-cash amounts from amortization,
payment-in-kind distributions and undistributed equity earnings of $11.9
million, $8.0 million and $7.2 million for 1996, 1995 and 1994, respectively.
Investment income is shown net of depreciation of $25.9 million, $32.7 million
and $37.7 million, respectively, for such periods.
The following table shows the major categories of GIC Segment Investment Assets
by amortized cost, valuation allowances and net amortized cost as of December
31, 1996 and by net amortized cost as of December 31, 1995. See Note 7 of Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>
GIC Segment Investment Assets
(Dollars In Millions)
December 31, 1996 December 31, 1995
----------------------------------------------------- ---------------------
% of % of
Net Total Net Net Total Net
Amortized Valuation Amortized Amortized Amortized Amortized
Cost Allowances Cost Cost Cost Cost
------------- ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities...... $ 43.2 $ - $ 43.2 1.7% $ 108.4 3.3%
Mortgages............. 1,120.1 9.0 1,111.1 44.6 1,485.8 45.7
Equity real estate.... 954.2 20.4 933.8 37.4 1,131.2 34.8
Other equity
investments......... 300.5 - 300.5 12.1 455.9 14.0
Cash and short-term
investments......... 105.8 - 105.8 4.2 72.4 2.2
------------- ---------- ------------ --------- ----------- ----------
Total................. $ 2,523.8 $ 29.4 $ 2,494.4 100.0% $3,253.7 100.0%
============= ========== ============ ========= =========== ==========
</TABLE>
7-38
<PAGE>
Asset Valuation Allowances and Writedowns
The following table shows asset valuation allowances at the dates indicated.
<TABLE>
<CAPTION>
GIC Segment Investment Assets
Valuation Allowances
(In Millions)
Equity Real
Mortgages Estate Total
------------- ------------ ------------
<S> <C> <C> <C>
December 31, 1996
Beginning balances................. $ 19.2 $ 77.9 $ 97.1
SFAS No. 121 releases(1)........... - (71.9) (71.9)
Additions.......................... 1.9 20.2 22.1
Deductions......................... (12.1) (5.8) (17.9)
------------- ------------ ------------
Ending Balances.................... $ 9.0 $ 20.4 $ 29.4
============= ============ ============
December 31, 1995
Beginning balances................. $ 50.2 $ 74.7 $ 124.9
Additions.......................... 10.8 19.3 30.1
Deductions......................... (41.8) (16.1) (57.9)
------------- ------------ ------------
Ending Balances.................... $ 19.2 $ 77.9 $ 97.1
============= ============ ============
December 31, 1994
Beginning balances................. $ 61.4 $ 61.5 $ 122.9
Additions.......................... 8.0 25.0 33.0
Deductions......................... (19.2) (11.8) (31.0)
------------- ------------ ------------
Ending Balances.................... $ 50.2 $ 74.7 $ 124.9
============= ============ ============
<FN>
(1) As a result of adopting SFAS No. 121, $71.9 million of allowances on assets
held for investment were released and impairment losses of $69.8 million
were recognized on real estate held and used.
</FN>
</TABLE>
Writedowns on fixed maturities (primarily related to below investment grade
securities) aggregated $1.6 million, $8.1 million and $17.8 million in 1996,
1995 and 1994, respectively. Writedowns on equity real estate subsequent to the
adoption of SFAS No. 121 totaled $12.3 million in 1996.
7-39
<PAGE>
Investment Results by Asset Category
Fixed Maturities - At December 31, 1996, the amortized cost of the GIC Segment's
fixed maturity portfolio was $43.2 million compared with an estimated fair value
of $42.8 million. GIC Segment fixed maturities consist of publicly traded debt
securities, privately placed debt securities and redeemable preferred stock,
which represented 5.1%, 67.1% and 27.8%, respectively, of amortized cost of this
asset category at December 31, 1996. At that same date, approximately 44.3%
($19.1 million) of the GIC Segment's fixed maturities were scheduled to mature
within five years (with 4.2%, or $1.8 million, scheduled to mature in 1997).
Total investment results on fixed maturity investments fell to $7.6 million in
1996 from $11.2 million in 1995 and $25.8 million in 1994. The decrease in
investment results during this period was largely due to a decline in investment
income to $9.6 million in 1996, down from $23.0 million and $31.7 million in
1995 and 1994, respectively, principally as a result of a significantly smaller
asset base. Total yields were 10.27%, 6.51% and 8.37% in 1996, 1995 and 1994,
respectively. There were investment losses of $2.0 million on fixed maturity
investments during 1996, as compared to $11.8 million in 1995 and $5.9 million
in 1994. The losses primarily were due to asset writedowns of $1.6 million in
1996 compared to writedowns of $8.1 million and $17.8 million in 1995 and 1994,
respectively.
As of December 31, 1996, the GIC Segment fixed maturities with an amortized cost
of $43.2 million (compared to $108.4 million as of December 31, 1995) consisted
of $17.5 million of investment grade securities (NAIC 1 and 2), largely public
and private corporate debt, $13.7 million of below investment grade (NAIC 3-6)
securities, largely directly negotiated debt investments, and $12.0 million of
redeemable preferred stock.
The amount of problem fixed maturities decreased during 1996 as assets were
exchanged, written down or sold.
<TABLE>
<CAPTION>
GIC Segment Fixed Maturities
Problems, Potential Problems and Restructureds
Amortized Cost
(In Millions)
December 31,
------------------------------
1996 1995 1994
------- --------- ---------
<S> <C> <C> <C>
FIXED MATURITIES (Public and Private)....... $ 43.2 $ 108.4 $ 231.4
Problem fixed maturities.................... 0.5 6.2 20.3
Potential problem fixed maturities.......... 1.0 7.2 25.0
Restructured fixed maturities(1)............ 5.7 9.0 33.7
<FN>
(1) Excludes restructured fixed maturities of $0.5 million, $6.1 million and
$15.0 million that are shown as problems at December 31, 1996, 1995 and
1994, respectively. There were no restructured fixed maturities shown as
potential problems.
</FN>
</TABLE>
Mortgages - As of December 31, 1996, GIC Segment commercial mortgages totaled
$1.04 billion (92.8% of amortized cost of the category), agricultural loans were
$81.1 million (7.2%) and residential loans were $0.1 million (0.0%). Office,
retail and hotel properties accounted for 53.9%, 18.2% and 16.2%, respectively,
of amortized cost of GIC Segment commercial mortgages as of December 31, 1996.
Properties in New York (14.2% as measured by amortized cost), Texas (13.4%), New
Jersey (12.1%), the District of Columbia (10.8%), Louisiana (6.9%), Ohio (6.0%)
and Illinois (5.3%) represented the largest amounts of GIC Segment commercial
mortgages. Not more than 5.0% (as measured by amortized cost) of GIC Segment
commercial mortgages was located in any other single state.
7-40
<PAGE>
For 1996, total investment results on GIC Segment mortgages were $123.5 million,
as compared to $137.8 million and $179.7 million in 1995 and 1994, respectively.
Total investment yields were 9.30%, 8.59% and 9.44% in 1996, 1995 and 1994,
respectively. The drop in investment income to $121.5 million in 1996, as
compared to $146.2 million in 1995 and $181.7 million in 1994, reflected the
shrinking asset base. There were investment gains of $2.0 million in 1996,
compared to investment losses of $8.4 million in 1995 and $2.0 million in 1994.
Investment gains in 1996 relative to 1995 reflected lower additions to asset
valuation allowances.
<TABLE>
<CAPTION>
GIC Segment Mortgages
Problems, Potential Problems and Restructureds
Amortized Cost
(Dollars In Millions)
December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
COMMERCIAL MORTGAGES............................... $ 1,038.9 $ 1,379.5 $ 1,630.5
Problem commercial mortgages(1).................... 6.7 33.4 13.0
Potential problem commercial mortgages............. 29.1 42.0 182.3
Restructured commercial mortgages(2)............... 198.9 252.6 223.6
VALUATION ALLOWANCES............................... $ 9.0 $ 19.2 $ 50.2
As a percent of commercial mortgages............... 0.9% 1.4% 3.1%
As a percent of problem commercial mortgages....... 134.3% 57.5% 386.2%
As a percent of problem and potential problem
commercial mortgages............................. 25.1% 25.5% 25.7%
As a percent of problem, potential problem and
restructured commercial mortgages................ 3.8% 5.9% 12.0%
AGRICULTURAL MORTGAGES............................. $ 81.1 $ 109.2 $ 131.3
Problem agricultural mortgages(3).................. 1.2 2.0 1.9
<FN>
(1) Includes delinquent mortgage loans of $6.7 million, $33.4 million and $12.5
million at December 31, 1996, 1995 and 1994, respectively, and mortgage
loans in process of foreclosure of $0.0 million, $0.0 million and $0.5
million at the same respective dates.
(2) Excludes restructured commercial mortgages of $31.5 million that are shown
as problems at December 31, 1995, and excludes $9.2 million, $5.1 million
and $147.5 million of restructured commercial mortgages that are shown as
potential problems at December 31, 1996, 1995 and 1994, respectively.
(3) Includes delinquent mortgage loans of $0.4 million, $0.5 million and $0.1
million at December 31, 1996, 1995 and 1994, respectively, and mortgage
loans in process of foreclosure of $0.8 million, $1.5 million and $1.8
million, respectively, at the same dates.
</FN>
</TABLE>
As of December 31, 1996, problem commercial mortgages totaled $6.7 million,
collateralized 100% by retail properties. Properties with problem mortgages were
located in Mississippi and Arizona (52.2% and 47.8%, respectively, of amortized
cost of such mortgages). The amortized cost of wholly or partially non-accruing
problem commercial mortgages was $6.7 million, $31.7 million and $13.0 million
at December 31, 1996, 1995 and 1994, respectively.
7-41
<PAGE>
At December 31, 1996, $20.0 million of potential problem mortgages (68.7% of
amortized cost of such mortgages) were collateralized by hotel properties, $5.2
million (17.9%) by retail properties, $3.2 million (11.0%) by office properties
and $0.7 million (2.4%) by industrial properties. Properties with potential
problem mortgages were principally located in Texas (67.7% of amortized cost),
New Jersey (13.4%) and New York (10.7%). Potential problem commercial mortgages
decreased in 1996 as new potential problems were more than offset by changes in
classification to in-good-standing or problems.
The 1996 decrease in restructured mortgages was largely due to loans
reclassified as in-good-standing or payoffs. At December 31, 1996, 46.7% of
restructured commercial mortgages, as measured by amortized cost, were
collateralized by office properties, 33.4% by industrial properties, 18.5% by
hotels and 1.4% by retail properties. These restructured mortgages were on
properties principally located in Texas (45.4% of amortized cost), Louisiana
(25.6%) and New Jersey (21.1%). Interest income foregone on restructured
commercial mortgages (including problem and potential problem restructured
commercial mortgages) totaled $1.4 million, $2.5 million and $0.8 million for
1996, 1995 and 1994, respectively.
For 1996, scheduled amortization payments and prepayments on commercial mortgage
loans aggregated $210.8 million. For 1996, $204.9 million of mortgage loan
maturity payments were scheduled, of which $124.5 million (60.8%) were paid as
due. Of the amount not paid, $63.8 million (31.1% of the amount scheduled) were
extended for a weighted average of 3.7 years at a weighted average interest rate
of 9.3%, $9.4 million (4.6%) were granted short-term extensions of up to six
months, $7.0 million (3.4%) were delinquent or in default for non-payment of
principal and $0.2 million (0.1%) were foreclosed upon.
During 1997, approximately $259.1 million of commercial mortgage principal
payments are scheduled, including $234.0 million of payments at maturity on
commercial mortgage balloon loans. An additional $240.4 million of principal
payments, including $191.9 million of payments at maturity on commercial
mortgage balloon loans, are scheduled from 1998 through 1999. Depending on the
condition of the real estate market and lending practices in future years, many
maturing loans may have to be refinanced, restructured or foreclosed upon.
During 1996, 1995 and 1994, the amortized cost of foreclosed commercial
mortgages totaled $3.0 million, $72.6 million and $68.1 million, respectively.
At the time of foreclosure, reductions in amortized cost reflecting the writing
down of these properties to estimated fair value totaled $0.1 million, $40.1
million and $6.3 million in 1996, 1995 and 1994, respectively. Foreclosed
agricultural mortgages totaled $1.1 million, and $0.9 million for 1996 and 1994,
respectively.
Equity Real Estate - At December 31, 1996, the $954.2 million amortized cost of
equity real estate in the GIC Segment was principally comprised of office
(67.0%), retail (12.3%), industrial (7.1%), mixed use (4.9%) and hotel (1.4%)
properties. GIC Segment equity real estate was principally located in New York
(21.8%), California (18.0%), Illinois (11.8%), Texas (9.1%), Pennsylvania
(6.2%), Oklahoma (6.0%) and Florida (5.8%).
For 1996, total investment results on equity real estate assets were $10.5
million, as compared to $14.7 million in 1995 and $35.2 million in 1994,
reflecting yields of 1.07%, 1.38% and 2.81% in 1996, 1995 and 1994,
respectively. Investment income was $30.0 million in 1996, as compared to $20.3
million in 1995 and $29.8 million in 1994. There were investment losses of $19.5
million in 1996, as compared to $5.6 million in 1995 and to gains of $5.4
million in 1994. Writedowns and additions to asset valuation allowances were
$32.5 million, $19.3 million and $25.0 million for 1996, 1995 and 1994,
respectively.
During 1996, 1995 and 1994, the GIC Segment received proceeds from the sale of
equity real estate of $184.3 million, $142.2 million and $284.9 million,
respectively. Management establishes valuation allowances on individual
properties identified as held for sale with the objective of fully reserving for
anticipated shortfalls between amortized cost and sales proceeds. (For a
discussion of all asset valuation allowances on equity real estate, see
7-42
<PAGE>
"Discontinued Operations - Asset Valuation Allowances and Writedowns"). As
presented below, investment gains were recognized on sales in each year
primarily reflecting gains realized on the sale of properties as to which no
valuation allowance had been established.
<TABLE>
<CAPTION>
Equity Real Estate Sold By Year
(In Millions)
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Amortized cost at the beginning of year....... $ 189.4 $ 144.8 $ 264.5
Writedowns and allowances:
Cumulative allowances established prior to
year of sale.............................. (4.6) (6.7) (0.1)
Allowances established in year of sale...... (1.2) (8.5) (12.6)
Adoption of SFAS No. 121 writedowns at
January 1, 1996........................... (10.2) - -
---------- ---------- -----------
Total writedowns and allowances............... (16.0) (15.2) (12.7)
---------- ---------- -----------
Carrying value at date of sale................ 173.4 129.6 251.8
Sales proceeds................................ 184.3 142.2 284.9
---------- ---------- -----------
Gains on Sales................................ $ 10.9 $ 12.6 $ 33.1
========== ========== ===========
</TABLE>
As presented in the table, due to real estate market conditions, proceeds from
the sale of most equity real estate properties in 1996 and 1995 have been less
than amortized cost (before SFAS No. 121 writedowns and allowances) at the date
of sale. The amortized cost of equity real estate properties held for sale at
December 31, 1996 was $139.5 million for which allowances of $20.4 million have
been established. The Equitable intends to continue to seek to sell individual
equity real estate properties on an opportunistic basis. If a significant amount
of equity real estate not currently held for sale is sold, material investment
losses would likely be incurred.
At December 31, 1996, the equity real estate category included properties
acquired through foreclosure, including in-substance foreclosure, with an
amortized cost of $268.3 million (constituting 28.1% of amortized cost of equity
real estate held at that date). Cumulative writedowns recognized on foreclosed
properties were $95.0 million through December 31, 1996. At December 31, 1995
and 1994, the amortized cost of foreclosed equity real estate totaled $317.2
million and $317.3 million, respectively (26.2% and 24.8% of total amortized
cost, respectively). At December 31, 1996, office, mixed use, retail, industrial
and other properties made up 58.3%, 17.3%, 15.1%, 6.2% and 3.1%, respectively,
of amortized cost of foreclosed equity real estate. Foreclosed equity real
estate is located in Illinois (24.6% of amortized cost of such property), New
York (22.1%), California (19.8%), Texas (11.1%) and Colorado (8.2%), with no
other single state accounting for more than 5.0% of such amortized cost.
Other Equity Investments - At December 31, 1996, GIC Segment other equity
investments of $300.5 million consisted primarily of limited partnership
interests in high yield funds managed by third parties ($234.9 million or 78.2%
of amortized cost of this portfolio at that date). GIC Segment other equity
investments also included common and preferred stocks acquired in connection
with the below investment grade fixed maturity investments, as well as other
equity investments ($39.6 million or 13.2%) and an investment in the Deal Flow
Fund, L.P. ($26.0 million or 8.6%).
Total investment results on other equity investments were $76.7 million, $56.1
million and $80.8 million in 1996, 1995 and 1994, respectively. These investment
results reflected yields of 21.74%, 10.54% and 11.95%, for the years 1996, 1995
and 1994, respectively. Investment income amounted to $76.1 million, $53.2
million and $51.5 million in 1996, 1995 and 1994, respectively. Investment gains
were $0.6 million, $2.9 million and $29.3 million in 1996, 1995 and 1994,
respectively.
7-43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Equitable Companies Incorporated
There were two capital raising initiatives concluded during the fourth quarter
of 1995: the DLJ IPO and Equitable Life's issuance of the Surplus Notes.
Similarly, two transactions late in 1994 affected The Equitable's
capitalization. The exchanges of preferred stock (the "Exchanges") were
completed in December 1994. Also, the Holding Company contributed the proceeds
from the Senior Notes offering in December 1994 to Equitable Life to improve its
1994 year end capital position (and, hence, its 1994 year end risk-based capital
("RBC") ratio). See Notes 8 and 10 of Notes to Consolidated Financial
Statements. The effects of all these capital initiatives are discussed in the
following sections.
Liquidity Requirements
The Holding Company's cash requirements include debt service on its senior and
subordinated debt, operating expenses, taxes and dividends on both its Series C
Convertible Preferred Stock and Common Stock. Pre-tax debt service on its senior
and subordinated debt was approximately $72.7 million in 1996. The Holding
Company's general and administrative expenses for 1996 totaled $16.4 million.
Since becoming a public company in 1992, the Holding Company's Board of
Directors has declared quarterly cash dividends of $.05 per share on the
outstanding shares of its Common Stock. During 1996, aggregate cash dividends
paid on the Holding Company's Common Stock were $37.0 million.
The Equitable has three series of preferred stock outstanding: $25.0 million of
Series C Convertible Preferred Stock, $300.0 million of Series D Convertible
Preferred Stock (held by the SECT) and $411.2 million of Series E Convertible
Preferred Stock, approximately 95% owned by AXA. The annual dividends on the
Series C Convertible Preferred Stock, fixed at 6%, amounted to $1.5 million in
1996. Payment of the Series D Convertible Preferred Stock dividends will have no
effect on the Holding Company's liquidity since the SECT will use them to fund
expenses, pay interest and principal on its loan from the Holding Company or
contribute to compensation and benefit programs. Dividends on the Series E
Convertible Preferred Stock totaled $25.2 million in 1996, payable quarterly in
shares of Common Stock. On December 19, 1994, all outstanding shares of The
Equitable's Series A Convertible Preferred Stock and Series B Redeemable
Preferred Stock, which were held by AXA, were exchanged for shares of Common
Stock. Dividends payable in 1994 for the Series A Convertible Preferred Stock
and Series B Redeemable Preferred Stock were $14.4 million and $17.2 million,
respectively. For more information regarding The Equitable's capital stock, see
Note 10 of Notes to Consolidated Financial Statements included herein.
The Series C Convertible Preferred Stock, the Series E Convertible Preferred
Stock and the Subordinated Debentures (collectively, the "Convertible
Securities") are all redeemable for Common Stock of the Holding Company, at the
option of the Holding Company, if the price of the Common Stock closes above
specified price levels for twenty out of thirty trading days. Recently, the
price of the Common Stock has closed above the price levels which would permit
the Holding Company to so redeem the Convertible Securities.
Liquidity Sources
At December 31, 1996, the Holding Company held cash and short-term investments
and U.S. Treasury securities of approximately $145.6 million. Other primary
sources of liquidity for the Holding Company include (a) amounts the Holding
Company may receive from its subsidiaries in connection with SECT distributions,
(b) dividends from DLJ and (c) dividends, distributions or sales proceeds from
less liquid investment assets. Other potential sources of liquidity for The
Equitable include sales of DLJ common stock held by the Holding Company, the
issuance of additional securities by the Holding Company and dividends from
Equitable Life.
The SECT was established in 1993 to provide a source of funding for a portion of
the obligations arising under various employee compensation and benefit programs
of certain of The Equitable's subsidiaries. The assets of the SECT (60,000
shares of the Holding Company's Series D Convertible Preferred Stock) will be
distributed over time (subject to periodic minimum and maximum requirements) to
7-44
<PAGE>
fund various employee compensation and benefit programs of certain of The
Equitable's subsidiaries. These subsidiaries will pay the Holding Company an
amount equal to any such distributions. The Series D Convertible Preferred Stock
held by the SECT is currently convertible without premium into approximately
11.9 million shares of Common Stock having an aggregate market value of $376.1
million on February 27, 1997, based on the closing market price on the New York
Stock Exchange. Management expects amounts received by the Holding Company from
its subsidiaries in connection with distributions by the SECT will be a
significant source of funds. The aggregate amount available to the Holding
Company from this source will fluctuate over time with changes in the market
value of The Equitable's Common Stock. In April 1996, The Equitable filed a
shelf registration statement with the SEC to register approximately 11.9 million
shares of The Equitable's Common Stock issuable upon conversion of shares of the
Series D Convertible Preferred Stock held by the SECT. In October 1996, the SECT
trust agreement was modified so that the initial mandatory conversion date,
previously January 31, 1997, became September 30, 1997. On or prior to September
30, 1997, the SECT is required to convert at a minimum an amount of the Series D
Convertible Preferred Stock equivalent to approximately 796,000 shares of Common
Stock for distribution. However, the amount of Common Stock distributed may not
exceed a maximum value of approximately $216.2 million.
In October 1995, the Holding Company received proceeds of approximately $178.6
million, net of expenses, from the sale of 7.28 million DLJ common shares as
part of its IPO. During 1996, DLJ paid quarterly dividends of $0.125 per share
on its common stock. Dividends on DLJ's outstanding common stock paid to the
Holding Company in 1996 and 1995 were $11.7 million and $10.0 million,
respectively. Certain of DLJ's existing credit agreements include dividend
covenants but management does not expect these covenants to materially affect
the payment of dividends by DLJ.
The Holding Company held less liquid investment assets having an aggregate
carrying value of approximately $57.2 million at December 31, 1996. In
connection with the 1995 DLJ IPO, the Holding Company contributed to DLJ certain
unregistered equity securities having a carrying value of $33.8 million.
The tax sharing agreement with DLJ had been another potential source of
liquidity for the Holding Company, although amounts paid to the Holding Company
thereunder may have to be paid to the IRS or, under certain circumstances,
returned to DLJ. In 1996 and prior years, DLJ was included in The Equitable's
consolidated tax group for Federal income tax purposes and DLJ made payments of
$267.5 million and $270.1 million in 1996 and 1995, respectively, under this tax
sharing agreement. Effective January 1, 1997, as a result of the Holding
Company's sale of 85,000 shares of DLJ common stock to AXA in December 1996, DLJ
ceased to be eligible for inclusion in the consolidated tax group. No amounts
will be payable by DLJ to the Holding Company under the tax sharing agreement
for periods after December 31, 1996; however, amounts may continue to be paid
with respect to periods prior to tax deconsolidation.
Since the demutualization, the Holding Company has not received any dividends
from Equitable Life. Under the New York Insurance Law, Equitable Life would be
permitted to pay shareholder dividends to the Holding Company only if it files
notice of its intention to declare such a dividend and the amount thereof with
the Superintendent and the Superintendent does not disapprove the distribution.
The applicable statute gives the Superintendent broad discretion in determining
whether the financial condition of the company supports the payment of dividends
to its shareholders. There can be no assurance the Superintendent would not
prevent the payment of dividends to the Holding Company for several years. Any
interest and/or principal payments on the Surplus Notes issued by Equitable Life
(described below) may reduce the amounts, if any, available for future payment
of dividends to the Holding Company.
Management believes the primary sources of liquidity described above are
sufficient to meet its cash requirements for several years.
7-45
<PAGE>
Insurance Group
The Insurance Group's principal cash flow sources are premiums, deposits and
charges on policies and contracts, investment income, repayments of principal
and proceeds from maturities and sales of General Account Investment Assets and
dividends and distributions from subsidiaries.
The liquidity requirements of the Insurance Group principally relate to the
liabilities associated with its various life insurance, annuity and group
pension products in its continuing operations, the liabilities of the GIC
Segment and operating expenses, including debt service. These liabilities
include the payment of benefits under such life insurance, annuity and group
pension products, as well as the need to make cash payments in connection with
policy surrenders, withdrawals and loans.
In December 1995, Equitable Life completed the sale of the Surplus Notes in a
private placement to institutional investors. Interest on the $400.0 million
6.95% Surplus Notes and the $200.0 million 7.70% Surplus Notes is scheduled to
be paid on June 1 and December 1 of each year. The 6.95% Surplus Notes are
scheduled to mature on December 1, 2005 while the 7.70% Surplus Notes are
scheduled to mature on December 1, 2015. Under the New York Insurance Law,
payments of interest on or principal of the Surplus Notes may only be made out
of "free and divisible surplus ...with approval of the Superintendent whenever,
in his judgment, the financial condition of the insurer warrants." Interest
expense on the Surplus Notes totaled $43.2 million in 1996 and $1.5 million in
1995. For further information, see Note 8 of Notes to Consolidated Financial
Statements.
During 1997, management intends to continue to explore selective acquisition
opportunities in Equitable Life's core insurance and asset management
businesses.
The liquidity requirements of the Insurance Group are monitored regularly to
match cash inflows with cash requirements. The Insurance Group forecasts its
daily cash needs and periodically reviews its projected sources and uses of
funds, as well as the asset, liability, investment and cash flow assumptions
underlying these projections. Adjustments are periodically made to the Insurance
Group's investment policies with respect to, among other things, the maturity
and risk characteristics of General Account Investment Assets to reflect changes
in the Insurance Group's cash needs and also to reflect changing business and
economic conditions.
Sources of Insurance Group Liquidity
The primary source of short-term liquidity to support continuing and
discontinued operations is a pool of highly liquid, high quality, short-term
instruments structured to provide liquidity in excess of the Insurance Group's
expected cash requirements. At December 31, 1996, this asset pool provided the
Insurance Group an aggregate of $383.5 million in highly liquid short-term
investments, as compared to $1.02 billion and $966.8 million at December 31,
1995 and 1994, respectively.
The Insurance Group has available for its liquidity needs a substantial
portfolio of public bonds including U.S. Treasury and agency securities and
other investment grade fixed maturities.
Other sources of liquidity include dividends and distributions from Equitable
Life's Investment Subsidiaries, particularly Alliance. In 1996, Alliance
reported cash distributions of $2.10 per Unit as compared to $1.73 per Unit in
1995 and $1.64 per Unit in 1994. Alliance generally is not subject to a
corporate level tax for Federal income tax purposes. Current law provides that
as a consequence of public trading in Alliance Units, Alliance will be treated
as a corporation for Federal income tax purposes beginning in 1998. Accordingly,
were Alliance to make no change in its tax status prior to 1998, it would be
taxed as a corporation for Federal income tax purposes with respect to periods
beginning in 1998. The Federal tax would significantly reduce the post-tax
earnings reported by Alliance and available for distribution to Unit holders.
Additionally, The Equitable and Equitable Life's consolidated earnings will be
reduced by taxation on Alliance cash distributions which generally will be
treated as corporate dividends for Federal income tax purposes. See "Risk-Based
Capital".
7-46
<PAGE>
In the normal course of business, Equitable Life provides, from time to time,
certain guarantees and commitments and faces certain contingencies. These
commitments and contingencies are discussed more fully in Notes 12, 15, 16, 17
and 18 of Notes to Consolidated Financial Statements.
Management believes it has sufficient liquidity in the form of short-term assets
and its bond portfolio together with its cash flows from operations and
scheduled maturities of fixed maturities, to satisfy its liquidity needs.
Equitable Life also has a commercial paper program with an issue limit of $500.0
million. This program is available for general corporate purposes to support
Equitable Life's liquidity needs and is supported by Equitable Life's existing
$350.0 million five-year bank credit facility, which expires in June 2000. At
December 31, 1996, no amounts were outstanding under the commercial paper
program or the back-up credit facility.
Factors Affecting Insurance Group Liquidity
The Insurance Group's liquidity needs are affected by fluctuations in the level
of surrenders and withdrawals previously discussed in "Combined Results of
Continuing Operations by Segment - Insurance Operations - Surrenders and
Withdrawals; Policy Loans". Management believes the Insurance Group has adequate
internal sources of funds for its presently anticipated needs.
Risk-Based Capital
Since 1993, life insurers, including Equitable Life and EVLICO, have been
subject to certain RBC guidelines. The RBC guidelines provide a method to
measure the adjusted capital (statutory capital and surplus plus the Asset
Valuation Reserve ("AVR") and other adjustments) that a life insurance company
should have for regulatory purposes, taking into account the risk
characteristics of the company's investments and products. A life insurance
company's RBC ratio will vary over time depending upon many factors, including
its earnings, the mix of assets in its investment portfolio, the nature of the
products it sells and its rate of sales growth, as well as to changes in the RBC
formulas required by regulators.
While the RBC guidelines are intended to be a regulatory tool only, and are not
intended as a means to rank insurers generally, comparisons of RBC ratios of
life insurers have become generally available. Equitable Life and EVLICO were
above their target RBC ratios at years end 1995 and 1996. Principally because of
the RBC formula's treatment of Equitable Life's large holdings of subsidiary
common stock (including its interest in Alliance, its 36.1% interest in DLJ, and
its wholly owned subsidiary Equitable Real Estate), equity real estate and
mortgages, Equitable Life's year end 1996 RBC ratio is expected to continue to
be lower than those of its competitors in the life insurance industry.
Alliance is not currently subject to Federal income taxes on its partnership
business; however, under the Revenue Act of 1987, Alliance, as a publicly traded
partnership, will become subject to Federal income taxes commencing on January
1, 1998. Alliance's becoming subject to Federal income tax on January 1, 1998
could be avoided under current law through a restructuring. Such a restructuring
could result in Equitable Life's Alliance Units ceasing to be publicly traded.
Pursuant to NAIC guidelines applicable to the valuation of subsidiaries with
publicly traded securities, Equitable Life currently uses a market value option
for the valuation of Alliance in Equitable Life's statutory financial
statements. Equitable Life's holdings of Alliance Units are valued at a 17%
discount from market value on the New York Stock Exchange at year end. As a
result, at December 31, 1996, the statutory carrying value of Equitable Life's
investment in Alliance increased to $1.06 billion from $914.3 million at
December 31, 1995, compared to a statutory cost of $292.3 million. The
management of Equitable Life has begun to examine possible responses to the
change in Alliance's tax status and, during 1997, will be discussing with
regulators alternative bases on which to value its Alliance holdings for
statutory purposes in the event Equitable Life were to cease to own publicly
traded Alliance Units. Management believes that these discussions should result
in an approach which would, in such event, continue to take into account for
statutory purposes a significant portion of the value of Equitable Life's
investment in Alliance in excess of statutory cost. If Equitable Life were to
cease to own publicly traded Alliance Units, and if a significant portion of
7-47
<PAGE>
such excess were not recognized for statutory purposes, and if other offsetting
corporate actions available to Equitable Life were not taken, Equitable Life
would have a significant decline in its statutory capital and RBC ratio, which
may adversely affect the market's perception of the Insurance Group relative to
its principal competitors and could, therefore, make it more difficult to market
certain of its insurance and annuity products and also result in higher levels
of surrenders and withdrawals.
In addition, developments relating to changes in the RBC formula that may become
effective for year end 1997 statutory financial statements may adversely affect
Equitable Life's RBC ratio at year end 1997.
The NAIC has undertaken a comprehensive codification of statutory accounting
practices for life insurers. The resulting changes, once the codification
project has been completed and the new principles adopted and implemented, could
have a significant adverse impact on the Insurance Group's statutory results and
financial position. The codification is unlikely to become effective until 1998
or later.
At December 31, 1996, $218.7 million (or 9.7%) of the Insurance Group's
aggregate statutory capital and surplus (representing 6.1% of statutory capital
and surplus and AVR) resulted from surplus relief reinsurance. The level of
surplus relief reinsurance was reduced by approximately $60.2 million in 1996.
Investment Subsidiaries
Alliance's principal sources of liquidity are cash flows from operations,
proceeds from sales of newly issued Alliance Units and borrowings from lending
institutions. During the third quarter of 1994, Alliance issued $100.0 million
of new Units to two third-party investors. The proceeds from the 1994
transactions were used to repay in full Alliance's $105.0 million senior notes
and the outstanding balance under its revolving credit facility. In February
1996, approximately 1.8 million Alliance Units and $21.5 million of notes were
issued as partial consideration in the Cursitor acquisition. In February 1996,
Alliance terminated its $100.0 million revolving credit facility and its $100.0
million commercial paper program, replacing them with a new $250.0 million,
five-year revolving credit facility with a group of banks. The interest rate is
a floating rate generally based on a defined prime rate, a rate related to LIBOR
or the Federal Funds rate, at Alliance's option. At December 31, 1996, there
were no amounts outstanding under its new $250.0 million revolving credit
facility. As a result of the continued growth in Alliance's business and the use
of the deferred sales charge options on various Alliance mutual funds, Alliance
may require additional sources of capital from time to time.
DLJ reported total assets as of December 31, 1996 of approximately $55.50
billion. Most of these assets are highly liquid marketable securities and
short-term receivables arising from securities transactions. These assets
include collateralized resale and securities borrowing agreements, both of which
are secured by U.S. Government and agency securities and corporate debt and
equity securities. A relatively small portion of total assets is fixed or held
for a period longer than one year. A significant portion of DLJ's borrowings is
matched to the interest rate and expected holding period of the corresponding
assets. DLJ monitors overall liquidity by tracking the extent to which
unencumbered marketable assets exceed short-term unsecured borrowing.
DLJ continually reviews its overall capital needs to ensure that its capital
base can support the needs of its businesses. As a result of these ongoing
reviews, DLJ continues to be active in raising additional capital. In addition
to its October 1995 IPO and senior debt offering, there has been the February
1996 issuance of $250.0 million aggregate principal amount of 5 5/8% Medium Term
Notes due 2016. The net proceeds of approximately $248.3 million were used for
general corporate purposes. Debt service on these notes will total $14.1 million
annually. In September 1996, DLJ issued $43.5 million in 6.1875% junior
subordinated convertible debentures, the proceeds of which were used to pay
$43.5 million of its senior subordinated revolving credit. During October 1996,
DLJ exercised its option to exchange all 2.25 million shares of its $8.83
Cumulative Preferred Stock for $225.0 million in aggregate principal amount of
9.58% Subordinated Exchange Notes due 2003, including $20.0 million to Equitable
Life. These notes are redeemable, in whole or in part, at DLJ's option at any
time. On November 19, 1996, DLJ issued 4.0 million shares of Fixed/Adjustable
Rate Cumulative Preferred Stock, Series A, with a liquidation preference of $50
per share. Dividends on the preferred stock are cumulative and payable quarterly
at a rate of 5.94% per annum through November 30, 2001. Thereafter, the dividend
rate will be adjusted based on various indices, not to be less than 6.44% nor
higher than 12.44%. The preferred stock is redeemable, in whole or in part, at
the option of DLJ, on or after November 30, 2001. At December 31, 1996, 4.0
million shares of such preferred stock were authorized, issued and outstanding.
7-48
<PAGE>
In 1995, DLJ also extended the maturity and increased the credit available under
its revolving credit agreement to $325.0 million, of which $206.5 million was
outstanding at December 31, 1996. DLJ also increased the amount of credit
available under its unsecured credit facility to $650 million; there were no
borrowings outstanding at December 31, 1996.
DLJ historically has satisfied its needs for funds primarily from capital
(including long-term debt), internally generated funds, uncommitted lines of
credit, free credit balances in customers' accounts, master notes and
collateralized borrowings primarily consisting of bank loans, repurchase
agreements and securities loaned. Short-term funding generally is obtained at
rates related to Federal Funds, LIBOR and money market rates. Other borrowing
costs are negotiated depending upon prevailing market conditions. DLJ maintains
borrowing relationships with a broad range of banks, financial institutions,
counterparties and others including $6.0 billion, at December 31, 1996, in
uncommitted and committed bank credit lines with 50 domestic and international
banks.
The primary source of cash flows for Equitable Real Estate is investment
management fee income derived from various kinds of financial and real estate
investments and from transaction fees related to acquiring, servicing and
disposing of such investments. Since Equitable Real Estate primarily is an
investment manager, its primary cash needs are to pay operating expenses such as
employee compensation and benefits, office rentals and information systems. In
1996, 1995 and 1994, Equitable Real Estate paid cash dividends of $27.0 million,
$23.4 million and $50.0 million to Equitable Life. In December 1994, Equitable
Real Estate established two bank lines of credit totaling $30.0 million. During
December 1996, Equitable Real Estate modified and extended one of its lines of
credit. The two bank lines of credit total $35.0 million with no outstanding
borrowings as of December 31, 1996.
Consolidated Cash Flows
Net cash used by operating activities was $1.44 billion for 1996 as compared to
cash provided by operating activities of $841.6 million in 1995. Cash used by
operations in 1996 was attributable to the $1.84 billion net change in trading
activities and broker-dealer receivables as compared to $890.8 million in 1995
reflecting DLJ's increased level of business activity.
Net cash used by investing activities amounted to $116.6 million for 1996 as
compared to the net cash provided by investing activities of $37.8 million in
1995. In 1996, investment purchases exceeded sales, maturities, repayments and
return of capital by $1.21 billion. The GIC Segment repaid $1.02 billion of
loans from continuing operations during 1996. In 1995, purchases exceeded sales,
maturities, repayments and return of capital by $523.9 million, as available
funds were invested principally in the fixed maturities category. Decreases in
loans to the GIC Segment totaled $1.23 billion in 1995 principally due to the
January 1995 repayment of $1.16 billion in loans by the GIC Segment. In 1994,
sales, maturities and repayments of investment assets exceeded purchases by
$766.8 million, principally in the mortgage loan and other equity investment
categories.
Net cash provided by financing activities was $1.12 billion in 1996 as compared
to cash used by financing activities of $504.3 million for 1995. During 1996,
withdrawals from policyholders' account balances exceeded deposits by $459.8
million as compared with $70.6 million in 1995. Short-term financings,
principally at DLJ, showed a net increase of $1.12 billion as compared to net
decreases of $381.1 million in 1995 while net additions to long-term debt were
lowered by $531.1 million from 1995. In 1995, the $1.22 billion payment by
continuing operations to the GIC Segment, $445.4 million in long-term debt
repayments principally at DLJ and $70.6 million of net cash withdrawals from
General Account policyholders' account balances (these amounts exclude Separate
Account activity for the Insurance Operations segment) were offset by $1.35
billion of additions to long-term debt, primarily due to the issuance of the
Surplus Notes and DLJ 6.875% Senior Notes. Net cash used by financing activities
of $2.87 billion in 1994 included a $2.02 billion net decrease in short-term
financings principally due to the decrease in business activity at DLJ. Net cash
withdrawals from General Account policyholders' account balances were $781.9
million in 1994. In addition, in 1994, the Holding Company issued $300.0 million
of 9% Senior Notes while Alliance issued $100.0 million of new Units to third
parties. Alliance used the proceeds of these third party Unit sales to repay
$105.0 million of long-term debt.
The operating, investing and financing activities described above resulted in a
decrease in cash and cash equivalents of $445.1 million in 1996 as compared to
an increase of $375.1 million in 1995 and a decrease of $79.9 million in 1994.
7-49
<PAGE>
Part II, Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE EQUITABLE COMPANIES INCORPORATED
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants........................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1996 and 1995................................... F-2
Consolidated Statements of Earnings, Years Ended December 31, 1996, 1995 and 1994......... F-3
Consolidated Statements of Shareholders' Equity, Years Ended December 31, 1996,
1995 and 1994........................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1996, 1995 and 1994....... F-5
Notes to Consolidated Financial Statements................................................ F-6
Report of Independent Accountants on Financial Statement Schedules.......................... F-56
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in Related Parties,
December 31, 1996......................................................................... F-57
Schedule III - Balance Sheets (Parent Company), December 31, 1996 and 1995.................. F-58
Schedule III - Statements of Earnings (Parent Company), Years Ended December 31, 1996,
1995 and 1994............................................................................. F-59
Schedule III - Statements of Cash Flows (Parent Company), Years Ended December 31, 1996,
1995 and 1994............................................................................. F-60
Schedule V - Supplementary Insurance Information, Years Ended December 31, 1996,
1995 and 1994............................................................................. F-61
Schedule VI - Reinsurance, Years Ended December 31, 1996, 1995 and 1994..................... F-64
</TABLE>
FS-1
<PAGE>
February 10, 1997
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Equitable Companies Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Companies Incorporated and its subsidiaries ("The Equitable") at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of The Equitable'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
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
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.
As discussed in Note 2 to the consolidated financial statements, The Equitable
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995, and for
postemployment benefits in 1994.
/s/Price Waterhouse LLP
- -----------------------
F-1
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,556.2 $ 16,069.5
Held to maturity, at amortized cost......................... 178.5 241.2
Trading account securities, at market value................... 15,728.1 10,821.3
Securities purchased under resale agreements.................. 20,492.1 18,567.4
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,298.4 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Other equity investments...................................... 809.1 952.4
Other invested assets......................................... 397.8 890.8
------------- ---------------
Total investments......................................... 64,789.3 57,073.5
Cash and cash equivalents....................................... 755.3 1,200.4
Broker-dealer related receivables............................... 16,661.7 13,134.0
Deferred policy acquisition costs............................... 3,106.5 3,078.3
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 4,361.1 3,984.2
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
------------- ---------------
Total Assets.................................................... $ 128,811.2 $ 113,716.2
============= ===============
LIABILITIES
Policyholders' account balances................................. $ 21,863.8 $ 21,908.6
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Securities sold under repurchase agreements..................... 29,378.3 26,744.8
Broker-dealer related payables.................................. 19,497.0 13,499.6
Short-term and long-term debt................................... 5,379.6 4,604.5
Other liabilities............................................... 5,598.3 5,090.3
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
------------- ---------------
Total liabilities......................................... 124,823.2 109,607.5
------------- ---------------
Commitments and contingencies (Notes 12, 15, 16, 17 and 18)
SHAREHOLDERS' EQUITY
Series C convertible preferred stock............................ 24.4 24.4
Series D convertible preferred stock............................ 294.0 286.6
Stock employee compensation trust............................... (294.0) (286.6)
Series E convertible preferred stock............................ 380.2 380.2
Common stock, at par value...................................... 1.9 1.8
Capital in excess of par value.................................. 2,782.2 2,753.3
Retained earnings............................................... 632.9 597.5
Net unrealized investment gains................................. 179.3 386.6
Minimum pension liability....................................... (12.9) (35.1)
------------- ---------------
Total shareholders' equity................................ 3,988.0 4,108.7
------------- ---------------
Total Liabilities and Shareholders' Equity...................... $ 128,811.2 $ 113,716.2
============= ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income ................................................... $ 874.0 $ 788.2 $ 715.0
Premiums ................................................... 597.6 606.8 625.6
Net investment income ...................................... 3,308.6 3,047.4 2,838.4
Investment gains, net ...................................... 599.2 552.3 338.6
Commissions, fees and other income ......................... 2,800.5 2,142.4 1,748.4
Contribution from the Closed Block ......................... 125.0 143.2 137.0
----------- ----------- -----------
Total revenues ....................................... 8,304.9 7,280.3 6,403.0
----------- ----------- -----------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances ....... 1,271.1 1,249.2 1,202.2
Policyholders' benefits .................................... 1,317.7 1,008.6 914.9
Other operating costs and expenses ......................... 5,200.3 4,377.3 3,739.3
----------- ----------- -----------
Total benefits and other deductions .................. 7,789.1 6,635.1 5,856.4
----------- ----------- -----------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change .............................. 515.8 645.2 546.6
Federal income taxes ....................................... 137.4 192.3 157.0
Minority interest in net income of consolidated subsidiaries 172.4 87.5 68.3
----------- ----------- -----------
Earnings from continuing operations before cumulative
effect of accounting change .............................. 206.0 365.4 321.3
Discontinued operations, net of Federal income taxes ....... (83.8) -- --
Cumulative effect of accounting change, net of Federal
income taxes ............................................. (23.1) -- (27.1)
----------- ----------- -----------
Net earnings ............................................... 99.1 365.4 294.2
Dividends on preferred stocks .............................. 26.7 26.7 80.1
----------- ----------- -----------
Net Earnings Applicable to Common Shares ................... $ 72.4 $ 338.7 $ 214.1
=========== =========== ===========
Per Common Share:
Assuming No Dilution:
Earnings from continuing operations before
cumulative effect of accounting change ............... $ .93 $ 1.83 $ 1.68
Discontinued operations, net of Federal income taxes ... (.45) -- --
Cumulative effect of accounting change, net of
Federal income taxes ................................. (.12) -- (.19)
----------- ----------- -----------
Net Earnings ........................................... $ .36 $ 1.83 $ 1.49
=========== =========== ===========
Assuming Full Dilution:
Earnings from continuing operations before
cumulative effect of accounting change ............... $ .93 $ 1.74 $ 1.52
Discontinued operations, net of Federal income taxes ... (.45) -- --
Cumulative effect of accounting change, net of
Federal income taxes ................................. (.12) -- (.15)
----------- ----------- -----------
Net Earnings ........................................... $ .36 $ 1.74 $ 1.37
=========== =========== ===========
Cash Dividend Per Common Share ........................... $ .20 $ .20 $ .20
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
(In Millions)
<S> <C> <C> <C>
Series A convertible preferred stock, beginning of year ............ $ 221.0
Accretion of discount .............................................. 2.0
Exchange of Series A convertible preferred stock ................... (223.0)
----------
Series A convertible preferred stock, end of year .................. --
----------
Series C convertible preferred stock, beginning of year ............ $ 24.4 $ 24.4 779.3
Exchange of Series C convertible preferred stock ................... -- -- (754.9)
----------- ---------- ----------
Series C convertible preferred stock, end of year .................. 24.4 24.4 24.4
----------- ---------- ----------
Series D convertible preferred stock, beginning of year ............ 286.6 216.4 322.4
Change in market value of shares ................................... 7.4 70.2 (106.0)
----------- ---------- ----------
Series D convertible preferred stock, end of year .................. 294.0 286.6 216.4
----------- ---------- ----------
Stock employee compensation trust, beginning of year ............... (286.6) (216.4) (322.4)
Change in market value of shares ................................... (7.4) (70.2) 106.0
----------- ---------- ----------
Stock employee compensation trust, end of year ..................... (294.0) (286.6) (216.4)
----------- ---------- ----------
Series E convertible preferred stock, beginning of year ............ 380.2 380.2 --
Issuance of Series E convertible preferred stock ................... -- -- 380.2
----------- ---------- ----------
Series E convertible preferred stock, end of year .................. 380.2 380.2 380.2
----------- ---------- ----------
Common stock, at par value, beginning of year ...................... 1.8 1.8 1.4
Issuance of common stock ........................................... .1 -- .4
----------- ---------- ----------
Common stock, at par value, end of year ............................ 1.9 1.8 1.8
----------- ---------- ----------
Capital in excess of par value, beginning of year as
previously reported .............................................. 2,561.1 2,538.7 2,010.4
Cumulative effect on prior years of retroactive restatement
for accounting change ............................................ 192.2 192.2 192.2
----------- ---------- ----------
Capital in excess of par value, beginning of year as restated ...... 2,753.3 2,730.9 2,202.6
Additional capital in excess of par value .......................... 28.9 22.4 528.3
----------- ---------- ----------
Capital in excess of par value, end of year ........................ 2,782.2 2,753.3 2,730.9
----------- ---------- ----------
Retained earnings, beginning of year as previously reported ........ 590.7 304.0 115.8
Cumulative effect on prior years of retroactive restatement
for accounting change ............................................ 6.8 (8.4) (5.8)
----------- ---------- ----------
Retained earnings, beginning of year as restated ................... 597.5 295.6 110.0
Net earnings ....................................................... 99.1 365.4 294.2
Dividends on preferred stocks ...................................... (26.7) (26.7) (80.1)
Dividends on common stock .......................................... (37.0) (36.8) (28.5)
----------- ---------- ----------
Retained earnings, end of year ..................................... 632.9 597.5 295.6
Net unrealized investment gains (losses), beginning of year
as previously reported............................................ 328.3 (232.6) 134.3
Cumulative effect on prior years of retroactive
restatement for accounting change................................. 58.3 (17.5) 12.7
----------- ---------- ----------
Net unrealized investment gains (losses), beginning of year
as restated....................................................... 386.6 (250.1) 147.0
Change in unrealized investment (losses) gains...................... (207.3) 636.7 (397.1)
----------- ---------- ----------
Net unrealized investment gains (losses), end of year............... 179.3 386.6 (250.1)
----------- ---------- ----------
Minimum pension liability, beginning of year........................ (35.1) (2.7) (15.0)
Change in minimum pension liability................................. 22.2 (32.4) 12.3
----------- ---------- ----------
Minimum pension liability, end of year.............................. (12.9) (35.1) (2.7)
----------- ---------- ----------
Total Shareholders' Equity, End of Year............................. $ 3,988.0 $ 4,108.7 $ 3,180.1
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
(In Millions)
<S> <C> <C> <C>
Net earnings ............................................................ $ 99.1 $ 365.4 $ 294.2
Adjustments to reconcile net earnings to net cash
(used) provided by operating activities:
Interest credited to policyholders' account balances .................. 1,271.1 1,249.2 1,202.2
Universal life and investment-type product
policy fee income ................................................... (874.0) (788.2) (715.0)
Net change in trading activities and broker-dealer
related receivables/payables ........................................ (1,835.5) (890.8) 1,716.4
Decrease (increase) in matched resale agreements ...................... 9.2 (5,462.4) 620.1
(Decrease) increase in matched repurchase agreements .................. (9.2) 5,462.4 (620.1)
Investment gains, net of dealer and trading gains ..................... (163.9) (187.4) (173.1)
Change in clearing association fees and regulatory deposits ........... (381.9) 278.5 197.8
Change in accounts payable and accrued expenses ....................... 416.6 592.9 178.4
Other, net ............................................................ 24.4 222.0 (146.0)
----------- ----------- ----------
Net cash (used) provided by operating activities ........................ (1,444.1) 841.6 2,554.9
----------- ----------- ----------
Cash flows from investing activities:
Maturities and repayments ............................................. 2,419.3 2,043.5 2,479.6
Sales ................................................................. 9,522.8 9,260.7 5,955.0
Return of capital from joint ventures and limited
partnerships ........................................................ 78.4 65.2 39.0
Purchases ............................................................. (13,229.4) (11,893.3) (7,706.8)
Decrease (increase) in loans to discontinued GIC Segment .............. 1,017.0 1,226.9 (40.0)
Other, net ............................................................ 75.3 (665.2) (492.2)
----------- ----------- ----------
Net cash (used) provided by investing activities ........................ (116.6) 37.8 234.6
----------- ----------- ----------
Cash flows from financing activities:
Policyholders' account balances:
Deposits ............................................................ 1,925.4 2,586.5 2,082.5
Withdrawals ......................................................... (2,385.2) (2,657.1) (2,864.4)
Net increase (decrease) in short-term financings ...................... 1,118.4 (381.1) (2,023.7)
Additions to long-term debt ........................................... 717.8 1,348.7 402.8
Repayments of long-term debt .......................................... (345.6) (445.4) (483.1)
Proceeds from issuance of Alliance units .............................. -- -- 100.0
Proceeds from sale of DLJ common stock ................................ -- 259.8 --
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment ............................................ -- (1,215.4) --
Other, net ............................................................ 84.8 (.3) (83.5)
----------- ----------- ----------
Net cash provided (used) by financing activities ........................ 1,115.6 (504.3) (2,869.4)
----------- ----------- ----------
Change in cash and cash equivalents ..................................... (445.1) 375.1 (79.9)
Cash and cash equivalents, beginning of year ............................ 1,200.4 825.3 905.2
----------- ----------- ----------
Cash and Cash Equivalents, End of Year .................................. $ 755.3 $ 1,200.4 $ 825.3
=========== =========== ==========
Supplemental cash flow information
Interest Paid ......................................................... $ 2,998.8 $ 2,842.3 $ 2,170.3
=========== =========== ==========
Income Taxes Paid (Refunded) .......................................... $ 137.0 $ (82.7) $ 100.9
=========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Companies Incorporated (the "Holding Company") was
incorporated on July 15, 1991. The Holding Company (collectively
including its consolidated subsidiaries, "The Equitable") is a
diversified financial services organization serving a broad spectrum of
insurance, investment management and investment banking customers. The
Equitable's insurance business is conducted principally by its life
insurance subsidiary, The Equitable Life Assurance Society of the United
States ("Equitable Life"). The Equitable's investment management and
investment banking business, which comprises the Investment Services
segment, is conducted principally by Alliance Capital Management L.P.
("Alliance"), Donaldson, Lufkin & Jenrette, Inc. ("DLJ") and Equitable
Real Estate Investment Management, Inc. ("EREIM"). AXA-UAP ("AXA"), a
French holding company for an international group of insurance and
related financial services companies, is The Equitable's largest
shareholder, owning approximately 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and options on, common
stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of the Holding Company; Equitable Life and its wholly owned life
insurance subsidiaries (collectively, the "Insurance Group");
non-insurance subsidiaries, principally DLJ, an investment banking and
brokerage subsidiary, Alliance, an investment advisory subsidiary, and
EREIM, a real estate investment management subsidiary; and those trusts,
partnerships and joint ventures in which The Equitable has control and a
majority economic interest. Closed Block assets and liabilities and
results of operations are presented in the consolidated financial
statements as single line items (see Note 6). Unless specifically
stated, all disclosures contained herein supporting the consolidated
financial statements exclude the Closed Block related amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force.
Discontinued Operations
In 1991, The Equitable's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") lines of business. The Equitable established a
pre-tax provision for the estimated future losses of the GIC line of
business and a premium deficiency reserve for the Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (see Note 7).
Accounting Changes
In 1996, The Equitable changed its method of accounting for
long-duration participating life insurance contracts, primarily within
the Closed Block, in accordance with the provisions prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". The effect of this change, including the impact on the
Closed Block, was to increase earnings from continuing operations before
cumulative effect of accounting change by $19.2 million, net of Federal
income taxes of $10.3 million ($.10 per share assuming no dilution and
full dilution) for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million ($.08 per
share assuming no dilution and $.06 per share assuming full dilution)
and $(2.6) million, net of Federal income tax benefit of $1.0 million
($(.02) per share assuming no dilution and $(.01) per share assuming
full dilution), respectively. Shareholders' equity increased $199.1
million as of January 1, 1994 for the effect of retroactive application
of the new method. (See "Deferred Policy Acquisition Costs,"
"Policyholders' Account Balances and Future Policy Benefits" and Note
6.)
F-7
<PAGE>
The Equitable implemented SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower of
estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal income
tax benefit of $12.4 million, due to the writedown to fair value of
building improvements relating to facilities being vacated beginning in
1996.
In the first quarter of 1995, The Equitable adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans within
the scope of this statement are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Equitable provides
for impairment of loans through an allowance for possible losses. The
adoption of this statement did not have a material effect on the level
of these allowances or on The Equitable's consolidated statements of
earnings and shareholders' equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, The Equitable
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholders' equity increased by $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), The
Equitable adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which required employers to recognize the
obligation to provide postemployment benefits. Implementation of this
statement resulted in a charge for the cumulative effect of the
accounting change of $27.1 million, net of a Federal income tax benefit
of $14.6 million.
New Accounting Pronouncements
The Equitable accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
In accordance with the Opinion, compensation expense is recorded on the
date of grant only if the current market price of the underlying stock
exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of APB Opinion No.
25. Companies which elect to continue to apply APB Opinion No. 25 must
provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Equitable has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures required by
SFAS No. 123.
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary. Fixed
maturities, which The Equitable has both the ability and the intent to
hold to maturity, are stated principally at amortized cost.
Trading account securities are reported at market value principally
based on their quoted market prices or on quoted market prices of
comparable instruments.
Securities sold under agreements to repurchase and securities purchased
under agreements to resell are treated as financing arrangements and are
carried at contract amounts reflective of the amounts at which the
securities subsequently will be reacquired or resold as specified in the
respective agreements. Interest is accrued on such contract amounts and
is included in broker-dealer related receivables and payables in the
accompanying consolidated balance sheets. The Equitable takes possession
of the underlying assets purchased under agreements to resell and
obtains additional collateral when the market value falls below the
contract value. Repurchase and resale agreements with the same
counterparty and maturity date that settle through the Federal reserve
system and which are subject to master netting agreements are presented
net in the consolidated financial statements.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not have been
collectible in full. In establishing valuation allowances, management
previously considered among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to The Equitable's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which The Equitable does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
F-9
<PAGE>
Equity securities, comprised of common stock, non-redeemable preferred
stock and DLJ's holdings of long-term corporate development investments,
principally private equity investments, are carried at estimated fair
value and are included in other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities owned by the Insurance Group and United States government
and agency securities, mortgage-backed securities, futures and forwards
transactions and certain other debt obligations held by DLJ are recorded
in the consolidated financial statements on a trade date basis. All
other securities owned by DLJ are recorded on a settlement date basis
and adjustments are made to a trade date basis, if significant.
Investment Results and Unrealized Investment Gains (Losses)
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses. Unrealized investment gains and losses of DLJ are included in
revenues as investment gains or losses in accordance with the accounting
principles applicable to trading portfolios.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by The Equitable, other than those held
by DLJ, are accounted for as a separate component of shareholders'
equity, net of related deferred Federal income taxes, amounts
attributable to the discontinued GIC Segment, participating group
annuity contracts and deferred policy acquisition costs related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
F-10
<PAGE>
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and primarily are related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholders' equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
unrealized gains (losses) in consolidated shareholders' equity as of the
balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
F-11
<PAGE>
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million or $.26 per share ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, The Equitable completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million or $1.12 per share ($320.0 million
pre-tax) as a result of strengthening DI reserves by $175.0 million and
writing off unamortized DAC of $145.0 million. The determination of DI
reserves requires making assumptions and estimates relating to a variety
of factors, including morbidity and interest rates, claims experience
and lapse rates based on then known facts and circumstances. Such
factors as claim incidence and termination rates can be affected by
changes in the economic, legal and regulatory environments and work
ethic. While management believes its DI reserves have been calculated on
a reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual disability
income and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years.... 69.1 67.8 28.7
---------- ---------- ---------
Total Incurred Benefits..................... $ 258.1 $ 243.8 $ 217.3
========== ========== =========
Benefits paid related to current year....... $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years........ 153.3 137.8 132.3
---------- ---------- ---------
Total Benefits Paid......................... $ 185.9 $ 174.8 $ 176.0
========== ========== =========
</TABLE>
F-12
<PAGE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
For periods prior to January 1, 1997, the Holding Company and its life
insurance and non-life insurance subsidiaries filed a consolidated
Federal income tax return. Current Federal income taxes were charged or
credited to operations based upon amounts estimated to be payable or
recoverable as a result of taxable operations for the current year.
Deferred income tax assets and liabilities were recognized based on the
difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities (excluding trading account securities):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- ------------- ------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1996
Fixed Maturities:
Available for Sale:
Corporate..................... $ 13,933.8 $ 454.3 $ 121.4 $ 14,266.7
Mortgage-backed............... 2,052.7 11.4 20.3 2,043.8
U.S. Treasury securities and
U.S. government and
agency securities........... 1,690.9 39.3 19.7 1,710.5
States and political
subdivisions................ 77.0 4.5 - 81.5
Foreign governments........... 302.6 18.0 2.2 318.4
Redeemable preferred stock.... 139.1 3.3 7.1 135.3
-------------- -------------- ------------- ------------
Total Available for Sale.......... $ 18,196.1 $ 530.8 $ 170.7 $ 18,556.2
============== ============== ============= ============
Held to Maturity:
Corporate..................... $ 178.5 $ 18.3 $ 1.7 $ 195.1
-------------- -------------- ------------- ------------
Total Held to Maturity............ $ 178.5 $ 18.3 $ 1.7 $ 195.1
============== ============== ============= ============
Equity Securities:
DLJ's long-term corporate
development investments....... $ 246.3 $ 37.7 $ 79.6 $ 204.4
Common stock.................... 108.4 49.4 20.1 137.7
-------------- -------------- ------------- ------------
Total Equity Securities........... $ 354.7 $ 87.1 $ 99.7 $ 342.1
============== ============== ============= ============
December 31, 1995
Fixed Maturities:
Available for Sale:
Corporate..................... $ 10,990.6 $ 617.7 $ 118.1 $ 11,490.2
Mortgage-backed............... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities........... 2,346.6 77.8 4.1 2,420.3
States and political
subdivisions................ 45.7 5.2 - 50.9
Foreign governments........... 124.5 11.0 .2 135.3
Redeemable preferred stock.... 108.1 5.3 8.6 104.8
-------------- -------------- ------------- ------------
Total Available for Sale.......... $ 15,453.5 $ 748.2 $ 132.2 $ 16,069.5
============== ============== ============= ============
Held to Maturity:
Corporate..................... $ 241.2 $ 24.1 $ 2.4 $ 262.9
-------------- -------------- ------------- ------------
Total Held to Maturity............ $ 241.2 $ 24.1 $ 2.4 $ 262.9
============== ============== ============= ============
Equity Securities:
DLJ's long-term corporate
development investments....... $ 276.2 $ 123.0 $ 114.7 $ 284.5
Common stock.................... 143.0 51.3 19.1 175.2
-------------- -------------- ------------- ------------
Total Equity Securities........... $ 419.2 $ 174.3 $ 133.8 $ 459.7
============== ============== ============= ============
</TABLE>
F-14
<PAGE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, The Equitable
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by The
Equitable. Such estimated fair values do not necessarily represent the
values for which these securities could have been sold at the dates of
the consolidated balance sheets. At December 31, 1996 and 1995,
securities without a readily ascertainable market value having an
amortized cost of $4,375.4 million and $4,346.0 million, respectively,
had estimated fair values of $4,461.1 million and $4,610.2 million,
respectively.
The contractual maturity of bonds at December 31, 1996 is shown below:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------ ------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------- ------------ ------------- -------------
(In Millions)
<S> <C> <C> <C> <C>
Due in one year or less......... $ 10.8 $ 11.0 $ 620.7 $ 623.3
Due in years two through five... 48.3 47.2 2,940.6 2,968.3
Due in years six through ten.... .7 2.2 6,116.6 6,232.3
Due after ten years............. 118.7 134.7 6,326.4 6,553.2
Mortgage-backed securities...... -- -- 2,052.7 2,043.8
---------- ------------ ------------- -------------
Total........................... $ 178.5 $ 195.1 $ 18,057.0 $ 18,420.9
========== ============ ============= =============
</TABLE>
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.39% of the $18,235.5 million aggregate amortized
cost of bonds held by The Equitable were considered to be other than
investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Equitable has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $22.4 million and $44.0 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments or are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $10.5
million at December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $3.1 million, $8.2
million and $17.1 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $3.2 million, $8.3 million and $16.4 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year....... $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release.............. (152.4) - -
Additions charged to income....... 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions.............. (160.8) (95.6) (121.7)
------------ ------------ -----------
Balances, End of Year............. $ 137.1 $ 325.3 $ 284.9
============ ============ ===========
Balances, end of year comprise:
Mortgage loans on real estate... $ 50.4 $ 65.5 $ 64.2
Equity real estate.............. 86.7 259.8 220.7
------------ ------------ -----------
Total............................. $ 137.1 $ 325.3 $ 284.9
============ ============ ===========
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
The cost of trading account securities at December 31, 1996 and 1995 was
$15,758.3 million and $10,722.3 million, respectively.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
------------ -----------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses..... $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses.. 122.3 160.8
------------ -----------
Recorded investment in impaired mortgage loans........ 462.3 470.9
Provision for losses.................................. 46.4 62.7
------------ -----------
Net Impaired Mortgage Loans........................... $ 415.9 $ 408.2
============ ===========
</TABLE>
F-16
<PAGE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1996 and 1995, respectively, The Equitable's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, The Equitable owned
$771.7 million and $862.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which The Equitable has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------- -------------
(In Millions)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost............... $ 1,883.7 $ 2,684.1
Investments in securities, generally at
estimated fair value....................................... 2,430.6 2,459.8
Cash and cash equivalents..................................... 98.0 489.1
Other assets.................................................. 427.0 270.8
------------- --------------
Total assets.................................................. 4,839.3 5,903.8
------------- --------------
Borrowed funds - third party.................................. 1,574.3 1,782.3
Borrowed funds - The Equitable................................ 137.9 220.5
Other liabilities............................................. 415.8 593.9
------------- --------------
Total liabilities............................................. 2,128.0 2,596.7
------------- --------------
Partners' Capital............................................. $ 2,711.3 $ 3,307.1
============= ==============
Equity in partners' capital included above.................... $ 806.8 $ 902.2
Equity in limited partnership interests not included above.... 201.8 212.8
Other......................................................... 9.8 8.9
------------- --------------
Carrying Value................................................ $ 1,018.4 $ 1,123.9
============= ==============
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ----------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) 135.3) 114.9)
Interest expense - The Equitable................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) 397.7) 430.9)
------------ ------------ ---------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
============ ============ =========
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnership
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
------------ ------------ ---------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
============ ============ =========
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
(In Millions)
<S> <C> <C> <C>
Fixed maturities............................... $ 1,355.0 $ 1,187.7 $ 1,082.4
Trading account securities..................... 1,008.2 794.8 1,044.8
Securities purchased under resale agreements... 1,484.4 1,343.1 826.8
Mortgage loans on real estate.................. 303.0 329.0 385.7
Equity real estate............................. 442.4 560.4 561.8
Other equity investments....................... 116.3 107.1 53.9
Policy loans................................... 160.3 144.4 122.7
Broker-dealer related receivables.............. 697.4 760.6 516.1
Other investment income........................ 224.0 287.4 325.5
---------- ----------- -----------
Gross investment income...................... 5,791.0 5,514.5 4,919.7
---------- ----------- -----------
Interest expense to finance short-term
trading instruments.......................... 2,132.6 2,019.2 1,612.8
Other investment expenses...................... 349.8 447.9 468.5
---------- ----------- -----------
Investment expenses.......................... 2,482.4 2,467.1 2,081.3
---------- ----------- -----------
Net Investment Income.......................... $ 3,308.6 $ 3,047.4 $ 2,838.4
========== =========== ===========
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------ ------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities............................... $ 63.0 $ 108.0 $ (30.7)
Mortgage loans on real estate.................. (27.3) (40.2) (43.1)
Equity real estate............................. (79.7) (86.6) 20.6
Other equity investments....................... 190.0 172.7 173.5
Dealer and trading gains....................... 435.4 364.9 165.7
Sale of DLJ common stock....................... - 34.7 -
Issuance and sales of Alliance Units........... 20.6 - 52.4
Other.......................................... (2.8) (1.2) .2
----------- ---------- ------------
Investment Gains, Net.......................... $ 599.2 $ 552.3 $ 338.6
=========== ========== ============
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $61.6 million
and $49.5 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,549.2
million, $8,242.9 million and $5,263.3 million. Gross gains of $155.1
million, $212.4 million and $65.2 million and gross losses of $93.0
million, $64.3 million and $57.1 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(255.9) million, $1,082.9 million and $(749.3)
million, respectively.
F-19
<PAGE>
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholders' equity for the eleven months ended November
30, 1995 and the year ended December 31, 1994, respectively. On December
1, 1995, The Equitable transferred $4,794.9 million of securities
classified as held to maturity to the available for sale portfolio. As a
result, unrealized gains on fixed maturities increased $395.6 million,
offset by DAC of $126.5 million, amounts attributable to participating
group annuity contracts of $39.2 million and deferred Federal income
taxes of $80.5 million.
Investment gains from other equity investments include gains generated
by DLJ's involvement in long-term corporate development investments
amounting to $163.0 million, $163.7 million and $97.6 million for 1996,
1995 and 1994, respectively.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1995, DLJ completed the public offering of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27.00 per share. As a result of the offering,
The Equitable's ownership percentage of common stock was reduced to
80.2%. The Equitable's ownership interest will be further reduced upon
the issuance of common stock after the vesting of forfeitable restricted
stock units acquired by and/or the exercise of options granted to
certain DLJ employees. Proceeds from the offering totaled approximately
$285.7 million of which the Holding Company received approximately
$178.6 million, net of expenses. The Equitable recognized an investment
gain of $34.7 million, net of related expenses, on this transaction. At
December 31, 1996, The Equitable's ownership of DLJ's shares was 79.9%.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Equitable recognized an
investment gain of $20.6 million as a result of the issuance of Alliance
Units in this transaction. At December 31, 1996, The Equitable's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The Equitable continues to hold its
1% general partnership interest in Alliance. The Equitable recognized an
investment gain of $52.4 million as a result of these transactions.
F-20
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------- -----------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 386.6 $ (250.1) $ 147.0
Changes in unrealized investment (losses) gains.... (298.7) 1,229.2 (889.3)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... -- (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 49.1 (297.6) 177.8
---------- ------------- -----------
Balance, End of Year............................... $ 179.3 $ 386.6 $ (250.1)
========== ============= ===========
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 360.1 $ 616.0 $ (466.8)
Other equity investments....................... 29.3 32.2 (15.5)
Other, principally Closed Block................ 53.1 93.0 (5.7)
---------- ------------- -----------
Total........................................ 442.5 741.2 (488.0)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.5
Deferred Federal income taxes................ (139.0) (188.1) 109.5
---------- ------------- -----------
Total.............................................. $ 179.3 $ 386.6 $ (250.1)
========== ============= ===========
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- ------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value
(amortized cost, $3,820.7 and $3,662.8)........ $ 3,889.5 $ 3,896.2
Mortgage loans on real estate...................... 1,380.7 1,368.8
Policy loans....................................... 1,765.9 1,797.2
Cash and other invested assets..................... 336.1 440.9
DAC................................................ 876.5 792.6
Other assets....................................... 246.3 286.4
----------- -----------
Total Assets....................................... $ 8,495.0 $ 8,582.1
=========== ===========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---------- ----------
(In Millions)
<S> <C> <C>
Liabilities
Future policy benefits and policyholders'
account balances........................... $8,999.7 $8,923.5
Other liabilities............................ 91.6 297.9
---------- ----------
Total Liabilities............................ $9,091.3 $9,221.4
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0)........ 546.6 538.9 523.0
Investment losses, net....................... (5.5) (20.2 (24.0)
------------ ---------- -----------
Total revenues......................... 1,265.9 1,272.1 1,297.1
------------ ---------- -----------
Benefits and Other Deductions
Policyholders' benefits and dividends........ 1,106.3 1,077.6 1,121.6
Other operating costs and expenses........... 34.6 51.3 38.5
------------ ---------- -----------
Total benefits and other deductions.... 1,140.9 1,128.9 1,160.1
------------ ---------- -----------
Contribution from the Closed Block........... $ 125.0 $ 143.2 $ 137.0
============ ========== ===========
</TABLE>
In the fourth quarter of 1996, The Equitable adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $81.3 million with
gross unrealized investment losses of $.1 million transferred to equity.
At December 1, 1995, $1,750.7 million of securities classified as held
to maturity were transferred to the available for sale portfolio. As a
result, unrealized gains of $88.5 million on fixed maturities were
recognized, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
F-22
<PAGE>
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- -------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses.... .6 10.1
---------- -------------
Recorded investment in impaired mortgages............... 128.7 116.9
Provision for losses.................................... 12.9 17.9
---------- -------------
Net Impaired Mortgage Loans............................. $ 115.8 $ 99.0
========== =============
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
7) DISCONTINUED OPERATIONS
Summarized financial information for the GIC Segment follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ -------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate.......... $ 1,111.1 $ 1,485.8
Equity real estate..................... 925.6 1,122.1
Other invested assets.................. 474.0 665.2
Other assets........................... 226.1 579.3
------------ ------------
Total Assets........................... $ 2,736.8 $ 3,852.4
============ ============
Liabilities
Policyholders' liabilities............. $ 1,335.9 $ 1,399.8
Allowance for future losses............ 262.0 164.2
Amounts due to continuing operations... 996.2 2,097.1
Other liabilities...................... 142.7 191.3
------------ ------------
Total Liabilities...................... $ 2,736.8 $ 3,852.4
============ ============
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------------- ------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $127.5, $153.1 and $183.3)........... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------- ------------- ------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------- ------------- ------------
Pre-tax loss from operations....................... -- -- --
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) -- --
Federal income tax benefit......................... 45.2 -- --
----------- ------------- ------------
Loss from Discontinued Operations.................. $ (83.8) $ -- $ --
=========== ============= ============
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Equitable's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of The Equitable's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. Subsequently,
the GIC Segment remitted $1,155.4 million in cash to continuing
operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. Amounts due to
continuing operations at December 31, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
includes $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
F-24
<PAGE>
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---------- -----------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------- -----------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------- -----------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
========== ===========
</TABLE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction of
debt.
F-25
<PAGE>
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------ ------------
(In Millions)
<S> <C> <C>
Short-term debt................................................ $ 1,458.9 $ 752.5
------------ ------------
Long-term debt:
Holding Company:
Convertible subordinated debentures, 6.125% due 2024......... 339.1 338.2
Senior notes, 9% due 2004.................................... 300.0 300.0
Senior exchange notes, 6.75% - 7.30% due through 2003........ 269.0 304.0
------------ ------------
Total Holding Company.................................... 908.1 942.2
------------ ------------
EQ Asset Trust 1993 Class A asset-backed notes, 5% due 2008.... -- 51.7
------------ ------------
Equitable Life:
6.95% surplus notes scheduled to mature 2005................. 399.4 399.3
7.70% surplus notes scheduled to mature 2015................. 199.6 199.6
Eurodollar notes, 10.5% due 1997............................. -- 76.2
Zero coupon note, 11.25% due 1997............................ -- 120.1
Other........................................................ .5 16.3
------------ ------------
Total Equitable Life..................................... 599.5 811.5
------------ ------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.............. 968.6 1,084.4
------------ ------------
DLJ:
Senior notes, 6.875% due 2005................................ 497.2 496.8
Medium term notes, 5.625% due 2016........................... 249.5 -
Senior subordinated revolving credit, 7.063% due 1998........ 206.5 250.0
Swiss Franc bonds, 10.55% due 1996........................... -- 105.5
Medium term notes, 6.65% - 7.88% through 1997................ -- 88.0
Structured notes, due through 2007........................... 216.2 -
Subordinated exchange notes, 9.625% due 2003................. 205.0 -
Junior subordinated convertible debentures, 6.1875% due 2001. 43.5 -
Other........................................................ 1.9 18.5
------------ ------------
Total DLJ................................................ 1,419.8 958.8
------------ ------------
Alliance:
Other........................................................ 24.7 3.4
------------ ------------
Total long-term debt........................................... 3,920.7 3,852.0
------------ ------------
Total Short-term and Long-term Debt............................ $ 5,379.6 $ 4,604.5
============ ============
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offered Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1996.
F-26
<PAGE>
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
DLJ and its subsidiaries have entered into committed credit facilities
which enable them to borrow up to $1,280.0 million on a secured basis
and $650.0 million on an unsecured basis. Interest rates to be charged
are based upon Federal Funds, Eurodollar or negotiated rates, as
applicable. There were no borrowings outstanding at December 31, 1996
and 1995 under these agreements.
Short-term borrowings are from banks and other financial institutions
and generally are demand obligations, at interest rates approximating
Federal Funds rates. Such borrowings generally are used to finance
securities inventories, to facilitate the securities settlement process
and to finance securities purchased by customers on margin. At December
31, 1996 and 1995, securities owned by DLJ, aggregating $363.6 million
and $178.1 million, respectively, were pledged to secure certain of
these borrowings.
Repurchase agreements and short-term borrowings and the weighted average
interest rates related to those borrowings at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
Weighted Average
Interest Rates At
December 31, December 31,
---------------------- --------------------
1996 1995 1996 1995
------------ --------- --------- ---------
(In Millions)
<S> <C> <C> <C> <C>
Securities sold under agreements
to repurchase........................ $29,378.3 $26,744.8 6.08% 5.69%
Bank loans............................. 669.0 400.0 6.89% 6.21%
Borrowings from other financial
institutions......................... 197.0 352.5 6.95% 6.28%
</TABLE>
Additionally, included in short-term debt at December 31, 1996 are
$297.0 million of structured notes with maturities of less than one
year. The weighted average interest rate of such notes issued with a
stated coupon was 5.40%.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$295.9 million was reclassified as short-term debt.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Equitable is in compliance with all debt covenants.
The Holding Company's $364.2 million convertible subordinated debentures
(the "Subordinated Debentures") accrue interest at an annual rate of
6.125%, payable quarterly, are convertible into approximately 14.7
million shares of common stock at a conversion price of $24.75 per share
and are redeemable at the option of the Holding Company on or after
April 21, 1996, in whole or in part, for shares of common stock.
F-27
<PAGE>
In 1993, The Equitable completed a collateralized bond offering. The
offering, which consisted of $385.0 million (net proceeds of $382.2
million) 5% Class A asset-backed notes was conducted through the EQ
Asset Trust 1993 (the "Trust"). Payments of interest at an annual rate
of 5% and principal on the notes were made quarterly. The notes were
repaid in 1996.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on, or principal of,
the Surplus Notes are subject to prior approval by the Superintendent.
In February 1996, a shelf registration statement, which enables DLJ to
issue from time to time up to $500.0 million in aggregate public
offering price of Senior Debt Securities and/or Preferred Stock, was
declared effective by the Securities and Exchange Commission. On
February 15, 1996, DLJ completed an offering under such shelf
registration statement of $250.0 million aggregate principal amount of
its 5 5/8% Medium Term Notes due February 15, 2016. The notes are
repayable by DLJ, in whole or in part, at the option of the holders on
February 15, 2001.
In July 1996, $43.5 million junior subordinated convertible debentures
were issued by an affiliate of DLJ. The debentures are convertible, in
whole or in part, at the option of the affiliate, into adjustable rate
cumulative redeemable preferred stock of a subsidiary on or after July
31, 1997.
In October 1996, DLJ exercised its option under the terms of the $8.83
Cumulative Preferred Stock agreement to exchange 2.05 million shares
outstanding for $205.0 million in aggregate principal amount of 9.58%
Subordinated Exchange Notes due 2003. The notes are redeemable, in whole
or in part, at the option of DLJ at any time.
Structured notes are customized financing instruments in which the
amount of interest or principal paid on the debt obligation is linked to
movements in the value of certain cash market financial instruments. At
December 31, 1996, the weighted average interest rate of structured
notes issued with a stated coupon, excluding those issued with a zero
coupon, was 11.12%. The notes mature at various dates through 2007.
DLJ's senior subordinated borrowings include $325.0 million at December
31, 1996 under revolving credit agreements. Interest on the senior
subordinated revolving credit agreement is 6.375% and 6.75% at December
31, 1996 and 1995, respectively, and is calculated based on the LIBOR.
In October 1995, DLJ issued $500.0 million aggregate principal amount of
6.875% senior notes due November 1, 2005. Interest is payable
semi-annually. DLJ's gross proceeds from this senior debt offering
totaled $493.6 million net of underwriting discounts and commissions.
The senior notes are not redeemable by DLJ prior to maturity and are not
entitled to any sinking fund.
DLJ's Swiss Franc Bonds' aggregate principal amount of 200 million Swiss
Francs bore interest at 5.63% and were repaid in January 1996.
The Equitable has pledged real estate, mortgage loans, cash and
securities amounting to $1,770.0 million and $2,116.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
short-term and long-term debt.
F-28
<PAGE>
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $626.9 million, $571.6 million, $92.4 million, $40.5
million and $46.0 million, respectively, and $2,778.9 million
thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 324.4 $154.7 $103.4
Deferred.............................. (187.0) 37.6 53.6
-------- ------- --------
Total................................... $137.4 $192.3 $157.0
======== ======= ========
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense.. $180.5 $225.9 $191.3
Non-taxable minority interest........ (32.9) (28.2) (23.9)
Differential earnings amount......... - - (16.8)
Adjustment of tax audit reserves..... (2.8) 4.1 (1.5)
Other................................ (7.4) (9.5) 7.9
-------- -------- --------
Federal Income Tax Expense........... $137.4 $192.3 $157.0
======== ======== ========
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life no longer is required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- ----------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
(In Millions)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ -- $ 166.0 $ -- $ 304.4
Investments............................ -- 305.6 -- 352.2
Compensation and related benefits...... 462.6 -- 447.6 --
Other.................................. 60.8 -- 28.2 --
-------- ------- ------- -------
Total.................................. $523.4 $ 471.6 $475.8 $ 656.6
======== ======= ======= =======
</TABLE>
F-29
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ----------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance........ $ (156.2) $ 63.3 $ 12.0
Investments.......................... 30.7 24.2 97.4
Compensation and related benefits.... (26.5) (68.3) (45.1)
Other................................ (35.0) 18.4 (10.7)
------------ ------------ ----------
Deferred Federal Income Tax
(Benefit) Expense.................. $ (187.0) $ 37.6 $ 53.6
============ ============ ==========
</TABLE>
At December 31, 1996, The Equitable had net operating loss carryforwards
for tax purposes approximating $179.2 million which expire in 2006 and
2007. These net operating loss carryforwards are based on The
Equitable's Federal income tax returns, which are subject to examination
by the Internal Revenue Service, and could be substantially reduced as a
result of adjustments to The Equitable's tax returns for prior years.
The Internal Revenue Service is in the process of examining The
Equitable's Federal income tax returns for the years 1989 through 1991.
Management believes these audits will have no material adverse effect on
The Equitable's consolidated results of operations.
10) CAPITAL STOCK
The Holding Company is authorized to issue 510 million shares of capital
stock, of which 500 million shares are designated as common stock (the
"Common Stock") having a par value of $.01 per share and 10 million
shares are designated as preferred stock having a par value of $1.00 per
share.
In July 1992, in connection with the plan of demutualization and an
initial public offering, the Holding Company issued 22.6 million shares
of Common Stock to policyholders; 69.8 million shares of Common Stock,
2.5 million shares of Series A Convertible Preferred Stock and 2.989
million shares of Series B Redeemable Preferred Stock to AXA on
conversion of notes payable; and 50.0 million shares of Common Stock to
the public.
In April 1993, the Holding Company completed a private placement of
approximately 16.0 million $3.00 depositary shares representing
approximately 1.6 million shares of Series C Convertible Preferred
Stock. AXA purchased 49% of the private placement.
On December 16, 1994, the Holding Company exchanged all of its Series A
Convertible Preferred Stock, Series B Redeemable Preferred Stock and
substantially all of its Series C Convertible Preferred Stock for Common
Stock, Series E Convertible Preferred Stock and Subordinated Debentures.
The Holding Company issued approximately 41.3 million shares of common
stock ($530.3 million recorded value) to AXA in exchange for all of its
Series A Convertible Preferred Stock and Series B Redeemable Preferred
Stock and issued 784,500 shares of Series E Convertible Preferred Stock
($392.2 million stated value) to AXA for all of its Series C Convertible
Preferred Stock. Additionally, the Holding Company issued Subordinated
Debentures ($337.3 million fair value) and 38,000 shares of Series E
Convertible Preferred Stock ($19.0 million stated value) for
substantially all of its remaining Series C Convertible Preferred Stock
outstanding.
At December 31, 1996 and 1995, respectively, 185.8 million and 184.7
million shares of Common Stock were outstanding. At December 31, 1996,
approximately 51.4 million shares of Common Stock were reserved for the
conversion of preferred stocks, debentures and the exercise of employee
stock options.
F-30
<PAGE>
The Series C Convertible Preferred Stock earns an annual cash dividend
of $30 per share, payable quarterly. The Series E Convertible Preferred
Stock earns an annual dividend of $30.625 per share, payable quarterly
in shares of Common Stock through October 22, 1999 and thereafter, at
the option of the Holding Company, in shares of Common Stock or cash.
The Series C and Series E Convertible Preferred Stocks are convertible
into Common Stock at a conversion price of $24.50 per share
(approximately 1.0 million and 16.8 million shares of Common Stock,
respectively); have a liquidation value of $500 per share; and are
redeemable, in whole or in part, at the option of the Holding Company at
any time on or after April 26, 1996 for shares of common stock and on or
after April 21, 2000 for cash at $500 per share. Upon completion of the
exchange offering at December 31, 1994, 50,000 shares of Series C
Convertible Preferred Stock ($25.0 million stated and liquidation value)
and 822,500 shares of Series E Convertible Preferred Stock ($411.2
million stated and liquidation value) were outstanding.
In December 1993, the Holding Company established a Stock Employee
Compensation Trust ("SECT") to fund a portion of its obligations arising
from its various employee compensation and benefits program. The Holding
Company sold 60,000 shares of Series D Convertible Preferred Stock to
the SECT in exchange for cash and a promissory note of $299.9 million,
for a total of $300.0 million. The initial purchase by the SECT of the
Series D Convertible Preferred Stock has no effect on The Equitable's
consolidated shareholders' equity. The Series D Convertible Preferred
Stock is reported as outstanding on The Equitable's consolidated balance
sheets but is offset by a contra-equity account. At the close of each
reporting period, The Equitable reflects the Series D Convertible
Preferred Stock remaining in the SECT at fair value and makes a
corresponding adjustment to the related contra-equity account.
Accordingly, market fluctuations in the value of Series D Convertible
Preferred Stock held by the SECT have no impact on The Equitable's
consolidated statements of earnings or consolidated shareholders'
equity. An increase in consolidated shareholders' equity results only
when shares of Series D Convertible Preferred Stock are released from
the SECT. The SECT is required to periodically distribute an amount of
Series D Convertible Preferred Stock (or Common Stock issued on
conversion thereof) based on a pre-determined formula. In April 1996,
The Equitable filed a shelf registration statement with the SEC to
register approximately 11.9 million shares of The Equitable's Common
Stock issuable upon conversion of shares of the Series D Convertible
Preferred Stock held by the SECT. The SECT will terminate on the date on
which all assets of the SECT have been distributed.
In accordance with the 1991 Stock Incentive Plan, the Holding Company
can issue options to purchase 7.1 million shares of its common stock.
The options, which include Incentive Stock Options and Nonstatutory
Stock Options are issued at the fair market value of the Holding
Company's common stock at the day of grant. One-fifth of stock options
granted become exercisable on each of the first five anniversaries of
the date such options were granted. Options are exercisable up to 10
years from the date of grant. At December 31, 1996, 1995 and 1994,
respectively, options to purchase 217,139 shares, 359,355 shares and
300,000 shares were available for future grant under the plan.
The Equitable's ownership interest in DLJ and Alliance will be reduced
upon the exercise of options granted to certain DLJ and Alliance
employees and the vesting of forfeitable restricted stock units acquired
by DLJ employees. At December 31, 1996, DLJ and Alliance had options
outstanding to purchase approximately 11.1 million shares of DLJ common
stock at prices ranging from $27.00 per share to $33.50 per share and an
aggregate of 5.0 million Alliance Units at prices ranging from $6.0625
to $25.125 per unit, respectively. Options are exercisable over a period
of up to ten years. DLJ restricted stock units represent forfeitable
rights to receive approximately 5.2 million shares of DLJ common stock
through February 2000 and were recorded as additional minority interest
at $106.2 million, their fair value at the time of issuance. As of
December 31, 1996, 0.1 million restricted stock units were forfeited.
F-31
<PAGE>
The Equitable has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion
No. 25. Had compensation expense of The Equitable's stock option
incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, The Equitable's pro forma net earnings and
earnings per share for 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
(In Millions,
Except Per Share Amount)
<S> <C> <C>
Net Earnings:
As Reported...................... $ 99.1 $ 365.4
Pro Forma........................ $ 84.9 $ 362.8
Earnings Per Share:
Assuming No Dilution:
As Reported.................... $ .36 $ 1.83
Pro Forma...................... $ .28 $ 1.82
Assuming Full Dilution:
As Reported.................... $ .36 $ 1.74
Pro Forma...................... $ .28 $ 1.73
</TABLE>
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------- -------------------- ---------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected life............ 5 years 5 years 5 years 5 years 7.43 years 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-32
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------ ------------------------- -------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Shares Average Shares Average Units Average
(In Exercise (In Exercise (In Exercise
Millions) Price Millions) Price Millions) Price
---------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 -- 3.2
Granted................ .7 -- 1.2
Exercised.............. -- -- (.5)
Forfeited.............. -- -- (.1)
---------- ----------- -----------
Balance as of
December 31, 1994...... 6.8 -- 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) -- (.5)
Expired................ (.1) -- --
Forfeited.............. (.3) -- (.3)
---------- ----------- -----------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 -- (.4) $13.64
Expired................ (.6) $20.21 -- --
Forfeited.............. -- (.2) $27.00 (.1) $19.32
---------- ----------- -----------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
========== =========== =========== ===========
</TABLE>
F-33
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- -------------- --------------- ----------- ---------------- ----------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$18.125 -$27.75 6.7 7.00 $20.79 3.4 $20.18
============== =============== =========== ================ ==========
DLJ
----------------------
$27.00 -$33.50 11.1 9.00 $28.06 - -
============== =============== =========== ================ ==========
Alliance
----------------------
$ 6.0625 -$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125 -$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
-------------- ---------------
$ 6.0625 -$25.125 5.0 7.43 $19.07 2.1 $15.84
============== =============== =========== ================ ==========
</TABLE>
F-34
<PAGE>
11) COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
Net earnings....................................... $ 99.1 $ 365.4 $ 294.2
Less - dividends on preferred stocks(1)............ 26.7 26.7 80.1
------------ ----------- ----------
Net earnings applicable to common shares -
assuming no dilution............................. 72.4 338.7 214.1
Add - dividends on convertible preferred stock
and interest on convertible subordinated
debt, when dilutive(3)........................... - 41.9 60.4
------------ ----------- ----------
Net Earnings Applicable to Common Shares -
Assuming Full Dilution........................... $ 72.4 $ 380.6 $ 274.5
============ =========== ==========
Weighted average common shares outstanding -
assuming no dilution(2).......................... 185.4 184.1 143.8
Add - assumed exercise of stock options, when
dilutive(3)...................................... - .9 .4
Add - assumed conversion of convertible
preferred stock, when dilutive(3)................ - 17.8 56.0
Add - assumed conversion of convertible
subordinated debt, when dilutive(3).............. - 14.7 .5
------------ ----------- ----------
Weighted Average Shares Outstanding -
Assuming Full Dilution........................... 185.4 217.5 200.7
============ =========== ==========
<FN>
(1) Dividends on preferred stocks for the year ended December 31, 1994
include a credit of $3.0 million resulting from the conversion and
exchange of redeemable and convertible preferred stocks. Although
this amount did not impact The Equitable's net earnings, for
accounting purposes it was treated as an increase to net earnings
applicable to common shares.
(2) Stock options are not included because effect is less than 3%.
(3) Inclusion in 1996 would be anti-dilutive.
</FN>
</TABLE>
Shares of the Series D Convertible Preferred Stock (or Common Stock
issued on conversion thereof) are not considered to be outstanding in
the computation of average shares of Common Stock until the shares are
allocated to fund the obligation for which the SECT was established.
Supplementary net earnings per share computed as if the December 16,
1994 exchange of Common Stock, convertible debentures and convertible
preferred stock (see Note 10) had occurred as of January 1, 1994 is
$1.38, assuming no dilution, and $1.35, assuming full dilution.
F-35
<PAGE>
12) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
(In Millions)
<S> <C> <C> <C>
Direct premiums.............................. $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed.......................... 177.5 171.3 180.5
Reinsurance ceded............................ (41.3) (38.7) (31.6)
---------- ---------- ----------
Premiums..................................... $ 597.6 $ 606.8 $ 625.6
========== ========== ==========
Universal Life and Investment-type Product
Policy Fee Income Ceded.................... $ 48.2 $ 44.0 $ 27.5
========== ========== ==========
Policyholders' Benefits Ceded................ $ 54.1 $ 48.9 $ 20.7
========== ========== ==========
Interest Credited to Policyholders' Account
Balances Ceded............................. $ 32.3 $ 28.5 $ 25.4
========== ========== ==========
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, The Equitable's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, respectively.
13) EMPLOYEE BENEFIT PLANS
The Equitable sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents other than employees
of DLJ. The pension plans are non-contributory. Equitable Life's and
EREIM's benefits are based on a cash balance formula or years of service
and final average earnings, if greater, under certain grandfathering
rules in the plans. Alliance's benefits are based on years of credited
service, average final base salary and primary social security benefits.
The Equitable's funding policy is to make the minimum contribution
required by the Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ----------- ---------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
-------- --------- ---------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
======== ========= =========
</TABLE>
F-36
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
------------- ---------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested................................................ $ 1,672.2 $ 1,642.4
Non-vested............................................ 10.1 10.9
----------- -----------
Accumulated Benefit Obligation.......................... $ 1,682.3 $ 1,653.3
=========== ===========
Plan assets at fair value............................... $ 1,626.0 $ 1,503.8
Projected benefit obligation............................ 1,765.5 1,743.0
----------- -----------
Projected benefit obligation in excess of plan assets... (139.5) (239.2)
Unrecognized prior service cost......................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed..................................... 280.0 368.2
Unrecognized net asset at transition.................... 4.7 (7.3)
Additional minimum liability............................ (19.3) (51.9)
----------- -----------
Prepaid Pension Cost.................................... $ 108.0 $ 44.3
=========== ===========
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Equitable recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, respectively.
The Equitable provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from The Equitable on or after attaining
age 55 who have at least 10 years of service. The life insurance
benefits are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the provisions
of SFAS No. 106. The Equitable continues to fund postretirement benefits
costs on a pay-as-you-go basis and, for 1996, 1995 and 1994, The
Equitable made estimated postretirement benefits payments of $18.9
million, $31.1 million and $29.8 million, respectively.
F-37
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in The Equitable's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
Service cost................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.......................... 34.6 34.7 28.6
Net amortization and deferrals................. 2.4 (2.3) (3.9)
-------- ---------- --------
Net Periodic Postretirement Benefits Costs..... $ 42.3 $ 36.4 $28.6
======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ----------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................ $ 381.8 $ 391.8
Fully eligible active plan participants............. 50.7 50.4
Other active plan participants...................... 60.7 64.2
--------- ---------
493.2 506.4
Unrecognized prior service cost....................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions... (150.5) (181.3)
--------- ---------
Accrued Postretirement Benefits Cost.................. $ 393.2 $ 381.4
========= =========
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
14) BROKER-DEALER NET CAPITAL
DLJ's wholly owned principal subsidiary, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC") is subject to the SEC's Uniform Net
Capital Rule pursuant to rule 15C3-1 of the Securities Exchange Act of
1934. Under the alternative method permitted by this rule, the required
net capital, as defined, shall not be less than two percent of aggregate
debit balances arising from customer transactions, as defined, or four
percent of segregated funds, as defined, whichever is greater. The New
York Stock Exchange may also require a member firm to reduce its
business if its net capital is less than four percent of aggregate debit
balances and may prohibit a member firm from expanding its business and
declaring cash dividends if its net capital is less than five percent of
aggregate debit balances. At December 31, 1996, DLJSC's aggregate net
capital of $654.1 million was 21% of aggregate debit balances and in
excess of the minimum requirement by approximately $584.0 million.
Certain U.S. and foreign subsidiaries of DLJ are subject to the net
capital requirements of their respective regulatory agencies. At
December 31, 1996 and 1995, DLJ and its subsidiaries were in compliance
with all applicable regulatory capital adequacy requirements.
F-38
<PAGE>
In accordance with regulations of the Securities and Exchange Commission
and the Commodities Futures Trading Commission, cash of $13.2 million
and $9.9 million and securities with a market value of $770.0 million
and $409.7 million, at December 31, 1996 and 1995, respectively, have
been segregated in special reserve bank accounts for the benefit of
DLJ's customers. These amounts are included in other assets in the
consolidated balance sheets.
15) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's involvement
in swap contracts is not significant.
Changes in unrealized gains or losses on all of DLJ's derivative
instruments are included in the consolidated statements of earnings.
Changes in the value of options contracts are included in the
consolidated statements of earnings. Fair value of the options includes
the premiums which are deferred and are recognized as revenue over the
life of the option contracts on a straight-line basis or are recognized
as revenue through the change in the fair value of the option. The
notional amount of forward and futures contracts are treated as
off-balance-sheet items. Changes in unrealized gains and losses on
forward and futures contracts are included in the consolidated
statements of earnings with corresponding offsetting amounts reflected
as assets or liabilities.
As part of customer accommodations, DLJ writes option contracts
specifically designed to meet customers' needs. As a writer of over the
counter option contracts, DLJ receives a cash premium at the beginning
of the contract period and bears the risk of unfavorable changes in the
value of the financial instruments underlying the option. Options
written do not expose DLJ to credit risk since they obligate DLJ (not
its counterparty) to perform. With respect to the financial instruments
underlying these options, DLJ makes a determination that credit
exposures are appropriate for the particular counterparty with whom
business is conducted. DLJ generally covers the market risk associated
with its options business by purchasing or selling cash or other
derivative financial instruments on a proprietary basis to cover the
options written. Such purchases and sales may include debt and equity
securities, futures and forward contracts and options. DLJ reviews the
creditworthiness of the counterparties of such covering transactions.
Future cash requirements for options written is equal to the fair value
of the options. Option contracts are typically written for a duration of
less than thirteen months and are included in the consolidated balance
sheets at fair value. Option premiums are recognized as revenue over the
life of the option contracts on a straight-line basis or are recognized
as revenue through the change in the fair value of the option.
F-39
<PAGE>
The notional (contract) value of the written options was $8.6 billion
and $3.7 billion at December 31, 1996 and 1995, respectively. Such
options contracts are covered by the following financial instruments
which DLJ has purchased or sold on a proprietary basis and are reflected
in the table below at either the underlying contract (notional) amounts
for derivative instruments or at market value for cash instruments:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
(In Millions)
<S> <C> <C>
U.S. Government, mortgage-backed securities
and options thereon.......................... $ 4,679.0 $ 1,569.0
Foreign sovereign debt securities.............. 2,460.0 666.0
Equity swap contracts.......................... 70.0 408.0
Currency forward contracts..................... 18.0 -
Futures contracts.............................. 306.0 183.0
Equities and other............................. 1,079.0 911.0
----------- -----------
Total.......................................... $ 8,612.0 $ 3,737.0
=========== ===========
</TABLE>
The trading revenues from option writing activity (net of related
interest expense) were approximately $71.2 million, $96.0 million and
$100.3 million for 1996, 1995 and 1994, respectively. The fair value of
options is measured by the unamortized premiums and the intrinsic value
determined from various pricing sources. The average fair value of the
options was approximately $172.7 million and $128.7 million for 1996 and
1995, respectively. The fair value of options was approximately $241.9
million and $154.4 million at December 31, 1996 and 1995, respectively,
and were included as liabilities in the accompanying consolidated
balance sheets.
As part of its trading activities, DLJ also enters into forward
purchases and sales contracts for mortgage-backed securities and foreign
currencies. DLJ also enters into futures contracts on equity-based
indices, foreign currencies and other financial instruments as well as
options on futures contracts. Forward and futures contracts are treated
as off-balance-sheet items. Changes in unrealized gains and losses on
forward and futures contracts are included in the consolidated
statements of earnings with corresponding offsetting amounts reflected
as assets or liabilities. Market risk for a forward and future is the
movement of price on the notional value of the contracts. Cash
requirements at inception equal the original margin on futures
contracts. Generally, no cash is required at inception for forward
contracts. The cash requirement at settlement is equal to the notional
value on the contract for a forward contract and the daily changes in
the market value for a futures contract. The performance of forward
contracts is dependent on the financial reliability of the counterparty
and exposes DLJ to credit risk. DLJ monitors credit exposure of forward
contracts by limiting transactions with specific counterparties,
reviewing credit limits and adhering to internally established credit
extension policies. Futures contracts and options on futures contracts
are exchange-traded financial instruments that generally do not
represent exposure to credit risk due to daily cash settlements of the
change in market value with the exchanges. The credit risk with the
futures exchange is limited to the net positive change in the market
value for a single day.
F-40
<PAGE>
The following is a summary of the values of these contracts at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------- ---------------------------
Purchases Sales Purchases Sales
----------- -------------- ------------ ------------
(In Millions)
<S> <C> <C> <C> <C>
Forward Contracts:
Notional (Contract) Value..... $14,070.0 $ 17,917.0 $18,186.0 $17,066.0
=========== ============ ============= ============
Futures Contracts and
Options on Futures
Contracts:
(Market Value)................ $ 1,420.0 $ 2,774.0 $ 1,129.0 $ 1,932.0
=========== ============ ============= ============
</TABLE>
The following is a summary of the values of these contracts included in
the consolidated financial statements at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
-------- --------
(In Millions)
<S> <C> <C>
Forward Contracts:
Average fair values included in liabilities during the period........ $(10.0) $ (4.0)
Unrealized gains included in total assets at end of period........... 44.0 48.0
Unrealized losses included in total liabilities at end of period..... 46.0 51.0
Futures Contracts:
Average fair values included in assets during the period............. $ 2.0 $ -
Average fair values included in liabilities during the period........ - (6.0)
Unrealized gains included in total assets at end of period........... 6.0 -
</TABLE>
Net trading gains (losses) on forward contracts were $39.0 million,
$149.0 million and $(157.0) million and net trading gains (losses) on
futures contracts were $8.0 million, $(58.0) million and $59.0 million
for 1996, 1995 and 1994, respectively.
Average fair values during the period were computed using month-end
averages. The fair values of futures contracts are measured by reference
to quoted market prices. Fair values of forward contracts are estimated
on the basis of dealer quotes, pricing models or quoted prices for
financial instruments with similar characteristics. DLJ generally enters
into futures and forward transactions for periods of 90 days or less.
The remaining maturities for all options, forwards and futures are less
than thirteen months.
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Equitable has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with interest rate swap
activity . Equitable Life has implemented an interest rate cap program
F-41
<PAGE>
designed to hedge crediting rates on interest-sensitive individual
annuities contracts. The outstanding notional amounts at December 31,
1996 of contracts purchased and sold were $5,050.0 million and $500.0
million, respectively. The net premium paid by Equitable Life on these
contracts was $22.5 million and is being amortized ratably over the
contract periods ranging from 3 to 5 years. Income and expense resulting
from this program are reflected as an adjustment to interest credited to
policyholders' account balances.
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, DLJ's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities and financial instrument transactions.
The execution of these transactions includes the purchase and sale
(including "short sales") of securities, the writing of options, and the
purchase and sale of financial futures contracts and forward purchase
and sales contracts for mortgage-backed securities and foreign
currencies. These activities may expose DLJ to off-balance-sheet risk in
the event the customer or counterparty to the transaction is unable to
fulfill its contractual obligations and margin requirements are not
sufficient to fully cover losses. In these situations, DLJ may be
required to purchase or sell financial instruments at prevailing market
prices which may not fully cover the obligations of its customers or
counterparties. DLJ limits this risk by requiring customers and
counterparties to maintain margin collateral that is in compliance with
regulatory and internal guidelines. Additionally, with respect to DLJ's
correspondent clearance activities, introducing correspondent brokers
are required to guarantee the performance of their customers in meeting
contractual obligations.
DLJ's financing and securities settlement activities involve DLJ using
securities as collateral in support of various secured financing
sources. In the event the counterparty does not meet its contracted
obligation to return securities used as collateral, DLJ may be exposed
to the risk of reacquiring the securities at the prevailing market
prices in order to satisfy its obligations. DLJ controls this risk by
monitoring the market value of securities pledged on a daily basis and
by requiring adjustments of collateral levels in the event of excess
market exposure.
DLJ's activities include entering into forward contracts which provide
for the future delivery or receipt of securities at a specified price or
yield. Risk arises from the potential inability of counterparties to
perform under the terms of the contracts and from changes in securities
value and interest rates. DLJ controls the risk by monitoring the market
value of the securities contracted for on a daily basis and reviewing
creditworthiness of the counterparties. DLJ reflects the changes in the
market value of these instruments in the consolidated statement of
earnings. The settlement of these transactions is not expected to have a
material adverse effect on The Equitable's consolidated financial
statements.
Concentrations of Credit Risk
As a securities broker and dealer, DLJ is engaged in various securities
trading and brokerage activities servicing a diverse group of domestic
and foreign corporations, governments, institutional and individual
investors. A substantial portion of DLJ's transactions are executed with
and on behalf of institutional investors including other brokers and
dealers, mortgage brokers, commercial banks, U.S. governmental agencies,
mutual funds and other financial institutions and are generally
collateralized. DLJ's exposure to credit risk associated with the
nonperformance of these counterparties in fulfilling their contractual
obligations pursuant to securities transactions can be directly impacted
by volatile securities markets, credit markets and regulatory changes.
Credit risk is the amount of accounting loss DLJ would incur if a
counterparty failed to perform its obligations under contractual terms
and the collateral held, if any, was deemed insufficient. All
counterparties are reviewed on a regular basis to establish appropriate
exposure limits for a variety of transactions. In certain cases,
specific transactions are analyzed to determine the amount of potential
exposure that could arise, and the counterparty's credit is reviewed to
determine whether it supports such exposure. In addition to the
counterparty's credit status, DLJ analyzes market movements that could
affect exposure levels. DLJ considers four main factors that may affect
trades in determining trading limits: the settlement method; the time it
will take for a trade to settle (i.e., the maturity of the trade); the
F-42
<PAGE>
volatility that could affect the value of the securities involved in the
trade; and the size of the trade. In addition to determining trading
limits, DLJ actively manages the credit exposure relating to its trading
activities by entering into master netting agreements when feasible;
monitoring the creditworthiness of counterparties and the related
trading limits on an ongoing basis and requesting additional collateral
when deemed necessary; diversifying and limiting exposure to individual
counterparties and geographic locations; and limiting the duration of
exposure. In certain cases, DLJ may also close out transactions or
assign them to other counterparties when deemed necessary or appropriate
to mitigate credit risks.
DLJ's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, DLJ extends credit to the
customer, subject to various regulatory and internal margin
requirements, collateralized by cash and securities in the customer's
account. DLJ seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. DLJ monitors
required margin levels daily and, pursuant to such guidelines, requires
the customers to deposit additional collateral, or reduce positions,
when necessary.
Fair Value of Financial Instruments
The Equitable defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
The Equitable's entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized
gains or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for The Equitable's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair values
for single premium deferred annuities ("SPDA") are estimated using
projected cash flows discounted at current offering rates. The estimated
fair values for supplementary contracts not involving life contingencies
("SCNILC") and annuities certain are derived using discounted cash flows
based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to The Equitable. The Equitable's fair value of short-term
borrowings approximates their carrying value.
F-43
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1996 1995
------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------------------- ------------ -------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 3,920.7 3,948.9 3,852.0 3,945.8
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
16) COMMITMENTS AND CONTINGENT LIABILITIES
The Equitable has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by The Equitable, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 million. Management believes
The Equitable will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
In the normal course of business, DLJ enters into letters of credit for
the purpose of facilitating certain financing transactions and for
securing various margin requirements. At December 31, 1996, $163.0
million of such letters of credit were outstanding. Additionally, the
Insurance Group had $51.6 million of letters of credit outstanding at
December 31, 1996.
F-44
<PAGE>
17) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, Equitable
Variable Life Insurance Company ("EVLICO") and The Equitable of
Colorado, Inc. ("EOC"), like other life and health insurers, from time
to time are involved in such litigation. To date, no such lawsuit has
resulted in an award or settlement of any material amount against The
Equitable. Among litigations pending against Equitable Life, EVLICO and
EOC of the type referred to in this paragraph are the litigations
described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the policies, and that statements in the policies
and elsewhere concerning premium increases constituted fraudulent
concealment, misrepresentations in violation of New York Insurance Law
Section 4226 and deceptive practices under New York General Business Law
Section 349. The complaint seeks a declaratory judgment, injunctive
relief restricting the methods by which Equitable Life increases
premiums on the policies in the future, a refund of premiums, and
punitive damages. Plaintiffs also have indicated that they will seek
damages in an unspecified amount. Equitable Life moved to dismiss the
complaint in its entirety on the grounds that it fails to state a claim
and that uncontroverted documentary evidence establishes a complete
defense to the claims. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These actions are asserted on behalf of proposed
classes of Pennsylvania issued or renewed policyholders and Texas issued
or renewed policyholders, insured under the policies. The Pennsylvania
and Texas actions seek compensatory and punitive damages and injunctive
relief restricting the methods by which Equitable Life increases
premiums in the future based on the common law and statutes of those
states. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing Texas statutory provisions which among other things, permit two
F-45
<PAGE>
times the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of The Equitable. Due to the early stage of such litigations,
The Equitable's management cannot make an estimate of loss, if any, or
predict whether or not such litigations will have a material adverse
effect on The Equitable's results of operations in any particular
period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
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<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of the Cole, Duncan, Bradley and Dillon litigations
should not have a material adverse effect on the financial position of
The Equitable. Due to the early stages of such litigations, The
Equitable's management cannot make an estimate of loss, if any, or
predict whether or not any such litigation will have a material adverse
effect on The Equitable's results of operations in any particular
period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
F-47
<PAGE>
Life's and EVLICO's agents were trained not to disclose fully that the
product being sold was life insurance. Plaintiffs allege violations of
the Federal securities laws and seek rescission of the contracts or
compensatory damages and attorneys' fees and expenses. The court denied
Equitable Life's and EVLICO's motion to dismiss the amended complaint on
September 24, 1996. Equitable Life and EVLICO have answered the amended
complaint, denying the material allegations and asserting certain
affirmative defenses. Currently, the parties are conducting discovery in
connection with plaintiffs' attempt to certify a class. On January 9,
1997, an action entitled Rosemarie Chaviano, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance Society
of the United States, and Equitable Variable Life Insurance Company, was
filed in Massachusetts state court making claims similar to those in the
Franze action and alleging violations of the Massachusetts securities
laws. The plaintiff purports to represent all persons in Massachusetts
who purchased variable life insurance contracts from Equitable Life and
EVLICO from January 9, 1993 to the present. The Massachusetts action
seeks rescission of the contracts or compensatory damages, attorneys'
fees, expenses and injunctive relief. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of the litigations discussed in this paragraph
should not have a material adverse effect on the financial position of
The Equitable. Due to the early stages of such litigation, The
Equitable's management cannot make an estimate of loss, if any, or
predict whether or not any such litigation will have a material adverse
effect on The Equitable's results of operations in any particular
period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on The Equitable's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which seeks certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, seeks an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The
principal allegations of the Complaint are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
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<PAGE>
that were not permitted by the Fund's investment objective, and that
there was no shareholder vote to change the investment objective to
permit purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against DLJSC and certain
other defendants for unspecified compensatory and punitive damages in
the United States District Court for the Southern District of New York.
The suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric Capital
Corporation, each as owners of 44.2% of the common stock of Rickel, and
members of the Board of Directors of Rickel, including a DLJSC Managing
Director. The complaint seeks to hold DLJSC liable for alleged
misstatements and omissions contained in the prospectus and registration
statement filed in connection with the offering of the units, alleging
that the defendants knew of financial losses and a decline in value of
Rickel in the months prior to the offering and did not disclose such
information. The complaint also alleges that Rickel failed to pay its
semi-annual interest payment due on the units on December 15, 1995 and
that Rickel filed a voluntary petition for reorganization pursuant to
Chapter 11 of the United States Bankruptcy Code on January 10, 1996.
DLJSC intends to defend itself vigorously against all of the allegations
contained in the complaint. Although there can be no assurance, DLJ does
not believe the outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State Court action, which had been removed to the
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<PAGE>
Bankruptcy Court, has been remanded back to the state court, which
remand is being opposed by DLJSC. DLJSC intends to defend itself
vigorously against all of the allegations contained in the complaint.
Although there can be no assurance, DLJ does not believe that the
ultimate outcome of this litigation will have a material adverse effect
on its financial condition. Due to the early stage of such litigation,
based upon the information currently available to it, DLJ's management
cannot make an estimate of loss, if any, or predict whether or not such
litigation will have a material adverse effect on DLJ's results of
operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on The Equitable's consolidated financial position or
results of operations.
18) LEASES
The Equitable has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $172.2 million, $168.6
million, $159.4 million, $127.0 million, $113.3 million and $1,069.7
million thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1997 and the succeeding four years are $10.2
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
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<PAGE>
19) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 1,829.0 $ 1,579.6 $ 1,364.2
Commissions........................................ 692.0 601.6 536.7
Short-term debt interest expense................... 667.9 650.7 489.8
Long-term debt interest expense.................... 283.6 226.7 165.6
Amortization of policy acquisition costs........... 406.0 318.6 314.2
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 185.3 167.1 158.3
Floor, brokerage and exchange fees................. 201.3 168.1 135.6
Other.............................................. 1,327.1 1,055.9 985.8
----------- ----------- -----------
Total.............................................. $ 5,200.3 $ 4,377.3 $ 3,739.3
=========== =========== ===========
</TABLE>
During 1996, 1995 and 1994, The Equitable restructured certain
operations in connection with cost reduction programs and recorded
pre-tax provisions of $24.4 million, $39.2 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
20) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1996, 1995 and 1994, statutory, net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
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<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
---------- ---------- ----------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of GIC Segment.................. (89.6) 37.3 42.8
---------- ---------- ----------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995 1994
------------ ------------ -----------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
------------ ------------ ------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of GIC Segment.................. (190.3) (184.6) (221.9)
------------ ------------ ------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
============ ============ ============
</TABLE>
F-52
<PAGE>
21) BUSINESS SEGMENT INFORMATION
The Equitable has two major business segments: Insurance Operations and
Investment Services. The third business segment identified, Corporate
and Other, principally includes operations of the Holding Company and
Trust and interest expense related to debt not specific to any business
segment. Interest expense related to debt not specific to any business
segment is presented within Corporate interest expense. Information for
all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management and
investment banking services, primarily to institutional clients. This
segment includes Separate Accounts which provide various investment
options for group clients through pooled or single group accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 4,540.0 3,689.8 2,908.6
Corporate and other................................ 61.3 23.0 31.6
Consolidation/elimination.......................... (39.3) (47.1) (44.6)
----------- ----------- ------------
Total.............................................. $ 8,304.9 $ 7,280.3 $ 6,403.0
=========== =========== ============
Earnings (loss) from continuing operations
before Federal income taxes
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 663.2 466.3 375.2
Corporate and other................................ 28.3 (23.9) (15.8)
Consolidation/elimination.......................... .5 .2 (1.5)
----------- ----------- ------------
Subtotal..................................... 655.4 745.7 685.4
Corporate interest expense......................... (139.6) (100.5) (138.8)
----------- ----------- ------------
Total.............................................. $ 515.8 $ 645.2 $ 546.6
=========== =========== ============
</TABLE>
F-53
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------- -------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................. $ 60,464.9 $ 56,720.5
Investment services.................. 68,205.3 56,785.7
Corporate and other.................. 774.3 826.7
Consolidation/elimination............ (633.3) (616.7)
------------ -------------
Total................................ $128,811.2 $ 113,716.2
============ =============
</TABLE>
22) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------- -----------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
1996
Total Revenues...................... $ 1,936.1 $2,170.3 $1,957.3 $2,241.2
=========== =========== ========== ==========
Earnings (Loss) from Continuing
Operations before Cumulative
Effect of Accounting Change....... $ 109.7 $ 115.7 $ 104.7 $ (124.1)
=========== =========== ========== ==========
Net Earnings (Loss)................. $ 86.6 $ 115.7 $ 104.7 $ (207.9)
=========== =========== ========== ==========
Net Earnings (Loss) Applicable
to Common Shares.................. $ 79.9 $ 109.1 $ 98.0 $ (214.6)
=========== =========== ========== ==========
Per Common Share:
Assuming No Dilution:
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change......... $ .55 $ .58 $ .52 $ (.71)
=========== =========== ========== ==========
Net Earnings (Loss)............ $ .43 $ .58 $ .52 $ (1.17)
=========== =========== ========== ==========
Assuming Full Dilution:
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change......... $ .51 $ .54 $ .49 $ (.71)
=========== =========== =========== ==========
Net Earnings (Loss)....... $ .41 $ .54 $ .49 $ (1.17)
=========== =========== =========== ==========
</TABLE>
F-54
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------- ------------
(In Milions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
1995
Total Revenues...................... $ 1,654.9 $ 1,847.6 $ 1,825.3 $ 1,952.5
=========== ============ ============= ============
Net Earnings........................ $ 72.5 $ 109.3 $ 106.4 $ 77.2
=========== ============ ============= ============
Net Earnings Applicable to
Common Shares..................... $ 65.8 $ 102.7 $ 99.7 $ 70.5
=========== ============ ============= ============
Per Common Share:
Assuming No Dilution............. $ .36 $ .56 $ .54 $ .38
=========== ============ ============= ============
Assuming Full Dilution........... $ .35 $ .52 $ .51 $ .37
=========== ============ ============= ============
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect The Equitable's accounting change adopted in the fourth
quarter of 1996 for long-duration participating life contracts in
accordance with the provisions prescribed by SFAS No. 120. Net earnings
for the three months ended December 31, 1996 includes a charge of $339.3
million related to writeoffs of DAC on DI contracts of $94.3 million,
reserve strengthening on DI business of $113.7 million, pension par of
$47.5 million and the GIC Segment of $83.8 million.
F-55
<PAGE>
Report of Independent Accountants on
Consolidated Financial Statement Schedules
February 10, 1997
To the Board of Directors of
The Equitable Companies Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 10, 1997 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the consolidated financial statement schedules listed
in Item 14 of this Form 10-K. In our opinion, these consolidated financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/Price Waterhouse LLP
- -----------------------
F-56
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Estimated Carrying
Type of Investment Cost (A) Fair Value Value
------------ -------------- ------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities:
United States Government and government
agencies and authorities.......................... $ 1,690.9 $ 1,710.5 $ 1,710.5
State, municipalities and political subdivisions.... 77.0 81.5 81.5
Foreign governments................................. 302.6 318.4 318.4
Public utilities.................................... 1,016.1 1,042.6 1,042.6
Convertibles and bonds with warrants attached....... 191.6 197.6 197.6
All other corporate bonds........................... 14,957.3 15,265.4 15,248.8
Redeemable preferred stocks......................... 139.1 135.3 135.3
------------ -------------- ------------
Total fixed maturities.............................. 18,374.6 18,751.3 18,734.7
------------ -------------- ------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other......... 354.7 342.1 342.1
Trading account securities.......................... 15,758.3 15,728.1 15,728.1
Securities purchased under resale agreement......... 20,492.1 20,492.1 20,492.1
Mortgage loans on real estate....................... 3,133.0 3,394.6 3,133.0
Real estate......................................... 1,975.3 xxx 1,975.3
Real estate acquired in satisfaction of debt........ 771.7 xxx 771.7
Real estate joint ventures.......................... 551.4 xxx 551.4
Policy loans........................................ 2,196.1 2,221.6 2,196.1
Other limited partnership interests................. 467.0 467.0 467.0
Other invested assets............................... 397.8 397.8 397.8
------------ -------------- ------------
Total Investments................................... $ 64,472.0 $ 61,794.6 $ 64,789.3
============ ============== ============
<FN>
(A) Cost for fixed maturities represents original cost, reduced by repayments
and writedowns and adjusted for amortization of premiums or accretion of
discount; for equity securities, cost represents original cost; for other
limited partnership interests, cost represents original cost adjusted for
equity in earnings and distributions.
</FN>
</TABLE>
F-57
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE III
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
(In Millions)
<S> <C> <C>
ASSETS
Investment in consolidated subsidiaries................ $ 4,695.8 $ 4,767.8
Fixed maturities available for sale, at estimated
fair value (amortized costs,$442.1 and $135.3)....... 442.1 135.5
Other invested assets.................................. 62.1 103.3
------------- ------------
Total investments................................ 5,200.0 5,006.6
Cash and cash equivalents.............................. 25.0 277.1
Other assets........................................... 25.6 16.9
------------- ------------
Total Assets........................................... $ 5,250.6 $ 5,300.6
============= ============
LIABILITIES
Short-term and long-term debt.......................... $ 928.1 $ 942.2
Accrued liabilities.................................... 334.5 249.7
------------- ------------
Total liabilities................................ 1,262.6 1,191.9
------------- ------------
SHAREHOLDERS' EQUITY
Series C convertible preferred stock................... 24.4 24.4
Series D convertible preferred stock................... 294.0 286.6
Stock employee compensation trust...................... (294.0) (286.6)
Series E convertible preferred stock................... 380.2 380.2
Common stock, at par value............................. 1.9 1.8
Capital in excess of par value......................... 2,782.2 2,753.3
Retained earnings...................................... 632.9 597.5
Net unrealized investment gains........................ 179.3 386.6
Minimum pension liability.............................. (12.9) (35.1)
------------- ------------
Total shareholders' equity....................... 3,988.0 4,108.7
------------- ------------
Total Liabilities and Shareholders' Equity............. $ 5,250.6 $ 5,300.6
============= ============
</TABLE>
The financial information of The Equitable Companies Incorporated (Parent
Company) should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. For information regarding Capital Stock see Note
10 of Notes to Consolidated Financial Statements.
F-58
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE III
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ----------- ---------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Equity in continuing earnings of subsidiaries before
cumulative effect of accounting change and
discontinued operations................................ $ 240.4 $ 396.2 $ 337.3
Net investment income.................................... 30.5 17.1 16.6
Investment (losses) gains, net........................... (.9) 27.9 -
-------------- ---------- ----------
Total revenues..................................... 270.0 441.2 353.9
-------------- ---------- ----------
EXPENSES
Interest expense on long-term debt....................... 72.7 72.6 24.6
General and administrative expenses...................... 16.4 23.9 19.1
-------------- ---------- ----------
Total expenses..................................... 89.1 96.5 43.7
-------------- ---------- ----------
Earnings from continuing operations before
Federal income taxes and cumulative effect
of accounting change................................... 180.9 344.7 310.2
Federal income tax benefit............................... (25.1) (20.7) (11.1)
-------------- ---------- ----------
Earnings from continuing operations before
Federal income taxes and cumulative effect
of accounting change................................... 206.0 365.4 321.3
Discontinued operations, net of Federal income taxes..... (83.8) - -
Cumulative effect of accounting change,
net of Federal income taxes............................ (23.1) - (27.1)
-------------- ---------- ----------
Net earnings............................................. 99.1 365.4 294.2
Dividends on preferred stocks............................ 26.7 26.7 80.1
-------------- ---------- ----------
Net Earnings Applicable to Common Shares................. $ 72.4 $ 338.7 $ 214.1
============== ========== ==========
Per Common Share:
Assuming No Dilution:
Earnings from continuing operations before
Federal income taxes and cumulative effect
of accounting change............................... $ .93 $ 1.83 $ 1.68
Discontinued operations, net of Federal
income taxes....................................... (.45) - -
Cumulative effect of accounting change,
net of Federal income taxes........................ (.12) - (.19)
-------------- ---------- ----------
Net Earnings......................................... $ .36 $ 1.83 $ 1.49
============== ========== ==========
Assuming Full Dilution:
Earnings from continuing operations before
Federal income taxes and cumulative effect
of accounting change............................... $ .93 $ 1.74 $ 1.52
Discontinued operations, net of Federal
income taxes....................................... (.45) - -
Cumulative effect of accounting change,
net of Federal income taxes........................ (.12) - (.15)
-------------- ---------- ----------
Net Earnings......................................... $ .36 $ 1.74 $ 1.37
============== ========== ==========
Cash Dividend Per Common Share......................... $ .20 $ .20 $ .20
============== ========== ==========
</TABLE>
F-59
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE III
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ------------
(In Millions)
<S> <C> <C> <C>
Net earnings............................................. $ 99.1 $ 365.4 $ 294.2
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in net earnings of subsidiaries................. (133.5) (396.2) (310.2)
Dividends from subsidiaries............................ 11.7 10.0 25.2
Investment losses (gains), net......................... .9 (27.9) -
Change in Federal income taxes......................... 104.4 141.4 24.1
Other.................................................. (13.0) 21.4 4.8
------------ --------- ------------
Net cash provided by operating activities................ 69.6 114.1 38.1
------------ --------- ------------
Cash flows from investing activities:
Maturities and repayments.............................. 79.9 76.7 13.3
Sales.................................................. 232.8 32.3 .5
Purchases.............................................. (581.7) (119.3) -
Net change in short-term investments................... 1.9 14.8 (18.4)
Proceeds from sale of DLJ common stock................. - 181.8 -
Other.................................................. (6.0) 18.9 -
Capital contributions to consolidated subsidiaries..... - - (300.0)
------------ --------- ------------
Net cash (used) provided by investing activities......... (273.1) 205.2 (304.6)
------------ --------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............... - - 300.0
Repayment of long-term debt............................ (15.0) - -
Dividends paid to shareholders......................... (38.2) (46.1) (108.4)
Other.................................................. 4.6 (1.5) 3.4
------------ --------- ------------
Net cash (used) provided by financing activities......... (48.6) (47.6) 195.0
------------ --------- ------------
Change in cash and cash equivalents...................... (252.1) 271.7 (71.5)
Cash and cash equivalents, beginning of year............. 277.1 5.4 76.9
------------ --------- ------------
Cash and Cash Equivalents, End of Year................... $ 25.0 $ 277.1 $ 5.4
============ ========= ============
Supplemental cash flow information
Interest Paid.......................................... $ 70.8 $ 67.8 $ 20.7
============ ========= ============
Income Taxes Paid...................................... $ 147.0 $ - $ 100.8
============ ========= ============
</TABLE>
F-60
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ------------- -------------- --------------- ------------ ------------- ------------ ------------- -----------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insurance
Operations........ $ 3,104.9 $ 21,865.6 $ 4,416.6 $ 1,471.6 $ 2,078.0 $ 2,587.9 $ 405.2 $ 786.4
Investment
Services.......... - - - - 1,107.6 - - 3,876.8
Corporate and
Other............. - - - - 52.7 - - 33.0
Corporate Interest
Expense........... - - - - - - - 139.6
Consolidation/
Elimination....... 1.6 (1.8) - - 70.3 .9 .8 (41.5)
------------- ------------ ------------- ------------ ------------- ------------- ------------ ------------
Total............... $ 3,106.5 $ 21,863.8 $ 4,416.6 $ 1,471.6 $ 3,308.6 $ 2,588.8 $ 406.0 $ 4,794.3
============= ============ ============= ============ ============= ============= ============ ============
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are incurred directly by a segment, or allocated based on usage rates maintained by The Equitable.
</FN>
</TABLE>
F-61
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ------------- -------------- --------------- ------------ ------------ -------------- -------------- ---------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insurance
Operations....... $ 3,075.8 $ 21,911.2 $ 4,007.3 $ 1,395.0 $ 1,995.1 $ 2,256.9 $ 317.8 $ 736.8
Investment
Services......... - - - - 948.5 - - 3,223.5
Corporate and
Other............ - - - - 43.3 - - 46.9
Corporate Interest
Expense.......... - - - - - - - 100.5
Consolidation/
Elimination...... 2.5 (2.6) - - 60.5 .9 .8 (49.0)
------------- -------------- ---------------- ------------ ------------ ------------- ----------- -----------
Total.............. $ 3,078.3 $ 21,908.6 $ 4,007.3 $ 1,395.0 $ 3,047.4 $ 2,257.8 $ 318.6 $4,058.7
============= ============== ================ ============ ============ ============= =========== ===========
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are incurred directly by a segment, or allocated based on usage rates maintained by The Equitable.
</FN>
</TABLE>
F-62
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Policy Amortization
Charges (1) Policyholders' of Deferred (2)
and Net Benefits and Policy Other
Premium Investment Interest Acquisition Operating
Segment Revenue Income Credited Cost Expense
- -------------------- ------------- -------------- ---------------- ----------------- -------------
(In Millions)
<S> <C> <C> <C> <C> <C>
Insurance
Operations....... $ 1,340.6 $ 1,909.4 $ 2,116.2 $ 313.4 $ 750.3
Investment
Services......... - 819.1 - - 2,533.4
Corporate and
Other............ - 48.1 - - 47.4
Corporate Interest
Expense.......... - - - - 138.8
Consolidation/
Elimination...... - 61.8 .9 .8 (44.8)
------------- -------------- ---------------- ----------------- -------------
Total.............. $ 1,340.6 $ 2,838.4 $ 2,117.1 $ 314.2 $ 3,425.1
============= ============== ================ ================= =============
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are incurred directly by a segment, or allocated based on usage rates maintained by The Equitable.
</FN>
</TABLE>
F-63
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
SCHEDULE VI
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to from of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
-------------- -------------- -------------- ------------- ------------
(In Millions)
<S> <C> <C> <C> <C> <C>
1996
Life insurance in force(B)... $ 232,704.6 $ 13,696.9 $ 42,046.5 $ 261,054.2 16.10%
============== ============== ============== =============
Premiums:
Life insurance and
annuities.................. $ 249.2 $ 17.1 $ 107.3 $ 339.4 31.61%
Accident and health.......... 214.6 26.6 70.2 258.2 27.19%
-------------- -------------- -------------- -------------
Total Premiums............... $ 463.8 $ 43.7 $ 177.5 $ 597.6 29.70%
============== ============== ============== =============
1995
Life insurance in force(B)... $ 226,530.6 $ 12,348.2 $ 38,382.2 $ 252,564.6 15.20%
============== ============== ============== =============
Premiums:
Life insurance and
annuities.................. $ 244.7 $ 14.3 $ 96.7 $ 327.1 29.56%
Accident and health.......... 490.1 285.0 74.6 279.7 26.67%
-------------- -------------- -------------- -------------
Total Premiums............... $ 734.8 $ 299.3 $ 171.3 $ 606.8 28.23%
============== ============== ============== =============
1994
Life insurance in force(B)... $ 220,780.2 $ 13,937.5 $ 43,200.1 $ 250,042.8 17.27%
============== ============== ============== =============
Premiums:
Life insurance and
annuities.................. $ 247.7 $ 29.8 $ 110.4 $ 328.3 33.62%
Accident and health.......... 470.0 242.8 70.1 297.3 23.58%
-------------- -------------- -------------- -------------
Total Premiums............... $ 717.7 $ 272.6 $ 180.5 $ 625.6 28.85%
============== ============== ============= =============
<FN>
(A) Includes amounts related to the discontinued group life and health business.
(B) Includes in force business related to the Closed Block.
</FN>
</TABLE>
F-64
<PAGE>
Part II, Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9-1
<PAGE>
Part III, Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers. Set forth below are the names, ages and
positions of the directors and executive officers of the Holding Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Claude Bebear................ 61 Director
James M. Benson(1)........... 50 Director, Senior Executive Vice President and Chief
Operating Officer
John S. Chalsty.............. 63 Director
Francoise Colloc'h........... 53 Director
Henri de Castries............ 42 Director
Jerry M. de St. Paer......... 55 Senior Executive Vice President and
Chief Financial Officer
Joseph L. Dionne............. 63 Director
William T. Esrey............. 57 Director
Jean-Rene Fourtou............ 57 Director
Robert E. Garber............. 48 Executive Vice President and General Counsel
Donald J. Greene............. 63 Director
Anthony J. Hamilton.......... 55 Director
John T. Hartley.............. 67 Director
John H. F. Haskell, Jr....... 65 Director
Mary R. (Nina) Henderson..... 46 Director
W. Edwin Jarmain............. 58 Director
Winthrop Knowlton............ 66 Director
Arthur L. Liman.............. 64 Director
William T. McCaffrey......... 60 Executive Vice President and Chief Administrative Officer
Joseph J. Melone............. 65 Director, President and Chief Executive Officer
Peter D. Noris............... 41 Executive Vice President and Chief Investment Officer
Didier Pineau-Valencienne.... 66 Director
George J. Sella, Jr.......... 68 Director
Jose S. Suquet............... 40 Executive Vice President
Stanley B. Tulin............. 47 Executive Vice President
Dave H. Williams............. 64 Director
</TABLE>
(1) Mr. Benson has announced his resignation, effective May 1, 1997, as an
officer and director of the Holding Company.
Directors' Biographical Information. Set forth below is a description of the
business positions during at least the past five years of the directors
(including those directors who are also executive officers) listed above. Except
where noted each of the directors has been a director of the Holding Company
since May 19, 1992.
Claude Bebear. Chairman of the Board of the Holding Company and a Director of
Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), Alliance Capital Management
Corporation, the general partner of Alliance, and Equitable Real Estate
Investment Management, Inc. ("Equitable Real Estate"). In January 1997, Mr.
Bebear was appointed Chairman of the Executive Board of AXA. Prior thereto, he
was Chairman and Chief Executive Officer of AXA since February 1989 and Chief
Executive Officer of the AXA Group since 1974. Mr. Bebear serves as Chairman or
Director of numerous subsidiaries and affiliated companies of the AXA Group. He
is also a Director of Saint-Gobain, Havas S.A., Schneider S.A., and L.V.M.H. and
serves as a member of the Supervisory Board of Compagnie Financiere de Paribas.
Mr. Bebear has been a director of Equitable Life since July 1991.
10-1
<PAGE>
James M. Benson. Senior Executive Vice President of the Holding Company since
February 1994 and Chief Operating Officer since February 1996. He is also
President and a Director of Equitable Life (since February 1994), and a Senior
Executive Vice President of AXA (since January 1997). Previously, he served as
Chief Executive Officer (February 1996 to March 1997), Chief Operating Officer
(February 1994 to February 1996) and Senior Executive Vice President of
Equitable Life (April 1993 to February 1994), and as President, Chief Operating
Officer and a Director of Equitable Variable Life Insurance Company (February
1994 to January 1997). He is also a Director of Alliance Capital Management
Corporation, the general partner of Alliance, Hospital for Special Surgery and
Health Plans, Inc. From January 1984 until joining Equitable Life, he was
President of the New York office of Management Compensation Group. Director of
the Holding Company since February 1994. Mr. Benson will resign, effective May
1, 1997, as an officer and director of the Holding Company and its affiliates.
John S. Chalsty. Chairman of DLJ (since February 1996) and Chief Executive
Officer (since 1986). President of DLJ from 1986 to February 1996, and a Senior
Executive Vice President of AXA (since January 1997). Director of DLJ since 1971
and Director of IBP, Inc., Occidental Petroleum Corporation, SDW Holdings
Corporation, and Anchor Glass Container Corporation. From 1990 to 1994, Mr.
Chalsty served as Vice Chairman of the New York Stock Exchange, Inc. Director of
the Holding Company since February 1996.
Francoise Colloc'h. Senior Executive Vice President in charge of Human Resources
and Communications of AXA. Prior thereto, she was Executive Vice President
(1993), Senior Vice President - Management and Communication (1992), and Vice
President (1984-1992) of AXA. She is also a Director or officer of various
subsidiaries and affiliates of the AXA Group. Director of the Holding Company
since December 1996 and Equitable Life since July 1992.
Henri de Castries. Vice Chairman of the Board of the Holding Company since
February 1996. Senior Executive Vice President Financial Services and Life
Insurance Activities of AXA since 1996. Prior thereto, he was Executive Vice
President Financial Services and Life Insurance Activities of AXA from 1993 to
1996, General Secretary of AXA from 1991 to 1993 and Central Director of
Finances of AXA from 1989 to 1991. He is also a Director or officer of various
subsidiaries and affiliates of the AXA Group. Mr. de Castries has been a
Director of Equitable Life since September 1993. He is also a Director of DLJ,
Alliance Capital Management Corporation, the general partner of Alliance, and
Equitable Real Estate. Director of the Holding Company since May 1994.
Joseph L. Dionne. Chairman (since April 1988) and Chief Executive Officer (since
April 1983) of The McGraw-Hill Companies (multimedia publishing and
informational services). Director of Harris Corporation and Ryder System, Inc.
Director of Equitable Life since May 1982.
William T. Esrey. Chairman (since April 1990), Chief Executive Officer (since
1985) and President (1985 to February 1996) of Sprint Corporation (a diversified
international telecommunications company). Director of Panhandle Eastern
Corporation, General Mills, Inc. and Everen Capital Corporation. Director of
Equitable Life since July 1986.
Jean-Rene Fourtou. Chairman and Chief Executive Officer of Rhone-Poulenc, S.A.
(industrial conglomerate principally engaged in the manufacture of chemical and
agricultural products) since 1986. Member of the Supervisory Board of AXA.
Director of Schneider S.A., Societe Generale, Groupe Casino (a chain of
superstores) and Air France. Member of the Advisory Board of Bankers Trust
Company. Director of Equitable Life since July 1992.
Donald J. Greene. Partner, LeBoeuf, Lamb, Greene & MacRae, L.L.P. (law firm)
since 1965. Director of Equitable Life since July 1991.
Anthony J. Hamilton. Group Chairman and Chief Executive (since February 1994) of
Fox-Pitt, Kelton Group Ltd., the London and New York based investment banking
firm, which Mr. Hamilton joined in 1978. Non-executive Chairman of the Lloyd's
Brokers, Byas, Mosley Group Ltd. Director of various Fox-Pitt, Kelton and Byas,
Mosley Group companies. Member of the Supervisory Board of AXA, and Chairman of
the Board of AXA Equity & Law. Director of Equitable Life from December 1995 to
June 1996. Director of the Holding Company since December 1995.
10-2
<PAGE>
John T. Hartley. Retired as Chairman and Chief Executive Officer of Harris
Corporation (industrial conglomerate principally engaged in the manufacture of
electronic, telephone and copying systems and related equipment) in July 1995;
prior thereto, he held the positions of Chairman of Harris Corporation from
1987, Chief Executive Officer from 1986 and President from October 1987 to April
1993. Director of Harris Corporation and The McGraw-Hill Companies. Director of
Equitable Life since August 1987.
John H. F. Haskell, Jr. Managing Director of Dillon, Read & Co., Inc.
(investment banking firm) since 1975 and member of its Board of Directors.
Director of Dillon, Read Limited, Kaydon Corporation and Chairman of the
Supervisory Board of Dillon Read (France) Gestion. Director of the Holding
Company and Equitable Life since July 1992.
Mary R. (Nina) Henderson. President of CPC Specialty Markets Group of CPC
International, Inc., a food manufacturing company, since 1993. Prior thereto,
she was President of CPC Specialty Products and Best Foods Exports. Director of
Hunt Manufacturing Company, a manufacturer of office products. Director of the
Holding Company and Equitable Life since December 1996.
W. Edwin Jarmain. President of Jarmain Group Inc. (private investment holding
company) since 1979; also an officer or director of several affiliated
companies. Director of AXA Insurance (Canada), Anglo-Canada General Insurance
Company, AXA Pacific Insurance Company (formerly Boreal Property & Casualty
Insurance Company); alternate director of National Mutual Life Association of
Australia, National Mutual Asia Limited, and National Mutual Insurance Company
Limited of Hong Kong. He serves as non-executive Chairman and Director of FCA
International Ltd. (financial collection services) and previously served as
President, CEO and Director during 1992 and 1993. Director of the Holding
Company and Equitable Life since July 1992 and of DLJ since October 1992.
Winthrop Knowlton. Chairman of the Board of Knowlton Brothers, Inc. (private
investment firm) since May 1989, also President of Knowlton Associates, Inc.
(consulting services) since September 1987. Director of Audible, Inc. and
Infosys, Inc., and Chairman of the Board of The Jackson Laboratory. Mr. Knowlton
has been a Director of Equitable Life since October 1973.
Arthur L. Liman. Partner, Paul, Weiss, Rifkind, Wharton & Garrison (law firm)
since 1966. Director of Continental Grain Company. Director of Equitable Life
since March 1984.
Joseph J. Melone. Chief Executive Officer of the Holding Company since February
1996 and President of the Holding Company since May 1992. He has been Chairman
of Equitable Life since February 1994, Chief Executive Officer since March 26,
1997, and a Director of Equitable Life since November 1990, and was Chief
Executive Officer of Equitable Life from February 1994 to February 1996; prior
to February 1994, he was President, Chief Executive Officer and a Director of
Equitable Life from September 1992 to February 1994 and President, Chief
Operating Officer and a Director since November 1990. He is also a Senior
Executive Vice President of AXA (since January 1997). He is a Director of the
following principal subsidiaries and affiliates of the Holding Company:
Equitable Real Estate, Alliance Capital Management Corporation, the general
partner of Alliance, and DLJ. He is also a Director of AXA Equity & Law, AT&T
Capital Corporation and Foster Wheeler Corporation.
Didier Pineau-Valencienne. Chairman and Chief Executive Officer of Schneider
S.A. (industrial conglomerate principally engaged in the electrical equipment
business) since 1981 and of Square D and Chairman or a Director of numerous
subsidiaries and affiliated companies of Schneider. Director of the Holding
Company and Equitable Life from July 1992 to February 1995. Member of the
Supervisory Board of AXA. Director of CGIP, Rhone-Poulenc, S.A. and Sema Group
PLC; a member of the Supervisory Board of Banque Paribas; a member of the
Advisory Boards of Bankers Trust Company, Banque de France, and Booz-Allen &
Hamilton. Director of the Holding Company and Equitable Life since February
1996.
George J. Sella, Jr. Retired as Chairman and Chief Executive Officer of American
Cyanamid Company (industrial conglomerate principally engaged in the manufacture
of pharmaceutical products and agricultural herbicides and pesticides) in April
1993; prior thereto, he held the positions of Chairman from 1984, Chief
Executive Officer from 1983 and President from 1979 to 1991. Director of Union
Camp Corporation and Bush, Boake, Allen, Inc.
Director of Equitable Life since May 1987.
10-3
<PAGE>
Dave H. Williams. Chairman and Chief Executive Officer of Alliance Capital
Management Corporation, the general partner of Alliance, since 1977 and Chairman
or Director of numerous subsidiaries and affiliated companies of Alliance
Capital Management Corporation and of mutual funds managed by Alliance. Senior
Executive Vice President of AXA (since January 1997). Director of Equitable Life
since March 1991.
Officers' Biographical Information. Set forth below is a description of the
business positions held during at least the past five years by the executive
officers of the Holding Company (other than Messrs. Melone and Benson whose
biographical data is described above).
Jerry M. de St. Paer. Senior Executive Vice President (since May 1996) and Chief
Financial Officer (since May 1992) of the Holding Company. Senior Executive Vice
President (from February 1996 to May 1996) and Chief Financial Officer (from
April 1992 to May 1996) of Equitable Life. Mr. de St. Paer has also served
Equitable Life as Executive Vice President (from December 1990 to February 1996
and from May 1996 to the present), Senior Vice President and Treasurer (from
June to December 1990) and Vice President (from March 1988 to June 1990). He is
Executive Vice President and Chief Operating Officer (since September 1994) of
Equitable Investment Corporation and was also Senior Vice President (from
January 1987 to January 1991) and Treasurer (from June 1988 to January 1991). He
is also a Director of Nicos Seimei Hoken (formerly Equitable Seimei Hoken),
Economic-Sciences Corporation, Alliance, National Mutual Asia Limited, DLJ,
Equitable Capital Management Corporation, Equitable Real Estate, and a member of
the Advisory Boards of Directors of Peter Wodtke (UK) and (US).
Robert E. Garber. Executive Vice President and General Counsel of the Holding
Company and Equitable Life (since September 1994). Mr. Garber also served the
Holding Company and Equitable Life as Senior Vice President and General Counsel
from September 1993 to September 1994 and Equitable Life as Senior Vice
President and Deputy General Counsel from September 1989 to September 1993.
Prior to joining Equitable Life, Mr. Garber was Senior Vice President and
General Counsel (from June 1987 to August 1989) of Irving Trust Company.
William T. McCaffrey. Executive Vice President and Chief Administrative Officer
(since February 1994) of the Holding Company and Director, Senior Executive Vice
President and Chief Operating Officer of Equitable Life (all since February
1996). Prior thereto, he was Executive Vice President (from February 1986 to
February 1996) and Chief Administrative Officer (from February 1988 to February
1996). Mr. McCaffrey joined Equitable Life in July 1954 and has served in
various capacities throughout the organization since that time. He is a member
of the Boards of Directors of The Equitable Foundation, Inc., All Faiths
Cemetery and Innovir Laboratories.
Peter D. Noris. Executive Vice President (since May 1995) and Chief Investment
Officer (since July 1995) of the Holding Company and Equitable Life. Vice
President, Financial Institutions of Salomon Brothers, Inc., from November 1992
to May 1995. Prior thereto, with Morgan Stanley & Co., Inc., from October 1984
to November 1992 as Principal, Fixed Income Insurance Group. Director of
Alliance and Equitable Real Estate.
Jose S. Suquet. Executive Vice President of the Holding Company (since May 1996)
and Executive Vice President and Chief Agency Officer of Equitable Life (since
August 1994). Mr. Suquet joined Equitable Life as an Agent in 1979, becoming
Agency District Manager in 1981 and becoming Agency Manager of Equitable Life's
Miami Agency in 1985, which position he held until August 1994.
Stanley B. Tulin. Executive Vice President of the Holding Company and Senior
Executive Vice President and Chief Financial Officer of Equitable Life (since
May 1996). Mr. Tulin was a Principal of Coopers & Lybrand LLP from 1988 to 1996.
He is also a General Partner of BT Investment Group and Trustee and Treasurer of
the Jewish Theological Seminary of America.
10-4
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Holding
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Holding Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Directors, executive officers and
greater than 10% shareholders are required by SEC regulations to furnish the
Holding Company with copies of all Section 16(a) forms they file. Based on a
review of such forms and written representations as to the need to file Form 5,
the Holding Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers and greater than 10% beneficial
owners were complied with for the year ended December 31, 1996.
10-5
<PAGE>
Part III, Item 11.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes for Mr. Jenrette, who served as the Holding Company's
Chief Executive Officer until February 14, 1996; Mr. Melone, who served as the
Holding Company's Chief Executive Officer for the remainder of 1996; and the
other four individuals serving as executive officers of the Holding Company on
December 31, 1996 who had the highest aggregate annual compensation for 1996
(the "named executive officers") all compensation required to be reported for
the years 1994, 1995 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------- ---------------------------
Awards Payouts
--------------- -----------
(3) Securities (4) (5)
Name and (2) (2) Other Annual Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Options(#) Payouts Compensation
- ------------------------------- ------------- --------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard H. Jenrette(1) 1996 $ 137,208 $ - $ - - $ - $ 3,069,916(6)
Retired Chairman of 1995 730,000 5,000,000 - - 1,500,000 8,254
the Board and Chief 1994 730,000 7,000,000 - - 900,000 9,433
Executive Officer
Joseph J. Melone 1996 682,777 2,300,000 $ 92,118(7) 50,000 - 8,604
President and Chief 1995 600,000 2,000,000 86,282(7) - 600,000 8,254
Executive Officer 1994 600,000 2,000,000 80,496(7) - 800,000 9,433
James M. Benson 1996 583,046 2,000,000 - 100,000 - 8,604
Senior Executive Vice 1995 500,000 1,600,000 - - 550,000 8,254
President and Chief 1994 500,000 1,500,000 - 50,000 700,000 3,750
Operating Officer
William T. McCaffrey 1996 429,613 1,200,000 - 50,000 - 8,604
Executive Vice 1995 325,000 750,000 - - 350,000 8,254
President and Chief 1994 325,000 700,000 - - 450,000 9,433
Administrative Officer
Jerry M. de St. Paer 1996 391,255 1,193,000 - 25,000 - 8,604
Senior Executive Vice 1995 350,000 1,100,000 - - 400,000 8,254
President and Chief 1994 350,000 1,000,000 - - 500,000 9,433
Financial Officer
Stanley B. Tulin(8) 1996 225,547 850,000 - 100,000 - 250,000(9)
Executive Vice
President
<FN>
(1) Mr. Jenrette retired as the Holding Company's Chairman and Chief Executive
Officer effective February 14, 1996.
(2) Includes all amounts deferred under qualified and non-qualified deferred
compensation plans.
(3) The amounts in this column do not include certain incidental non-cash
compensation provided to the named executive officers which does not exceed
$50,000.
(4) Represents (i) payouts in 1996 under the former long-term incentive
compensation plan in effect for years prior to 1996 following the final year of
a three year performance period ended December 31, 1995; and (ii) payouts in
1995 under such plan for the first two plan years ended December 31, 1994.
Payments for the Initial Performance Period under the Long-Term Plan adopted in
1996 may not be made until early 1998.
(5) Amounts in this column consist of employer contributions to defined
contribution plans unless otherwise indicated.
(6) Represents $3,000,000 received by Mr. Jenrette in 1996 from DLJ for
post-retirement consulting services (see "Retirement Plans and Separation
Benefits"); $57,403 in termination vacation pay; and $12,513 distributed in
accordance with the non-qualified Supplemental Investment Plan.
11-1
<PAGE>
(7) These amounts include $78,000 in 1994, $84,000 in 1995 and $90,000 in 1996
for rent paid by Equitable Life for an apartment provided to Mr. Melone.
(8) Mr. Tulin joined the Holding Company in May 1996.
(9) Represents a one-time non-recurring payment made to Mr. Tulin upon the
commencement of his employment.
</FN>
</TABLE>
Options
The following tables set forth information concerning the grant of options to
each of the named executive officers during 1996 and the value of options held
by the named executive officers on December 31, 1996.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants For Option Term
---------------------------------------------------------------- -----------------------------
Number of % of
Securities Total Options Exercise
Underlying Granted to Price
Options Employees in (Dollar
Name Granted(1) Fiscal Year Per Share) Expiration Date 5% 10%
- ------------------------- ------------- --------------- ------------ ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Jenrette...... 0 NA NA NA NA NA
Joseph J. Melone......... 50,000 7.0% $25.25 February 15,2006 $ 793,750 $ 2,012,500
James M. Benson.......... 100,000 13.9% $25.25 February 15,2006 $1,587,500 $ 4,025,000
William T. McCaffrey..... 50,000 7.0% $25.25 February 15,2006 $ 793,750 $ 2,012,500
Jerry M. de St. Paer..... 25,000 3.5% $25.25 February 15,2006 $ 396,875 $ 1,006,250
Stanley B. Tulin......... 100,000 13.9% $24.13 May 15, 2006 $1,512,500 $ 3,850,000
<FN>
(1) Options under the 1991 Stock Option Plan vest (become exercisable) at the
rate of 20% per year subject to acceleration in the event of death or
disability.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Shares Options at FY-End Options at FY-End(1)
-------------------- ---------------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ----------------------- ------------- ---------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Richard H. Jenrette..... 0 0 240,000/ 0 $1,110,000/$ 0
Joseph J. Melone........ 0 0 240,000/210,000 $1,110,000/$740,000
James M. Benson......... 0 0 140,000/210,000 $ 555,000/$370,000
William T. McCaffrey.... 0 0 60,000/ 90,000 $ 277,500/$185,000
Jerry M. de St. Paer.... 0 0 75,000/ 75,000 $ 346,875/$231,250
Stanley B. Tulin........ 0 0 0/100,000 $ 0/$ 50,000
<FN>
(1) Based on $24.625 per share, the closing price of the Common Stock on the New
York Stock Exchange on December 31, 1996.
</FN>
</TABLE>
11-2
<PAGE>
Long-Term Incentive Plan Awards
The following table sets forth information concerning certain awards made in
1996 under the Holding Company's Long-Term Incentive Compensation Plan for
Senior Officers based on the assumptions set forth below. Such Plan provides for
certain awards to be made to those persons who are the Holding Company's Chief
Executive Officer and the other four individuals who have the highest amount of
salary and bonus for the years in which the related payments under the Long-Term
Plan will be deductible for Federal income tax purposes. Such persons cannot be
identified at this time and will not necessarily be the same individuals who are
the Holding Company's named executive officers for 1996. Likewise, the dollar
amounts which may be paid pursuant to such awards under the formula contained in
such plan are dependent upon the Holding Company's performance in 1996, 1997 and
1998 and are accordingly not determinable at this time. However, for purposes of
this table only, it is assumed that the persons named in the Summary
Compensation Table with respect to 1996 will be the same persons in the year for
which the awards are deductible by the Holding Company, and that the Holding
Company's performance in 1997 and 1998 is identical to that obtained in 1996.
<TABLE>
<CAPTION>
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts under
Non-Stock Price-Based Plans
Number of Performance or -----------------------------------------
Shares, Units, Other Period Threshold Target Maximum
or Until Maturation
Name(1) Other Rights(1) or Payout ($)(2) ($)(3) ($)(4)
- ---------------------------- ---------------- ------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Joseph J. Melone........... 16% 1/1/96-12/31/98 1,446,000
James M. Benson............ 13% 1/1/96-12/31/98 1,175,000
William T. McCaffrey....... 11% 1/1/96-12/31/98 994,000
Jerry M. de St. Paer....... 10% 1/1/96-12/31/98 904,000
Stanley B. Tulin........... 5% 1/1/96-12/31/98 452,000
<FN>
(1) The table assumes that the Holding Company's Chief Executive Officer and the
other four individuals who have the highest amount of salary and bonus for
the years in which the related payments under the Long-Term Plan are
deductible for Federal income tax purposes will be the same individuals who
are the Holding Company's named executive officers for 1996. The percentages
shown represent the maximum percentages of the compensation pool which the
Committees have determined may be payable to such persons.
(2) Since the Committees administering the Long-Term Plan may exercise their
discretion to pay less than the maximum amounts permitted by the Long-Term
Plan, it is not possible to determine the minimum amount that would be
payable to particular individuals if threshold earnings levels were met for
the 1996-1998 performance period.
(3) Represents the amount payable from the compensation pool for the 1996-1998
performance period based on the assumptions listed above and assuming that
the Committees administering the plan determine to pay each named executive
officer the maximum award which has been made. The amounts set forth should
not be taken as indicative of the amounts that will ultimately be paid. The
Long-Term Plan permits a payment for the first two years of the 1996-1998
performance period to be made in early 1998, with any additional amounts for
such 1996-1998 performance period payable in early 1999.
(4) There is no fixed dollar limit on the size of the compensation pool for the
1996-1998 performance period.
</FN>
</TABLE>
Retirement Plans and Separation Benefits
Equitable Life maintains a qualified defined benefit retirement plan (the
"Retirement Plan") and an unfunded, nonqualified excess benefit plan (the
"Excess Plan") which pays benefits in excess of the benefit limits provided by
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Code, as well as benefits in excess of the compensation limits under the
Code, and a supplemental benefit plan pursuant to which the chief executive
officer of Equitable Life may authorize that an officer receive a supplemental
retirement benefit based on additional years of service in excess of actual
years of service (the "Supplemental Executive Retirement Plan").
11-3
<PAGE>
The table below indicates the estimated maximum annual retirement benefits that
a hypothetical participant would be entitled to receive under the Retirement
Plan (without regard to the maximum benefit limitations imposed by ERISA and the
Code and including payments under the Supplemental Executive Retirement Plan)
computed on a straight-life annuity basis, before any deduction for social
security benefits, if retirement occurred at age 65 and the number of credited
years of service and average annual recognized earnings equaled the amounts
indicated.
<TABLE>
<CAPTION>
Pension Plan Table
Credited Years of Service
-------------------------------------------------------------------------------------------
Recognized
Earnings 10 Years 15 Years 20 Years 25 Years 30 Years
- --------------- ----------------- --------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000
200,000 40,000 60,000 80,000 100,000 120,000
400,000 80,000 120,000 160,000 200,000 240,000
600,000 120,000 180,000 240,000 300,000 360,000
800,000 160,000 240,000 320,000 400,000 480,000
1,000,000 200,000 300,000 400,000 500,000 600,000
1,500,000 300,000 450,000 600,000 750,000 900,000
2,000,000 400,000 600,000 800,000 1,000,000 1,200,000
</TABLE>
The Retirement Plan will provide pension benefits for Messrs. Jenrette, Melone,
Benson, de St. Paer, McCaffrey and Tulin. For purposes of the Retirement Plan,
covered compensation for pension benefits calculation purposes is salary and
bonus allocated to Equitable Life and those of its affiliates who are
co-sponsors of the Retirement Plan. Mr. Jenrette retired under the terms of the
Retirement Plan effective March 1, 1996. As of December 31, 1996, the number of
credited years of service under the Retirement Plan (including any service
supplement authorized pursuant to the Supplemental Executive Retirement Plan)
for Messrs. Jenrette, Melone, Benson, de St. Paer and McCaffrey was 11.00, 9.42,
2.75, 9.25 and 35.42, respectively. Mr. Tulin did not receive any credited
service under the Retirement Plan in 1996 due to a one-year waiting period
before becoming eligible to participate.
The named executives, except for Mr. Benson, Mr. de St. Paer, and Mr. Tulin,
will have their benefits determined on the basis of the greater of (i) the sum
of their frozen accrued benefit, based on actual and deemed service prior to
January 1, 1989 under the final average pay formula (the "Pre-89 Formula"), if
any, and their accrued account balance, under the Cash Balance Formula, accrued
subsequent to December 31, 1988, and (ii) the Pre-89 Formula applied to total
years of actual and deemed service and final average pay at retirement. Mr. de
St. Paer's benefits will be computed solely according to (i) above. Mr. Benson's
and Mr. Tulin's benefits will be computed solely according to the Cash Balance
Formula. The Cash Balance Formula credits each named executive's account during
each year of such executive's participation in the Retirement Plan, subsequent
to December 31, 1988, with an amount equal to the sum of 5% of such individual's
annual covered compensation not in excess of the social security wage base and
10% in excess of such wage base. These accounts are credited monthly with
interest based on the average yield of one-year U.S. Treasury bills for the
twelve month period ending on the last business day of November in the preceding
calendar year. The Pre-89 Formula recognizes that participants in the Retirement
Plan will receive Social Security benefits and reduces the benefit by a portion
of the Social Security benefits. The benefits to the executives will be paid as
a life annuity or a joint and survivor annuity depending on the executive's
marital status at the time of retirement. The executive also has the opportunity
to receive the cash balance account portion of the benefit in a lump sum.
In February 1996, the Holding Company's Board of Directors approved a
supplemental executive retirement plan for Mr. Jenrette pursuant to which he
will receive from Equitable Life during his lifetime an annual retirement
benefit of $250,000. Such benefits are in addition to Mr. Jenrette's retirement
benefits described above. Following his retirement, Mr. Jenrette has continued
to receive secretarial support, the availability of a car and office space at
DLJ.
In 1982, DLJ entered into an agreement with Mr. Jenrette under which Mr.
Jenrette became entitled to receive certain benefits from DLJ in exchange for
his agreement to provide post-retirement consulting services and not to compete
11-4
<PAGE>
with DLJ. Under the agreement, Mr. Jenrette has received benefits at a rate of
$200,000 per year since attaining age 65. After Mr. Jenrette's death, his
beneficiary may elect to receive either (i) monthly payments equivalent to
$200,000 per year until the time Mr. Jenrette would have attained his 75th
birthday or (ii) a lump sum which is the equivalent of the discounted present
value of such monthly payments. These benefits are in addition to the retirement
benefits payable to Mr. Jenrette under the plans maintained by Equitable Life.
DLJ has funded its obligation to Mr. Jenrette under the agreement through the
purchase of an annuity. Amounts paid to Mr. Jenrette under this agreement in
1994, 1995 and 1996 were $133,333, $200,000 and $200,000, respectively. In May
1996, DLJ entered into an agreement with Mr. Jenrette providing for a payment of
an additional $3,000,000 during 1996 in consideration of the increased
contribution to be made by Mr. Jenrette in his post-retirement consulting
services.
In 1983, Mr. Jenrette deferred a portion of his 1984 compensation from DLJ in
return for which DLJ agreed to pay Mr. Jenrette $43,518 annually for 15 years
beginning at age 65. DLJ funded its obligations through the purchase of life
insurance policies. Mr. Jenrette received $32,640, $43,518, and $43,518 in 1994,
1995 and 1996, respectively, pursuant to this agreement.
Following his retirement as Chairman and Chief Executive Officer of the Holding
Company and Chairman of DLJ, Mr. Jenrette became a Senior Advisor to DLJ. Mr.
Jenrette did not receive any salary for his services during 1996 in this
capacity.
Mr. Benson has resigned, effective May 1, 1997, as an officer and director of
the Holding Company and its affiliates. On March 26, 1997, Equitable Life's
Board of Directors approved arrangements pursuant to which Mr. Benson will
receive a payment of $5,200,000 in late March 1997 and will be entitled, for two
years following his resignation, to both continued vesting of his options for
the Holding Company's Common Stock and continued participation in certain
employee benefit plans.
Compensation of Directors
All directors of the Holding Company are also directors of Equitable Life with
the exception of Messrs. Chalsty and Hamilton. For serving on the Board of
Directors of Equitable Life, each director of Equitable Life who is not an
employee of the Holding Company or an affiliate of the Holding Company
(including AXA) receives an annual retainer fee. No additional retainer is paid
to such persons for service on the Board of Directors of the Holding Company. In
addition, each such director also receives a meeting fee for each meeting of the
Holding Company's Board or Equitable Life's Board (and any committee of such
boards) attended and the chairperson of each committee receives an additional
fee for each committee meeting attended; however, such directors receive only
one meeting fee for joint meetings of the Holding Company's and Equitable Life's
Boards (or committees). The amount paid as an annual retainer is $30,000. The
per meeting fee is $1,200 and the additional fee paid to the chairperson of each
committee is $800. The directors may defer all or part of their compensation as
directors until retirement from the Board.
Mr. Bebear, Chairman of the Holding Company's Board of Directors, and Mr. de
Castries, Vice Chairman of the Holding Company's Board of Directors, received
$150,000 and $75,000, respectively, from the Holding Company for services
provided in addition to their services as directors of the Holding Company
during 1996 and will receive the same amounts from the Holding Company for such
services during 1997. Messrs. Bebear and de Castries are eligible to participate
in both the Holding Company's Short-Term and Long-Term Incentive Compensation
Plans. Ms. Colloc'h received $50,000 as an employee of Equitable Life for
services provided to Equitable Life during 1996 which were in addition to her
services as a director of Equitable Life and will receive $50,000 from the
Holding Company in 1997 for services provided in addition to her services as a
director of the Holding Company. Messrs. Bebear and de Castries and Ms. Colloc'h
will be eligible to participate in the Holding Company's 1997 Stock Incentive
Plan.
11-5
<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of the Organization and Compensation Committee of the Holding
Company's Board of Directors are Joseph L. Dionne (Chairman), Jean-Rene Fourtou,
John T. Hartley, W. Edwin Jarmain, and Winthrop Knowlton. No member of the
Committee was an officer or employee of the Holding Company or any of its
subsidiaries. See "Compensation of Directors" and "Certain Relationships and
Related Transactions" (for information on Mr. Jarmain's commitment to invest in
WSW 1996 Buyout Fund II).
Mr. Dionne, a director of the Holding Company and Equitable Life and Chairman of
the Organization and Compensation Committees of the Holding Company and
Equitable Life, is the Chairman and Chief Executive Officer of The McGraw-Hill
Companies. Mr. Jenrette, who served as the Holding Company's Chairman and Chief
Executive Officer until his retirement in February, 1996, has served as a
director of The McGraw-Hill Companies since January 1993.
11-6
<PAGE>
Part III, Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 1, 1997 by (i) each person known to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director and named executive officer of the Holding Company and (iii) all
directors and executive officers of the Holding Company, as a group. Except as
noted below, each holder listed below has sole investment and voting power with
respect to the shares beneficially held by such holder.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
----------------------------------------- ------------------------ ---------------
<S> <C> <C>
AXA (1)(2)............................... 129,175,609 63.8%
Claude Bebear (3)........................ 0 *
James M. Benson (4)...................... 180,833 *
John S. Chalsty (5)...................... 76,000 *
Francoise Colloc'h (3)................... 0 *
Henri de Castries (3).................... 0 *
Jerry M. de St. Paer (6)................. 80,000 *
Joseph L. Dionne......................... 1,044 *
William T. Esrey......................... 0 *
Jean-Rene Fourtou (3)(7)................. 1,150 *
Donald J. Greene (8)..................... 1,208 *
Anthony J. Hamilton (3).................. 0 *
John T. Hartley (9)...................... 1,019 *
John H.F. Haskell, Jr.................... 1,000 *
Mary R. (Nina) Henderson................. 0 *
W. Edwin Jarmain (10).................... 10,000 *
Richard H. Jenrette (3)(11).............. 123,585 *
Winthrop Knowlton........................ 0 *
Arthur L. Liman (12)..................... 60 *
William T. McCaffrey (13)................ 76,000 *
Joseph J. Melone (14).................... 260,186 *
Didier Pineau-Valencienne (3)............ 0 *
George J. Sella, Jr...................... 0 *
Stanley B. Tulin (15).................... 4,000 *
Dave H. Williams (16).................... 60,000 *
All directors and executive officers
as a group (27 persons, including
Mr. Jenrette) (Notes (3)-(16))......... 1,023,397 *
<FN>
*Number of shares listed represents less than one percent (1%) of the
number of shares of Common Stock outstanding.
12-1
<PAGE>
(1) Includes 14,000,000 shares of Common Stock beneficially owned by Lor
Finance, S.A. ("Lor Finance"), a subsidiary of AXA, in connection with a stock
compensation plan for key employees of AXA and its affiliates; 6,968,649 shares
of Common Stock beneficially owned by Financiere 45, a subsidiary of AXA; and
8,930,617 shares of Common Stock beneficially owned by AXA Equity & Law Life
Assurance Society plc ("AXA Equity & Law"), a subsidiary of AXA. For insurance
regulatory purposes, the shares of capital stock of the Holding Company
beneficially owned by AXA and its subsidiaries have been deposited in the Voting
Trust, which has an initial term of ten years, commencing May 12, 1992. The
Voting Trustees, are Claude Bebear, Patrice Garnier and Henri de
Clermont-Tonnerre, each of whom serves either on the Executive Board (in the
case of Mr. Bebear) or Supervisory Board (in the case of Messrs. Garnier and de
Clermont-Tonnerre) of AXA. The Voting Trustees have agreed to exercise their
voting rights to protect the legitimate economic interests of AXA, but with a
view to ensuring that certain of its minority shareholders do not exercise
control over the Holding Company or certain of its insurance subsidiaries. For
additional information, including addresses, as to AXA and certain direct and
indirect shareholders of AXA, who may be deemed to own beneficially all shares
of the Holding Company's stock beneficially owned by AXA and to have shared
power to vote or dispose of the shares beneficially owned by AXA, see
"Beneficial Ownership of Common Stock by the AXA Group".
(2)AXA beneficially owns, directly or indirectly, 784,480 outstanding
shares of the Holding Company's Series E Convertible Preferred Stock, which are
convertible into shares of Common Stock at any time at the option of AXA. The
share and class percent numbers in the table assume conversion of all shares of
Series E Convertible Preferred Stock beneficially owned by AXA into shares of
Common Stock and do not include shares of Common Stock which will be paid to AXA
in April, 1997 as the regular quarterly dividend on Series E Convertible
Preferred Stock.
(3)Excludes shares beneficially owned by AXA. Messrs. Bebear, Fourtou,
Hamilton, Jenrette and Pineau-Valencienne are members of the Executive Board (in
the case of Mr. Bebear) or Supervisory Board (in the case of the others) of AXA
and, additionally, Messrs. Bebear and de Castries and Ms. Colloc'h are executive
officers of AXA. Also excludes certain options exercisable presently or within
60 days held by Mr. de Castries and Ms. Colloc'h to acquire shares of Lor
Finance (see Note (1)). The sole assets of Lor Finance are voting trust
certificates representing 14,000,000 shares of the Holding Company's Common
Stock. Each share of Lor Finance is intended to be the economic equivalent of a
share of the Holding Company's Common Stock, although holders of Lor Finance
shares are not technically beneficial owners of the Holding Company's Common
Stock.
(4)Includes 10,000 shares owned jointly by Mr. Benson and his spouse,
Marlene J. Benson, and 209 shares owned in the aggregate by Mr. Benson's two
minor children. Includes 170,000 shares subject to options held by Mr. Benson,
which options Mr. Benson has the right to exercise presently or within 60 days.
(5)Includes 60,000 shares subject to options held by Mr. Chalsty, which
options Mr. Chalsty has the right to exercise presently or within 60 days.
(6) Represents 80,000 shares subject to options held by Mr. de St. Paer,
which options Mr. de St. Paer has the right to exercise presently or within 60
days.
(7) Mr. Fourtou owns all these shares jointly with his spouse, Janelley
Fourtou.
(8) Includes 81 shares owned by Mary Greene, Mr. Greene's spouse. Mr.
Greene disclaims beneficial ownership of the shares owned by his spouse.
(9) Represents 1,019 shares for which Mr. Hartley acts as Trustee for the
John T. Hartley Trust.
(10) Represents 10,000 shares owned by Jarmain Group, Inc. Mr. Jarmain
controls Jarmain Group, Inc.
(11) Includes 120,000 shares subject to options held by Mr. Jenrette, which
options Mr. Jenrette has the right to exercise presently or within 60 days.
(12) Represents 60 shares owned by Ellen Liman, Mr. Liman's spouse. Mr.
Liman disclaims beneficial ownership of the shares owned by his spouse.
(13) Includes 70,000 shares subject to options held by Mr. McCaffrey, which
options Mr. McCaffrey has the right to exercise presently or within 60 days.
(14) Includes 250,000 shares subject to options held by Mr. Melone, which
options Mr. Melone has the right to exercise presently or within 60 days.
(15) Represents 4,000 shares owned jointly by Mr. Tulin and his spouse,
Riki P. Tulin.
12-2
<PAGE>
(16) Represents 60,000 shares subject to options held by Mr. Williams,
which options Mr. Williams has the right to exercise presently or within 60
days.
</FN>
</TABLE>
The following tables set forth certain information regarding the beneficial
ownership of common stock of AXA, Finaxa, a shareholder of AXA described in
"Beneficial Ownership of Common Stock by the AXA Group" below, and DLJ and of
Alliance Units as of March 1, 1997 by (i) each director and named executive
officer of the Holding Company who beneficially owns any shares of common stock
of AXA, Finaxa or DLJ, or Alliance Units and (ii) all directors and executive
officers as a group. Except as otherwise listed below, no director or executive
officer of the Holding Company beneficially owns any shares of common stock of
AXA or Finaxa or any equity interest in any subsidiary of the Holding Company or
Equitable Life other than directors' qualifying shares.
<TABLE>
<CAPTION>
AXA and Finaxa Stock
Number Percent
AXA Common Stock of Shares of Class
---------------- ------------- ------------
<S> <C> <C>
Name
Claude Bebear (1).................................... 1,274,397 *
James M. Benson...................................... 1,000 *
Francoise Colloc'h (2)............................... 52,675 *
Henri de Castries (3)................................ 33,188 *
Jean-Rene Fourtou.................................... 1,618 *
Anthony J. Hamilton.................................. 1,000 *
John H. F. Haskell, Jr............................... 500 *
Richard H. Jenrette.................................. 600 *
William T. McCaffrey................................. 2,000 *
Joseph J. Melone..................................... 1,000 *
Didier Pineau-Valencienne............................ 664 *
Stanley B. Tulin..................................... 1,000 *
All directors and executive officers as a group
(27 persons, including Mr. Jenrette)............... 1,370,892 *
Finaxa Common Stock
-------------------
Name
Claude Bebear (4).................................... 466,670 *
Francoise Colloc'h (5)............................... 61,375 *
Henri de Castries (6)................................ 65,000 *
All directors and executive officers as a group
(27 persons, including Mr. Jenrette)............... 593,045 *
<FN>
*Number of shares listed represents less than one percent (1%) of the
outstanding common stock of AXA or Finaxa respectively.
(1) Includes 22 shares owned by Mr. Bebear's wife, and 1,169,733 shares
subject to options held by Mr. Bebear, which options Mr. Bebear has the right to
exercise presently or within 60 days.
(2) Includes 48,925 shares subject to options held by Ms. Colloc'h, which
options Ms. Colloc'h has the right to exercise presently or within 60 days.
(3) Includes 32,188 shares subject to options held by Mr. de Castries,
which options Mr. de Castries has the right to exercise presently or within 60
days.
(4) Includes 424,413 shares owned by Clauvalor, a French company controlled
by Mr. Bebear, and 42,250 shares subject to options held by Mr. Bebear, which
options Mr. Bebear has the right to exercise presently or within 60 days.
(5) Includes 36,250 shares subject to options held by Ms. Colloc'h, which
options Ms. Colloc'h has the right to exercise presently or within 60 days.
(6) Represents 65,000 shares subject to options held by Mr. de Castries,
which options Mr. de Castries has the right to exercise presently or within 60
days.
</FN>
</TABLE>
12-3
<PAGE>
<TABLE>
<CAPTION>
Alliance Units
Number Percent
Name of Shares of Class
--------------------------------------------------- ------------- ---------------
<S> <C> <C>
John S. Chalsty.................................... 9,000 *
Jerry M. de St. Paer............................... 500 *
John T. Hartley (1)................................ 730 *
Richard H. Jenrette................................ 10,000 *
Arthur L. Liman.................................... 1,000 *
William T. McCaffrey............................... 1,000 *
Joseph J. Melone................................... 5,000 *
George J. Sella, Jr................................ 6,000 *
Dave H. Williams (2)............................... 1,044,456 1.25%
All directors and executive officers as a group
(27 persons, including Mr. Jenrette)............. 1,078,686 1.29%
<FN>
* Represents less than one percent (1%) of the outstanding Alliance Units.
(1) Represents 730 Alliance Units owned by Martha Hartley, Mr. Hartley's
spouse. Mr. Hartley disclaims beneficial ownership of the Alliance Units owned
by his spouse.
(2) Includes 80,000 Alliance Units owned by Reba W. Williams, Mr. Williams'
spouse.
</FN>
</TABLE>
DLJ Common Stock
<TABLE>
<CAPTION>
Number Percent
Name of Shares of Class
--------------------------------------------------- ----------- ---------------
<S> <C> <C>
Claude Bebear...................................... 1,000 *
James M. Benson.................................... 1,024 *
John S. Chalsty (1)................................ 450,416 *
Francoise Colloc'h................................. 1,000 *
Henri de Castries.................................. 1,000 *
Jerry M. de St. Paer............................... 300 *
John T. Hartley (2)................................ 1,024 *
W. Edwin Jarmain (3)............................... 5,024 *
Richard H. Jenrette................................ 5,000 *
Arthur L. Liman.................................... 1,000 *
William T. McCaffrey............................... 1,024 *
Joseph J. Melone................................... 1,024 *
George J. Sella, Jr................................ 1,023 *
All directors and executive officers as a group
(27 persons, including Mr. Jenrette)............. 470,359 *
<FN>
* Represents less than one percent (1%) of the outstanding shares of
DLJ common stock.
(1) Includes 1,000 shares of DLJ common stock owned by Mr. Chalsty's wife;
128,528 vested restricted stock units; and 318,178 shares subject to options
held by Mr. Chalsty, which options Mr. Chalsty has the right to exercise
presently or within 60 days.
(2) Represents 1,024 shares for which Mr. Hartley acts as Trustee for the
John T. Hartley Trust.
(3) Includes 4,000 shares owned by Jarmain Group, Inc. Mr. Jarmain controls
Jarmain Group, Inc.
</FN>
</TABLE>
12-4
<PAGE>
Beneficial Ownership of Common Stock by the AXA Group
Based on information provided by AXA, on March 1, 1997, 22.5% of the issued
ordinary shares (representing 33.0% of the voting power) of AXA were controlled
directly and indirectly by Finaxa, a French holding company. As of March 1,
1997, 61.4% of the shares (representing 72.0% of the voting power) of Finaxa
were owned by four French mutual insurance companies (the "Mutuelles AXA") (one
of which, AXA Assurances I.A.R.D. Mutuelle, owned 34.9% of the shares,
representing 40.0% of the voting power), and 23.7% of the shares of Finaxa
(representing 14.6% of the voting power) were owned by Banque Paribas, a French
bank ("Paribas"). Including the ordinary shares owned by Finaxa, on March 1,
1997, the Mutuelles AXA directly or indirectly controlled 26.0% of the issued
ordinary shares (representing 38.1% of the voting power) of AXA. Acting as a
group, the Mutuelles AXA control AXA and Finaxa.
In November 1996, AXA offered (the "Exchange Offer") to acquire 100% of the
ordinary shares ("UAP Shares") of FF 10 each of Compagnie UAP, a societe anonyme
organized under the laws of France ("UAP"), in exchange for ordinary shares
("Shares") and Certificates of Guaranteed Value ("Certificates") of AXA. Each
UAP shareholder that tendered UAP Shares in the Exchange Offer received two
Shares and two Certificates for every five UAP Shares so tendered. On January
24, 1997, AXA acquired 91.37% of the outstanding UAP Shares. AXA currently
intends to merge (the "Merger") with UAP at some future date in 1997. It is
anticipated that approximately 11,706,826 additional Shares will be issued in
connection with the Merger to UAP shareholders who did not tender UAP Shares in
the Exchange Offer. If the Merger had been completed at March 1, 1997, Finaxa
would have beneficially owned (directly and indirectly) approximately 21.7% of
the Shares (representing approximately 32.0% of the voting power), and the
Mutuelles AXA would have controlled (directly or indirectly through their
interest in Finaxa) 25.1% of the issued ordinary shares (representing 36.8% of
the voting power) of AXA.
On January 17, 1997, AXA announced its intention to redeem its outstanding 6%
Bonds (the "Bonds"). Between February 14, 1997 and May 14, 1997, holders of the
Bonds will have the option to convert each Bond into 5.15 Shares. On May 15,
1997, each Bond still outstanding will be redeemed into cash at FF 1,285 plus FF
9.29 accrued interest. Finaxa currently owns 418,118 Bonds which it intends to
convert into 2,153,308 Shares. Assuming all outstanding Bonds are converted into
Shares and after giving effect to the Merger as it if had been completed at
March 1, 1997, Finaxa would have beneficially owned (directly and indirectly)
approximately 21.4% of the Shares (representing 31.3% of the voting power), and
the Mutuelles AXA would have controlled (directly or indirectly through their
interest in Finaxa) 24.7% of the issued ordinary shares (representing 36.0% of
the voting power) of AXA.
The Voting Trustees may be deemed to be beneficial owners of all shares of
Common Stock beneficially owned by AXA and its subsidiaries. In addition, the
Mutuelles AXA, as a group, and Finaxa may be deemed to be beneficial owners of
all shares of Common Stock beneficially owned by AXA and its subsidiaries. By
virtue of the provisions of the Voting Trust Agreement, AXA may be deemed to
have shared voting power with respect to the shares of Common Stock in the
Voting Trust and have the power to dispose or direct the disposition of all the
shares of Common Stock deposited in the Voting Trust. By reason of their
relationship with AXA, the Mutuelles AXA, as a group, and Finaxa may be deemed
to share the power to vote or to direct the vote and to dispose or to direct the
disposition of all the shares of Common Stock beneficially owned by AXA and its
subsidiaries.
The address of each of AXA and the Voting Trustees is 9 Place Vendome, 75001
Paris, France. The address of Finaxa is 23 avenue Matignon, 75008 Paris, France.
The addresses of the Mutuelles AXA are as follows: The address of each of AXA
Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle is 21 rue de
Chateaudun, 75009 Paris, France; the address of Alpha Assurances Vie Mutuelle is
Tour Franklin, 100/101 Terrasse Boildieu, Cedex 11, 92042 Paris La Defense,
France; and the address of AXA Courtage Assurance Mutuelle is 26 rue Louis-le
Grand, 75002 Paris, France. The address of Paribas is 3 Rue d'Antin, Paris,
France.
12-5
<PAGE>
Part III, Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equitable Life has agreements with GIE AXA Universite and GIE Informatique AXA,
affiliates of AXA, relating to services provided by AXA and its affiliates to
Equitable Life and its subsidiaries for management training seminars and for
ongoing maintenance and technical support for computer software and technology
licensed by AXA for use by the Holding Company and its subsidiaries. Equitable
Life incurred approximately $3,663,000 in fees for services provided by AXA's
affiliates pursuant to these agreements during 1996 and anticipates that it will
continue to incur fees in 1997 under these agreements.
Equitable Life has entered into an agreement with AXA (the "AXA Services
Agreement") covering management, communications, advertising, rating agency and
various other services to be provided by AXA and its affiliates. To the extent
that Equitable Life provides similar services to AXA and its affiliates, amounts
payable under this agreement will be offset by the amounts attributable to such
services. Equitable Life incurred approximately $6,500,000 in fees for services
provided by AXA and its affiliates pursuant to the AXA Services Agreement during
1996. Equitable Life anticipates that it will continue to incur fees in 1997
under the AXA Services Agreement.
Equitable Life has entered into an agreement with AXA Canada Tech, Inc. ("AXA
Canada Tech"), a Canadian subsidiary of AXA which provides data processing
services to certain of its affiliated Canadian companies (the "AXA Canada
Companies"). Under the terms of the agreement, Equitable Life provides data
processing resources and services to AXA Canada Tech to process data of the AXA
Canada Companies. The agreement will continue in effect until December 31, 2000
and provides for reimbursement of Equitable Life's start-up costs (approximately
U.S. $1.14 million, all of which has been paid) and an annual fee of $2,700,000
(Canadian) (but not less than approximately U.S. $2,050,000) to be paid by AXA
Canada Tech for a defined level of services with usage above such level to be
paid for based on Equitable Life's cost of providing the incremental usage.
Equitable Life received payments of $2,700,000 (Canadian) from AXA Canada Tech
pursuant to this agreement during 1996 and anticipates that services will
continue to be provided under this agreement in 1997.
Equitable Life has a 4.8% participation in Section A (Launch) and a 5.9%
participation in Section B (On Orbit) of INTEC's 1996 reinsurance program, a
satellite insurance facility. The reinsurance program is managed by INTEC, which
is 80% owned by AXA America, an affiliate of AXA. AXA and AXA America have a
16.5% aggregate interest in Section A and a 20.2% aggregate interest in Section
B of the 1996 reinsurance program. In 1996, Equitable Life was charged
approximately $201,908 as its portion of INTEC's fee for managing the
reinsurance program.
An affiliate of AXA, AXA Asset Management Partenaires ("AXA Asset Management"),
provides investment management services to the Winthrop Opportunity Funds (the
"Funds"), a series of mutual funds sponsored by Wood, Struthers & Winthrop
Management Corp. ("WSW"), a wholly owned subsidiary of DLJ, pursuant to a
sub-advisory agreement between WSW and AXA Asset Management. AXA Asset
Management began providing services to the Funds in September 1995. Advisory
fees of $473,978 were paid by WSW to AXA Asset Management in 1996 for services
provided to the Funds. In addition, WSW pays for various direct fund expenses on
behalf of the Funds. AXA Asset Management reimburses WSW for 50% of these
expenses. The total amount of expenses reimbursed during 1996 was approximately
$129,000.
Alliance provides investment management services to AXA Reinsurance Company, a
subsidiary of AXA, pursuant to a discretionary investment advisory agreement.
AXA Reinsurance Company paid Alliance approximately $552,000 during 1996 for
such services. Alliance provides investment management services to Abeille
Reassurances, a subsidiary of AXA Reassurances, a subsidiary of AXA. Abeille
Reassurances paid Alliance approximately $11,000 during 1996 for such services.
In April 1996, Alliance acquired the United States investing activities and
business of National Mutual Funds Management ("NMFM"), a subsidiary of AXA, for
$4.6 million cash. In connection therewith, Alliance entered into investment
management agreements with National Mutual Holdings Limited, the parent of NMFM
and a subsidiary of AXA, and various of its subsidiaries (collectively the "NMH
Group"). The NMH Group paid approximately $1.6 million in advisory fees to
Alliance in 1996.
13-1
<PAGE>
Neuville Company, Inc. ("Neuville"), an indirect subsidiary of National Mutual,
has loan participations and joint ventures with Equitable Life substantially all
of which were initially entered into with Integrity Life Insurance Company
("Integrity") prior to National Mutual's 1989 purchase of Integrity from
Equitable Life. Equitable Real Estate and its affiliate, Equitable
Agri-Business, Inc., provide asset management services to Neuville for
portfolios Neuville obtained from Integrity. In 1996, Neuville paid Equitable
Real Estate and Equitable Agri-Business, Inc. a total of $72,684 for such
services.
On December 31, 1996, the Holding Company sold 85,000 shares of DLJ common stock
to AXA for a total sale price of $3,028,125. The sale price per share was equal
to the closing price of DLJ common stock on the New York Stock Exchange on
December 27, 1996.
During 1996, Equitable Life, either directly or through its former subsidiary,
Equitable Variable Life Insurance Company (which merged into Equitable Life on
January 1, 1997), entered into two reinsurance agreements with AXA Re Life
Insurance Company ("AXA Re Life"), an indirect subsidiary of AXA. No amounts
were ceded under these agreements during 1996. It is anticipated that, during
1997, Equitable Life will pay AXA Re Life approximately $35,000 in premiums
under these two agreements.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), a subsidiary of
DLJ, from time to time provides investment banking and other services to AXA.
The fees related to such services were $779,433 in 1996. DLJSC from time to time
also provides brokerage and research services to AXA. Such services were
provided on an arm's-length basis in the ordinary course of business at rates
comparable to those paid at the time by unaffiliated third parties.
Selected employees of DLJ are offered the opportunity to become members of the
DLJ First ESC L.L.C. (the "ESC"), an investment vehicle which qualifies as an
"employees' securities company" for purposes of the Investment Company Act of
1940, as amended. The ESC invests in DLJ's merchant banking portfolio companies,
typically acquiring between 30% and 40% of DLJ's investment in such companies.
The amounts invested by members are augmented in the ratio of 4:1 by a
combination of recourse loans from DLJ and preferred contributions to the ESC by
DLJ which have a capped return equal to the prime rate plus 1 3/4%, each of
which is repaid to DLJ upon realization of the applicable portfolio investment.
The amount invested in the ESC by Mr. Chalsty in 1996 was $270,000. The loan
made to Mr. Chalsty and preferred contributions made to the ESC by DLJ on behalf
of Mr. Chalsty in 1996 were $669,126. As of December 31, 1996 the outstanding
loan and preferred contributions with respect to Mr. Chalsty amounted to
$1,241,182.
Selected employees of DLJ are limited partners of DLJ Fund Investment Partners,
L.P. ("FIP"), an investment vehicle organized to allow these employees to invest
on a leveraged basis in funds and other investment vehicles sponsored by certain
of DLJ's clients and potential clients and on a co-investment basis in
transactions in which DLJ's clients also invest. Amounts invested by the limited
partners are augmented in the ratio of 2:1 by preferred contributions to FIP by
DLJ which have a capped return equal to the prime rate plus 1 3/4%. The amount
committed to FIP by Mr. Chalsty is $2,000,000 and the outstanding preferred
contributions made to FIP by DLJ on behalf of Mr. Chalsty at December 31, 1996
was $725,941.
DLJ has purchased split-dollar life insurance policies on the lives of certain
of its officers, including Mr. Chalsty, from Equitable Life at rates comparable
to those paid at the time by unaffiliated third parties. The aggregate amount of
premiums borne by DLJ in 1996 for the policy on Mr. Chalsty's life was
approximately $174,000.
Certain directors and executive officers of the Holding Company during 1996 had
investments or commitments to invest in six funds sponsored by subsidiaries of
DLJ. Such investments or commitments have been made on the same basis as those
made by investors not affiliated with DLJ or the Holding Company. Messrs. Melone
and Benson each committed to invest $1,000,000 in WSW 1996 Buyout Fund (the
"Buyout Fund"). Messrs. Bebear and Jarmain (acting through Jarmain Group
Management Corporation) committed to invest $2,000,000 and $1,500,000
respectively in WSW 1996 Buyout Fund II (the "Buyout Fund II"). Messrs. de
Castries and Chalsty committed to invest $100,000 and $1,000,000 respectively in
13-2
<PAGE>
WSW Special Buyout Fund L.P. (the "Special Buyout Fund"). Messrs. Bebear, Melone
and Benson each committed $250,000 to DLJ Millennium Partners, L.P.
("Millennium"). Messrs. Melone and Chalsty invested $250,000 and $2,000,000
respectively in WSW Hedge Fund, L.P. (the "Hedge Fund"). Mr. Chalsty committed
to invest $2,000,000 in WSW International Private Equity Fund, L.P. (the
"International Private Equity Fund"). Each of the Buyout Fund and Buyout Fund II
is a limited partnership which makes investments in other investment funds,
including DLJ Merchant Banking Partners II, L.P. ("DLJ MB II") and DLJ Real
Estate Capital Partners, L.P. ("DLJ Real Estate"). Both DLJ MB II and DLJ Real
Estate are managed by subsidiaries of DLJ. The general partner of Buyout Fund
and Buyout Fund II is WSW Capital, Inc., a wholly owned subsidiary of WSW.
Millennium is a limited partnership of which DLJ Merchant Banking II, Inc., a
wholly owned subsidiary of DLJ, acts as general partner. Millennium invests on a
side-by-side basis with DLJ MB II and with DLJ MB Overseas Partners II, C.V., an
entity formed by DLJ and the partners in DLJ MB II in order to facilitate
investments in foreign entities. The Special Buyout Fund is a limited
partnership whose general partner is WSW Capital, Inc. It is also a "fund of
funds" and invests in the Buyout Fund and Buyout Fund II, among others. Each of
the Hedge Fund and International Private Equity Fund is a limited partnership
whose general partner is WSW Capital, Inc. Each is a "fund of funds" which
invests in other investment funds. None of the investments or commitments
referred to above to any fund exceeds 2% of the total investments or commitments
to such fund.
Prior to joining Equitable Life as its Senior Executive Vice President on April
1, 1993, Mr. Benson was an officer and stockholder in a group of companies
engaged in insurance brokerage and consulting then doing business as Management
Compensation Group, which name was changed in 1994 to Mullin Consulting, Inc.
(together referred to as "MC"). In connection with the termination of his
affiliation with MC, Mr. Benson retained a right to receive from MC compensation
based on revenues received by MC for services which it rendered prior to April
1993. A portion of such revenues relate to the sale of insurance policies issued
by Equitable Life or its insurance company subsidiaries. During 1994, 1995 and
1996, MC received gross commissions (substantially all of which were renewal
commissions) of $1,230,919, $1,301,837 and $1,183,153 respectively, related to
life insurance products issued by Equitable Life or its insurance company
subsidiaries which were sold to a number of purchasers. Pursuant to the
foregoing arrangements, Mr. Benson was entitled to receive $268,611, $289,061,
and $268,770 from MC for 1994, 1995 and 1996 respectively, with respect to such
insurance products, including policies owned by Equitable Life on which it paid
premiums and deposits for 1994, 1995 and 1996. Based on these arrangements, Mr.
Benson expects to receive compensation from MC in 1997 and future years.
Certain directors, officers and employees of the Holding Company, AXA and
certain of their subsidiaries maintain margin accounts with DLJSC. Margin
account transactions for such directors, officers and employees are conducted by
DLJSC in the ordinary course of business and are substantially on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
DLJSC also, from time to time and in the ordinary course of business, enters
into transactions involving the purchase or sale of securities from or to such
directors, officers and employees and members of their immediate families, as
principal. Such transactions on a principal basis are effected on substantially
the same terms as similar transactions with unaffiliated third parties. DLJSC
offers its employees reduced commission rates.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. (of which Mr. Greene is a partner) and
Paul, Weiss, Rifkind, Wharton & Garrison (of which Mr. Liman is a partner) have
rendered legal services to the Holding Company or its subsidiaries during 1996
and are expected to continue rendering such services to the Holding Company or
its subsidiaries in 1997.
13-3
<PAGE>
Part IV, Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Financial Statements on
page FS-1.
2. Consolidated Financial Statement Schedules
The consolidated financial statement schedules are listed in the Index to
Financial Statement Schedules on page FS-1.
3. Exhibits: The exhibits are listed in the Index to Exhibits which begins
on page E-1. A separate list of each management contract or compensatory plan or
arrangement required to be filed as an exhibit is set forth on page E-7.
(B) Reports on Form 8-K
None.
14-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, The Equitable Companies Incorporated has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1997 THE EQUITABLE COMPANIES INCORPORATED
By: /s/Joseph J. Melone
--------------------------------
Name: Joseph J. Melone
President and Chief Executive
Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
* Chairman of the Board, Director March 27, 1997
- --------------------------------------------
Claude Bebear
/s/Joseph J. Melone President and Chief Executive Officer, March 27, 1997
- --------------------------------------------
Joseph J. Melone Director
/s/James M. Benson Senior Executive Vice President and March 27, 1997
- --------------------------------------------
James M. Benson Chief Operating Officer, Director
/s/Jerry M. de St. Paer Senior Executive Vice President and March 27, 1997
- --------------------------------------------
Jerry M. de St. Paer Chief Financial Officer
/s/Alvin H. Fenichel Senior Vice President and Controller March 27, 1997
- --------------------------------------------
Alvin H. Fenichel
* Director March 27, 1997
- --------------------------------------------
Henri de Castries
* Director March 27, 1997
- --------------------------------------------
John S. Chalsty
* Director March 27, 1997
- --------------------------------------------
Francoise Colloc'h
* Director March 27, 1997
- --------------------------------------------
Joseph L. Dionne
* Director March 27, 1997
- --------------------------------------------
William T. Esrey
* Director March 27, 1997
- --------------------------------------------
Jean-Rene Fourtou
* Director March 27, 1997
- --------------------------------------------
Donald J. Greene
* Director March 27, 1997
- --------------------------------------------
Anthony J. Hamilton
* Director March 27, 1997
- --------------------------------------------
John T. Hartley
S-1
<PAGE>
* Director March 27, 1997
- --------------------------------------------
John H. F. Haskell, Jr.
* Director March 27, 1997
- --------------------------------------------
Mary R. (Nina) Henderson
* Director March 27, 1997
- --------------------------------------------
W. Edwin Jarmain
* Director March 27, 1997
- --------------------------------------------
Winthrop Knowlton
* Director March 27, 1997
- --------------------------------------------
Arthur L. Liman
* Director March 27, 1997
- --------------------------------------------
Didier Pineau-Valencienne
* Director March 27, 1997
- --------------------------------------------
George J. Sella, Jr.
* Director March 27, 1997
- --------------------------------------------
Dave H. Williams
</TABLE>
* By: /s/Adam R. Spilka
------------------------
Adam R. Spilka
Attorney-in-fact
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
<S> <C> <C> <C>
3.1 Restated Charter of the Holding Company Filed as Exhibit 3.1 to the registrant's
Form 10-K for the year ended December
31, 1994 and incorporated herein by
reference
3.2 By-laws of the Holding Company, as Filed as Exhibit 3.2 to the registrant's
amended Form 10-K for the year ended December
31, 1994 and incorporated herein by
reference
4.1 Certificates of Designation of Convertible Filed as Exhibit 4(a) to the registrant's
Preferred Stock Form 10-Q for the quarter ended
September 30, 1992 and incorporated
herein by reference
4.2 Certificate of Designation of Redeemable Filed as Exhibit 4(b) to the registrant's
Preferred Stock Form 10-Q for the quarter ended
September 30, 1992 and incorporated
herein by reference
4.3 Form of Certificate for the Holding Filed as Exhibit 4(c) to the registrant's
Company's Common Stock, par value Form S-1 Registration Statement
$.01 per share No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
4.4 Indenture, dated as of December 1, 1993, Filed as Exhibit 4.02 to the registrant's
from the Holding Company to Chemical Form S-4 Registration Statement
Bank, as Trustee No. 33-73102 dated December 17, 1993
and incorporated herein by reference
4.5 First Supplemental Indenture, dated Filed as Exhibit 4.03 to the registrant's
December 1, 1993, from the Holding Form S-4 Registration Statement
Company to Chemical Bank, as Trustee No. 33-73102 dated December 17, 1993
and incorporated herein by reference
4.6 Form of Second Supplemental Indenture Filed as Exhibit 4.04 to the registrant's
Form S-4 Registration Statement
No. 33-73102 dated December17, 1993
and incorporated herein by reference
4.7 Form of Third Supplemental Indenture, Filed as Exhibit 4.05 to the registrant's
dated as of December 8, 1994 from the current Report on Form 8-K dated
Holding Company to Chemical Bank, as December 1, 1994
Trustee
4.8 Certificate of Designations of Cumulative Filed as Exhibit 4.4 to the registrant's
Convertible Preferred Stock, Series C Report on Form 8-K dated April 21, 1993
and incorporated herein by reference
E-1
<PAGE>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
4.9 Certificate of Designations of Cumulative Filed as Exhibit 4.05 to the registrant's
Convertible Preferred Stock, Series D Form S-4 Registration Statement
No. 33-73102 dated December 17, 1993
and incorporated herein by reference
4.10 Certificate of Designations of Cumulative Filed as Exhibit 4.9 to the registrant's
Convertible Preferred Stock, Series E current Report on Form 8-K dated
December 19, 1994
4.11 Subordinated Indenture, dated as of Filed as Exhibit 4.10 to the registrant's
October 22, 1994, between the Holding current Report on Form 8-K dated
Company and Shawmut Bank Connecticut, December 19, 1994
National Association, as Trustee
4.12 First Supplemental Indenture, dated as of Filed as Exhibit 4.11 to the registrant's
October 22, 1994, between the Holding current Report on Form 8-K dated
Company and Shawmut Bank Connecticut, December 19, 1994
National Association, as Trustee
9 Voting Trust Agreement dated as of May Filed as Exhibit 9 to the registrant's
12, 1992, among AXA, Claude Bebear, Form S-1 Registration Statement
Patrice Garnier and Henri de Clermont- No. 33-48115 dated May 26, 1992 and
Tonnerre incorporated herein by reference
10.1 Investment Agreement, dated as of July Filed as Exhibit 10(a) to the registrant's
18, 1991, as amended, among Equitable Form S-1 Registration Statement
Life, the Holding Company and AXA No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.2 Security Agreement, dated as of July 18, Filed as Exhibit 10(b) to the registrant's
1991, among Equitable Life, AXA Form S-1 Registration Statement
and Morgan Guaranty Trust No. 33-48115 dated May 26, 1992 and
Company of New York, a trust company incorporated herein by reference
organized under the laws of the State
of New York, as collateral agent
10.3 Standstill and Registration Rights Agree- Filed as Exhibit 10(c) to Amendment
ment, dated as of July 18, 1991, as No. 1 to the registrant's Form S-1
amended, between the Holding Company, Registration Statement No. 33-48115
Equitable Life and AXA dated May 26, 1992 and incorporated
herein by reference
10.4 Cooperation Agreement, dated as of July Filed as Exhibit 10(d) to the registrant's
18, 1991, as amended among Equitable Form S-1 Registration Statement
Life, the Holding Company and AXA No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
E-2
<PAGE>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
10.5 Letter Agreement, dated May 12, 1992, Filed as Exhibit 10(e) to the registrant's
among Equitable Life, the Holding Form S-1 Registration Statement
Company and AXA No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.6(a) The Equitable Companies Incorporated Filed as Exhibit 10(f) to the registrant's
1991 Stock Incentive Plan Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.6(b) The Equitable Companies Incorporated Filed herewith
1997 Stock Incentive Plan
10.7 The Equitable Investment Plan for Filed as Exhibit 10(g) to the registrant's
Employees, Managers and Agents Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.8 The Equitable Life Retirement Plan for Filed as Exhibit 10(h) to the registrant's
Employees, Managers and Agents Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.9 The Equitable Life ERISA Excess Benefit Filed as Exhibit 10(i) to the registrant's
Plan Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.10 The Equitable Life Supplemental Retire- Filed as Exhibit 10(j) to the registrant's
ment Plan Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.11 The Equitable Life Executive Survivor Filed as Exhibit 10(l) to the registrant's
Benefits Plan Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.12 The Equitable Life Executive Deferred Filed as Exhibit 10(m) to the registrant's
Compensation Plan, Plan A Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.13 The Equitable Life Executive Deferred Filed as Exhibit 10(n) to the registrant's
Compensation Plan, Plan B Form S-1 Registration Statement
No. 33-48115 dated May 26, 1992 and
incorporated herein by reference
10.14 1993-1995 Long-Term Incentive Compen- Filed as Exhibit 10.14 to the registrant's
sation Plan for Senior Officers annual report on Form 10-K for the year
ended December 31, 1993 and incorporated
herein by reference
E-3
<PAGE>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
10.15 Short-term Incentive Compensation Plan Filed as Exhibit 10.15 to the registrant's
for Senior Officers annual report on Form 10-K for the year
ended December 31, 1993 and incorporated
herein by reference
10.16 The Equitable Supplemental Investment Filed as Exhibit 10.16 to the registrant's
Plan annual report on Form 10-K for the year
ended December 31, 1994 and incorporated
herein by reference
10.17 The Equitable Variable Deferred Compen- Filed as Exhibit 10.17 to the registrant's
sation Plan for Executives annual report on Form 10-K for the year
ended December 31, 1994 and incorporated
herein by reference
10.18 The Equitable Variable Deferred Compen- Filed as Exhibit 10.18 to the registrant's
sation Plan for Directors annual report on Form 10-K for the year
ended December 31, 1994 and incorporated
herein by reference
10.18(a) The Equitable Stock Purchase Plan for Filed as Exhibit 99.1 to the registrant's
Employees and Agents Form S-8 Registration Statement
No. 33-98210 and incorporated herein by
reference
10.18(b) Short-Term Incentive Compensation Plan Filed as Exhibit 10.18(b) to the registrant's
for Senior Officers annual report on Form 10-K for the year
ended December 31, 1995 and incorporated
herein by reference
10.18(c) Long-Term Incentive Compensation Plan Filed as Exhibit 10.18(c) to the registrant's
for Senior Officers annual report on Form 10-K for the year
ended December 31, 1995 and incorporated
herein by reference
10.18(d) Short-Term Incentive Compensation Plan Filed herewith
for Senior Officers
10.18(e) Long-Term Incentive Compensation Plan Filed herewith
for Senior Officers
10.19 Amended and Restated Reinsurance Filed as Exhibit 10(o) to the registrant's
Agreement, dated as of March 29, 1990, Form S-1 Registration Statement
between Equitable Life and First No. 33-48115 dated May 26, 1992 and
Equicor Life Insurance Company incorporated herein by reference
10.20 The Amended and Restated Transfer Filed as Exhibit 19 to the
Agreement dated as of February 23, 1993, registrant's Statement on Schedule 13D
as amended and restated on May 28, dated July 29, 1993 and incorporated
1993, among Alliance, Equitable Capital herein by reference
and Equitable Investment Corporation
E-4
<PAGE>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
10.21 The Equitable Companies Incorporated Filed as Exhibit 10.01 to the registrant's
Stock Trust Agreement, effective as of Form S-4 Registration Statement
December 2, 1993 No. 33-73102 dated December 17, 1993
and incorporated herein by reference
10.22 Stock Purchase Agreement, dated Filed as Exhibit 10.02 to the registrant's
December 2, 1993, between the Holding Form S-4 Registration Statement
Company and The Chase Manhattan No. 33-73102 dated December 17, 1993
Bank, N.A. and incorporated herein by reference
10.23 Registration Agreement, dated December Filed as Exhibit 10.03 to the registrant's
15, 1993, between the Holding Company Form S-4 Registration Statement
and Donaldson, Lufkin & Jenrette No. 33-73102 dated December 17, 1993
Securities Corporation, Lazard Freres and incorporated herein by reference
Co. and Goldman Sachs & Co.
10.24 Management Compensation Arrangement Filed As Exhibit 10.24 to the registrant's
with Messrs. Bebear and de Castries annual report on Form 10-K for the year
and Ms. Colloc'h ended December 31, 1995 and incorporated
herein by reference
10.25 Exchange Agreement dated as of September Filed as Exhibit 10 to registrant's Form S-4
27, 1994, between AXA and the Holding Registration Statement No. 33-84462
Company and incorporated herein by reference
10.26(a) Lease, dated as of July 20, 1995, Filed herewith
between 1290 Associates and
Equitable Life
10.26(b) First Amendment of Lease Agreement, Filed herewith
dated as of December 28, 1995, between
1290 Associates, L.L.C. and Equitable
Life
10.26(c) Amended and Restated Company Lease Filed herewith
Agreement (Facility Realty), made as of
May 1, 1996, by and between Equitable
Life and the IDA
10.26(d) Amended and Restated Company Lease Filed herewith
Agreement (Project Property), made and
entered into as of May 1, 1996, by and
between the IDA, Equitable Life and
EVLICO
16 Letter re Change in Certifying Accountant Filed as Exhibit 16 to the registrant's
Form 8-K dated March 18, 1993 and
incorporated herein by reference
E-5
<PAGE>
Page
Number Description Method of Filing No.
- ---------- --------------------------------------------- ------------------------------------------------- ----------
18 Letter re Change in Accounting Filed herewith
Principles
21 Subsidiaries of the registrant Filed herewith
24 Powers of Attorney Filed herewith
27 Financial Data Schedules Filed herewith
</TABLE>
E-6
<PAGE>
Executive Compensation Plans and Arrangements
The Equitable Companies Incorporated 1991 Stock Incentive Plan, filed as Exhibit
10(f) to the registrant's Form S-1 Registration Statement No. 33-48115 dated May
26, 1992.
The Equitable Investment Plan for Employees, Managers and Agents, filed as
Exhibit 10(g) to the registrant's Form S-1 Registration Statement No. 33-48115
dated May 26, 1992.
The Equitable Life Retirement Plan for Employees, Managers and Agents, filed as
Exhibit 10(h) to the registrant's Form S-1 Registration Statement No. 33-48115
dated May 26, 1992.
The Equitable Life ERISA Excess Benefit Plan, filed as Exhibit 10(i) to the
registrant's Form S-1 Registration Statement No. 33-48115 dated May 26, 1992.
The Equitable Life Supplemental Retirement Plan, filed as Exhibit 10(j) to the
registrant's Form S-1 Registration Statement No. 33-48115 dated May 26, 1992.
The Equitable Life Executive Survivor Benefits Plan, filed as Exhibit 10(l) to
the registrant's Form S-1 Registration Statement No. 33-48115 dated May 26,
1992.
The Equitable Life Executive Deferred Compensation Plan, Plan A, filed as
Exhibit 10(m) to the registrant's Form S-1 Registration Statement No. 33-48115
dated May 26, 1992.
The Equitable Life Executive Deferred Compensation Plan, Plan B, filed as
Exhibit 10(n) to the registrant's Form S-1 Registration Statement No. 33-48115
dated May 26, 1992.
The Equitable Supplemental Investment Plan, filed as Exhibit 10.16 to the
registrant's annual report on Form 10-K for the year ended December 31, 1994.
The Equitable Variable Deferred Compensation Plan for Executives, filed as
Exhibit 10.17 to the registrant's annual report on Form 10-K for the year ended
December 31, 1994.
The Equitable Variable Deferred Compensation Plan for Directors, filed as
Exhibit 10.18 to the registrant's annual report on Form 10-K for the year ended
December 31, 1994.
1993-1995 Long-Term Incentive Compensation Plan for Senior Officers, filed as
Exhibit 10.14 to registrant's annual report on Form 10-K for the year ended
December 31, 1993.
Short-Term Incentive Compensation Plan for Senior Officers, filed as Exhibit
10.15 to registrant's annual report on Form 10-K for the year ended December 31,
1993.
The Equitable Stock Purchase Plan for Employees and Agents, filed as Exhibit
99.1 to registrant's Form S-8 Registration Statement No. 33-98210.
Short-Term Incentive Compensation Plan for Senior Officers, filed as Exhibit
10.18(b) to the registrant's annual report on Form 10-K for the year ended
December 31, 1995.
Long-Term Incentive Compensation Plan for Senior Officers, filed as Exhibit
10.18(c) to the registrant's annual report on Form 10-K for the year ended
December 31, 1995.
Short-Term Incentive Compensation Plan for Senior Officers, filed herewith.
Long-Term Incentive Compensation Plan for Senior Officers, filed herewith.
The Equitable Companies Incorporated 1997 Stock Incentive Plan, filed herewith.
E-7
THE EQUITABLE
COMPANIES INCORPORATED
1997 STOCK INCENTIVE PLAN
SECTION 1.
PURPOSE
1.1 The purpose of THE EQUITABLE COMPANIES INCORPORATED 1997 STOCK
INCENTIVE PLAN (the 'Plan') is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related
incentives,
(b) encouraging and providing for the acquisition of an ownership interest
in the Company by Employees and
(c) enabling the Company to attract and retain the services of an
outstanding management team upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
SECTION 2.
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have the
respective meanings set forth below:
(a) 'Act' means the Securities Exchange Act of 1934, as amended.
(b) 'Affiliate' means (i) any corporation, partnership or other legal
entity in which the Company or The Equitable, as the case may be, owns, directly
or indirectly, 50% or more of the total combined voting power of all classes of
stock of such corporation or of the capital interest or profits interest of such
partnership or other legal entity, and (ii) AXA and each corporation,
partnership or other legal entity in which AXA owns, directly or indirectly, 50%
or more of the total combined voting power of all classes of stock of such
corporation or of the capital interest or profits interest of such partnership
or other legal entity.
(c) 'Award' means any Option, share of Stock, or award of Restricted Stock
or any combination thereof, including Awards combining two or more types of
Awards in a single grant.
(d) 'AXA' means AXA-UAP, a French holding company for an international
group of insurance and related financial companies, together with its
subsidiaries and controlled affiliates.
(e) 'Board' means the Board of Directors of the Company.
(f) 'Cause' means (i) the willful failure by the Participant (other than
due to physical or mental illness) to perform substantially his duties as an
employee of the Company, The Equitable or any Affiliate after reasonable notice
to the Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the D-1 Company, The Equitable or any Affiliate,
(iii) the Participant's having been convicted of, or entered a plea of nolo
contendere to, a crime that constitutes a felony or (iv) the breach by the
Participant of any written covenant or agreement with the Company, The Equitable
or any Affiliate not to disclose any information pertaining to the Company, The
Equitable or any Affiliate or not to compete or interfere with the Company, The
Equitable or any Affiliate.
Page 1
<PAGE>
(g) 'Change in Control' means the occurrence of any of the following
events:
(i) the members of the Board at the beginning of any consecutive
twenty-four calendar month period (the 'Incumbent Directors') cease for any
reason other than due to death to constitute at least a majority of the members
of the Board, provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the members of the Board then still in office who were members of
the Board at the beginning of such twenty-four calendar month period other than
as a result of a proxy contest, or any agreement arising out of an actual or
threatened proxy contest, shall be treated as an Incumbent Director; or
(ii) any 'person,' including a 'group' (as such terms are used in Sections
13(d) and 14(d)(2) of the Act, but excluding the Company, The Equitable, any
Affiliate, AXA or any employee benefit plan of the Company, The Equitable, any
Affiliate) is or becomes the 'beneficial owner' (as defined in Rule 13(d)(3)
under the Act), directly or indirectly, of securities of the Company
representing the greater of (A) the percentage of the combined voting power of
the Company's securities owned at such time by AXA immediately following such
acquisition by such person or (B) 30% or more of the combined voting power of
the Company's then outstanding securities; or
(iii) the stockholders of the Company shall approve a definitive agreement
(1) for the merger or other business combination of the Company with or into
another corporation other than AXA, a majority of the directors of which were
not directors of the Company immediately prior to the merger and in which the
stockholders of the Company immediately prior to the effective date of such
merger own a percentage of the voting power in such corporation that is less
than one-half of the percentage of the voting power they owned in the Company
immediately prior to such transaction or (2) for the sale or other disposition
of all or substantially all of the assets of the Company to any other entity; or
(iv) the purchase of Stock pursuant to any tender or exchange offer made by
any 'person,' including a 'group' (as such terms are used in Sections 13(d) and
14(d)(2) of the Act), other than the Company, The Equitable, any Affiliate, or
an employee benefit plan of the Company, The Equitable or any of its Affiliates,
for 20% or more of the Stock of the Company.
Notwithstanding the foregoing, a 'Change in Control' shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
(h) 'Change in Control Price' means the highest price per share of Stock
offered in conjunction with any transaction resulting in a Change in Control (as
determined in good faith by the Committee if any part of the offered price is
payable other than in cash) or, in the case of a Change in Control occurring
solely by reason of a change in the D-2 composition of the Board, the highest
Fair Market Value of the Stock on any of the 30 trading days immediately
preceding the date on which a Change in Control occurs.
(i) 'Code' means the Internal Revenue Code of 1986, as amended.
(j) 'Committee' means the Stock Option Committee of the Board, which shall
consist of two or more members, each of whom shall be a 'Non-Employee Director'
within the meaning of Rule 16b-3, as promulgated under the Act.
(k) 'Company' means THE EQUITABLE COMPANIES INCORPORATED, a Delaware
corporation, and any successor thereto.
(l) 'Dividend Equivalents' shall have the meaning set forth in Section 6.4.
(m) 'Employee' means any employee of the Company, The Equitable or any
Affiliate.
Page 2
<PAGE>
(n) 'Executive Officer' means those persons who are officers of the Company
within the meaning of Rule 16a-1(f) of the Act.
(o) 'Fair Market Value' means, on any date, the closing price of the Stock
as reported by the consolidated tape of the New York Stock Exchange (or on such
other recognized quotation system on which the trading prices of the Stock are
quoted at the relevant time) on such date. In the event that there are no Stock
transactions reported on such tape (or such other system) on such date, Fair
Market Value shall mean the closing price on the immediately preceding date on
which Stock transactions were so reported.
(p) 'Option' means the right to purchase Stock at a stated price for a
specified period of time. For purposes of the Plan, an Option may be either (i)
an 'Incentive Stock Option' (ISO) within the meaning of Section 422 of the Code
or (ii) a 'Nonstatutory Stock Option' (NSO). Unless the Committee shall
otherwise specify at the time of grant, any Option granted hereunder shall be a
Nonstatutory Stock Option.
(q) 'Participant' means any Employee designated by the Committee to receive
an Award under the Plan.
(r) 'Performance Criteria' mean the performance objectives established by
the Committee with respect to the vesting of any Restricted Stock or the grant
of any Restricted Stock pursuant to a program for Executive Officers as
described in Section 6.1, which objectives shall relate to at least one of the
following criteria, which may be determined solely by reference to the
performance of the Company, The Equitable or any Affiliate or based on
comparative performance relative to other companies: (i) total return to
shareholders, (ii) return on equity, (iii) earnings, whether before or after
taxes, (iv) stock price appreciation, (v) return on capital or (vi) increases in
surplus.
(s) 'Period of Restriction' means the period during which a Restricted
Stock award is subject to forfeiture.
(t) 'Predecessor Plan' means the Company's 1991 Stock Incentive Plan.
(u) 'Restricted Stock' means an award of Stock or a contractual right to
receive Stock made pursuant to Section 6 that is forfeitable by the Participant
until the completion of a specified period of future service, the achievement of
pre-established performance objectives or until otherwise determined by the
Committee or in accordance with the terms of the Plan.
(v) 'Retirement' means termination of a Participant's employment on or
after the normal retirement date or, with the Committee's approval, on or after
any early retirement date established under any retirement plan maintained by
the Company, The Equitable or any Affiliate in which the Participant
participates.
(w) 'Stock' means the common stock of the Company, par value $0.01 per
share.
(x) 'The Equitable' means The Equitable Life Assurance Society of the
United States.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
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SECTION 3.
POWERS OF THE COMMITTEE
3.1 Power to Grant. The Committee shall determine the Participants to whom
Awards shall be granted, the type or types of Awards to be granted and the terms
and conditions of any and all such Awards. The Committee may establish different
terms and conditions for different types of Awards, for different Participants
receiving the same type of Award and for the same Participant for each Award
such Participant may receive, whether or not granted at different times.
3.2 Administration. The Committee shall be responsible for the
administration of the Plan, including, without limitation, determining which
Employees receive Awards, what kind of Awards are made under the Plan and for
what number of shares, and the other terms and conditions of each such Award.
The Committee shall have the responsibility of construing and interpreting the
Plan and of establishing and amending such rules and regulations as it may deem
necessary or desirable for the proper administration of the Plan. Any decision
or action taken or to be taken by the Committee, arising out of or in connection
with the construction, administration, interpretation and effect of the Plan and
of its rules and regulations, shall, to the maximum extent permitted by
applicable law, be within its absolute discretion (except as otherwise
specifically provided herein) and shall be conclusive and binding upon the
Company, all Participants and any person claiming under or through any
Participant.
SECTION 4.
STOCK SUBJECT TO PLAN
4.1 Number. Subject to the provisions of Section 5.3, the number of shares
of Stock subject to Awards under the Plan may not exceed five percent (5%) of
the number of shares of Stock outstanding on the date this Plan is approved by
the Board, plus any shares which remain available for awards under the
Predecessor Plan or which, after the effective date of the Plan, become
available for Awards under this Plan in accordance with Section 4.2 below.
Without limiting the generality of the foregoing, whenever shares are received
by the Company in connection with the exercise of or payment for any Award
granted under the Plan or any Option granted under the Predecessor Plan only the
net number of shares actually issued shall be counted against the foregoing
limit. Notwithstanding the foregoing, but subject to the provisions of Section
4.3, in no event shall the number of shares of Stock issued under the Plan with
respect to awards of Restricted Stock exceed twenty percent (20%) of the total
number of shares of Stock authorized for issuance hereunder. The shares to be
delivered under the Plan may consist, in whole or in part, of treasury Stock or
authorized but unissued Stock not reserved for any other purpose.
4.2 Canceled, Terminated, or Forfeited Awards. Any shares of Stock subject
to any Award granted hereunder or any option granted under the Predecessor Plan
which for any reason is canceled, terminated or otherwise settled without the
issuance of any Stock after the effective date of this Plan shall be available
for further Awards under the Plan.
4.3 Adjustment in Capitalization. In the event of any Stock dividend or
Stock split, recapitalization (including, without limitation, the payment of an
extraordinary cash dividend), merger, consolidation, combination, spin-off,
distribution of assets to stockholders, exchange of shares, or other similar
corporate change or other similar event that affects the Stock such that an
adjustment is required to preserve, or to prevent enlargement of, the benefits
or potential benefits made available under this Plan, then the Committee shall,
in such manner as the Committee shall deem equitable, adjust any or all of (i)
the number and kind of shares which thereafter may be awarded or optioned and
sold under the Plan (including, without limitation, adjusting the limits on the
number and types of certain Awards that may be made under the Plan), (ii) the
number and kinds of shares subject to outstanding Options and other Awards and
(iii) the grant, exercise or conversion price with respect to any of the
foregoing. Additionally, the Committee may make provisions for a cash payment to
a Participant or a person who has an outstanding Option or other Award. However,
the number of shares subject to any Option or other Award shall always be a
whole number.
Page 4
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SECTION 5.
STOCK OPTIONS
5.1 Grant of Options. Options may be granted to Participants at such time
or times as shall be determined by the Committee. Options granted under the Plan
may be of two types: (i) Incentive Stock Options and (ii) Nonstatutory Stock
Options, provided that no Incentive Stock Option shall be granted to any
Employee who is not eligible to receive such an Option under Section 422 of the
Code and the regulations thereunder. The Committee shall have complete
discretion in determining the number of Options, if any, to be granted to a
Participant; provided that, in no event, shall the Committee grant any
Participant Options in any single calendar year for more than 500,000 shares of
Stock, as such number may be adjusted pursuant to Section 4.3. Without limiting
the foregoing, the Committee may grant Options containing provisions for the
issuance to the Participant, upon exercise of such Option and payment of the
exercise price therefor with previously owned shares of Stock, of an additional
Option for the number of shares so delivered. Each Option shall be evidenced by
an Option agreement that shall specify the type of Option granted, the exercise
price, the duration of the Option, the number of shares of Stock to which the
Option pertains, and such other terms and conditions not inconsistent with the
Plan as the Committee shall determine.
5.2 Option Price. Nonstatutory Stock Options and Incentive Stock Options
granted pursuant to the Plan shall have an exercise price which is not less than
the Fair Market Value of a share of Stock on the date the Option is granted.
5.3 Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and shall be subject to such restrictions and
conditions including the performance of a minimum period of service or the
satisfaction of performance goals, as the Committee may impose, either at or
after the time of grant of such Options; provided that no Option shall be
exercisable for more than 10 years after the date on which it is granted.
5.4 Payment. The Committee shall establish procedures governing the
exercise of Options. No shares shall be delivered pursuant to any exercise of an
Option unless arrangements satisfactory to the Committee have been made to
assure full payment of the option price therefor. Without limiting the
generality of the foregoing, payment of the option price may be made (i) in cash
or its equivalent, (ii) by exchanging shares of Stock owned by the optionee
(which are not the subject of any pledge or other security interest), (iii)
through an arrangement with a broker approved by the Company whereby payment of
the exercise price is accomplished with the proceeds of the sale of Stock or
(iv) by any combination of the foregoing, provided that the combined value of
all cash and cash equivalents paid and the Fair Market Value of any such Stock
so tendered to the Company, valued as of the date of such tender, is at least
equal to such option price.
5.5 Termination of Employment Due to Retirement. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment terminates by reason of Retirement, the Participant shall be treated
as though he continued in the employ of the Company for purposes of determining
the extent to which the Participant may exercise any portion of such Options
which is not exercisable at the date of such Retirement. Any Options granted to
such Participant which are exercisable at the date of his Retirement or that
thereafter become exercisable by reason of the operation of the immediately
preceding sentence may be exercised at any time prior to the earlier of the
expiration of the term of the Options or within five (5) years (or such shorter
period as the Committee shall determine at the time of grant) following the
Participant's termination of employment. Notwithstanding the foregoing, in the
event that a Participant who terminates employment by reason of Retirement shall
(i) induce any Participant to leave the employ of the Company, The Equitable or
any of their Affiliates, (ii) solicit the employment of any Participant on his
own behalf or on behalf of any other business enterprise; (iii) use for his
personal benefit, or disclose, communicate or divulge to, or use for any person
other than the Company, The Equitable or any of their Affiliates, any
confidential information that had been made known to Participant or learned or
acquired by Participant while in the employ of Company, The Equitable or their
Affiliates, unless such information has become public other than by the
Participant's actions or such disclosure is compelled under a subpoena from a
court or administrative body having jurisdiction in the matter; or (iv)
otherwise act in a manner that is substantially detrimental to the business or
reputation of the Company, The Equitable or any of the Affiliates, all Options
granted to such Participant which are then still outstanding shall be
immediately forfeited (whether or not then otherwise exercisable) and the
Company shall not be obligated to honor any purported exercise of any such
Option that has not been effected, regardless of whether payment has been
tendered prior to the occurrence of any such act or the time at which the
Company has knowledge thereof.
Page 5
<PAGE>
5.6 Termination of Employment Due to Death. Unless otherwise determined by
the Committee at the time of grant, in the event a Participant's employment
terminates by reason of death, all Options then held by such Participant
(whether or not then otherwise exercisable) shall be exercisable in full and the
Participant's designated beneficiary (or D-6 if none is named, the person
identified in accordance with Section 10.2), may exercise all such Options at
any time prior to the earlier of the expiration date of the term of the Options
or the fifth anniversary (or for such a shorter period as the Committee shall
determine at the time of grant) of the Participant's death.
5.7 Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event the
employment of the Participant shall terminate for any reason other than one
described in Section 5.5 or 5.6, any Options granted to such Participant which
are exercisable at the date of the Participant's termination of employment shall
be exercisable at any time prior to the earlier of the expiration of the term of
the Options or the thirtieth day following the Participant's termination of
employment; provided that, if a Participant's employment is terminated for
Cause, all Options granted to such Participant which are then outstanding shall
be immediately forfeited (whether or not then exercisable).
5.8 Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, no term of this Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code.
5.9 Buyout. The Committee may at any time offer to buy out an Option
previously granted for a payment in cash, based on such terms and conditions as
the Committee shall establish and communicate to the optionee at the time that
such offer is made.
SECTION 6.
RESTRICTED STOCK
6.1 Grant of Restricted Stock. The Committee may grant Restricted Stock to
Participants at such times and in such amounts, and subject to such other terms
and conditions not inconsistent with the Plan as it shall determine; provided
that in no event shall any Participant be awarded Restricted Stock in any single
calendar year that either vests upon the attainment of performance objectives or
is granted upon the attainment of performance objectives and that relates to
more than 100,000 shares of Stock (determined without regard to Section 6.4).
The Committee may establish a program pursuant to which one or more Executive
Officers shall be granted Restricted Stock based on the completion of a period
of future services, so long as the grant is based solely upon the attainment, in
whole or in part, of such Performance Criteria as the Committee shall specify.
The Committee shall require that the stock certificates evidencing any
Restricted Stock be held in the custody of the Secretary of the Company until
the Period of Restriction lapses, and that, as a condition of any Restricted
Stock award, the Participant shall have delivered a stock power, endorsed in
blank, relating to the Stock covered by such award. Each grant of Restricted
Stock shall be evidenced by a written agreement setting forth the terms of such
Award.
Page 6
<PAGE>
6.2 Restrictions on Transferability. Except as provided in Section 10.1, no
Restricted Stock may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the lapse of the Period of Restriction.
6.3 Rights as a Shareholder. Unless otherwise determined by the Committee
at the time of grant, Participants holding shares of stock related to any
Restricted Stock granted hereunder may exercise full voting rights and other
rights as a shareholder with respect to those shares during the Period of
Restriction. Participants awarded Restricted D-7 Stock that does not require the
current issuance of Stock shall have no rights as a shareholder unless and until
Stock is actually issued in connection therewith.
6.4 Dividends and Other Distributions. Unless otherwise determined by the
Committee at the time of grant, Participants holding outstanding shares of
Restricted Stock shall be entitled to receive all dividends and other
distributions paid with respect to those shares, provided that if any such
dividends or distributions are paid in shares of Stock, such shares shall be
subject to the same forfeiture restrictions and restrictions on transferability
as apply to the Restricted Stock with respect to which they were paid. The
Committee will determine whether and to what extent to credit to the account of,
or to pay currently to, a recipient of a Restricted Stock that does not involve
the current issuance of Stock, an amount equal to any dividends paid by the
Company during the Period of Restriction with respect to the corresponding
number of shares of Stock ('Dividend Equivalents'). To the extent provided by
the Committee at or after the date of grant, any Dividend Equivalents with
respect to cash dividends on the Stock credited to a Participant's account shall
be deemed to have been invested in shares of Stock on the record date
established for the related dividend and, accordingly, the number of shares of
Stock corresponding to the Restricted Stock shall be deemed increased by the
greatest whole number which may be obtained by dividing (x) the value of such
Dividend Equivalents on the record date by (y) the Fair Market Value of a share
of Stock on such date. Any additional shares credited in respect of Dividend
Equivalents shall become vested and nonforfeitable, if at all, on the same terms
and conditions as are applicable in respect of the Restricted Stock with respect
to which such Dividend Equivalents were payable.
6.5 Termination of Employment Due to Retirement or Death. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment terminates by reason of Retirement or death, a pro rata portion of
any shares related to a Restricted Stock held by such Participant shall become
non-forfeitable, based upon that portion of the Period of Restriction which
expired prior to the Participant's Retirement or death and, where vesting of
such an Award is otherwise contingent on the achievement of performance
objectives, the extent to which such performance objectives are achieved,
provided that, unless the Committee otherwise determines, such pro rata portion
of any outstanding shares of Stock related to such Restricted Stock shall not be
transferable and payment in respect of such pro rata portion of any Restricted
Stock payable in the future shall not be made until the expiration of the Period
of Restriction.
6.6 Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event the
employment of the Participant shall terminate for any reason other than one
described in Section 6.5, any Restricted Stock awarded to such Participant as to
which the Period of Restriction has not lapsed shall be forfeited.
6.7 Interpretation. Notwithstanding anything else contained in this Section
6 to the contrary, if, at the grant date, any Restricted Stock that is granted
or that vests on the basis of the achievement of Performance Criteria is
intended to be other performance based compensation within the Section
162(m)(4)(C) of the Code, then to the extent required to so qualify any Award
thereunder, the Committee shall not be entitled to exercise any discretion
otherwise authorized under the Plan with respect to such Award if the ability to
exercise such discretion (as opposed to the exercise of such discretion) would
cause such award to fail to so qualify as other performance based compensation.
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SECTION 7.
STOCK IN LIEU OF CASH
The Committee may grant shares of Stock in lieu of all or a portion of an
award otherwise payable in cash pursuant to any bonus or incentive compensation
plan of the Company or any Affiliate. If shares are issued in lieu of cash, the
number of shares of Stock to be issued shall be the greatest number of whole
shares which has an aggregate Fair Market Value on the date the cash would
otherwise have been payable pursuant to the terms of such other plan which does
not exceed the amount of such cash, which can be issued on a current or a
deferred basis. The Committee may impose such terms and conditions on the
issuance of such shares of Stock as it deems necessary or appropriate,
including, without limitation, the requirement that such shares not be
transferred for a fixed period or until the occurrence of a stated event, the
condition that such shares will be forfeited if the recipient fails to satisfy a
minimum period of post issuance service or if certain performance conditions
fail to be achieved, or the requirement that some of all of such shares be
issued on a deferred basis. Notwithstanding anything else in the Plan to the
contrary, any shares of Stock issued under this Section 7 in lieu of any cash
payment shall not be counted as a Restricted Stock award for purposes of the
limitations contained in Section 6.1 hereof; provided that any Award made in
combination with an issuance of shares of Stock hereunder that relates to an
amount in excess of the amount of cash otherwise payable shall be counted as
against any limit which is otherwise applicable to such additional Award.
SECTION 8.
CHANGE IN CONTROL
8.1 Accelerated Vesting and Payment. Subject to the provisions of Section
8.2 below, in the event of a Change in Control, each Option shall, at the
discretion of the Committee, either be canceled in exchange for a payment in
cash of an amount equal to the excess, if any, of the Change in Control Price
over the exercise price for such Option, or be fully exercisable regardless of
the exercise schedule otherwise applicable to such Option and all Restricted
Stock shall become nonforfeitable and be immediately transferable or payable, as
the case may be.
8.2 Alternative Awards. Notwithstanding Section 8.1, no cancellation,
acceleration of exercisability, vesting, cash settlement or other payment shall
occur with respect to any Award or any class of Awards if the Committee
reasonably determines in good faith prior to the occurrence of a Change in
Control that such Award or Awards shall be honored or assumed, or new rights
substituted therefor (such honored, assumed or substituted award hereinafter
called an 'Alternative Award'), by a Participant's employer (or the parent or an
Affiliate of such employer) immediately following the Change in Control,
provided that any such Alternative Award must:
(i) be based on stock which is traded on an established securities market,
or which will be so traded within 60 days of the Change in Control;
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or better
than the rights, terms and conditions applicable under such Award, including,
but not limited to, an identical or better exercise or vesting schedule and
identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Award
(determined at the time of the Change in Control);
(iv) have terms and conditions which provide that in the event that the
Participant's employment is involuntarily terminated or constructively
terminated, any conditions on a Participant's rights under, or any restrictions
on transfer or exercisability applicable to, each such Alternative Award shall
be waived or shall lapse, as the case may be. For this purpose, a constructive
termination shall mean a termination by a Participant following a material
reduction in the Participant's base salary or a Participant's incentive
compensation opportunity or a material reduction in the Participant's
responsibilities, in either case without the Participant's written consent.
Page 8
<PAGE>
SECTION 9.
AMENDMENT, MODIFICATION, AND
TERMINATION OF PLAN
The Board at any time may terminate or suspend the Plan, and from time to
time may amend or modify the Plan, except that no amendment, modification, or
termination of the Plan shall in any manner adversely affect any Award
theretofore granted under the Plan, without the consent of the Participant.
SECTION 10.
MISCELLANEOUS PROVISIONS
10.1 Nontransferability Awards. Unless the Committee shall permit (on such
terms and conditions as it shall establish) an Award to be transferred to a
member of the Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members (collectively, the 'Permitted
Transferees'), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant or, if applicable, the Permitted Transferees. The rights of a
Permitted Transferee shall be limited to the rights conveyed to such Transferee,
who shall be subject to and bound by the terms of the agreement or agreements
between the Participant and the Company.
10.2 Beneficiary Designation. Each Participant under the Plan may from time
to time name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid or by whom any
right under the Plan is to be exercised in case of his death. Each designation
will revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during his lifetime. In the absence of
any such designation, benefits remaining unpaid at the Participant's death shall
be paid to or exercised by the Participant's surviving spouse, if any, or
otherwise to or by his estate.
10.3 No Guarantee of Employment or Participation. Nothing in the Plan shall
interfere with or limit in any way the right of the Company, The Equitable or
any Affiliate to terminate any Participant's employment at any time, nor to
confer upon any Participant any right to continue in the employ of the Company,
The Equitable or any Affiliate. No Employee shall have a right to be selected as
a Participant, or, having been so selected, to receive any future Awards.
10.4 Tax Withholding. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of any Award satisfied in the form of Stock, no shares shall be issued
unless and until arrangements satisfactory to the Committee shall have been made
to satisfy any withholding tax obligations applicable with respect to such
Award. Without limiting the generality of the foregoing, the Company shall have
the right to retain, or the Committee may, subject to such terms and conditions
as it may establish from time to time, permit Participants to elect to tender,
Stock (including Stock issuable in respect of an Award) to satisfy, in whole or
in part, the amount required to be withheld.
10.5 Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable Federal and State
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Stock under any Award or any other action permitted under the Plan to permit the
Company, with reasonable diligence, to complete such stock exchange listing or
registration or qualification of such Stock or other required action under any
Federal or State law, rule, or regulation and may require any Participant to
make such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Stock in compliance
with applicable laws, rules, and regulations. The Company shall not be obligated
by virtue of any provision of the Plan to recognize the exercise of any Award or
to otherwise sell or issue Stock in violation of any such laws, rules, or
regulations; and any postponement of the exercise or settlement of any Award
under this provision shall not extend the term of such Awards, and neither the
Company nor its directors or officers shall have any obligation or liability to
the Participant with respect to any Award (or Stock issuable thereunder) that
shall lapse because of such postponement.
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<PAGE>
10.6 Indemnification. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be made a party or in which he may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit, or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive and shall be independent of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-laws, by contract, as a matter of law,
or otherwise.
10.7 Legend. To the extent any stock certificate is issued to a Participant
in respect of shares of Restricted Stock prior to the expiration of the Period
of Restriction, such certificate shall be registered in the name of the
Participant and shall bear the following (or similar) legend:
'The shares of stock represented by this certificate are subject to the
terms and conditions contained in The Equitable Companies 1997 Stock Incentive
Plan and the Award Agreement, effective January 1, 1997, between the Company and
the Participant, and may not be sold, pledged, transferred, assigned,
hypothecated or otherwise encumbered in any manner (except as provided in
Section 10.1 of the Plan or in such Award Agreement) until ____________.' Upon
the lapse of the Period of Restriction with respect to such Restricted Stock,
the Company shall issue or have issued in exchange for those certificates
previously issued new share certificates without the legend described herein in
respect of any shares that have become vested.
10.8 Effective Date. Subject to the approval of the shareholders of the
Company, the Plan shall be effective on January 1, 1997. No awards may be
granted under the Plan after January 1, 2007. Upon shareholder approval of the
Plan, no further awards may be made under the Predecessor Plan. Subject to
shareholder approval of the Plan, if the Committee so determines and the holder
thereof shall consent to any amendment to any outstanding Option that has an
adverse effect on such holder's rights thereunder, the provisions of the Plan
relating to Options shall apply to, and govern, existing Option grants under the
Predecessor Plan and such Options shall be amended to provide such holder with
such additional benefits.
10.9 No Limitation on Compensation. Nothing in the Plan shall be construed
to limit the right of the Company to establish other plans or to pay
compensation to its employees, in cash or property, in a manner which is not
expressly authorized under the Plan.
10.10 Deferrals. The Committee may postpone the exercising of Awards, the
issuance or delivery of Stock under any Award or any action permitted under the
Plan to prevent the Company, The Equitable or any Affiliate from being denied a
Federal income tax deduction with respect to any Award other than an Incentive
Stock Option.
10.11 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
10.12 No Impact On Benefits. Except as may otherwise be specifically stated
under any employee benefit plan, policy or program, no amount payable in respect
of any Award shall be treated as compensation for purposes of calculating an
Employee's right under any such plan, policy or program.
10.13 No Constraint on Corporate Action. Nothing in this Plan shall be
construed (i) to limit, impair or otherwise affect the Company's right or power
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell, or transfer all or any part of its business or assets or (ii)
except as provided in Section 9, to limit the right or power of the Company, The
Equitable or any Affiliate to take any action which such entity deems to be
necessary or appropriate.
Page 10
Short-Term
Incentive Compensation Plan
For Senior Officers
I. Introduction
1.1. Purpose. The purpose of this Plan is to motivate executives to achieve
specific annual goals that are of primary importance to EQ and Equitable Life.
1.2. Definitions. 'Affiliate' means any firm, partnership or corporation
that directly or indirectly through one or more intermediates, controls, is
controlled by, or is under common control with another firm, partnership or
corporation. 'Boards' mean the respective Boards of Directors of Equitable Life
and EQ, each as constituted from time to time. 'Code' means the Internal Revenue
Code of 1986, as amended. 'Committees' mean the respective Organization and
Compensation Committees of the Boards, each as constituted from time to time.
'DLJ' means Donaldson, Lufkin & Jenrette, Inc. and its subsidiaries.
'Earnings Level' means for each performance period (1) with respect to the
EQ Compensation Pool, an amount of Pre-Tax EQ Adjusted Earnings equal to the
pre-tax earnings threshold designated by the Committees and (2) with respect to
the Insurance Compensation Pool, an amount of Pre-Tax Insurance Adjusted
Earnings equal to the pre-tax earnings threshold designated by the Committees.
'EQ' means The Equitable Companies Incorporated, a Delaware corporation,
and any successor thereto.
'EQ Compensation Pool' means the pool to which is credited an amount
determined by the Committees up to a maximum determined by multiplying the
Pre-Tax EQ Adjusted Earnings by 1%.
'Equitable Life' means The Equitable Life Assurance Society of the United
States, a New York stock life insurance company, and any successor thereto.
'Insurance Compensation Pool' means the pool to which is credited an amount
determined by the Committees up to a maximum determined by multiplying the
Pre-Tax Insurance Adjusted Earnings by 6%.
'Participant' means an individual who is or was during the performance
period covered by this Plan a Chairman or Vice Chairman of the Board, President,
Executive Vice President or Senior Vice President of EQ or an officer of
Equitable Life who is or was (i) designated a principal officer, pursuant to the
procedures set forth in Section 4230(a) of the New York Insurance Law, or (ii)
any officer having a title of Senior Vice President or higher.
'Plan' means the Short-Term Incentive Compensation Plan for Senior
Officers, as in effect and as amended from time to time.
'Pools' means both the EQ Compensation Pool and the Insurance Compensation
Pool.
Page 1
<PAGE>
'Pre-Tax Adjustments' shall mean such adjustments, based on EQ's accounting
records, as are necessary to eliminate from the calculation of Pre-Tax Earnings
and Pre-Tax Insurance Earnings the effect of:
(i) all charges for any incentive compensation programs with respect to
Participants under this Plan;
(ii) all non-DLJ capital gains and losses;
(iii) any incremental change attributable to item (ii) in (a) the
investment results directly passed through to participating contract holders and
(b) the amortization of deferred acquisition costs; and
(iv) restructuring charges.
'Pre-Tax EQ Adjusted Earnings' for any year shall mean an amount equal to
the sum of: (1) the consolidated earnings from continuing operations before
Federal income taxes of EQ for such year determined in conformity with generally
accepted accounting principles (the 'Pre-Tax Earnings'), and (2) the net amount
of the Pre-Tax Adjustments.
'Pre-Tax Insurance Adjusted Earnings' for any year shall mean an amount
equal to: the sum of (1) (a) the Pre-Tax Earnings less (b) the amount of the
earnings from continuing operations before Federal income taxes of the
investment services segment included in the Pre-Tax Earnings, such difference
being referred to as the Pre-Tax Insurance Earnings, and (2) the net amount of
the Pre-Tax Adjustments other than Pre-Tax Adjustments attributable to the
investment services segment.
II. Administration
2.1. For purposes of complying with the requirements of Section 162(m) of
the Code, the Committees, prior to the commencement of a performance period or
such later date as may be permitted under such Section 162(m), will determine
the amount to be paid to each of the 'covered employees' as defined in Section
162(m) of the Code subject to the Committees' right in their sole discretion to
reduce or eliminate the amount to be paid to such individuals.
2.2. The Committees shall determine each year, subject to the terms of the
Plan, whether the Earnings Level under section 4.1 has been achieved, the
aggregate size of the respective Pools and the payments to Participants in each
Pool. To the extent required by Section 162(m) of the Code, the Committees shall
certify that the performance goals and any other material terms of the Plan have
been satisfied prior to any payment to 'covered employees' as defined in Section
162(m) of the Code.
The administration and operation of the Plan shall be supervised by the
Committees. The Committees may delegate responsibility for the day-to-day
administration and operation of the Plan to such employees of Equitable Life as
they shall designate from time to time. The Committees shall interpret and
construe any and all provisions of the Plan and any determination made by the
Committees, under the Plan, shall be final and conclusive. All accounting
determinations shall be made using the accounting principles used by EQ in its
consolidated financial statements and quarterly financial supplements prepared
in accordance with generally accepted accounting principles. Neither the Boards,
nor the Committees, nor any member of the Boards or the Committees, nor any
employee of Equitable Life and EQ shall be liable for any act, omission,
interpretation, construction or determination made in connection with the Plan
(other than acts of willful misconduct) and the members of the Boards and the
Committees and the employees of Equitable Life and EQ shall be entitled to
indemnification and reimbursement by Equitable Life and EQ to the maximum extent
permitted by law in respect of any claim, loss, damage or expense (including
counsel's fees) arising from their acts, omissions and conduct in their official
capacity with respect to the Plan.
III. Eligibility
3.1. (a) Only Participants who are or were officers of Equitable Life shall
be eligible to participate in the Insurance Compensation Pool.
(b) Only Participants who are or were officers of EQ shall be eligible to
participate in the EQ Compensation Pool.
(c) Participants who are or were officers of both EQ and Equitable Life
shall be eligible to participate in both Pools.
Page 2
<PAGE>
IV. Determination of Compensation Pools
4.1. If the Earnings Level for the EQ Compensation Pool is achieved, the
Committees may direct that an amount be set aside up to 1% of the Pre-Tax EQ
Adjusted Earnings for the EQ Compensation Pool. If the Earnings Level for the
Insurance Compensation Pool is achieved, the Committees may direct that an
amount be set aside up to 6% of the Pre-Tax Insurance Adjusted Earnings for the
Insurance Compensation Pool.
V. Payment
5.1 General Rule. Except as otherwise provided hereunder, payment of
amounts determined under this Plan shall be made to each Participant for any
annual performance period as soon as practicable.
5.2. Maximum Payment. The Committees will determine the amount to be paid
to each of the 'covered employees' as defined in Section 162(m) of the Code
subject to the Committees' right in their sole discretion to reduce or eliminate
the amount to be paid to such Participants; provided that, to extent required by
Section 162(m) of the Code, the exercise of negative discretion by the Committee
with respect to such 'covered employee' shall not increase the amounts payable
from the Compensation Pools with respect to any other Participant.
Notwithstanding the foregoing, in no event shall (i) a Participant who is
described in Section 162(m)(3)(A) of Code with respect to the taxable year in
which the amounts payable in respect of any performance period are deductible
for Federal income tax purposes (the 'Taxable Year') receive payment under this
Plan of an amount in excess of 12% of the maximum amount which could be credited
to the Pools under Section 4.1 and (ii) the Participants described in Section
162(m)(3)(B) of the Code with respect to the Taxable Year receive payment under
this Plan of an amount in excess of 10% in the case of such Participant
receiving the highest amount of salary and bonus for the Taxable Year, 8% in the
case of such Participant receiving the second highest amount of salary and bonus
for the Taxable Year, 7% in the case of such Participant receiving the third
highest amount of salary and bonus for the Taxable Year and 6% in the case of
such Participant receiving the fourth highest amount of salary and bonus for the
Taxable Year, of the maximum amount which could be credited to the Pools under
Section 4.1.
5.3. Involuntary Termination, Death, Disability or Retirement. If a
Participant's employment is terminated by Equitable Life or EQ or terminates by
reason of his death, disability (as defined in Section 22(e)(3) of the Code, or
any successor provision thereto) or retirement, the Committees, in their sole
discretion, may authorize a payment, subject to the achievement of the Earnings
Levels, at the time and subject to the maximum payment limits established under
Article V.
VI. General Provisions
6.1 Amendment and Termination. The Plan may at any time be amended,
suspended, discontinued or terminated by action taken by the Boards and
Committees without approval or consent by shareholders; provided, however, that
no such amendment, suspension, discontinuance or termination shall adversely
affect the rights of any Participant with respect to any payments which the
Committees have determined shall be made prior to the effective date of such
amendment, suspension, discontinuance or termination.
6.2. Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committees and shall not be
effective until received by the Committees. If no beneficiary has been named, or
the designated beneficiary or beneficiaries shall have predeceased the
Participant, the beneficiary shall be the Participant's spouse or, if no spouse
survives the Participant, the Participant's estate. If a Participant designates
more than one beneficiary, the interests of such beneficiaries shall be paid in
equal shares, unless the Participant has designated otherwise.
6.3 Miscellaneous. (a) No Right of Payment or Continued Employment. Nothing
in this Plan shall be construed as conferring upon any Participant any right to
payments under this Plan, or to continue in the employment of Equitable Life or
any of its Affiliates.
Page 3
<PAGE>
(b) No Limitation on Corporation Actions. Nothing contained in the Plan
shall be construed to prevent Equitable Life or EQ from taking any corporate
action which is deemed by either Equitable Life or EQ or any of their Affiliates
to be appropriate or in their best interest, whether or not such action would
have an adverse effect on the Plan or any awards made under the Plan. No
employee, beneficiary or other person shall have any claim against Equitable
Life or EQ or any of their Affiliates as a result of any such action.
(c) Nonalienation of Benefits. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to transfer (otherwise
than by will or the laws of descent and distribution), alienate, or otherwise
encumber the Participant's interest under the Plan. Equitable Life's or EQ's
obligations under this Plan are not assignable or transferable except to (i) a
corporation which acquires all or substantially all of Equitable Life's or EQ's
assets or (ii) any corporation into which Equitable Life or EQ may be merged or
consolidated. The provisions of the Plan shall inure to the benefit of each
Participant and the Participant's beneficiaries, heirs, executors,
administrators or successors in interest.
(d) Withholding Taxes. Equitable Life and EQ may make such provisions and
take such action as they may deem necessary or appropriate for the withholding
of any taxes which Equitable Life or EQ are required by any law or regulation of
any governmental authority, whether Federal, state or local, to withhold in
connection with any awards under the Plan, including, but not limited to, the
withholding of appropriate sums from any amount otherwise payable to the
Participant (or his Beneficiary). Each Participant, however, shall be
responsible for the payment of all individual tax liabilities relating to any
such award.
(e) Unfunded Status of Plan. The Plan is intended to constitute an
'unfunded' plan for incentive compensation for Participants. With respect to any
payments not yet made to a Participant, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
Equitable Life or EQ.
(f) Severability. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to
such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(g) Governing Law. The Plan shall be construed in accordance with and
governed by the laws of the State of New York, without reference to the
principles of conflict of law.
(h) Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in the construction of the provisions of
the Plan.
Page 4
Long-Term Incentive Compensation
Plan for Senior Officers
I. Introduction
1.1. Purpose. The purpose of this Plan is to attract and motivate key
individuals by providing compensation based both on Equitable Life's performance
in improving its profitability and total returns to shareholders and on
individual performance.
1.2. Definitions.
'Affiliate' means any firm, partnership or corporation that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with another firm, partnership or corporation.
'Boards' mean the respective Boards of Directors of Equitable Life and
EQ, each as constituted from time to time.
'Code' means the Internal Revenue Code of 1986, as amended.
'Committees' mean the respective Organization and Compensation Committees
of the Boards, each as constituted from time to time.
'Common Stock' means the common stock, par value $0.01 per share, of EQ.
'Compensation Pool' means the amounts set aside for payments to
Participants as determined under Sections 2.1 and 3.1. 'DLJ' means Donaldson,
Lufkin & Jenrette, Inc. and its subsidiaries.
'Earnings Level' means the cumulative amount of Pre-tax Insurance Adjusted
Earnings for a Performance Period equal to 60% of the cumulative amount of
pre-tax earnings goals for each of the years in such Performance Period
designated by the Committees within 90 days of the commencement of such
Performance Period (or such later time as may be permitted or such earlier time
as may be required under Section 162(m) of the Code).
'EQ' means The Equitable Companies Incorporated, a Delaware corporation,
and any successor thereto.
'Equitable Life' means The Equitable Life Assurance Society of the United
States, a New York stock life insurance company, and any successor thereto.
'Initial Performance Period' means the Performance Period commencing
January 1, 1996 and ending December 31, 1998.
Page 1
<PAGE>
'Interim Earnings Level' means the cumulative amount of Pre-tax Insurance
Adjusted Earnings for the first two years of the Initial Performance Period
equal to 75% of the cumulative amount of pre-tax earnings goals for each of such
years designated by the Committees within 90 days of the commencement of the
Initial Performance Period.
'Participant' means an individual who is or was during a performance period
covered by this Plan a Chairman or Vice Chairman of the Board, President,
Executive Vice President or Senior Vice President of EQ or an officer of
Equitable Life who is or was (i) designated a principal officer, pursuant to the
procedures set forth in section 4230(a) of the New York Insurance Law, (ii) an
officer having a title of Senior Vice President or higher, or (iii) a Vice
President selected by the Committees upon the recommendation of the Chief
Executive Officer of Equitable Life.
'Performance Period' means each three calendar year period commencing on
January 1, 1996 and each subsequent January 1.
'Plan' means the Long-Term Incentive Compensation Plan for Senior Officers,
as in effect and as amended from time to time.
'Pre-Tax Insurance Adjusted Earnings' for any year shall mean an amount
equal to: the sum of (1)(a) the consolidated earnings from continuing operations
before Federal income taxes of EQ for such year determined in conformity with
generally accepted accounting principles (the 'Pre-Tax Earnings') less (b) the
amount of the earnings from continuing operations before federal income taxes of
the investment services segment included in the Pre-Tax Earnings, such
difference being referred to as the 'Pre-Tax Insurance Earnings', and (2) the
net amount of the Pre-Tax Adjustments other than Pre-Tax Adjustments
attributable to the investment services segment.
'Pre-Tax Adjustments' shall mean such adjustments, based on EQ's accounting
records, as are necessary to eliminate from the calculation of Pre-Tax Insurance
Earnings the effect of:
(i) all charges for incentive compensation programs;
(ii) all non-DLJ capital gains and losses;
(iii) any incremental change attributable to item (ii) in (a) the
investment results directly passed through to participating contract holders and
(b) the amortization of deferred acquisition costs; and
(iv) restructuring charges.
II. Administration
2.1. Maximum Amount Payable to Covered Employees. For purposes of complying
with the requirements of Section 162(m) of the Code, within 90 days of the
commencement of each Performance Period (or such later time as may be permitted
or such earlier times as may be required under Section 162(m) of the Code) the
Committees will determine the amount to be paid to each of the 'covered
employees' as defined in Section 162(m) of the Code subject to the Committees'
right in their sole discretion to reduce or eliminate the amount to be paid to
such Participants; provided that, to the extent required by Section 162(m) of
the Code, the exercise of negative discretion by the Committees with respect to
such 'covered employee' shall not increase the amount payable from the
Compensation Pool with respect to any other Participant. Notwithstanding the
foregoing, in no event shall (i) a Participant who is described in Section
162(m)(3)(A) of the Code with respect to the taxable year in which the amounts
payable in respect of a Performance Period are deductible for Federal income tax
purposes (the 'Taxable Year') receive payment under this Plan in respect of such
Performance Period of an amount in excess of 16% of the maximum amount which
could be credited to the corresponding Compensation Pool under Section 3.1 and
(ii) the Participants described in Section 162(m)(3)(B) of the Code with respect
to the Taxable Year (the 'Affected Participants') receive payment under this
Plan in respect of a Performance Period of an amount in excess of 14% in the
case of the Affected Participant receiving the highest amount of salary and
bonus for the Taxable Year, 12% in the case of the Affected C-2 Participant
receiving the second highest amount of salary and bonus for the Taxable Year,
11% in the case of the Affected Participant receiving the third highest amount
of salary and bonus for the Taxable Year and 10% in the case of the Affected
Participant receiving the fourth highest amount of salary and bonus for the
Taxable Year, of the maximum amount which could be credited to the corresponding
Compensation Pool under Section 3.1.
Page 2
<PAGE>
2.2. Determination of Pool Size and Actual Amounts Payable. In accordance
with the terms of the Plan, the Committees shall determine whether the Earnings
Level and Interim Earnings Level have been achieved, the aggregate size of the
Compensation Pool for each Performance Period and the amounts payable to each
Participant. To the extent required under Section 162(m) of the Code, the
Committees shall certify that the performance goals and any other material terms
of the Plan have been satisfied prior to any payment to 'covered employees' as
defined in Section 162(m) of the Code.
2.3. Administration. The administration and operation of the Plan shall be
supervised by the Committees. The Committees may delegate responsibility for the
day to day administration and operation of the Plan to such employees of
Equitable Life as they may designate from time to time. The Committees shall
interpret and construe any and all provisions of the Plan and any determination
made by the Committees, under the Plan, shall be final and conclusive. All
accounting determinations made with respect to a Performance Period shall be
made using the accounting principles used by EQ in its consolidated financial
statements and quarterly financial supplements prepared in accordance with
generally accepted accounting principles. Neither the Boards, nor the
Committees, nor any member of the Boards or the Committees, nor any employee of
Equitable Life or EQ shall be liable for any act, omission, interpretation,
construction or determination made in connection with the Plan (other than acts
of willful misconduct) and the members of the Boards and the Committees and the
employees of Equitable Life and EQ shall be entitled to indemnification and
reimbursement by Equitable Life and EQ, to the maximum extent permitted by law
in respect of any claim, loss, damage or expense (including counsel's fees)
arising from their acts, omissions and conduct in their official capacity with
respect to the Plan.
III. Determination of Compensation Pool
3.1. Establishment of Compensation Pool. If the Earnings Level or the
Interim Earnings Level with respect to the applicable Performance Period is
achieved, the Committees shall establish a Compensation Pool for such
Performance Period and may allocate to such Compensation Pool up to a maximum
amount equal to one-half of one percent (0.5%) of the cumulative Pre-Tax
Insurance Adjusted Earnings for the three years in such Performance Period,
provided that, with respect to the Initial Performance Period, the maximum
amount that may be allocated by the Committees to the corresponding Compensation
Pool for (i) 1996 and 1997 shall be one percent (1.0%) of cumulative Pre-Tax
Insurance Adjusted Earnings for such years and (ii) the entire Initial
Performance Period shall be the excess of one percent (1.0%) of cumulative
Pre-Tax Insurance Adjusted Earnings for all years in such Performance Period
over the amount allocated to the Compensation Pool in respect of 1996 and 1997.
3.2 Payment. Amounts payable in respect of any Performance Period shall be
paid as soon as practicable following the determination by the Committees of the
amount payable for such Performance Period, except that, with respect to the
Initial Performance Period, if the Committees determine that the Interim
Earnings Level has been attained, the amount credited to the Compensation Pool
for the Initial Performance Period in respect of 1996 and 1997 shall be payable
to Participants as soon as practicable following December 31, 1997.
3.3 Form of Payment. Unless payment to Participants in the form of Common
Stock would violate New York State Insurance Law, the Committees shall have the
right to cause all or any portion of the amount payable to a Participant to be
paid in the form of Common Stock. The maximum number of shares of Common Stock
issuable annually in respect of any Participant shall equal the greatest number
of whole shares determined by dividing (i) the aggregate dollar amount
determined by the Committees to be payable to such Participant from a
Compensation Pool by (ii) the closing price of a share of Common Stock reported
on the New York Stock Exchange Consolidated Tape for the date on which the
Committees certify that the performance goals have been achieved and determine
the amount payable to such Participant in respect of the corresponding
Compensation Pool (or, if the Common Stock is not traded on such date, on the
next following date on which the Common Stock is so traded).
Page 3
<PAGE>
3.4 Termination of Employment. Except as provided in the next sentence, if
a Participant's employment terminates prior to the end of a Performance Period
(or, in the case of any amount payable in respect of achieving the Interim
Earnings Level, prior to December 31, 1997) such Participant (and any person
claiming in respect of such Participant) shall have no right to receive any
payment in respect of the corresponding Compensation Pool. If a Participant's
employment is terminated by Equitable Life or EQ or terminates by reason of his
death, disability (as defined in Section 22(e)(3) of the Code, or any successor
provision thereto) or retirement, the Committees, in their sole discretion, may
authorize a payment to such Participant, subject to all the terms and conditions
of the Plan.
IV. General Provisions
4.1 Amendment and Termination. The Plan may at any time be amended,
suspended, discontinued or terminated by action taken by the Boards and
Committees without approval or consent by shareholders; provided, however, that
no such amendment, suspension, discontinuance or termination shall adversely
affect the rights of any Participant with respect to any payments which the
Committees have determined shall be made prior to the effective date of such
amendment, suspension, discontinuance or termination.
4.2. Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committees and shall not be
effective until received by the Committees. If no beneficiary has been named, or
the designated beneficiary or beneficiaries shall have predeceased the
Participant, the beneficiary shall be the Participant's spouse or, if no spouse
survives the Participant, the Participant's estate. If a Participant designates
more than one beneficiary, the interest of such beneficiaries shall be paid in
equal shares, unless the Participant has designated otherwise.
4.3 Miscellaneous.
(a) No Right of Payment or Continued Employment. Nothing in this Plan shall
be construed as conferring upon any Participant any right to payments under this
Plan, or to continue in the employment of Equitable Life or any of its
Affiliates.
(b) No Limitation on Corporation Actions. Nothing contained in the Plan
shall be construed to prevent Equitable Life or any of its Affiliates from
taking any corporate action which is deemed by it to be appropriate or in its
best interest, whether or not such action would have an adverse effect on the
Plan or any awards made under the Plan.
No employee, beneficiary or other person shall have any claim against Equitable
Life or any of its Affiliates as a result of any such action.
Page 4
<PAGE>
(c) Nonalienation of Benefits. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to transfer (otherwise
than by will or the laws of descent and distribution), alienate, or otherwise
encumber the Participant's interest under the Plan. Equitable Life's obligations
under this Plan are not assignable or transferable except to (i) a corporation
which acquires all or substantially all of Equitable Life's assets or (ii) any
corporation into which Equitable Life may be merged or consolidated. The
provisions of the Plan shall inure to the benefit of each Participant and the
Participant's beneficiaries, heirs, executors, administrators or successors in
interest.
(d) Withholding Taxes. Equitable Life may make such provisions and take
such action as it may deem necessary or appropriate for the withholding of any
taxes which Equitable Life is required by any law or regulation of any
governmental authority, whether Federal, state or local, to withhold in
connection with any awards under the Plan, including, but not limited to, the
withholding of appropriate sums from any amount otherwise payable to the
Participant (or his beneficiary). Each Participant, however, shall be
responsible for the payment of all individual tax liabilities relating to any
such award.
(e) Unfunded Status of Plan. The Plan is intended to constitute an
'unfunded' plan for incentive compensation for Participants. With respect to any
payments not yet made to a Participant, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
Equitable Life.
(f) Severability. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to
such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(g) Governing Law. The Plan shall be construed in accordance with and
governed by the laws of the State of New York, without reference to the
principles of conflict of laws.
(h) Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in the construction of the provisions of
the Plan.
Page 5
1290 ASSOCIATES,
Landlord
TO
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES,
Tenant
Lease
Dated as of July 20, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Premises; Term; Use
1.01 Demise.
1.02 Term.
1.03 Relevant Date.
1.04 Tenant Delay.
1.05 Use.
1.06 Tenant's Right of First Offer.
ARTICLE 2
Rent
2.01 Rent.
2.02 Fixed Rent.
2.03 Additional Charges.
2.04 Tax Payments.
2.05 Operating Payments.
2.06 Tax and Operating Provisions.
2.07 Electric Charges.
2.08 Manner of Payment.
ARTICLE 3
Landlord Covenants
3.01 Office Space Services
3.02 Concourse Space Services
3.03 Other Building Services
3.04 General Provisions
ARTICLE 4
Leasehold Improvements; Tenant Covenants
4.01 Initial Improvements.
4.02 Alterations.
4.03 Landlord's and Tenant's Property.
4.04 Access and Changes to Building.
4.05 Repairs.
4.06 Compliance with Laws.
4.07 Tenant Advertising.
4.08 Right to Perform Tenant Covenants.
ARTICLE 5
Assignment and Subletting
5.01 Assignment; Etc.
5.02 Landlord's Right of First Offer.
5.03 Assignment and Subletting Procedures.
5.04 General Provisions.
5.05 Assignment and Sublease Profits.
ARTICLE 6
Subordination; Default; Indemnity
6.01 Subordination.
6.02 Estoppel Certificate.
6.03 Default.
6.04 Re-entry by Landlord.
6.05 Damages.
6.06 Other Remedies.
6.07 Right to Injunction.
6.08 Certain Waivers.
6.09 No Waiver.
6.10 Holding Over.
6.11 Attorneys' Fees.
6.12 Nonliability and Indemnification.
ARTICLE 7
Insurance; Casualty; Condemnation
7.01 Compliance with Insurance Standards.
7.02 Tenant's Insurance.
7.03 Subrogation Waiver.
7.04 Condemnation.
7.05 Casualty.
7.06 Certain Termination Payments.
7.07 Termination Rights As To Sublet Space.
<PAGE>
ARTICLE 8
Miscellaneous Provisions
8.01 Notice.
8.02 Building Rules.
8.03 Severability.
8.04 Certain Definitions.
8.05 Quiet Enjoyment.
8.06 Limitation of Landlord's Personal Liability.
8.07 Counterclaims.
8.08 Survival.
8.09 Arbitration.
8.10 No Offer.
8.11 Captions; Construction.
8.12 Amendments.
8.13 Broker.
8.14 Merger.
8.15 Successors.
8.16 Applicable Law.
8.17 No Development Rights.
8.18 Parking.
8.19 Emergency Generator.
8.20 Signage.
8.21 Lobby Renovation.
8.22 Force Majeure.
8.23 Memorandum of Lease.
8.24 Major Tenant Rights.
8.25 Lobby Artwork.
ARTICLE 9
Renewal Right
9.01 Renewal Right.
9.02 Renewal Rent and Other Terms.
ARTICLE 10
Self-Help; Rent Abatement; Set-Off
10.01 Tenant's Right To Perform Landlord's Obligations.
10.02 Tenant Abatement Rights.
10.03 Tenant Termination Rights.
10.04 Tenant's Right to Interest on Late Payments.
10.05 Tenant's Set-Off Right.
10.06 Effect of Rejection by Landlord.
ARTICLE 11
Tenant Antenna
11.01 Tenant Antenna.
ARTICLE 12
Corporate Retention Benefits
12.01 Incentive Benefits.
<PAGE>
EXHIBITS
A Description of Land
B Floor Plans
B-1 14th Floor
B-2 15th Floor
B-3 16th Floor
B-4 17th Floor
B-5 18th Floor
B-6 19th Floor
B-7 20th Floor
B-8 21st Floor
B-9 22nd Floor
B-10 12th Floor
B-11 13th Floor
B-12 11th Floor
B-13 Concourse Space
B-14 Sub-Cellar Space
B-15 Initial Possession Space
C Rules and Regulations
D Alterations Rules and Regulations
E Standard Cleaning Specifications
F Landlord's Work
G HVAC Specifications
H RSF and Tenant's Share
I Form of Landlord's Statement
J Electrical Specifications
K Form of Assumption Agreement
L Building Security Specifications
M Non-Disturbance and Attornment Agreement between Tenant and the
Indenture Trustee
N [Intentionally Omitted]
O Form of Non-Disturbance and Attornment Agreement for Superior Mortgages
P Condenser Water Specifications
Q Tenant's Required Work
R Elevator Specifications
S Locations for NYNEX Second Port of Entry
T Antenna Location
U Location of Benton Panels
V Exterior Signage Locations and Criteria
W Lobby Renovation Work
X HVAC Overtime Charge Formula
Y [Intentionally Omitted]
Z 19th Floor Radiator Covers and Grilles and Mullions
AA Exhibits Omitted from filing
<PAGE>
INDEX OF DEFINED TERMS
Definition Where Defined
90 Day Offer Space Interval Section 1.06
AAA Section 2.07
Acceptance Notice Section 1.06
Actual Charge Section 2.07
ADA Exhibit F
Additional Charges Section 2.03
Adjusted Block A Fixed Relevant Date Section 1.03
Adjusted Block B Fixed Relevant Date Section 1.03
Adjusted Block C Fixed Relevant Date Section 1.03
Adjusted Concourse Fixed Relevant Date Section 1.03
Adjusted Fixed Relevant Date Section 1.03
Affiliate Section 5.01
Agency Section 12.01
Allowance Section 4.01
Alterations Section 4.02
Antenna Section 11.01
Applicable Allowance Section 1.03
Available Section 1.06
Base Cleaning Cost Section 3.04
Base Operating Amount Section 2.05
Base Operating Year Section 2.05
Base Tax Amount Section 2.04
Base Tax Year Section 2.04
Benton Section 8.25
Block A and B Allowance Section 4.01
Block A Relevant Date Section 1.03
Block A Fixed Relevant Date Section 1.03
Block A Rent Commencement Date Section 2.02
Block A Space Section 1.01
Block B Relevant Date Section 1.03
Block B Fixed Relevant Date Section 1.03
Block B Rent Commencement Date Section 2.02
Block B Space Section 1.01
Block C Allowance Section 4.01
Block C Relevant Date Section 1.03
Block C Fixed Relevant Date Section 1.03
Block C Rent Commencement Date Section 2.02
Block C Space Section 1.01
Blocks Section 1.01
Brokerage Agreement Section 8.13
Brokers Section 8.13
Building Recitals Business Days Section 3.04
Business Hours Section 3.04
Cafeteria Section 1.05
Casualty Section 7.05
Casualty Terminated Space Section 7.05
Commission Section 8.13
Commission Rent Credit Section 8.13
Companies Section 6.01
Competitor Section 5.02
Concourse Relevant Date Section 1.03
Concourse Rent Commencement Date Section 2.02
Concourse Space Section 1.01
<PAGE>
Concourse Space Work Section 1.03
Contractor Section 7.05
Control Section 5.01
Curing Party Section 4.08
Deemed Termination Allowance Section 7.05
Delivery Condition Section 1.03
Delivered Partial Floor Section 1.03
Dependent Group Section 1.03
Direct Cleaning Notice Section 3.04
ELAS Section 8.20
EREIM Section 5.01
Essential Group Section 1.03
Estimate Section 7.05
Eviction Section 10.02
Excess Cleaners Section 3.04
Execution and Delivery Date Section 4.01
Expiration Date Section 1.02
Fair Market Rent Section 9.02
First Outside Date Section 7.05
First Rescission Date Section 1.06
Fixed Cleaning Rent Section 3.04
Fixed Relevant Date Section 1.03
Fixed Rent Section 2.02
Fixtures Section 4.03
Force Majeure Section 8.22
GAAP Section 2.05
Ground Lease Section 6.01
Holdover Excess Section 1.03
Holdover Percentage Section 6.10
Holdover Profit Section 1.06
Holdover Renewal Term Section 6.10
Identified Ancillary Uses Section 1.05
Improper Use Section 1.05
Includable Capital Improvements Section 2.05
Indenture Section 6.01
Initial Charge Section 2.07
Initially Named Tenant Section 5.04
Initial Possession Space Section 4.01
Interest Rate Section 4.08
Interruption Section 10.01
Land Recitals
Landlord Introduction;
Section 8.04
Landlord Delay Section 2.02
Landlord Indemnified Party Section 6.12
Landlord Obligation Areas Section 4.05
Landlord Services Section 3.01
Landlord's Acceptance Notice Section 5.02
Landlord's Determination Section 9.02
Landlord's New Lease Section 6.10
Landlord's Rate Section 2.07
Landlord's Statement Section 2.05
Landlord's Work Section 4.01
Late Delivery Terminated Space Section 1.03
Laws Section 4.06
Lease Introduction
Lobby Abatement Period Section 8.21
Lobby Renovation Work Section 8.21
<PAGE>
Long Lead Work Section 7.05
Major Tenant Rights Section 8.24
Material Alteration Section 4.02
New Tenant Section 6.10
Non-Delivered Block Section 1.03
Non-Delivered Partial Floor Section 1.03
Notice Section 8.01
Offer Notice Section 1.06
Offer Period Section 1.06
Offer Space Section 1.06
Offer Space Option Section 1.06
Office Space Section 1.01
Offset Amount Section 10.05
Offset Notice Section 10.05
OS Inclusion Date Section 1.06
Operating Denominator Section 2.05
Operating Expense Cutoff Date Section 8.04
Operating Expenses Section 2.05
Operating Payment Section 2.05
Operating Year Section 2.05
Other Affected Space Section 1.03
Phase I Lobby Renovation Work Section 8.21
Phase I Target Date Section 8.21
Phase II Lobby Renovation Work Section 8.21
Phase II Target Date Section 8.21
Postponement Period Section 1.05
Preceding Operating Year Section 8.04
Premises Section 1.01
Primary Concourse Space Section 1.01
Primary Portion Section 1.03
Prime Rate Section 4.08
Project Recitals
Punch List Items Section 1.03
Qualifying Condition Section 1.03
Qualifying Transactions Section 5.03
Records Section 2.05
Relevant Date Section 1.03
Renewal Notice Section 9.01
Renewal Option Section 9.01
Renewal Percentage Section 9.02
Renewal Premises Section 9.01
Renewal Term Section 9.01
Rent Section 2.01
Rent Commencement Date Section 2.02
Rent Notice Section 9.02
Required Restoration Work Section 7.05
Rescission Acceleration Notice Section 1.06
Rescission Notice Section 1.06
Rescission Right Section 1.06
Second Outside Date Section 7.05
Second Tier Sublease Section 5.04
Secondary Concourse Space Section 1.01
Secondary Portion Section 1.03
Sub-Cellar Space Section 4.01
Sublet Rent Section 5.02
Sublet Space Section 5.02
Sublet Term Section 5.02
Substantial Completion Date Section 7.05
Successor Landlord Section 6.01
<PAGE>
Superior Lease Section 6.01
Superior Lessor Section 6.01
Superior Mortgage Section 6.01
Superior Mortgagee Section 6.01
Supervisory Fee Section 3.04
Survey Notice Section 2.07
Target Date Section 1.06
Tax and Operating Payments Section 8.21
Tax Bill Section 2.04
Tax Denominator Section 2.04
Tax Payment Section 2.04
Tax Payment Date Section 2.04
Tax Statement Section 2.04
Tax Year Section 2.04
Taxes Section 2.04
Tenant Introduction Tenant Delay Section 1.04
Tenant Indemnified Party Section 6.12
Tenant's Basic Cost Section 5.05
Tenant's Determination Section 9.02
Tenant's New Lease Section 6.10
Tenant's Notice Section 9.02
Tenant's Offer Notice Section 5.02
Tenant's Operating Share Section 2.05
Tenant's Parking Spaces Section 8.18
Tenant's Property Section 4.03
Tenant's Qualified Sublet Cost Section 5.02
Tenant's Required Work Section 4.01
Tenant's Statement Section 2.05
Tenant's Tax Share Section 2.04
Term Section 1.02
Terminated Space Section 10.03
Termination Section 6.04
Termination Notice Section 7.05
Transfer Notice Section 5.03
Unforeseen Condition Section 4.01
Unpaid Commission Section 8.13
Untenantable Section 7.05
Work Exhibit D
<PAGE>
LEASE (this lease, including all Exhibits attached to this lease, is called
the "Lease"), dated as of July 20, 1995, between 1290 ASSOCIATES ("Landlord"), a
New York partnership whose address is c/o Olympia & York Companies (U.S.A.), 237
Park Avenue, New York, New York 10017, and THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES ("Tenant"), a New York corporation, whose address is 787
Seventh Avenue, New York, New York 10019 prior to Tenant's occupancy of any
portion of the Premises for the conduct of business therein, and thereafter
Tenant's address shall be that of the Building.
W I T N E S S E T H WHEREAS,
Landlord is willing to lease to Tenant and Tenant is willing to hire from
Landlord, on the terms hereinafter set forth, certain space in the office
building located at 1290 Avenue of the Americas, New York, New York (the
"Building") on the land more particularly described in Exhibit A (the "Land";
the Land and the Building are collectively called the "Project").
NOW, THEREFORE, Landlord and Tenant agree as follows:
ARTICLE 1
Premises; Term; Use
1.01 Demise. (a) Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord, subject to the terms and conditions of this Lease, the following:
(i) the entire 14th, 15th, 16th, 17th, 18th, 19th, 20th, 21st and 22nd floors of
the Building substantially as shown on the plans thereof attached hereto as
Exhibits B-1 through B-9 (collectively, the "Block A Space"), (ii) the entire
12th and 13th floors of the Building substantially as shown on the plans thereof
attached hereto as Exhibits B-10 and B-11 (collectively, the "Block B Space"),
(iii) the entire 11th floor of the Building substantially as shown on the plan
thereof attached hereto as Exhibit B-12 (the "Block C Space"; the Block A Space,
the Block B Space and the Block C Space are individually "Blocks" and
collectively, the "Office Space"), and (iv) the portion of the concourse floor
of the Building substantially as shown hatched on the plan thereof attached
hereto as Exhibit B-13 (the "Primary Concourse Space") and the portion of the
concourse floor of the Building substantially as shown cross-hatched on the plan
thereof attached hereto as Exhibit B-13 (the "Secondary Concourse Space", the
Primary Concourse Space and the Secondary Concourse Space are collectively
called the "Concourse Space" and the Office Space and the Concourse Space are
collectively called the "Premises").
(b) Landlord and Tenant confirm that (i) the Office Space is conclusively
deemed to contain 502,480 rentable square feet and (ii) the Concourse Space and
each floor comprising the Office Space is conclusively deemed to contain the
number of rentable square feet specified therefor on Exhibit H attached hereto.
1.02 Term. (a) The term of this Lease (the "Term") shall commence on the
date of this Lease (subject to the proviso in Section 1.02(b) below) and shall
end with respect to the entire Premises, unless sooner terminated as herein
provided, on the last day of the calendar month in which occurs the 16th
anniversary of the day preceding the first Relevant Date applicable to any space
included in the Block A Space (such date, as the same may be extended pursuant
to Article 9, is called the "Expiration Date").
(b) For all purposes of this Lease (including, without limitation, for the
purposes of Section 365(h) of the Federal Bankruptcy Code), but subject to the
proviso below, the Term shall be deemed to have commenced with respect to each
of the Blocks and the Concourse Space on the date of this Lease; provided, that
until the respective Relevant Date with respect to each Block (or the applicable
portion thereof) and the Concourse Space (i) this Lease, any leasehold estate
created in such Block (or portion thereof) and the Concourse Space hereby, any
rights to possession, use and enjoyment of such Block (or portion thereof) and
the Concourse Space created or derived herefrom, and all of the terms,
covenants, conditions and agreements of this Lease are hereby made, and shall
continue to be, subject and subordinate to the leasehold estates of all existing
tenants in such Block (or
<PAGE>
portion thereof) and the Concourse Space, their rights of possession, use and
enjoyment of such Block (or portion thereof) and the Concourse Space created or
derived therefrom and all of the terms, covenants, conditions and agreements of
their leases thereto, (ii) except for the Initial Possession Space (which Tenant
may, subject to the further provisions of this Lease, possess, use and occupy
from and after the date of this Lease), Tenant shall not possess, use or occupy
such Block (or portion thereof) and the Concourse Space, (iii) Tenant shall have
no right to any rent, income or profits accruing with respect to such Block (or
portion thereof) and the Concourse Space, whether from the leasehold estates of
such existing tenants or otherwise, (iv) Landlord's covenant of quiet enjoyment
set forth in Section 8.05 shall not apply to such Block (or portion thereof) and
the Concourse Space and (v) Tenant shall have no obligations under this Lease
with respect to such Block (or portion thereof) and the Concourse Space, except
that in the case of the Initial Possession Space, Tenant shall comply with all
of Tenant's obligations under this Lease with respect to such space from and
after the date that Tenant takes possession of such space for the performance of
Alterations or for any other purpose.
(c) On the Adjusted Fixed Relevant Date with respect to each Block and the
Concourse Space, Landlord shall deliver such Block or the Concourse Space, as
the case may be, to Tenant; provided, that if Landlord fails timely to deliver
any Block or the Concourse Space on the applicable Adjusted Fixed Relevant Date,
Tenant's sole rights and remedies shall be as expressly set forth elsewhere in
this Lease, and this Section 1.02(c) shall not be construed to create any
further rights or remedies in favor of Tenant under this Lease or otherwise if
Landlord so fails timely to deliver any Block or the Concourse Space.
1.03 Relevant Date. (a) (i) "Block A Relevant Date" means the later of (A)
January 1, 1996 (the "Block A Fixed Relevant Date") and (B) the later of (x) the
day on which the Block A Space (or the applicable portion thereof) is delivered
to Tenant in Delivery Condition and (y) the date specified by Landlord in a
notice to Tenant as the date on which Landlord anticipates in good faith that
such space will be delivered in Delivery Condition, which notice shall be given
not less than 10 days prior to such date; provided, that if, after the giving of
such notice, Landlord believes that the actual delivery date will be later than
the date set forth in such notice, then Landlord shall keep Tenant advised of
the status of such delay and, if the actual delivery date shall be more than 2
Business Days later than the date set forth in such notice, Landlord shall give
to Tenant not less than 2 Business Days prior notice of the actual delivery
date. (ii) "Block B Relevant Date" means the later of (A) October 1, 1996 (the
"Block B Fixed Relevant Date") and (B) the later of (x) the day on which the
Block B Space (or the applicable portion thereof) is delivered to Tenant in
Delivery Condition and (y) the date specified by Landlord in a notice to Tenant
as the date on which Landlord anticipates in good faith that such space will be
delivered in Delivery Condition, which notice shall be given not less than 10
days prior to such date; provided, that if, after the giving of such notice,
Landlord believes that the actual delivery date will be later than the date set
forth in such notice, then Landlord shall keep Tenant advised of the status of
such delay and, if the actual delivery date shall be more than 2 Business Days
later than the date set forth in such notice, Landlord shall give to Tenant not
less than 2 Business Days prior notice of the actual delivery date. If the Block
B Space is in Delivery Condition prior to October 1, 1996, Landlord shall
deliver such Block to Tenant at such time; provided, that (I) Tenant shall not
be obligated to accept delivery of such Block prior to October 1, 1996 and (II)
Landlord shall not be obligated to expend any additional sums to enable Landlord
to deliver such Block to Tenant prior to October 1, 1996. (iii) "Block C
Relevant Date" means the later of (A) March 1, 1999 (the "Block C Fixed Relevant
Date") and (B) the later of (x) the day on which the Block C Space (or the
applicable portion thereof) is delivered to Tenant in Delivery Condition and (y)
the date specified by Landlord in a notice to Tenant as the date on which
Landlord anticipates in good faith that such space will be delivered in Delivery
Condition, which notice shall be given not less than 10 days prior to such date;
provided, that if, after the giving of such notice, Landlord believes that the
actual delivery date will be later than the date set forth in such notice, then
Landlord shall keep Tenant advised of the status of such delay and, if the
actual delivery date shall be more than 2 Business Days later than the date set
forth in such notice, Landlord shall give to Tenant not less than 2 Business
Days prior notice of the actual delivery date (each of the Block A Relevant
Date, the Block B Relevant Date and the Block C Relevant Date is called a
"Relevant Date" and each of the Block A Fixed Relevant Date, the Block B Fixed
Relevant Date and the Block C Fixed Relevant Date is called a "Fixed Relevant
Date"). (iv) Promptly after the determination of the first Relevant Date
applicable to any space included in the Block A Space in accordance with this
Section 1.03, Landlord shall notify Tenant thereof and Landlord and Tenant shall
confirm such Block A Relevant Date and the Expiration Date by a separate
instrument. Promptly after the determination of each Relevant Date applicable to
any space included in the Block A Space, the Block B Space and the Block C Space
in accordance with this Section 1.03, Landlord shall notify Tenant thereof and
Landlord and Tenant shall confirm such Relevant Date by a separate instrument.
The failure to execute and deliver any such instrument confirming such dates
shall not affect the occurrence of any such dates in accordance with this Lease.
Any dispute as to any Relevant Date shall be determined by arbitration in
accordance with Section 8.09. Pending the resolution of any dispute as to a
Relevant Date, Landlord's determination of such Relevant Date shall govern,
without prejudice to Tenant's position. If it is resolved that such Relevant
Date was not the date so fixed by Landlord, any Rent paid by Tenant to Landlord
with respect to the applicable space for periods prior to the proper Relevant
Date, together with interest thereon at the Prime Rate from the date paid by
Tenant until credited by Landlord, shall be credited by Landlord against future
installments of Fixed Rent and/or Additional Charges payable by Tenant.
<PAGE>
(b) "Delivery Condition" means, with respect to any space comprising the
Office Space, that Landlord's Work with respect to such space is deemed to have
been substantially completed in accordance with this Section 1.03(b). Landlord's
Work with respect to any space comprising the Office Space shall be deemed to
have been substantially completed on the date upon which such Landlord's Work
has been completed, other than (i) minor details or adjustments ("Punch List
Items"), but only if such details or adjustments shall not interfere in any
material respect with Tenant's ability to (A) prepare any portion of such space
for Tenant's initial occupancy thereof, or (B) thereafter use and occupy the
same for the ordinary conduct of Tenant's intended use of such space (as such
intended use is shown on, or reasonably inferable from, Tenant's then current
plans and specifications with respect to Tenant's initial Alterations therein);
provided, that such intended use is permitted pursuant to Section 1.05, (ii)
those items which, as set forth in Exhibit F, are not a condition to delivery of
such space and (iii) any part of Landlord's Work if and to the extent the same
is not completed due to Tenant Delay. Landlord and Tenant, within 5 days after
the Relevant Date with respect to any Block, shall jointly inspect such Block
and note any Punch List Items with respect to such Block. Landlord shall
complete any and all such Punch List Items and any such other incomplete
portions of Landlord's Work with respect to such Block described in clauses
(ii), and (iii) above within 30 days after such joint inspection, subject to
delays due to Force Majeure, Tenant Delays and the inability to complete any
such items which cannot with diligence be so completed within 30 days. In
performing such Punch List Items and such other incomplete portions of
Landlord's Work, Landlord shall use commercially reasonable efforts to minimize
any interference with Tenant's performance of its initial Alterations; provided,
that Landlord shall not be required to use overtime labor in performing the
same.
(c) If Landlord fails to deliver to Tenant, in Delivery Condition (i) the
Block A Space on or before October 1, 1996, subject to Section 1.03(d) below or
(ii) the Block B Space on or before July 1, 1997 (as the dates in clauses (i)
and (ii) may be extended to the extent of any Tenant Delay applicable to the
space in question), then Tenant shall have the right, by giving notice to
Landlord on or before the earlier to occur of (x) the date that Landlord
delivers the applicable Block to Tenant in Delivery Condition and (y) the date
that is 30 days after the applicable date specified in clause (i) or (ii) above
(time of the essence), to terminate this Lease. In addition, if Landlord fails
to deliver to Tenant all or any portion of (A) the Block A Space on or before
October 1, 1996, subject to Section 1.03(d) below, (B) the Block B Space on or
before July 1, 1997 or (C) the Block C Space on or before December 1, 1999 (as
the dates in clauses (A), (B) and (C) may be extended to the extent of any
Tenant Delay applicable to the space in question), then Tenant shall have the
right, by giving notice to Landlord on or before the earlier to occur of (1) the
date that Landlord delivers the applicable Block to Tenant in Delivery Condition
and (2) the date that is 30 days after the applicable date specified in clause
(A), (B) or (C) above (time of the essence), to terminate this Lease with
respect to, at Tenant's option, (I) the entire applicable Block or (II) the
portion of the applicable Block which Landlord failed to deliver to Tenant in
Delivery Condition on or before such date. In the case of a partial termination,
Tenant shall specify in such termination notice the space (the "Late Delivery
Terminated Space") with respect to which Tenant is terminating this Lease in
accordance with this Section 1.03(c). If Tenant timely gives a termination
notice pursuant to this Section 1.03(c) and such termination is not by reason of
Landlord's willful refusal to prepare any space so that it is in Delivery
Condition or to deliver to Tenant any space that is in Delivery Condition, then,
as Tenant's sole remedy, Tenant shall be entitled to retain so much of the
Applicable Allowance as is equal to the sum of (xx) a portion of the costs and
expenses incurred by Tenant in connection with entering into this Lease which
bears the same proportion to the total of all such costs and expenses as the
rentable square footage of the Late Delivery Terminated Space bears to the total
rentable square footage of the Block A Space, the Block B Space and the Block C
Space, (yy) the cost and expenses of moving into and preparing for occupancy the
applicable Late Delivery Terminated Space (excluding all actual costs incurred
to purchase and install Tenant's Property) and (zz) 10% of the amounts described
in clauses (xx) and (yy) above, and any such termination notice shall be null
and void unless, together with such notice, Tenant pays to Landlord an amount
equal to the Applicable Allowance less such sum and delivers to Landlord paid
invoices or other evidence reasonably satisfactory to Landlord with respect to
such costs and expenses; provided, that if Landlord disputes the amount of any
such payment by Tenant and it is subsequently determined that the amount so paid
by Tenant was less than the amount due to Landlord hereunder, then the
termination of this Lease as to the applicable Late Delivery Terminated Space
shall nevertheless be effective and Tenant shall pay to Landlord the amount of
such underpayment together with interest at the Prime Rate (or the Interest Rate
if it is determined by an arbitration in accordance with Section 8.09 that such
underpayment was made by Tenant in bad faith) from the date of the giving of the
applicable termination notice until paid. If Tenant timely gives a termination
notice pursuant to this Section 1.03(c) and such termination is by reason of
Landlord's willful refusal to prepare any space so that it is in Delivery
Condition or to deliver to Tenant any space that is in Delivery Condition (it
<PAGE>
being agreed that, to the extent that any failure by Landlord to comply with
Landlord's obligations is by reason of Force Majeure, including, without
limitation, by reason of the holdover in any space of another tenant without the
consent of Landlord, such failure shall not constitute Landlord's "willful
refusal"), then, without limiting Tenant's other rights and remedies, Tenant
shall be entitled to retain the entire Applicable Allowance. "Applicable
Allowance" means (aa) the Block A and B Allowance in the case of a termination
of this Lease, (bb) the portion of the Block A and B Allowance allocable to the
Block A Space in the case of a termination of this Lease as to the Block A Space
or any portion thereof, (cc) the portion of the Block A and B Allowance
allocable to the Block B Space in the case of a termination of this Lease as to
the Block B Space or any portion thereof and (dd) the Block C Allowance in the
case of a termination of this Lease as to the Block C Space or any portion
thereof. For purposes of clauses (bb) and (cc) above, $13,804,974 of the Block A
and B Allowance shall be deemed allocable to the Block A Space and $6,496,459 of
the Block A and B Allowance shall be deemed allocable to the Block B Space. If
Tenant timely gives a termination notice pursuant to this Section 1.03(c), this
Lease shall terminate in its entirety or with respect to the Late Delivery
Terminated Space, as applicable, on the 20th day after such notice is given by
Tenant and Tenant shall surrender the Premises, or the Late Delivery Terminated
Space, as applicable, to Landlord in accordance with the terms of this Lease.
Upon a termination of this Lease with respect to less than the entire Premises,
there shall be a pro rata reduction of Tenant's Rent obligations to reflect such
partial termination and Landlord and Tenant shall promptly enter into an
instrument evidencing such partial termination and the reduced rentable area of
the Premises (such rentable area to be determined in a manner consistent with
the method used in calculating the rentable area of the Premises initially
demised under this Lease); provided, that the failure to enter into such
instrument shall not affect the effectiveness of such partial termination.
(d) If the 22nd floor of the Building is to be occupied by EREIM and on or
before the date that this Lease would otherwise terminate as to all or any
portion of the Premises by reason of Landlord's failure timely to deliver the
Block A Space to Tenant in Delivery Condition, Landlord delivers to Tenant in
Delivery Condition the Block A Space other than the 22nd floor (the "Secondary
Portion"), then (i) the Block A Relevant Date applicable to the portion of the
Block A Space other than the Secondary Portion (the "Primary Portion") shall be
deemed to have occurred on the date Landlord so delivers to Tenant the Primary
Portion, (ii) the Block A Relevant Date applicable to the Secondary Portion
shall occur upon the date Landlord delivers to Tenant in Delivery Condition the
Secondary Portion, and the Rent Commencement Date applicable to the Secondary
Portion shall be determined separately and shall occur the same period of time
after the Block A Relevant Date applicable to the Secondary Portion as the
period of time that the Rent Commencement Date applicable to the Primary Portion
occurs after the Block A Relevant Date applicable to the Primary Portion and
(iii) notwithstanding anything to the contrary contained in this Section 1.03,
Tenant shall have no right by reason of the late delivery by Landlord of the
Secondary Portion to decline to accept delivery of the Primary Portion or to
terminate this Lease as to all or any portion of the Premises, except that
Tenant shall have the right, subject to and in accordance with the second
sentence of Section 1.03(c) above, to terminate this Lease with respect only to
all or any Secondary Portion which has not been delivered to Tenant in Delivery
Condition on or before October 1, 1996 (as such date may be extended to the
extent of any Tenant Delay applicable to such Secondary Portion).
(e) If, for any reason, Landlord fails to deliver to Tenant all or any
portion of the Block A Space in Delivery Condition on or before the Block A
Fixed Relevant Date, as extended by any Tenant Delay (the "Adjusted Block A
Fixed Relevant Date") (and, provided that Tenant shall have declined to accept
possession of any portion of the Block A Space that Landlord may have tendered
to Tenant in Delivery Condition so that Tenant shall not then be in possession
of any portion of the Office Space), then the Block A Rent Commencement Date
shall be postponed by (i) 1 day for each day that such failure continues beyond
the Adjusted Block A Fixed Relevant Date to and including the 30th day after the
Adjusted Block A Fixed Relevant Date, (ii) 1.1 days for each day that such
failure continues beyond the 30th day after the Adjusted Block A Fixed Relevant
Date to and including the 60th day after the Adjusted Block A Fixed Relevant
Date, (iii) 1.2 days for each day that such failure continues beyond the 60th
day after the Adjusted Block A Fixed Relevant Date to and including the 90th day
after the Adjusted Block A Fixed Relevant Date, (iv) 1.3 days for each day that
such failure continues beyond the 90th day after the Adjusted Block A Fixed
Relevant Date to and including the 120th day after the Adjusted Block A Fixed
Relevant Date, (v) 1.4 days for each day that such failure continues beyond the
120th day after the Adjusted Block A Fixed Relevant Date to and including the
150th day after the Adjusted Block A Fixed Relevant Date and (vi) 1.5 days for
each day that such failure continues beyond the 150th day after the Adjusted
Block A Fixed Relevant Date. For purposes of this Section 1.03(e), Tenant's
right to use and occupy the Initial Possession Space prior to the Relevant Date
applicable to the Initial Possession Space shall not be construed so as to
render Tenant in possession of a portion of the Office Space.
<PAGE>
(f) If, for any reason, Landlord fails to deliver to Tenant in Delivery
Condition (i) a portion of the Block A Space on or before the Adjusted Block A
Fixed Relevant Date, but Tenant shall at such time have accepted possession of
any one or more portions of the Block A Space that Landlord may have tendered to
Tenant so that Tenant shall then be in possession of a portion, but not all of,
the Block A Space, and/or (ii) all or any portion of the Block B Space or the
Block C Space on or before the Fixed Relevant Date applicable to such Block, as
extended by any Tenant Delay applicable to such Block (the "Adjusted Block B
Fixed Relevant Date" and the "Adjusted Block C Fixed Relevant Date",
respectively; each of the Adjusted Block A Fixed Relevant Date, the Adjusted
Block B Fixed Relevant Date and the Adjusted Block C Fixed Relevant Date is
called an "Adjusted Fixed Relevant Date"), then the Rent Commencement Date
applicable to such Block or portion thereof that was not delivered by Landlord
(or such portion of a Block as may have been tendered by Landlord, but not
accepted by Tenant) shall be postponed by 1.5 days for each day that such
failure continues beyond the applicable Adjusted Fixed Relevant Date. If the
space that Landlord so failed to deliver to Tenant or Tenant so failed to accept
from Landlord constitutes less than a full floor (a "Non-Delivered Partial
Floor") (i.e., Landlord shall have tendered to Tenant delivery of a partial
floor and Tenant shall have accepted delivery of such partial floor (a
"Delivered Partial Floor")), then (A) subject to the following proviso, the Rent
Commencement Date applicable to the Delivered Partial Floor shall not be
postponed by reason of such failure to deliver the Non-Delivered Partial Floor,
and the Rent Commencement Date applicable to such Non-Delivered Partial Floor
only shall be postponed by 1.5 days for each day that such failure continues
beyond the applicable Adjusted Fixed Relevant Date; provided, that if (x) as
shown on, or reasonably inferable from, Tenant's then current plans and
specifications for such Non-Delivered Partial Floor, such Non-Delivered Partial
Floor was to be occupied by a group of Tenant's employees that was also going to
occupy the Delivered Partial Floor, (y) upon substantial completion of Tenant's
initial Alterations in the Delivered Partial Floor, such group does not occupy
any portion of the Non-Delivered Partial Floor or the Delivered Partial Floor or
any other portion of the Premises and (z) Tenant does not otherwise occupy the
Delivered Partial Floor, then the Rent Commencement Date with respect to the
Delivered Partial Floor shall also be delayed for so long as the Rent
Commencement Date applicable to such Non-Delivered Partial Floor is delayed;
provided, further, that if such group occupies any portion of the Premises, or
if Tenant occupies such Delivered Partial Floor prior to the date that Landlord
delivers such Non-Delivered Partial Floor to Tenant, then the Rent Commencement
Date applicable to such Delivered Partial Floor shall occur as of the date of
such occupancy. Notwithstanding the foregoing, if upon substantial completion of
Tenant's initial Alterations in the Delivered Partial Floor, Tenant does occupy
the Delivered Partial Floor, then Landlord shall reimburse Tenant for any
incremental costs incurred by Tenant by reason of the delivery by Landlord, and
build-out and occupancy by Tenant of such partial floor (in excess of the costs
that would have been incurred by Tenant to build out such portion of the floor
had Landlord delivered to Tenant the full floor when required to do so pursuant
to this Section 1.03), such reimbursement to be made within 30 days after
delivery by Tenant to Landlord of reasonable substantiation of such incremental
costs. Nothing contained in this Section 1.03(f) shall be construed to obligate
Tenant to accept delivery by Landlord of a partial floor where Landlord's
obligation is to deliver an entire floor. For purposes of Section 1.03(f)(i),
Tenant's right to use and occupy the Initial Possession Space prior to the
Relevant Date applicable to the Initial Possession Space shall not be construed
so as to render Tenant in possession of a portion of the Block A Space.
(g) If (i) Landlord fails to deliver to Tenant any Block in Delivery
Condition on or before the Adjusted Fixed Relevant Date for such Block (the
"Non-Delivered Block"), (ii) as shown on, or reasonably inferable from, Tenant's
then current plans and specifications for such Non-Delivered Block, such
Non-Delivered Block was to be occupied by a group of Tenant's employees (an
"Essential Group") who are an essential part of the conduct of Tenant's normal
business operations to be conducted at the Premises, such that there would be
significant hardship to the conduct of Tenant's normal business operations to be
conducted at the Premises if such Essential Group were not located at the
Premises, (iii) as shown on, or reasonably inferable from, such then current
plans and specifications, either such Essential Group, or another group of
Tenant's employees which is dependent upon such Essential Group and which would
suffer significant hardship to the conduct of such group's normal business
operations to be conducted at the Premises if such Essential Group is not
operating in the Premises (a "Dependent Group"), was going to occupy other space
which Landlord had previously delivered to Tenant in accordance with the terms
of this Lease (the "Other Affected Space"), (iv) at the time of delivery to
Tenant of the Other Affected Space, Tenant notified Landlord that such space
constitutes Other Affected Space for purposes of this Section 1.03(g), (v)
neither such Essential Group nor any such Dependent Group occupies any portion
of the Non-Delivered Block, the Other Affected Space or any other portion of the
Premises and (vi) Tenant does not otherwise occupy the Other Affected Space,
then the Rent Commencement Date with respect to such Other Affected Space shall
also be delayed for so long as the Rent Commencement Date applicable to such
<PAGE>
Non-Delivered Block is delayed; provided, further, that if such Essential Group
and/or such Dependent Group occupies any portion of the Premises, or if Tenant
occupies such Other Affected Space prior to the date that Landlord delivers such
Non-Delivered Block to Tenant, then the Rent Commencement Date applicable to
such Other Affected Space shall occur as of the date of such occupancy.
(h) If Landlord shall be unable to deliver possession of any Block to
Tenant on or before the Adjusted Fixed Relevant Date for such Block by reason of
a holdover tenancy in all or any portion of such Block, (i) Landlord shall use
commercially reasonable efforts (including the commencement and diligent
prosecution of summary dispossess or other appropriate proceedings) to terminate
such holdover tenancy and (ii) provided that Tenant shall not exercise any
termination right that Tenant may have pursuant to this Section 1.03 with
respect to such Block or this Lease, Landlord shall pay to Tenant any Holdover
Excess actually received by Landlord from the tenant holding over in such Block,
such payment to be made by Landlord to Tenant within 30 days after Landlord
actually receives such Holdover Excess from such holdover tenant (but in no
event earlier than the Relevant Date with respect to such Block). "Holdover
Excess" means, with respect to any holdover tenant in any space comprising a
Block, the excess, if any, of (A) all moneys actually paid by such holdover
tenant to Landlord with respect to the holdover period, other than amounts
representing a reimbursement to Landlord of Landlord's expenses (e.g., payments
in respect of electricity) over (B) the sum of (x) the value of any deferral of
the Rent Commencement Date with respect to such Block pursuant to this Section
1.03 by reason of such holdover (e.g., if a Rent Commencement Date is deferred
by 1 day by reason of a holdover, the value of such deferral shall be equal to
the Rent which would have been payable by Tenant for such day but for such
deferral with respect to all of the applicable space with respect to which the
Rent Commencement Date is so deferred), plus (y) any amounts which, pursuant to
the provisions of this Lease, become payable by Landlord to Tenant by reason of
the late delivery of the applicable space as a result of such holdover, plus (z)
all unreimbursed costs and expenses actually incurred by Landlord in terminating
such holdover tenancy.
(i) With respect to the Concourse Space, the Term shall commence on the
date (the "Concourse Relevant Date") that Landlord delivers to Tenant vacant
possession of such space in Qualifying Condition, but in no event earlier than
the first Relevant Date applicable to any space included in the Block A Space.
If, for any reason, Landlord fails to deliver to Tenant all or any portion of
the Concourse Space in Qualifying Condition on or before January 1, 1996, as
extended by any Tenant Delay (the "Adjusted Concourse Fixed Relevant Date"),
then the Concourse Rent Commencement Date shall be postponed by 1.5 days for
each day that such failure continues beyond the Adjusted Concourse Fixed
Relevant Date. "Qualifying Condition" means, with respect to the Concourse
Space, that the Concourse Space Work is deemed to have been substantially
completed in accordance with Section 1.03(b) (other than the first sentence
thereof); provided, that for purposes of this Section 1.03(i) all references in
Section 1.03(b) to "Landlord's Work" shall be deemed to be replaced by
"Concourse Space Work" and all references in Section 1.03(b) to "Office Space"
or "Block" shall be deemed to be replaced by "Concourse Space". "Concourse Space
Work" means (A) to the extent applicable to the Concourse Space, the work
described in Paragraphs 1 (which shall include demolition of the concrete ramp
in the Primary Concourse Space; provided, that Landlord shall not be required to
demolish or relocate any of the items described in said Paragraph 1 that are
used by (or reserved for use by) other tenants or occupants of the Building) 2,
8, 9, 11 and 13 of Exhibit F annexed hereto, (B) in performing the demolition
work with respect to the bathrooms located in the Concourse Space, the capping
of the plumbing lines in such bathrooms, (C) the provision of an HVAC supply
duct and return opening to the demising wall of the Concourse Space or within
such space and (D) the construction of a Building standard demising wall on the
westerly side of the Primary Concourse Space. As part of Tenant's initial
Alterations to the Concourse Space, Tenant shall have the right to tie into the
sprinkler loop located on the concourse floor of the Building.
(j) Provided that any Block delivered by Landlord to Tenant is in Delivery
Condition, Tenant shall accept such Block in its "as is" condition on the date
of such delivery. Provided that the Concourse Space is in Qualifying Condition
when delivered by Landlord to Tenant, Tenant shall accept such space in its "as
is" condition on the date of such delivery. The provisions of this Section
1.03(j) shall not be construed to negate or diminish (i) Landlord's obligation
to thereafter complete (A) those items of Landlord's Work which, in accordance
with Exhibit F, are not a condition to delivery of the Block in question, (B)
any incomplete Punch List Items with respect to the Block in question or (C)
those items, if any, of Landlord's Work which, in accordance with Exhibit F, are
a condition to delivery of the Block in question but which Tenant may have
hereafter agreed to allow Landlord to complete after delivery or (ii) Landlord's
repair and maintenance obligations as set forth elsewhere in this Lease.
<PAGE>
(k) Except as may be expressly set forth in this Section 1.03, if, for any
reason, Landlord shall be unable to deliver possession of any Block to Tenant on
or before the Adjusted Fixed Relevant Date for such Block, the validity of this
Lease shall not be impaired, nor shall the Term be extended, by reason thereof,
and (unless Landlord willfully refuses to prepare any Block so that it is in
Delivery Condition or to deliver to Tenant any Block that is in Delivery
Condition) Landlord shall have no liability to Tenant therefor. This Section
1.03 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.
(l) Except as provided in Section 1.03(d) with respect to the Primary
Portion or the Secondary Portion, nothing contained in this Section 1.03 shall
be construed to permit delivery by Landlord to Tenant, or to obligate Tenant to
accept delivery by Landlord, of a partial Block (except where Tenant has
previously accepted delivery of a partial Block and the partial Block then being
delivered by Landlord constitutes the remainder of such Block).
1.04 Tenant Delay. "Tenant Delay" means any delay which Landlord may
encounter in the performance of Landlord's obligations under this Lease if and
to the extent caused by any act or (where Tenant has an affirmative obligation
to act pursuant to the terms of this Lease) omission of Tenant, its agents or
contractors, including, without limitation, delays by Tenant in submission of
information required to be submitted pursuant to the terms of this Lease, or
giving authorizations or approvals required to be given pursuant to the terms of
this Lease; provided, that no such delay shall constitute a Tenant Delay if
Landlord, using reasonable prudence and diligence, but without additional
expense, could avoid such delay, and no such delay shall constitute a Tenant
Delay to the extent it occurs after Landlord has actual knowledge or should
reasonably have knowledge of such delay and before Landlord notifies Tenant of
such Tenant Delay (it being understood that in all events such delay shall
constitute a Tenant Delay to the extent it occurs after Landlord notifies Tenant
of such Tenant Delay). If Landlord notifies Tenant of the occurrence of any
Tenant Delay, upon Tenant's request, Landlord shall notify Tenant of Landlord's
estimate of the duration of such Tenant Delay. Tenant shall pay to Landlord any
reasonable costs or expenses if and to the extent incurred by Landlord by reason
of any Tenant Delay. Any dispute as to the existence, duration or cost of any
Tenant Delay shall be determined by arbitration in accordance with Section 8.09.
1.05 Use. (a) The Premises may be used and occupied solely as general,
professional, administrative and executive offices (including such ancillary
uses in connection therewith as shall be reasonably required by Tenant in the
operation of its business, which ancillary uses may include, without limitation,
the following (but only to the extent such uses are ancillary to use of the
Premises as general, professional, administrative and executive offices and in
no event shall any of such uses be made available to the general public or to
more than 200 employees of Tenant (at any one time) who are not located at the
Building): (i) cafeterias and "convenience areas" which convenience areas may
include coffee stations, mini refrigerators, small stoves and microwave ovens
(each, a "Cafeteria"); provided, that in the case of each such Cafeteria where
cooking will be done (other than any Cafeteria where only microwave cooking will
be done) (A) Tenant shall install all flues, vents, grease traps and ansul
systems and other similar items reasonably requested by Landlord, (B) Tenant
shall install an exhaust system that, in Landlord's reasonable judgment, is
consistent with the standards of a first-class office building in Manhattan, (C)
all ducts and flues shall be installed within the Premises and shall exit the
Building from a location reasonably acceptable to Landlord and Tenant, (D)
Tenant shall clean all grease traps, (E) Tenant shall bag all wet garbage, place
such garbage in containers that prevent the escape of odors, and provide for a
refrigerated waste facility to store such garbage pending disposal and (F)
Tenant shall contract with an exterminator (such exterminator to be subject to
Landlord's reasonable approval) to exterminate vermin and rodents on a regular
basis as part of a program to keep the Premises free of vermin and rodents by
reason of the operation of each such Cafeteria; and provided further, in the
case of each such Cafeteria (whether or not cooking will be done), (x) Tenant
shall not allow any odors to escape from the Premises to other portions of the
Project and (y) Tenant shall otherwise maintain and operate each Cafeteria
consistent with the standards of a first-class office building in Manhattan,
(ii) an infirmary, (iii) a health and fitness facility; provided, that the
entire floor on which such health and fitness facility is located and the entire
floor immediately above and the entire floor immediately below the floor on
which such health and fitness facility is located shall be fully leased by
Tenant, (iv) an emergency childcare facility and (v) storage space, mailroom,
copying/reproduction facility, messenger center, chauffeur's office and archives
(the ancillary uses described in clauses (i) through (iv) above are called the
"Identified Ancillary Uses")). Notwithstanding anything in Section 4.06 or
elsewhere in this Lease to the contrary, Tenant shall be responsible for
complying with all Laws applicable to the use of the Premises for the Identified
Ancillary Uses and for obtaining, at Tenant's sole cost and expense, all
consents, approvals and permits (including, without limitation, any amendment to
the certificate of occupancy for the Building and any public assembly permit)
<PAGE>
required by reason of any such use and Landlord makes no representation to
Tenant as to the suitability of the Premises for any of the Identified Ancillary
Uses. Landlord, at Tenant's reasonable expense, shall cooperate with Tenant's
efforts to obtain any such consents, approvals and permits, including, without
limitation, executing and delivering any documents or instruments reasonably
required by Tenant in connection therewith. If Tenant shall be unable to obtain
any such consent, approval or permit by reason of any violation noted against
the Building (other than a violation that is the obligation of Tenant to remove)
Landlord shall, promptly after notice of such violation from Tenant, commence
and diligently pursue the removal of such violation.
(b) If Tenant shall have obtained a temporary certificate of occupancy
permitting use of a portion of the Premises for public assembly purposes, but
shall be unable to obtain a final certificate of occupancy permitting use of
such portion of the Premises for public assembly purposes by reason of any
violation noted against the Building (other than any violation that is the
obligation of Tenant to remove), Landlord shall timely obtain all necessary
renewals of such temporary certificate of occupancy. If Tenant shall have
obtained a temporary certificate of occupancy permitting use of a portion of the
Premises for public assembly purposes, and at any time thereafter, by reason of
a violation noted against the Building (other than any violation that is the
obligation of Tenant to remove), the certificate of occupancy for the Building
shall no longer permit use of such portion of the Premises for public assembly
purposes such that Tenant shall be unable to use such portion of the Premises
for its intended purpose (as shown on, or reasonably inferable from, Tenant's
then current plans and specifications for such space) then, with respect to so
much of such space as shall not be occupied by Tenant for such purpose (i) if
the Rent Commencement Date with respect to such space has not yet occurred, such
Rent Commencement Date shall be postponed for a period of time (the
"Postponement Period") equal to the number of days beginning on the date that
Tenant is first unable to occupy such space for such purpose and ending on the
earlier of (A) the date that Tenant may again use such space for such intended
purpose or (B) the date that Tenant would be legally permitted to use such space
for such intended purpose but for any act or (where Tenant has an affirmative
obligation to act pursuant to the terms of this Lease) omission of Tenant, its
agents or contractors or (ii) if the Rent Commencement Date with respect to such
space has then occurred, the Fixed Rent and Additional Charges applicable to
such space shall be abated until the earlier of (A) the date that Tenant may
again use such space for such intended purpose or (B) the date that Tenant would
be legally permitted to use such space for such intended purpose but for any act
or (where Tenant has an affirmative obligation to act pursuant to the terms of
this Lease) omission of Tenant, its agents or contractors. Notwithstanding the
foregoing, if Tenant shall permanently change the use of such space to a purpose
that does not require a public assembly permit, then as of the date of such
change any Postponement Period under clause (i) above, and any rent abatement
under clause (ii) above, shall end.
(c) Anything contained in this Section 1.05 to the contrary notwithstanding
(i) in no event shall the Premises be used for any of the following: (A) a
retail banking, trust company or safe deposit business serving the general
public, (B) a retail savings bank, savings and loan association, or loan company
serving the general public, (C) the retail sale to the general public of
travelers' checks and/or foreign exchange, (D) a retail stock brokerage office
or for stock brokerage purposes serving the general public, (E) a restaurant,
bar or for the sale of food or beverages, except as permitted in Section
1.05(a)(i) above, (F) photographic reproductions and/or offset printing, other
than such reproduction or printing which is ancillary to the use of the Premises
as general, professional, administrative and executive offices, (G) an
employment or travel agency, except to service Tenant's employees, (H) a school
or classroom, except that Tenant may use part of the Premises for classroom and
educational purposes to the extent such use is ancillary to the use of the
Premises as general, professional, administrative and executive offices, (I)
medical or psychiatric offices, except as permitted in Section 1.05(a)(ii)
above, (J) conduct of an auction, (K) gambling activities, (L) conduct of
obscene or pornographic activities, (M) offices of an 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 unless, in any such case, Tenant establishes, to the reasonable
satisfaction of Landlord, that both such agency, department or bureau and the
persons who will be occupying the Premises (w) do not possess sovereign or
diplomatic immunity, (x) are subject to the jurisdiction of state and federal
courts located in the State of New York, (y) may be served with legal process
within the State of New York and (z) are not inconsistent with the first-class
character of the Building, (N) offices of any charitable, religious, union or
other not-for-profit organization which is inconsistent with the first-class
character of the Building; provided, that in no event shall the aggregate
rentable square feet occupied by charitable, religious, union and other
not-for-profit organizations exceed 25,000 rentable square feet in the Office
Space, or (O) offices of any tax exempt entity within the meaning of Section
168(h)(2) of the Internal Revenue Code of 1986, as amended, or any successor or
<PAGE>
substitute statute or rule or regulation applicable thereto, which is
inconsistent with the first-class character of the Building; provided, that in
no event shall the aggregate rentable square feet occupied by such exempt
entities exceed 25,000 rentable square feet in the Office Space, and (ii) in no
event shall the Premises be used for any purpose which would materially lower
the first-class character of the Building (Landlord acknowledges that the
Premises may be used by Tenant, in whole or in part, for so-called "back office"
uses and that such use, in and of itself, would not materially lower the
first-class character of the Building), materially impair or materially
interfere with any of the Building operations, constitute a public or private
nuisance, unreasonably interfere with or disturb Landlord, actually disturb
another tenant or occupant of the Building or materially impair the appearance
of the Building. Any use of the Premises for any purpose which violates clause
(ii) above is hereinafter referred to as an "Improper Use." If Landlord notifies
Tenant that the Premises are being used in a manner which constitutes an
Improper Use, such use shall not constitute a default under this Lease unless
(1) it is finally determined by arbitration in accordance with Section 8.09 that
such use constitutes an Improper Use and, if Tenant shall not have previously
ceased such use of the Premises in accordance with clause (2) below, Tenant
shall not immediately cease such use of the Premises or (2) Tenant shall not,
immediately upon receipt of such notice from Landlord, cease such use of the
Premises pending the resolution of such dispute by arbitration; provided, that
Tenant shall not be required to cease such use of the Premises pending the
resolution of such dispute by arbitration if Tenant shall have been using the
Premises in such manner on a regular basis for longer than 1 year.
(d) Tenant shall have access to the Premises for the uses permitted in this
Section 1.05, on a 24 hours per day, 365 days per year, basis.
1.06 Tenant's Right of First Offer. (a) As used herein: "Available" means,
as to any space, that such space is vacant and free of any present or future
possessory right now or hereafter existing in favor of any third party;
provided, that (i) until the end of the Offer Period, Landlord shall not grant
to any third party a right of renewal with respect to any Offer Space (other
than (A) any rights of renewal in favor of Warner Communications Inc. or any
Affiliate of Warner Communications Inc. or (B) any rights of renewal granted in
connection with a new leasing of any Offer Space to another tenant), or any
right of offer, right of first refusal or expansion right with respect to any
Offer Space which is prior in right to Tenant's right of first offer set forth
in this Section 1.06 (other than any expansion obligation on the part of Warner
Communications Inc., or any Affiliate of Warner Communications Inc.; provided,
that such expansion obligation either exists on the date of this Lease or is set
forth in a written agreement between Landlord and such party entered into on or
before the 1st anniversary of the date of this Lease), (ii) any Offer Space
which is subleased to Landlord by another tenant by virtue of a provision in
such tenant's lease similar to Landlord's right of first offer set forth in
Section 5.02 shall be deemed to be Available for the term of such sublease,
(iii) any space which is vacant on the date of this Lease shall not be deemed
Available unless and until such space is first leased to another tenant and then
again becomes Available and (iv) following the vacating of the 23rd floor of the
Building by the tenants occupying such floor on the date of this Lease, Landlord
shall have the right to lease such floor to any third party that also leases
from Landlord at least the 24th and 25th floors of the Building, and the 23rd
floor of the Building shall not be deemed to be Available unless and until the
same becomes Available after the leasing thereof to any such third party. If any
third party has a right to renew or extend a lease of any Offer Space, whether
granted before or after the date of this Lease, nothing contained herein shall
be construed to prohibit Landlord (without first offering such space to Tenant
hereunder) from renewing or extending such party's lease on terms other than as
set forth in such party's lease, so long as such renewal or extension is for a
period of time not longer than that contemplated in such party's lease. Landlord
shall promptly notify Tenant of any expansion agreement between Landlord and
Warner Communications Inc. or any Affiliate of Warner Communications Inc. which
contains an expansion obligation on such party's part with respect to any Offer
Space and which is entered into on or before the 1st anniversary of the date of
this Lease, which notice shall specify the Offer Space affected by such
expansion obligation and the commencement date and expiration date of such
party's leasing of such space. "Offer Period" means the period commencing on the
Block A Relevant Date to and including the date that is 18 months prior to the
last day of the initial Term of this Lease; provided, that if Tenant shall
exercise the Renewal Option, then upon the giving of the Renewal Notice the
Offer Period shall be extended until (and including) the date that is 3 years
prior to the Expiration Date. "Offer Space" means any space on the 7th, 8th,
9th, 10th and 23rd floors of the Building. Landlord and Tenant confirm that each
floor constituting Offer Space is conclusively deemed to contain the number of
rentable square feet specified therefor on Exhibit H annexed hereto.
<PAGE>
(b) Provided (i) this Lease shall not have been terminated, (ii) Tenant
shall not be in default under this Lease after notice and beyond all applicable
grace periods, and (iii) Tenant and/or any Affiliated subtenants of Tenant shall
then occupy not less than 50% of the Premises, if at any time during the Offer
Period any Offer Space either becomes, or Landlord reasonably anticipates that
within the next 18 months (but not later than the last day of the Offer Period)
such Offer Space will become, Available, Landlord shall give to Tenant notice
(an "Offer Notice") thereof, specifying (A) Landlord's determination of the fair
market rental value for such Offer Space, (B) the date or estimated date that
such Offer Space has or shall become Available (the "Target Date"), (C) the
location and rentable area of such Offer Space (such rentable area to be
determined in a manner consistent with the method used in calculating the
rentable area of the Premises initially demised under this Lease), (D) the term
for which such Offer Space is Available; provided, that such term shall be
coterminous with the Term unless such Offer Space is subject to any future
possessory right then existing in favor of any third party, in which case the
term shall expire on the day immediately prior to the date during the Term that
such future possessory right shall mature, and (E) such other matters as
Landlord may deem appropriate for such Offer Notice. The "fair market rental
value" for any Offer Space means the fixed annual rent that a willing lessee
would pay and a willing lessor would accept for such Offer Space in an
arms-length transaction, taking into account all relevant factors at the time in
question.
(c) Provided that on the date that Tenant exercises an Offer Space Option
(i) this Lease shall not have been terminated, (ii) Tenant shall not be in
default under this Lease after notice and beyond all applicable grace periods,
(iii) Tenant and/or any Affiliated subtenants of Tenant shall occupy not less
than 50% of the Premises and (iv) if required pursuant to Section 1.06(n) below,
Tenant shall have exercised the Renewal Option, then Tenant shall have the
option (an "Offer Space Option"), exercisable by notice (an "Acceptance Notice")
given to Landlord on or before the date that is 60 days after the giving of the
applicable Offer Notice (time being of the essence) to include such Offer Space
in the Premises.
(d) If Tenant timely gives an Acceptance Notice with respect to any Offer
Space, but disagrees with Landlord's determination of the fair market rental
value for such Offer Space as set forth in the applicable Offer Notice, Tenant
shall so notify Landlord in such Acceptance Notice and shall either specify
therein Tenant's determination of the fair market rental value for such Offer
Space or state therein that Tenant shall notify Landlord of Tenant's
determination of such fair market rental value within 30 days after the giving
of such Acceptance Notice. If such dispute is not resolved between the parties
within 20 days after the date that Tenant advises Landlord (whether in the
applicable Acceptance Notice or in such notice given within 30 days thereafter)
of Tenant's determination of the fair market rental value for such Offer Space,
such dispute shall be settled in accordance with Section 9.02(d). The fees and
expenses of any arbitration of the fair market rental value for any Offer Space
shall be borne by the parties equally, but each party shall bear the expense of
its own arbitrator, attorneys and experts and the additional expense of
presenting its own proof. If Tenant timely gives an Acceptance Notice with
respect to such Offer Space, but fails in such Acceptance Notice to object to
Landlord's determination of the fair market rental value for such Offer Space as
set forth in the applicable Offer Notice, then Landlord's determination of the
fair market rental value as so set forth shall govern with respect to such Offer
Space. If Tenant timely gives an Acceptance Notice with respect to such Offer
Space and in such Acceptance Notice Tenant informs Landlord that Tenant disputes
Landlord's determination of the fair market rental value for such Offer Space as
set forth in the applicable Offer Notice and that Tenant shall notify Landlord
of Tenant's determination of the fair market rental value for such Offer Space
within 30 days after the date that Tenant delivers such Acceptance Notice to
Landlord and Tenant fails to deliver such rental determination to Landlord
within such 30-day period, then Landlord's determination of the fair market
rental value as set forth in such Offer Notice shall govern with respect to such
Offer Space.
(e) If Tenant timely gives an Acceptance Notice, then (subject to Section
1.06(g) below) on the date on which Landlord delivers vacant possession of such
Offer Space to Tenant (the "OS Inclusion Date"), such Offer Space shall become
part of the Premises, upon all of the terms and conditions set forth in this
Lease, except (i) Fixed Rent with respect to such Offer Space shall be payable
from and after the applicable OS Inclusion Date and shall be 95% of the fair
market rental value for such Offer Space (A) as set forth in the applicable
Offer Notice or (B) as agreed to by Landlord and Tenant within the 20 day period
set forth in Section 1.06(d) or (C) as determined in accordance with Section
9.02(d), as the case may be, (ii) Tenant's Tax Share and Tenant's Operating
Share shall each be proportionately increased based upon the number of rentable
square feet contained in such Offer Space as set forth in the applicable Offer
<PAGE>
Notice, (iii) (A) if the rentable square footage of such Offer Space constitutes
67% or more of the total rentable square footage of the floor on which such
Offer Space is located, then such Offer Space shall, to the extent applicable,
be delivered in Delivery Condition (except that, if such Offer Space constitutes
a partial floor, Landlord shall not be required to demolish or relocate any of
the items described in Paragraph 1 of Exhibit F annexed hereto that are used by
(or reserved for use by) other tenants or occupants of the Building; provided,
that upon request by Tenant, Landlord shall, at Tenant's reasonable expense,
relocate any of such items), and (B) if the rentable square footage of such
Offer Space constitutes less than 67% of the total rentable square footage of
the floor on which such Offer Space is located, then Landlord shall have
demolished such Offer Space in accordance with Paragraph 1 of Exhibit F annexed
hereto, except that Landlord shall not be required to demolish or relocate any
of the items described in said Paragraph 1 that are used by (or reserved for use
by) other tenants or occupants of the Building (provided, that upon request by
Tenant, Landlord shall, at Tenant's reasonable expense, relocate any of such
items) and Landlord, to the extent applicable, shall have performed the work
described in Paragraphs 2, 9, 10, 11, 12, 13 and 15 of Exhibit F annexed hereto,
(iv) except as specified in clause (iii) above, and except for any other work or
allowance specified in the applicable Offer Notice, Landlord shall not be
required to perform any work, pay any work allowance or any other amount, or
render any services to make such Offer Space ready for Tenant's use or occupancy
and, subject to Landlord's compliance with its obligations set forth in clause
(iii) above and as may be set forth in the applicable Offer Notice, Tenant shall
accept such Offer Space in its "as is" condition on the applicable OS Inclusion
Date and (v) as may be otherwise set forth in the applicable Offer Notice. The
provisions of clause (iv) above shall not be construed to negate or diminish (x)
Landlord's obligation to complete after the applicable OS Inclusion Date (1)
those items of the work required to be performed by Landlord with respect to
such Offer Space which, in accordance with Exhibit F, are not a condition to
delivery, (2) any incomplete Punch List Items with respect to such Offer Space
or (3) those items, if any, of the work required to be performed by Landlord
with respect to such Offer Space which, in accordance with Exhibit F, are a
condition to delivery but which Tenant may have agreed to allow Landlord to
complete after delivery or (y) Landlord's repair and maintenance obligations as
set forth elsewhere in this Lease.
(f) If Landlord is unable to deliver possession of any Offer Space to
Tenant for any reason on or before the Target Date for such Offer Space, then,
except as set forth in Section 1.06(g), the OS Inclusion Date with respect to
such Offer Space shall be the date on which Landlord is able to so deliver
possession of such Offer Space. If Landlord is unable to so deliver possession
of any Offer Space, the validity of this Lease shall not be impaired, nor shall
the Term be extended by reason thereof, and (unless Landlord willfully refuses
to prepare any Offer Space so that it is in Delivery Condition or to deliver to
Tenant any Offer Space that is in Delivery Condition) Landlord shall have no
liability to Tenant therefor. This Section 1.06(f) constitutes "an express
provision to the contrary" within the meaning of Section 223(a) of the New York
Real Property Law and any other law of like import now or hereafter in effect.
(g) If, for any reason whatsoever, Landlord fails to deliver any Offer
Space on or before the date that is 60 days after the Target Date for such Offer
Space (the "First Rescission Date"), then Tenant, as Tenant's sole remedy
(except in a case of Landlord's willful failure to comply with its obligations
under this Section 1.06), shall have the right (a "Rescission Right"), by notice
(a "Rescission Notice") given to Landlord on or before the date that is 10 days
after the First Rescission Date, to notify Landlord that if such Offer Space is
not delivered to Tenant on or before the date that is 30 days after Tenant gives
such Rescission Notice to Landlord, Tenant's Acceptance Notice with respect to
such Offer Space shall be deemed to be rescinded. If Tenant timely gives a
Rescission Notice to Landlord, then Tenant's Acceptance Notice with respect to
such Offer Space shall be deemed to be rescinded unless Landlord shall deliver
such Offer Space to Tenant on or before the date which is 30 days after the date
that Tenant gives such Rescission Notice to Landlord, in which event Tenant's
exercise of such Rescission Right shall be null and void. If Tenant timely gives
the Rescission Notice to Landlord, Landlord shall have the right to give a
notice (a "Rescission Acceleration Notice") to Tenant notifying Tenant that
Tenant's Acceptance Notice with respect to such Offer Space shall be deemed to
be rescinded as of the date that Landlord gives such notice to Tenant. If
Landlord gives a Rescission Acceleration Notice to Tenant, Tenant's Acceptance
Notice with respect to such Offer Space shall be deemed to be rescinded and
Landlord shall have no further right or obligation to deliver such Offer Space
to Tenant. If Tenant shall not have so exercised any such Rescission Right and
Landlord shall not, within 90 days after the First Rescission Date (such 90 day
period, and each 90 day period thereafter being hereinafter referred to as a "90
Day Offer Space Interval"), have so delivered such Offer Space to Tenant, then
Tenant shall, within 10 days after the initial 90 Day Offer Space Interval, and
within 10 days after each succeeding 90 Day Offer Space Interval during which
Landlord continues so to fail to deliver the applicable Offer Space, as Tenant's
sole remedy (except in a case of Landlord's willful failure to comply with its
obligations under this Section 1.06), again have the right to exercise such
<PAGE>
Rescission Right by giving a Rescission Notice to Landlord within such 10 day
period. If Tenant timely gives any such Rescission Notice to Landlord, then
Tenant's Acceptance Notice with respect to such Offer Space shall be deemed to
be rescinded unless Landlord shall deliver such Offer Space to Tenant on or
before the date which is 30 days after the date that Tenant gives such
Rescission Notice to Landlord, in which event Tenant's exercise of such
rescission right shall be null and void. If Tenant timely gives any such
Rescission Notice to Landlord, Landlord shall have the right to give to Tenant a
Rescission Acceleration Notice, in which event Tenant's Acceptance Notice with
respect to such Offer Space shall be deemed to be rescinded upon the giving of
such Rescission Acceleration Notice and Landlord shall have no further right or
obligation to deliver such Offer Space to Tenant. Upon any exercise by Tenant of
a Rescission Right, Landlord shall have no further obligations and Tenant shall
have no further rights pursuant to Section 1.06(k) with respect to the
applicable Offer Space (but the foregoing shall not be construed as a limitation
of Tenant's rights and remedies in the event of the willful failure by Landlord
to comply with any of the provisions of this Section 1.06). If Tenant's
Acceptance Notice with respect to any Offer Space shall be deemed to be
rescinded pursuant to this Section 1.06(g) Landlord shall have no further
obligation to offer such Offer Space to Tenant unless and until such Offer Space
is leased and thereafter again becomes Available. Time is of the essence with
respect to all of the time periods set forth in this Section 1.06(g). For
purposes of this Section 1.06(g), any failure by Landlord to comply with
Landlord's obligations under this Section 1.06 by reason of Force Majeure,
including, without limitation, by reason of the holdover in the applicable Offer
Space by another tenant without the consent of Landlord, shall not constitute
Landlord's "willful failure."
(h) If Tenant fails timely to give an Acceptance Notice with respect to any
Offer Space, then (i) Landlord may enter into one or more leases of such Offer
Space with third parties on such terms and conditions as Landlord shall
determine, the Offer Space Option with respect to such Offer Space shall be null
and void and of no further force and effect and, except as provided in the
following sentence, Landlord shall have no further obligation to offer such
Offer Space to Tenant unless and until such Offer Space is leased and thereafter
again becomes Available, and (ii) Tenant, promptly following demand by Landlord,
shall execute an instrument confirming that the Offer Space Option with respect
to such Offer Space has been waived by Tenant and that, except as provided in
the following sentence, Landlord has no further obligation to offer such Offer
Space to Landlord unless and until such Offer Space is leased and thereafter
again becomes Available, but the failure by Tenant to execute any such
instrument shall not affect the provisions of clause (i) above. If Tenant fails
timely to give an Acceptance Notice with respect to any Offer Space and Landlord
has not entered into a lease of such Offer Space with a third party within 12
months after the last day of the 60-day period set forth in Section 1.06(c)
during which Tenant was entitled to give an Acceptance Notice with respect to
such Offer Space, then Landlord shall once again offer such Offer Space to
Tenant, subject to, and in accordance with, the terms and conditions of this
Section 1.06.
(i) Promptly after the occurrence of the OS Inclusion Date with respect to
any Offer Space, Landlord and Tenant shall confirm the occurrence thereof and
the inclusion of such Offer Space in the Premises by executing an instrument
reasonably satisfactory to Landlord and Tenant; provided, that failure by
Landlord or Tenant to execute such instrument shall not affect the inclusion of
such Offer Space in the Premises in accordance with this Section 1.06.
(j) If in the Acceptance Notice with respect to any Offer Space Tenant
disputes Landlord's determination of the fair market rental value for such Offer
Space and the final determination of such fair market rental value shall not be
made on or before the applicable OS Inclusion Date, then pending such final
determination, Tenant shall pay, as Fixed Rent for such Offer Space, an amount
equal to 95% of the average of Landlord's determination of such fair market
rental value as set forth in the applicable Offer Notice and Tenant's
determination of such fair market rental value as set forth in the applicable
Acceptance Notice or, if applicable, the applicable notice given to Landlord
within 30 days after Tenant gives such Acceptance Notice to Landlord. If, based
upon the final determination of such fair market rental value, the Fixed Rent
payments made by Tenant for such Offer Space were (i) less than such fair market
rental value as finally determined, Tenant shall pay to Landlord the amount of
such deficiency within 30 days after demand therefor or (ii) greater than such
fair market rental value as finally determined, Landlord shall credit the amount
of such excess against future installments of Fixed Rent and/or Additional
Charges payable by Tenant.
(k) If Landlord shall be unable to deliver possession of any Offer Space to
Tenant on or before the Target Date for such Offer Space by reason of a holdover
tenancy in all or any portion of such Offer Space, (i) Landlord shall use
commercially reasonable efforts (including the commencement and diligent
prosecution of summary dispossess or other appropriate proceedings) to terminate
such holdover tenancy and (ii) provided that Tenant shall not rescind Tenant's
<PAGE>
Acceptance Notice with respect to such Offer Space pursuant to Section 1.06(g),
Landlord shall pay to Tenant any Holdover Profit actually received by Landlord
from the tenant holding over in such Offer Space, such payment to be made by
Landlord to Tenant within 30 days after Landlord actually receives such Holdover
Profit from such holdover tenant (but in no event earlier than the OS Inclusion
Date with respect to such Offer Space). "Holdover Profit" means, with respect to
any tenant which holds over in any Offer Space, the excess, if any, of (A) all
monies actually paid by such holdover tenant to Landlord with respect to the
holdover period, other than amounts representing a reimbursement to Landlord of
Landlord's expenses (e.g., payments in respect of taxes, operating expenses and
electricity), over (B) the sum of (x) the Fixed Rent which would be payable by
Tenant with respect to the space in which such holdover occurs for the holdover
period (assuming for purposes hereof that the Rent Commencement Date with
respect to such space had already occurred) plus (y) all unreimbursed costs and
expenses actually incurred by Landlord in terminating such holdover tenancy.
(l) Notwithstanding the foregoing provisions of this Section 1.06, if, at
any time after Tenant's delivery of an Acceptance Notice with respect to any
Offer Space and before the OS Inclusion Date with respect to such Offer Space,
this Lease shall be terminated, then such Acceptance Notice shall be null and
void and of no further force and effect and Tenant shall have no further right
or option to lease such Offer Space.
(m) As part of Tenant's initial Alterations to any Offer Space of less than
an entire floor that is included in the Premises, Tenant shall have the right,
subject to Section 4.02 and the other provisions of this Lease, (i) to install a
telephone (for internal communication on Tenant's telephone system, but not for
outside calling) in the public corridor outside the entry door to such Offer
Space, (ii) to run a sprinkler loop above the ceiling in the public corridor
outside such Offer Space, and (iii) to request that Landlord install, at
Tenant's reasonable expense, a submeter to measure the consumption and demand of
electricity in such Offer Space. If (A) the rentable square footage of such
Offer Space constitutes 50% or more of the total rentable square footage of the
floor on which such Offer Space is located, (B) there are at least 2 electrical
closets on such floor and (C) one of such electrical closets is not being used
by another occupant of such floor, then Tenant shall have the exclusive use of
such electrical closet that is not being used. If such Offer Space satisfies the
square footage requirement described in the preceding sentence and all
electrical closets on the floor on which such Offer Space is located are being
used by other occupants of such floor, Tenant shall have the right to rewire one
of such electrical closets designated by Landlord so as to permit Tenant to have
the exclusive use of such electrical closet. Such rewiring shall be performed by
Landlord with reasonable diligence, at Tenant's reasonable expense, but in a
manner and at such times so as to not interfere (other than to a de minimis
extent) with the business operations of the occupant of such floor who is using
such electrical closet.
(n) Anything contained in this Section 1.06 to the contrary
notwithstanding, with respect to any Offer Space which becomes, or which
Landlord reasonably anticipates will become, Available on or after the date that
is 3 years prior to the last day of the initial Term of this Lease and on or
before the date that is 18 months prior to the last day of the initial Term of
this Lease, then Tenant shall not have the right to exercise the Offer Space
Option with respect to such Offer Space (and any attempt to exercise same shall
be null and void) unless (i) Tenant, together with or before the giving of the
Acceptance Notice therefor, also gives to Landlord the Renewal Notice and (ii)
if the Renewal Premises is to consist of less than all of the space then
included in the Premises, the applicable "Offer Space" shall continue to meet
the definition of Offer Space after application of Section 8.24(c) (such
application to be determined as though the Renewal Premises were the only space
then leased by Tenant).
<PAGE>
ARTICLE 2
Rent
2.01 Rent. "Rent" shall consist of Fixed Rent and Additional Charges.
2.02 Fixed Rent. (a) The fixed rent ("Fixed Rent") shall be at the
following rates: (i) in the case of the Block A Space, $10,427,820 per annum,
payable by Tenant in 12 equal monthly installments of $868,985 each, in advance
on the Block A Rent Commencement Date and on the first day of each calendar
month thereafter, (ii) in the case of the Block B Space, $4,912,890 per annum,
payable by Tenant in 12 equal monthly installments of $409,407.50 each, in
advance on the Block B Rent Commencement Date and on the first day of each
calendar month thereafter, (iii) in the case of the Block C Space, $2,874,190
per annum, payable by Tenant in 12 equal monthly installments of $239,515.83
each, in advance on the Block C Rent Commencement Date and on the first day of
each calendar month thereafter, and (iv) in the case of the Concourse Space, (A)
for the period commencing on the Concourse Rent Commencement Date to and
including the day before the 5th anniversary of the Concourse Rent Commencement
Date, $211,480 per annum, payable by Tenant in 12 equal monthly installments of
$17,623.33 each, (B) for the period commencing on the 5th anniversary of the
Concourse Rent Commencement Date to and including the day before the 10th
anniversary of the Concourse Rent Commencement Date, $232,628 per annum, payable
by Tenant in 12 equal monthly installments of $19,385.67 each and (C) for the
period commencing on the 10th anniversary of the Concourse Rent Commencement
Date to and including the Expiration Date, $253,776 per annum, payable by Tenant
in 12 equal monthly installments of $21,148 each, in each case in advance on the
first day of each calendar month during the applicable period.
(b) Subject to Section 2.02(c): (i) "Block A Rent Commencement Date" means
the 545th day after the Block A Relevant Date. (ii) "Block B Rent Commencement
Date" means the 365th day after the Block B Relevant Date. (iii) "Block C Rent
Commencement Date" means the 300th day after the Block C Relevant Date. (iv)
"Concourse Rent Commencement Date" means the 365th day after the Concourse
Relevant Date (each of the Block A Rent Commencement Date, the Block B Rent
Commencement Date, the Block C Rent Commencement Date and the Concourse Rent
Commencement Date is called a "Rent Commencement Date").
(c) Notwithstanding Section 2.02(b), the Rent Commencement Date with
respect to any Block, any portion of any Block or any other space included in
the Premises, as the case may be, shall be postponed by the number of days, if
any, of Landlord Delay applicable to such space. "Landlord Delay" means any
delay which Tenant may encounter in the substantial completion of any of
Tenant's initial Alterations in any space or in the initial occupancy of any
space for the conduct of business in accordance with this Lease, in either case
(i) to the extent caused by any act or (where Landlord has an affirmative
obligation to act pursuant to the terms of this Lease) omission of Landlord, its
agents or contractors (including, without limitation, the failure by Landlord to
cure any violations noted against the Building (other than a violation that is
the obligation of Tenant to remove), to the extent such failure (A) delays the
substantial completion of Tenant's initial Alterations in any space or (B)
delays Tenant's initial occupancy of any space for the conduct of business in
accordance with this Lease for the purposes shown on, or reasonably inferable
from, Tenant's then current plans and specifications for the space in question)
or (ii) to the extent caused by any Unforeseen Condition which arises during the
performance by Tenant of any item of Tenant's Required Work; provided, in all
cases that no such delay shall constitute a Landlord Delay if Tenant, using
reasonable prudence and diligence, but without additional expense, could avoid
such delay, and no such delay shall constitute a Landlord Delay to the extent it
occurs after Tenant has actual knowledge or should reasonably have knowledge of
such delay and before Tenant notifies Landlord of such Landlord Delay (it being
understood that in all events such delay shall constitute a Landlord Delay to
the extent it occurs after Tenant notifies Landlord of such Landlord Delay). If
Tenant notifies Landlord of the occurrence of any Landlord Delay, upon Tenant's
request, Landlord shall notify Tenant of Landlord's estimate of the duration of
such Landlord Delay. Anything contained in this Lease to the contrary
notwithstanding, this Section 2.02(c) shall not apply to any delay by Landlord
in completing (x) any item of Landlord's Work which is a condition to delivery
of any space to Tenant or (y) the Lobby Renovation Work; it being understood
that Tenant's remedies for any such delay are set forth in Sections 1.03 and
8.21, respectively. Any dispute as to the existence or duration of any Landlord
Delay shall be determined by arbitration in accordance with Section 8.09.
(d) If the Rent Commencement Date with respect to any Block or other space
is not the first day of a month, then Fixed Rent with respect to such Block or
other space for the month in which such Rent Commencement Date occurs shall be
prorated and paid on such Rent Commencement Date.
<PAGE>
(e) As reimbursement for Tenant's performance of Tenant's Required Work,
Tenant shall be entitled to a credit against the first installments of Rent
coming due under this Lease (i) with respect to the Block A Space, in the amount
of $1,009,918, (ii) with respect to the Block B Space, in the amount of $358,177
and (iii) with respect to the Block C Space, in the amount of $256,304. Anything
to the contrary contained in this Lease notwithstanding, Tenant shall only be
entitled to receive such rent credits if and to the extent that Tenant performs
Tenant's Required Work. Tenant's entitlement to such rent credits shall be in
addition to (A) any reimbursement to which Tenant becomes entitled, or (B) any
expenses to be incurred by Landlord, by reason of Unforeseen Conditions pursuant
to Section 4.01(a)(vi).
2.03 Additional Charges. "Additional Charges" means Tax Payments, Operating
Payments and all other sums of money at any time payable by Tenant under this
Lease, all of which Additional Charges shall be deemed to be rent.
2.04 Tax Payments. (a) "Base Tax Amount" means $17,683,400; provided, that
if the Taxes, as finally determined, for the 1995/1996 Tax Year, the 1996/1997
Tax Year and/or the 1997/1998 Tax Year shall be greater than $17,683,400, then
the Base Tax Amount shall be increased to equal the greatest of such amounts. If
Landlord shall at any time, as part of any settlement, compromise or other
disposition, settle, compromise or otherwise dispose of applications or other
proceedings for the reduction of Taxes with respect to more than one Tax Year
(including, for purposes of this sentence only, any tax years occurring prior to
the Term), which settlement, compromise or disposition includes the 1995/1996
Tax Year, the 1996/1997 Tax Year and/or the 1997/1998 Tax Year (any of such Tax
Years is called a "Base Tax Year"), Landlord shall not agree to any settlement,
compromise or other disposition that would result in the overall reduction of
Taxes for the applicable Tax Years being inequitably allocated to any Base Tax
Year so as to reduce the Base Tax Amount by more than the Base Tax Amount would
have been reduced if Landlord had compromised, settled or otherwise disposed of
the Taxes for the Base Tax Year in question without reference to any compromise,
settlement or other disposition of Taxes for any other Tax Year. In the event of
a breach of the preceding sentence by Landlord, as Tenant's sole remedy, the
Taxes for the Base Tax Year in question shall be modified to be the Taxes for
such Tax Year that would have applied had Landlord complied with the terms
hereof and Landlord shall refund to Tenant the amount, if any, overpaid by
Tenant in respect of any Tax Payment by reason of Landlord's failure to comply
with the terms of this Section 2.04(a), together with interest on such amount at
the Interest Rate from the date of the applicable payment by Tenant through the
date of refund by Landlord. Any dispute concerning this Section 2.04(a) shall be
resolved by arbitration in accordance with Section 8.09.
(b) "Taxes" means amounts actually payable for (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 (provided, that the same shall be
reflected in a tax bill or other notice of the applicable authority (or, if
applicable, of any Superior Lessor or Superior Mortgagee to whom Landlord must
pay Taxes; provided, in such case, that Landlord shall provide to Tenant the
actual tax bill or other notice of the applicable authority promptly after the
same becomes available) rendered with respect to the Project (such tax bill or
other notice is called a "Tax Bill")) and giving effect to any and all
abatements, refunds, reductions, credits and the like, and calculated as if the
Building and the Land were Landlord's sole assets; (ii) all taxes assessed or
imposed with respect to the rentals payable under this Lease other than general
income and gross receipts taxes; provided, that any such tax shall exclude
Commercial Rent or Occupancy Tax imposed pursuant to Title 11, Chapter 7, of the
New York City Administrative Code so long as such tax is required to be paid by
tenants; and (iii) 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, then
all such taxes, assessments, levies, impositions, fees or charges or the part
thereof so measured or based shall be included in "Taxes". If the owner, or
lessee under a Superior Lease, of all or any part of the Building and/or the
Land is an entity exempt from the payment of taxes described in clauses (i) and
(ii), there shall be included in "Taxes" the taxes described in clauses (i) and
(ii) which would be so levied, assessed or imposed if such owner or lessee were
not so exempt and such taxes shall be deemed to have been paid by Landlord on
the dates on which such taxes otherwise would have been payable if such owner or
lessee were not so exempt, but only to the extent any such payments are actually
required to be made by Landlord. "Taxes" shall not include (A) any succession,
gains, recording, income, franchise, transfer, inheritance, capital stock,
excise, excess profits, occupancy or rent (except as permitted pursuant to
clause (ii) above), gift, estate, foreign ownership or control, payroll or stamp
<PAGE>
tax of Landlord or any superior party, (B) any other tax assessment, charge or
levy on the rent reserved under this Lease (except as permitted pursuant to
clause (ii) above), (C) any charges and/or taxes of a type customarily paid by
individual tenants if and to the extent the same are allocable to, and payable
by, individual tenants (including, by way of example only, vault fees for a
tenant using such vaults, and water and sewer taxes for a restaurant tenant) or
(D) any penalties or late charges imposed against Landlord or any superior party
with respect to real estate taxes, assessments and the like; provided, that, to
the extent that such penalties or late charges are incurred by Landlord as a
result of a failure by Tenant to pay any installment of any Tax Payment in a
timely manner in accordance with Section 2.04(e), Tenant shall pay to Landlord
the amount of such penalties or late charges for which Tenant is responsible
within 30 days after demand therefor by Landlord.
(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.
(d) "Tenant's Tax Share" means a fraction expressed as a percentage, the
numerator of which shall be the rentable square footage of the space from time
to time included in the Premises and the denominator of which shall be 1,930,773
(the "Tax Denominator"). Exhibit H attached hereto sets forth Tenant's Tax Share
for each full floor of the Office Space and the Offer Space. Any change in
Tenant's Tax Share shall be effective from and after each applicable Rent
Commencement Date (or other date, with respect to any space other than the
Blocks and the Concourse Space, on which Tenant is required pursuant to the
terms of this Lease to commence making Tax Payments with respect to such space)
and Tenant's Tax Payments for any Tax Year in which such a change occurs shall
be adjusted accordingly. Landlord represents to Tenant that the Tax Denominator
was determined using the same standard of measurement as that used to determine
the rentable square footages set forth on Exhibit H annexed hereto.
(e) If Taxes for any Tax Year, including the Tax Year in which the Rent
Commencement Date with respect to any Block occurs, shall exceed the Base Tax
Amount, Tenant shall pay to Landlord (each, a "Tax Payment") Tenant's Tax Share
of the amount by which Taxes for such Tax Year are greater than the Base Tax
Amount. The 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 Lessor or Superior
Mortgagee. Tenant shall pay Tenant's Tax Share of each such installment within
30 days after the rendering of a statement therefor (a "Tax Statement") by
Landlord to Tenant, but in no event shall Tenant be required to pay Tenant's Tax
Share of any Taxes more than 10 days prior to the date such Taxes first become
due. The Tax Statement to be rendered by Landlord shall set forth in reasonable
detail the computation of Tenant's Tax Share of the particular installment(s)
being billed, and, if Landlord shall have received the relevant Tax Bill at such
time, shall accurately reflect such Tax Bill or, if Landlord shall not have
received such Tax Bill at such time, shall reflect Landlord's good faith
estimate of such installment(s) being billed. A copy of the relevant Tax Bill
shall accompany each Tax Statement (if Landlord shall have received such Tax
Bill at the time such Tax Statement is delivered to Tenant). If Landlord shall
not have received the relevant Tax Bill at the time any Tax Statement is
delivered to Tenant, Landlord shall deliver to Tenant, promptly after receipt
thereof by Landlord, a copy of such Tax Bill, together with a statement setting
forth the amount (if any) of any overpayment or underpayment by Tenant with
respect to the Tax Payment paid by Tenant in accordance with such Tax Statement
and the appropriate party shall pay to the other party the amount of such
overpayment or underpayment within 30 days after such statement is received by
Tenant. 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 Tax Payment 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 Base Tax Amount. Anything to
the contrary contained in this Lease notwithstanding, in no event shall Tenant
be required to pay a Tax Payment for any period prior to July 1, 1998.
(f) If, in respect of any Taxes for which Tenant has paid Tenant's Tax
Share, Landlord shall receive a refund of such Taxes or shall become entitled to
a credit against a future payment of Taxes, Landlord shall (i) in the case of a
refund, pay to Tenant within 30 days after Landlord's receipt thereof or (ii) in
the case of a credit, permit Tenant to credit against the Tax Payment applicable
to the payment of Taxes against which Landlord will take such credit (unless
such payment of Taxes is due and payable after the end of the Term, in which
event Landlord shall pay to Tenant at the time Landlord makes such Tax Payment),
in any such case an amount equal to Tenant's Tax Share of such refund or credit
(after deducting from such refund or credit the actual costs and expenses of
obtaining the same, including, without limitation, appraisal, accounting and
legal fees, if and to the extent that (A) such legal fees have not already been
deducted by the party conducting the contest on behalf of Landlord prior to
Landlord's receipt of such refund and (B) such costs and expenses were not
<PAGE>
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. The
reference to "Tenant's Tax Share" in this Section 2.04(f) shall be deemed to
mean Tenant's Tax Share in effect during the Tax Year to which the applicable
refund relates; provided, that if Tenant's Tax Share changed during such Tax
Year, any refund to which Tenant is entitled under this Section 2.04(f) shall be
appropriately adjusted.
(g) If Landlord is required to pay Taxes to a Superior Lessor or Superior
Mortgagee and as a result Tenant is required to make Tax Payments to Landlord
earlier than such Tax Payments would be required to be made if such Taxes were
payable by Landlord directly to the applicable taxing authority, then Landlord
shall pay to Tenant interest, at an annual rate equal to the Prime Rate, on the
amount of such Tax Payments from the date paid by Tenant until the date (the
"Tax Payment Date") that is 10 days before the date that the Taxes in respect of
which such Tax Payments were made are due to the applicable taxing authority,
such interest to be paid within 30 days after Tenant gives to Landlord a notice
requesting such payment but in no event earlier than the applicable Tax Payment
Date. Anything contained in this Section 2.04 to the contrary notwithstanding,
Landlord may at any time and from time to time notify Tenant that Landlord
waives the requirement that Tax Payments be made at the time the applicable
Taxes are due to a Superior Lessor or Superior Mortgagee, in which event Tenant
shall make each Tax Payment at the time such Tax Payment would be due to
Landlord if Landlord were paying the Taxes in respect of which such Tax Payment
is made directly to the applicable taxing authority, and the first sentence of
this Section 2.04(g) shall not apply.
2.05 Operating Payments. (a) "Base Operating Amount" means Operating
Expenses for the Base Operating Year.
(b) "Base Operating Year" means calendar year 1997.
(c) "Includable Capital Improvements" means all alterations, repairs,
replacements, improvements and other items the cost of which is incurred at any
time during or after the Base Operating Year and which (i) are required by any
Laws enacted after the date of this Lease, (ii) have the effect of reducing
expenses that would otherwise be included in Operating Expenses, (iii)
constitute a replacement which in Landlord's reasonable judgment is prudent to
make in lieu of repairs to the replaced item(s) or (iv) in accordance with
generally accepted accounting principles consistently applied ("GAAP"), are
required to be capitalized and to be amortized or depreciated over a period of
not more than 10 years.
(d) "Landlord's Statement" means an instrument substantially in the form
attached to this Lease as Exhibit I setting forth the Operating Payment payable
by Tenant for a specified Operating Year, certified by Landlord.
(e) (i) "Operating Expenses" means all commercially reasonable expenses
actually paid or incurred by or on behalf of Landlord in respect of the repair,
replacement, maintenance, operation and security of the Project, including,
without limitation (but without duplication, and other than as specifically
qualified or excluded below), (A) salaries, wages, medical, surgical, insurance
(including, without limitation, group life and disability insurance), union and
general welfare benefits, pension payments, severance payments, sick day
payments and other fringe benefits of persons engaged in the repair,
replacement, maintenance, operation and/or security of the Project, but
excluding personnel above the grade of building manager or equally held
positions, and with respect to persons who are so engaged with respect to the
Building and properties other than the Building, such expenses to be allocated
on a pro rata basis; (B) payroll taxes, worker's compensation, uniforms and
related expenses for such employees; (C) the cost of fuel, gas, steam,
electricity, heat, ventilation, air-conditioning and chilled or condenser water,
water, sewer and other utilities, together with any taxes, surcharges and other
fees payable to the provider of such utilities (the amount includable in
Operating Expenses for electricity consumed in the Building and includable in
Operating Expenses shall be the amount at which Landlord from time to time
purchases electricity for the same period from the utility company (including
all demand charges, consumption charges, surcharges, taxes, fuel adjustments,
taxes passed on to consumers by the public utility, and other sums required to
be paid to the public utility for such electricity), which amount shall be
determined by dividing the cost charged with respect to the Building by said
utility during each respective billing period by the number of KWHRs consumed by
the Building as set forth on the utility company invoice for such period); (D)
the cost of painting and/or decorating all areas of the Project, excluding,
however, any space contained therein which is leased to, or available for
leasing by, tenants; (E) the cost of casualty, liability, fidelity, rent and all
other insurance regarding the Project; (F) subject to the proviso set forth in
clause (J) below, the cost of all supplies, tools, materials and equipment,
whether by purchase or rental, used in the repair, replacement, maintenance,
operation and/or security of the Project and any sales taxes thereon; (G) the
rental value of Landlord's Building office; provided, that the same shall be
<PAGE>
included in Operating Expenses only to the extent that the rentable area of such
office does not exceed the rentable area of Landlord's Building office on the
date of this Lease; (H) the cost of cleaning, janitorial and security services,
including, without limitation, glass cleaning, snow and ice removal and garbage
and waste collection and disposal; (I) the cost of all interior and exterior
landscaping; (J) the cost of all alterations, repairs, replacements and/or
improvements made at any time during or after the Base Operating Year by or on
behalf of Landlord, whether structural or non structural, ordinary or
extraordinary, foreseen or unforeseen, and whether or not required by this
Lease, and all tools and equipment related thereto; provided, that if under
GAAP, any of the costs referred to in this clause (J) are required to be
capitalized, then such costs shall not be included in Operating Expenses unless
incurred for (x) an Includable Capital Improvement of the type described in
Sections 2.05(c)(i), (ii) or (iv), in which event the cost thereof, together
with interest thereon (at either (I) if Landlord shall not finance such
Includable Capital Improvement, the Prime Rate determined as of December 31 of
the Operating Year in which such costs were incurred or (II) if Landlord shall
finance such Includable Capital Improvement, the actual costs incurred by
Landlord to finance such Includable Capital Improvement), shall in each case be
amortized and included in Operating Expenses over the useful life of the item in
question, as determined in accordance with GAAP or (y) an Includable Capital
Improvement of the type described in Section 2.05(c)(iii), in which case, there
shall be included in Operating Expenses in the Operating Year in which Landlord
pays for such Includable Capital Improvement (and, if and to the extent that the
cost of such Includable Capital Improvement, together with interest thereon in
accordance with clause (I) above, shall not be fully recovered in such Operating
Year, such subsequent Operating Years until such cost (together with interest)
is fully recovered), an amount equal to the lesser of (1) the unrecovered cost
of such Includable Capital Improvement (together with interest if the entire
cost of such Includable Capital Improvement is not fully recovered in the
Operating Year in which Landlord pays for such Includable Capital Improvement)
and (2) a reasonable estimate of the expenses which would have been incurred by
Landlord during the Operating Year in question to perform repairs to the item in
question had such item not been replaced; provided, further, that in the case of
any Includable Capital Improvements of the type described in Section
2.05(c)(ii), in no event shall Tenant be required to pay more in any one
Operating Year by reason of such Includable Capital Improvements (plus interest)
than Tenant would have had to pay during such Operating Year with respect to the
relevant component of Operating Expenses which has been reduced as a result of
such Includable Capital Improvements; (K) management fees; provided, that if
Landlord or an Affiliate of Landlord is the managing agent of the Building then
the amount includable in Operating Expenses in respect of the annual management
fee shall at all times, regardless of the actual management fee paid, be 2 1/2%
of the aggregate rents and additional rents (excluding any amounts payable by
tenants to Landlord for electricity) payable to Landlord by tenants of the
Building and (L) any assessments, dues, levies or charges paid to any business
improvement district or similar organization or to any entity on behalf of such
an organization. During calendar year 1997, Landlord shall cause an electrical
consultant to perform a survey of the electricity consumed in the Building and
includable in Operating Expenses, which survey shall reflect the actual
equipment amperage readings. Upon request by Tenant, Landlord shall provide
Tenant with the results of such survey. Any dispute concerning such survey shall
be resolved in the same manner provided for the resolution of disputes under
Section 2.07(e). (ii) Notwithstanding Section 2.05(e)(i), "Operating Expenses"
shall not include the following: (1) depreciation and amortization (except with
respect to Includable Capital Improvements); (2) principal and interest payments
and other costs incurred in connection with any financing or refinancing of the
Project or any portion thereof (except if and to the extent includable as
Includable Capital Improvements); (3) the cost of tenant improvements made for
tenant(s) of the Building and any "contribution" to such tenant(s) in connection
therewith; (4) brokerage commissions, advertising expenses, promotional
expenses, architect's fees and space planners' fees incurred in procuring
tenants for the Building; (5) the cost of any work or service performed for any
tenant of the Building (including Tenant), whether at the expense of Landlord or
such tenant, to the extent that such work or service is in excess of the work or
service that Landlord is required to furnish Tenant under this Lease at the
expense of Landlord; (6) the cost of any electricity consumed in the Premises or
in any other areas of the Building that are leased to, or available for leasing
by, tenants; (7) Taxes and any amounts excluded from Taxes pursuant to the last
sentence of Section 2.04(b); (8) legal, bookkeeping and accounting fees and
expenses; (9) any cost if and to the extent Landlord is reimbursed therefor out
of insurance proceeds or otherwise, including, without limitation, if and to the
extent that any tenant of the Building is required pursuant to its lease or
other agreement with Landlord to reimburse Landlord therefor (other than by
means of operating expense reimbursement provisions contained in the lease or
other agreement of such other tenant); (10) all costs of alterations or
improvements to the Premises or the premises of any other tenant, except if and
to the extent that such alterations or improvements are performed in order to
comply with Laws, in which case such costs shall be included in Operating
Expenses (but only if such costs are not required to be capitalized under GAAP);
provided, that if such alterations or improvements are performed in order to
<PAGE>
comply with Laws enacted after the date of this Lease and the costs of such
alterations or improvements are required to be capitalized under GAAP, such
costs shall be included in Operating Expenses in accordance with Section
2.05(e)(i)(J)(x); (11) all expenses which would not have been incurred but for
the negligence or willful misconduct of Landlord or Landlord's agents, servants,
employees, contractors, suppliers, or the negligence or willful misconduct of
another tenant; (12) any bad debt loss, rent loss or reserves for bad debts or
rent loss; (13) all costs associated with the operation of the business of the
partnership or entity which constitutes the Landlord, as the same are
distinguished from the costs of operation of the Building, including, without
limitation, partnership accounting and legal matters, costs of defending any
lawsuits with any mortgagee and costs of selling, syndicating, financing,
mortgaging or hypothecating any of Landlord's interests in the Building; (14)
all fines, penalties and interest (other than interest includable pursuant to
Section 2.05(e)(i)(J)); (15) all amounts paid by Landlord under any ground lease
(other than amounts which constitute a reimbursement to the ground lessor for
items which would have been included in Operating Expenses under this Lease if
the same were paid directly by Landlord); (16) any costs or expenses incurred
principally for the benefit of the retail portions of the ground floor and
concourse levels, or any portion of any other floor in the Building devoted to
retail operation; (17) all costs of capital improvements and any other capital
costs other than as expressly provided in Section 2.05(e)(i)(J); (18) all costs
arising from the presence of asbestos, PCB's or other hazardous materials or
substances in or about the Project (exclusive of any such costs with respect to
hazardous materials or substances (other than asbestos and PCB's) used in
compliance with applicable Laws in the ordinary course of operating and
maintaining the Project, which costs may be included in Operating Expenses);
(19) all costs incurred by Landlord with respect to goods and services
(including utilities sold and supplied to tenants and occupants of the Building)
to the extent that Landlord would be entitled to reimbursement from Tenant
(other than pursuant to this Section 2.05) for the cost of like goods and
services furnished to Tenant pursuant to this Lease; (20) expenses in connection
with services or other benefits which are not made available to Tenant but which
are made available to another tenant or occupant of the Building; (21) all
amounts (other than any management fees which shall be governed by Section
2.05(e)(i)(K) above) paid by Landlord to Affiliates of Landlord for services in
the Building to the extent that the same exceed the costs of such services
rendered by unaffiliated third parties on a competitive basis in first class
midtown Manhattan office buildings; (22) all compensation paid to clerks,
attendants or other persons in commercial concessions operated by Landlord; (23)
all costs associated with Landlord's political, civic or charitable
contributions (except if and to the extent includable pursuant to Section
2.05(e)(i)(L)); (24) all costs to acquire, install, maintain, insure, repair or
replace sculpture, paintings or other objects of art, other than holiday
decorations; (25) all costs of Landlord's general corporate overhead and general
and administrative expenses; provided, that the same are customarily charged as
overhead by, and are not separately reimbursed as operating expenses to, owners
of first class midtown Manhattan office buildings which are managed by the owner
or an Affiliate of the owner; (26) all costs which would not have been incurred
by Landlord but for the violation by Landlord or any tenant of the terms and
conditions of any lease of space in the Building; (27) any expenses for repairs
or maintenance if and to the extent the same are covered by warranties and
service contracts or would have been so covered had Landlord obtained a
commercially reasonable warranty with respect to the item in question (if and to
the extent Landlord was required to obtain such warranty in accordance with
Section 4.05(b) below); (28) new categories of Operating Expenses not included
in Landlord's Statement in respect of the Base Operating Year; provided, that
the cost of any category of Operating Expenses which was included in Landlord's
Statement in respect of the Base Operating Year and which ceases to be provided
by Landlord at any time after the Base Operating Year shall be excluded from the
Base Operating Amount from and after the date that such category of Operating
Expenses ceases to be provided by Landlord; and provided further, that any such
new category of Operating Expenses may be included in Operating Expenses, if,
from and after the Operating Year in which such new category is first included
in Operating Expenses, the Operating Expenses for the Base Operating Year are
grossed up to include the amount of such new category of Operating Expenses that
would have been incurred in the Base Operating Year had Landlord provided such
service or incurred such expense in the Base Operating Year; (29) the cost of
repairs or replacements incurred by reason of fire or other casualty to the
extent such costs are incurred because of Landlord's failure to maintain the
insurance required by Section 7.01(d) or because of Landlord's inability to
collect insurance proceeds due to Landlord's negligence or willful misconduct;
(30) any costs which duplicate costs for which Landlord is reimbursed by Tenant
under other provisions of this Lease; (31) the cost of temporary exhibitions
located at or within the Project (other than holiday decorations); and (32)
costs and expenses for which owners of first class midtown Manhattan office
buildings which are managed by the owner or an Affiliate of the owner and which
manager receives a management fee comparable to the management fee included in
Operating Expenses pursuant to Section 2.05(e)(i)(K) above are customarily
compensated as part of their management fee and are not separately reimbursed as
operating expenses.
<PAGE>
(f) "Operating Year" means each calendar year in which occurs any part of
the Term.
(g) "Tenant's Operating Share" means a fraction, expressed as a percentage,
the numerator of which shall be the rentable square footage of the space from
time to time included in the Premises, and the denominator of which shall be
1,850,452 (the "Operating Denominator"). Exhibit H attached hereto sets forth
Tenant's Operating Share for each full floor of the Office Space and the Offer
Space. Any change in Tenant's Operating Share shall be effective from and after
each applicable Rent Commencement Date (or other date, with respect to any space
other than the Blocks and the Concourse Space, on which Tenant is required
pursuant to the terms of this Lease to commence making Operating Payments with
respect to such space) and Tenant's Operating Payments for any Operating Year in
which such a change occurs shall be adjusted accordingly. Landlord represents to
Tenant that the Operating Denominator was determined using the same standard of
measurement as that used to determine the rentable square footages set forth on
Exhibit H annexed hereto.
(h) For each Operating Year, including the Operating Year in which the Rent
Commencement Date with respect to any Block occurs, Tenant shall pay (each, an
"Operating Payment") Tenant's Operating Share of the amount by which Operating
Expenses for such Operating Year exceed the Base Operating Amount.
(i) If during any relevant period, including the Base Operating Year, (A)
any rentable space in the Building shall be unoccupied, and/or (B) the tenant or
occupant of any rentable space in the Building undertook to perform work or
services therein in lieu of having Landlord perform the same, such work or
services are of the same type as Landlord is required to provide to Tenant under
this Lease and the cost thereof would have been included in Operating Expenses,
then, in any such event, the Operating Expenses for such period shall be
increased to reflect the additional expenses (exclusive of any additional
management fee that would have been payable by reason of such increased
expenses) that would have been incurred, if any, if 100% of the rentable space
in the Building were occupied by tenants during such period or if Landlord had
performed such work or services with respect to 100% of the rentable space in
the Building, as the case may be.
(j) Landlord may furnish to Tenant, prior to the commencement of each
Operating Year, a statement substantially in the form attached to this Lease as
Exhibit I setting forth Landlord's reasonable estimate of the Operating Payment
for such Operating Year. In estimating the Operating Payment for any Operating
Year, the percentage increase in Operating Expenses for such Operating Year over
the Operating Expenses for the prior Operating Year shall not exceed the average
of the percentage increases in Operating Expenses from Operating Year to
Operating Year over the prior 3 Operating Years; provided, that if the
percentage increase in any component of Operating Expenses for the Operating
Year in question is reasonably expected to be higher than such average
percentage increase due to a demonstrable event which has occurred or is
reasonably likely to occur, then, for purposes of such estimate, Landlord shall
have the right to increase such component of Operating Expenses by such higher
percentage (in which event Landlord's statement setting forth such estimate
shall be accompanied by a detailed explanation of such higher increase). Tenant
shall pay to Landlord on the first day of each month during such Operating Year,
an amount equal to 1/12th of Landlord's estimate of the Operating Payment for
such Operating Year. If Landlord shall not furnish any such estimate for an
Operating Year or if Landlord shall furnish any such estimate for an Operating
Year subsequent to the commencement thereof, then (A) until the first day of the
second month following the month in which such estimate is furnished to Tenant,
Tenant shall pay to Landlord on the first day of each month an amount equal to
the monthly sum payable by Tenant to Landlord under this Section 2.05 in respect
of the last month of the preceding Operating Year; (B) after such estimate is
furnished to Tenant, Landlord shall notify Tenant whether the installments of
the Operating Payment previously made for such Operating Year were greater or
less than the installments of the Operating Payment to be made in accordance
with such estimate, and (x) if there is a deficiency, Tenant shall pay the
amount thereof within 30 days after demand therefor, or (y) if there is an
overpayment, Landlord shall within 30 days refund to Tenant the amount thereof;
and (C) on the first day of the second month following the month in which such
estimate is furnished to Tenant and monthly thereafter throughout such Operating
Year Tenant shall pay to Landlord an amount equal to 1/12th of the Operating
Payment shown on such estimate. Landlord may, not more often than twice during
each Operating Year, furnish to Tenant a revised statement of Landlord's
estimate of the Operating Payment for such Operating Year, and in such case, the
Operating Payment for such Operating Year shall be adjusted and paid or refunded
as the case may be, substantially in the same manner as provided in the
preceding sentence; provided, that any such revised Landlord's estimate shall be
calculated in accordance with the limitation specified in the second sentence of
this Section 2.05(j).
<PAGE>
(k) Landlord shall furnish to Tenant a Landlord's Statement for each
Operating Year (and shall endeavor to do so within 180 days after the end of
such Operating Year). If Landlord's Statement shall show that the sums paid by
Tenant, if any, under Section 2.05(j) exceeded the Operating Payment to be paid
by Tenant for the applicable Operating Year, Landlord shall within 30 days
refund to Tenant the amount of such excess; provided, that if the sums paid by
Tenant under Section 2.05(j) exceeded the actual Operating Payment by more than
2.5%, then such refund shall include interest thereon at the Prime Rate from the
date of the applicable payment by Tenant through the date of refund by Landlord
and if it is finally determined by arbitration in accordance with Section 8.09
that Landlord shall have so overcharged Tenant in bad faith, then such refund
shall include interest thereon at the Interest Rate (instead of at the Prime
Rate) from the date of the applicable payments by Tenant through the date of
refund by Landlord; and if the Landlord's Statement shall show that the sums so
paid by Tenant were less than the Operating Payment to be paid by Tenant for
such Operating Year, Tenant shall pay the amount of such deficiency within 30
days after demand therefor; provided, that if the sums paid by Tenant under
Section 2.05(j) were less than the actual Operating Payment by reason of the
limitation specified in the second sentence of Section 2.05(j), then such
payment by Tenant to Landlord shall include interest thereon at the Prime Rate
from the date such payments by Tenant would have been due but for said
limitation through the date of payment by Tenant pursuant to this Section
2.05(k).
(l) (i) Provided that Landlord's Statement with respect to a particular
Operating Year shall not have become conclusive and binding under the second
sentence of Section 2.05(l)(ii), Tenant, upon notice given at any time within 4
years after Landlord furnishes to Tenant a Landlord's Statement with respect to
any Operating Year (but subject to Section 8.04(a) below), may elect to have
Tenant's designated (in such notice) certified public accountant (who may be an
employee of Tenant) or other representative examine such of Landlord's books and
records (collectively "Records") as are relevant to such Landlord's Statement.
If Tenant shall not give such notice within such 4-year period, then such
Landlord's Statement shall be conclusive and binding upon Tenant. If, under
Section 8.04(a) below, Tenant's right to claim a refund of Operating Expenses
under this Section 2.05 shall have been cut off with respect to any period
without Tenant having asserted a claim to a refund for such period, then Tenant
shall no longer have the right to examine the Records for such period. "Records"
shall include, without limitation, sales tax reports and sales tax returns,
receipts, bank and check books and records supporting data maintained by
Landlord and related to Operating Expenses. Subject to the other provisions of
this Section 2.05(l)(i), Tenant's accountant or other representative shall be
permitted to examine the Records at the office of Landlord or Landlord's
managing agent in Manhattan at such time or times during normal business hours
as Landlord shall reasonably designate and Tenant shall be entitled, at its
expense, to make copies of any Records. Tenant and Tenant's employees,
accountants and agents shall treat all Records as confidential, and, upon
request by Landlord, shall confirm such confidentiality obligation in writing.
In no event shall the preceding sentence be deemed to limit Tenant's rights of
discovery and disclosure in any action or proceeding, or be construed so as to
prohibit Tenant from complying with the directive of any court or arbitrator.
(ii) Tenant, within 180 days after the date on which the Records are made
available to Tenant in response to a request by Tenant pursuant to Section
2.05(l)(i) above, may send a notice ("Tenant's Statement") to Landlord that
Tenant disagrees with the applicable Landlord's Statement, specifying in
reasonable detail the basis for Tenant's disagreement and the amount of the
Operating Payment Tenant claims is due. If Tenant fails timely to deliver a
Tenant's Statement, then such Landlord's Statement shall be conclusive and
binding on Tenant. Landlord and Tenant shall attempt to adjust such
disagreement. If they fail to resolve such disagreement within 90 days after the
date that Tenant gives Tenant's Statement to Landlord, either Landlord or Tenant
may notify the other that such party desires to have such disagreement
determined by arbitration in accordance with Section 8.09. Pending resolution of
such disagreement, (A) Tenant shall pay the undisputed portion(s) of the
Operating Payment in accordance with the Landlord's Statement in question (i.e.,
Tenant shall pay all undisputed components included in such Operating Payment
and, if Tenant shall be disputing the amount of any component included in such
Operating Payment (as opposed to the component itself), the undisputed amount of
such component), and (B) Tenant shall not be deemed to be in default under this
Lease for withholding payment of the disputed portion(s). If the arbitrator
shall determine that any disputed portion of such Operating Payment was required
to be paid by Tenant, Tenant shall pay to Landlord within, 30 days after such
determination, such disputed amount, together with interest thereon at the Prime
Rate from the date the applicable payments were required to be made by Tenant
pursuant to the provisions of this Section 2.05 through the date of payment by
Tenant pursuant to this Section 2.05(l)(ii); provided, that if the arbitrator
shall determine that Tenant disputed any portion of such Operating Payment in
<PAGE>
bad faith, then such payment by Tenant shall include interest thereon at the
Interest Rate (instead of at the Prime Rate). (iii) Landlord, for at least 4
years after Landlord furnishes to Tenant a Landlord's Statement with respect to
any Operating Year, shall retain Records relating to payment of Operating
Expenses for such Operating Year. Subject to the other provisions of this
Section 2.05(l), Tenant's payment of any Operating Payment shall not preclude
Tenant from later disputing the correctness of any Landlord's Statement.
2.06 Tax and Operating Provisions. (a) Subject to Section 10.05(b), in any
case provided in Section 2.04 or 2.05 in which Tenant is entitled to a refund,
Landlord may, in lieu of making such refund, credit against future installments
of Rent any amounts to which Tenant shall be entitled. Nothing in this Article 2
shall be construed so as to result in a decrease in the Fixed Rent. If this
Lease shall expire before any such credit shall have been fully applied, then
Landlord shall within 30 days thereafter, but subject to Landlord's right to
offset any amounts then due and payable by Tenant to Landlord in accordance with
Section 10.05(a), refund to Tenant the unapplied balance of such credit.
(b) Landlord's failure to render or delay in rendering a Landlord's
Statement with respect to any Operating Year or any component of the Operating
Payment shall not prejudice Landlord's right to thereafter render a Landlord's
Statement with respect to any such Operating Year or any such component, nor
shall the rendering of a Landlord's Statement for any Operating Year prejudice
Landlord's right to thereafter render a corrected Landlord's Statement for such
Operating Year. Landlord's failure to render or delay in rendering a Tax
Statement with respect to any Tax Payment or installment thereof shall not
prejudice Landlord's right to thereafter render such Tax Statement, nor shall
the rendering of a Tax Statement for any Tax Payment or installment thereof
prejudice Landlord's right to thereafter render a corrected Tax Statement
therefor. Notwithstanding the foregoing, (i) if Landlord shall fail to render a
Landlord's Statement with respect to any Operating Year, or a Tax Statement with
respect to any Tax Year, within 1 year after the end of such Operating Year or
Tax Year, then Landlord shall be deemed to have waived its right to claim or
receive any additional Operating Payment for such Operating Year or Tax Payment
for such Tax Year, as the case may be and (ii) Landlord shall have no right to
render a corrected Landlord's Statement for any Operating Year or a corrected
Tax Statement for any Tax Year more than 4 years after the end of the applicable
Operating Year or Tax Year (or, if later in the case of Tax Statements, 4 years
after the last date on which costs applicable to the Tax Year in question were
incurred). If, under Section 8.04(a) below, Tenant's right to claim a refund of
Operating Expenses under Section 2.05 shall have been cut off with respect to
any period without Tenant having asserted a claim to a refund for such period,
then Landlord's right to render a corrected Landlord's statement with respect to
such period under the preceding sentence shall be cut off as of the same date
that Tenant's right was so cut off.
(c) The computations under this Article 2 are intended to constitute an
actual reimbursement to Landlord for Taxes and other costs and expenses incurred
by Landlord with respect to the Project as to which Tenant has agreed to
reimburse Landlord under this Lease. If the Building shall be condominiumized,
then Tenant's Operating Payments and Tax Payments shall, if necessary, be
equitably adjusted such that Tenant shall thereafter continue to pay its fair
share of the Taxes and Operating Expenses of the Building taken as a whole;
provided that Tenant shall not be required to pay an amount greater than the
amount Tenant would have been required to pay had the Building not been
condominiumized, unless the Building shall have been condominiumized at the
request of Tenant, in which case Tenant shall be responsible for any such
increased amounts.
(d) Each Tax Payment in respect of a Tax Year, and each Operating Payment
in respect of an Operating Year, which begins prior to the Rent Commencement
Date with respect to any Block or ends after the expiration or earlier
termination of this Lease, and any tax refund pursuant to Section 2.04(f), shall
be prorated to correspond to that portion of such Tax Year or Operating Year
occurring within the Term.
2.07 Electric Charges. (a) Tenant's demand for, and consumption of,
electricity in the Office Space shall be determined by meter or meters installed
(or, if existing, retrofitted) by Landlord to the extent Landlord is required to
install same as part of Landlord's Work, and otherwise by Tenant. Any such
meters so installed by Landlord shall measure only Tenant's demand for, and
consumption of, electricity and neither any electricity of any other tenant in
the Building nor any electricity used in the common areas of the Building.
Tenant shall pay for electric consumption within 15 days after rendition of a
bill therefor (but in no event more than 5 days before Landlord's payment for
the applicable period is due to the public utility), which bill shall reflect
the aggregate charge for electricity for the Premises, as determined by or on
behalf of Landlord separately for each meter. Within 60 days after request by
Tenant, Landlord shall install, at Tenant's reasonable expense, a meter to
measure Tenant's demand for, and consumption of, electricity in the Concourse
Space.
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(b) The amount payable by Tenant for electricity consumed within the
Premises, whether determined by meters or as otherwise provided below, shall be
the amount (as adjusted from time to time, "Landlord's Rate") at which Landlord
from time to time purchases electricity for the same period from the utility
company (including all demand charges, consumption charges, surcharges, taxes,
fuel adjustments, taxes passed on to consumers by the public utility, and other
sums required to be paid to the public utility for such electricity). Landlord's
Rate shall be determined by dividing the cost charged with respect to the
Building by said utility during each respective billing period by the number of
KWHRs consumed by the Building as set forth on the utility company invoice for
such period.
(c) (i) If, prior to the installation of a separate meter, any portion of
Tenant's electric consumption is measured on a meter that also measures the
electric consumption of another tenant in the Building, (ii) if Tenant occupies
any portion of the Office Space prior to the installation of meters with respect
thereto, (iii) at all times in the case of the Concourse Space (unless a meter
is installed to measure Tenant's consumption therein), and/or (iv) in the case
of any Offer Space which constitutes less than 67% of the total rentable square
footage of the floor on which such Offer Space is located and with respect to
which there is no meter installed to measure the consumption of electricity
therein (it being agreed that Tenant shall have the right, at Tenant's expense
and in accordance with Section 4.02, to install a meter), then in each such case
Tenant's consumption of electricity shall be reasonably estimated by Landlord,
and Tenant shall pay Landlord's Rate as applied to such consumption (the
"Initial Charge"); provided, that in no event shall Tenant pay less than $2.00
per annum per rentable square foot of the Office Space and $1.00 per annum per
rentable square foot of the Concourse Space (which amounts shall be reduced to
$.75 per annum per rentable square foot with respect to any space in the
Premises during the period of Tenant's construction of initial Alterations to
such space), unless a survey conducted in accordance with Section 2.07(e)
indicates that the foregoing rates (other than the $.75 per annum per rentable
square foot charge applicable to Tenant's initial construction periods; it being
understood that such rate shall not be subject to increase or decrease, pursuant
to survey or otherwise) should be lower. The Initial Charge may only be changed
from time to time in accordance with Sections 2.07(d) and (e) below (the Initial
Charge, as so modified from time to time, is called the "Actual Charge").
(d) The Actual Charge may be adjusted by Landlord from time to time to
accurately reflect a change (if any) in Landlord's Rate, any such change to be
retroactive to the date of the change in Landlord's Rate.
(e) If at any time Landlord or Tenant believes that the Actual Charge does
not accurately reflect Tenant's demand for, and consumption of, electricity,
then such party may give a notice (the "Survey Notice") to the other requesting
that the Actual Charge be determined by survey in accordance with this Section
2.07(e). If either party gives a Survey Notice, then the parties shall select an
independent electrical consultant reasonably satisfactory to Landlord and Tenant
who shall survey the demand for, and consumption of, electricity by Tenant and,
if applicable, each other tenant who shares a submeter with Tenant, and the
Actual Charge shall be calculated by applying Landlord's Rate to such demand
for, and consumption of, electricity as determined by such electrical
consultant. Any such survey shall reflect the actual equipment amperage
readings. The determination by such electrical consultant shall be final and
binding on Landlord and Tenant. If the parties shall be unable to select an
electrical consultant reasonably satisfactory to Landlord and Tenant within 30
days after the giving of the Survey Notice, then either party shall have the
right to request the American Arbitration Association (or any successor
organization thereto) (the "AAA") to designate an independent electrical
consultant to conduct such survey and the determination of such electrical
consultant shall be final and binding on Landlord and Tenant. The fees of any
electrical consultant selected pursuant to this Section 2.07(e) shall be shared
equally by Landlord and Tenant. If applicable, any adjustment to the Actual
Charge shall be retroactive to the date of any relevant change in Tenant's
consumption as determined by the electrical consultant. Pending the
determination of such electrical consultant, Tenant shall continue to pay the
Actual Charge then being charged by Landlord, and within 30 days after the
determination by such electrical consultant, Landlord or Tenant shall make an
appropriate refund or payment, which refund or payment shall include interest at
the Prime Rate from the date of the applicable payments by Tenant in respect of
electricity through the date of such refund or payment. Surveys of Tenant's
electrical consumption shall be based upon the use of electricity during
Business Hours on Business Days, and on such other days and hours when
electricity is used in the Premises; and if cleaning services are provided by
Landlord, such survey shall include Landlord's normal cleaning hours of 5 hours
per day for lighting within the Premises and for electrical equipment normally
used for such cleaning. No party may give a Survey Notice more than two times in
any 12 month period.
<PAGE>
(f) At Tenant's option, Landlord shall furnish and install all replacement
lighting, tubes, lamps, bulbs and ballasts required in the Premises, and Tenant
shall pay to Landlord or its designated contractor, within 30 days after receipt
of an itemized bill, the actual cost incurred by Landlord therefor.
(g) Tenant shall be entitled to the benefit of any payment or credit
received by Landlord from the public utility supplying electricity to the
Building by reason of energy saving devices installed by Tenant in the Premises.
Any application for such benefits or for any similar benefit program shall be
made by Tenant; provided, that at Tenant's request and at Tenant's expense (if
and to the extent Landlord incurs any out-of-pocket expenses therefor), Landlord
shall sign any application required for Tenant to obtain such benefits and shall
otherwise reasonably cooperate with Tenant's efforts to obtain such benefits.
2.08 Manner of Payment. Tenant shall pay all Rent as the same shall become
due and payable under this Lease (a) in the case of Fixed Rent, by wire transfer
of immediately available federal funds as directed by Landlord, in accordance
with wiring instructions given by Landlord at least 30 days in advance, such
instructions not to be changed by Landlord more than twice per year, and (b) in
the case of all other sums, at Tenant's election, either by wire transfer as
aforesaid or by check (subject to collection) drawn on a New York Clearing House
Association member bank, in each case at the times provided herein and, except
as otherwise provided in this Lease, without notice or demand and without
setoff, credit, counterclaim or abatement except such set-offs, credits and
abatements to which Tenant may be entitled pursuant to the express provisions of
this Lease. All Rent shall be paid in lawful money of the United States to
Landlord at its office or such other place (which shall be located in the
continental United States if Tenant is paying Rent by check) as Landlord may
from time to time designate. If Tenant fails timely to pay any Rent, Tenant
shall pay interest thereon from the date when such Rent became due to the date
of Landlord's receipt thereof at the Interest Rate; provided, that Tenant shall
not be required to pay such interest on any late Rent payment if both (i) such
late Rent payment is paid within 7 Business Days after the applicable due date
and (ii) including such late Rent payment, Tenant shall have failed timely to
make Rent payments no more than twice in any 12-month period and no more than 10
times in the aggregate during the Term. Any Additional Charges for which no due
date is specified in this Lease, or which this Lease describes as being due
"upon demand" (or like words), shall be due and payable on the 30th day after
the date of invoice.
<PAGE>
ARTICLE 3
Landlord Covenants
3.01 Office Space Services . From and after the date that Tenant first
occupies the Office Space for the performance of Tenant's initial improvements
(or, in the case of cleaning and passenger elevator service (except as provided
in Section 4.01(a)(v)), for the conduct of Tenant's business), Landlord shall,
at Landlord's expense (except as otherwise expressly provided and subject to
reimbursement as part of Operating Expenses to the extent properly includable
therein), furnish Tenant with the following services to the Office Space
(collectively, "Landlord Services"):
(a) heat, ventilation and air-conditioning during Business Hours on
Business Days substantially in accordance with the design specifications set
forth in Exhibit G attached hereto; if Tenant shall request that Landlord
provide heat, ventilation or air conditioning services through the Building's
systems at any other times, Landlord shall furnish such service (i) in the case
of a Business Day, upon receiving notice from Tenant by 3:00 p.m. of such
Business Day, or (ii) in the case of a non-Business Day, upon receiving notice
from Tenant by 3:00 p.m. of the immediately preceding Business Day, and Tenant
shall pay to Landlord upon demand the charge therefor calculated in accordance
with the formula set forth on Exhibit X attached hereto (which calculation shall
be initially made upon Landlord's completion of the work being performed to the
VAV system as part of Landlord's Work and recalculated thereafter on an annual
basis to reflect changes in the costs for the utilities applicable to such
calculation); provided, that Tenant shall be entitled to receive, in the
aggregate, up to 100 hours of such after-hours heat, ventilation or air
conditioning services, without charge, during Tenant's initial move into the
Building (such after-hours services to be so provided without charge with
respect to the Block or Blocks into which Tenant is then moving). Landlord shall
provide at the Building an operating engineer to manage the Building's heating,
ventilating and air conditioning systems on a 24 hour per day, 7 day per week
basis. As part of Tenant's initial Alterations to the Blocks, Tenant shall have
the right in connection with the installation of Tenant's supplemental air
conditioning system (A) to tap into the Building's compressed air system;
provided, that in no event shall the draw from the Building's air supply exceed
2 SCFM and (B) to install, subject to and in accordance with the provisions of
Section 8.19(b) below, an independent air-cooled chilled water system and/or a
cooling tower on the 17th floor set-back in a location selected by Tenant and
mutually agreeable to Landlord and Tenant; provided, (x) that the location of
any such cooling tower shall be subject to Landlord's reasonable approval as to
line of sight and (y) Tenant shall install upon any such cooling tower a
cosmetic enclosure reasonably approved by Landlord. Upon request by Tenant,
Landlord shall make the operating engineering staff that services the Building
equipment available to service any such system in a timely manner (including in
case of an emergency) and Tenant shall pay to Landlord, within 30 days after
demand, Landlord's reasonable charges for such services. If Tenant does not
install such independent system, Landlord shall provide up to 200 tons of
condenser water to the Office Space on a year-round basis through the Building's
condenser water system. Whether or not Tenant installs such independent system,
Landlord shall provide up to 20 tons of condenser water for each additional full
floor of Offer Space included in the Premises from time to time (such 20 tons to
be appropriately pro rated in the case of any partial floor of Offer Space
included in the Premises). Tenant shall have the right, without charge, to tap
into the Building's condenser water system on any one or more floors of the
Premises in order to allow Tenant to receive such condenser water service in
such amounts per floor as Tenant may elect (subject to the aggregate maximum
amount set forth above) and to receive the condenser water service to be
provided by Landlord to the Primary Concourse Space in accordance with Section
3.02. Tenant shall pay to Landlord, within 30 days after demand, Landlord's
reasonable estimate of the actual cost (excluding any depreciation of the
Building's condenser water system) of providing such condenser water (which, as
of the date of this Lease, is $.03 per ton hour). Such condenser water shall be
provided in accordance with the specifications attached to this Lease as Exhibit
P. Landlord shall retain a condenser water specialist throughout the Term to
ensure that the Building's condenser water system is maintained in a condition
so that the same is capable of meeting such specifications. Wet connections to
the Building's condenser water system are not permitted. Upon 45 days prior
notice, Landlord shall perform any draindowns and refills required for Tenant's
connection to the Building's condenser water system (including Tenant's
connection thereto for purposes of receiving the condenser water service to be
provided by Landlord to the Primary Concourse Space in accordance with Section
3.02) without charge to Tenant (subject to reimbursement as part of Operating
Expenses to the extent properly includable therein);
<PAGE>
(b) steam, if required by Tenant for any additional heating or permitted
kitchen use, in which event Tenant shall pay to Landlord, within 30 days after
demand, Landlord's reasonable estimate of the actual cost (excluding any
depreciation of the Building's piping and other equipment used to supply steam
to the Office Space) of providing such steam; Tenant shall have the right,
without charge, to tap into the valved outlet to be installed by Landlord in
accordance with Paragraph 19 of Exhibit F annexed hereto; if Tenant uses the
Building's steam, Tenant shall install in accordance with Landlord's
specifications, and Landlord shall maintain, at Tenant's reasonable expense,
meters to measure Tenant's consumption of steam;
(c) (i) (A) provided this Lease has not terminated as to any of the Office
Space included in the Block A Space, the Block B Space and the Block C Space,
exclusive use of 4 passenger elevators in the elevator bank serving floors 7-15
(provided, that until the tenant that occupies the Block B Space on the date of
this Lease vacates the same, Tenant shall have the exclusive use of only 2
passenger elevators in such elevator bank), and (B) provided this Lease has not
terminated as to any of the Office Space in the Block A Space, exclusive use of
all passenger elevators in the elevator bank serving floors 15-22, in each case
to provide passenger elevator service to the applicable floors of the Office
Space at all times during Business Hours on Business Days, with at least one
passenger elevator in the elevator bank serving floors 7-15 and one passenger
elevator in the elevator bank serving floors 15-22 subject to call at all other
times and (ii) freight elevator service to the Office Space 24 hours per day,
365 days per year, on a first come-first served basis (i.e., no advance
scheduling) during Business Hours on Business Days, and on a reserved basis at
all other times, and Tenant shall reimburse Landlord for the reasonable costs
therefor; provided, that Tenant shall be entitled to receive up to the following
number of man-hours of such overtime freight elevator usage, without charge,
during Tenant's initial move into the Blocks (as distinguished from usage during
Tenant's construction of its initial Alterations, which is provided for in
Section 4.01(a)(iv) below): up to 335 man-hours during Tenant's initial move
into the Block A Space; up to 158 man-hours during Tenant's initial move into
the Block B Space and up to 92 man-hours during Tenant's initial move into the
Block C Space; except as set forth in Section 4.01(a)(iv), the use of all
freight elevators shall be on a nonexclusive basis; upon completion of the Lobby
Renovation Work, such passenger elevators serving the Office Space shall meet
the specifications attached to this Lease as Exhibit R; if at any time this
Lease shall have been terminated as to any of the Office Space included in the
Block A Space, the Block B Space and the Block C Space, then Tenant shall
continue to receive passenger elevator service commensurate with the amount of
space then Leased by Tenant in the applicable bank; Landlord shall reprogram (x)
the other 4 passenger elevators not serving the Office Space in the elevator
bank serving floors 7-15 so that such elevators do not stop on any floors
included in the Premises and (y) all passenger elevators in the elevator bank
serving floors 22-29 so that such elevators do not stop on the 22nd floor;
Tenant shall have the right to use the passenger elevators serving the Office
Space in connection with Tenant's move into the Office Space; provided, that
Tenant shall comply with such reasonable rules and regulations as Landlord may
prescribe for such use (including, without limitation, reasonable rules and
regulations requiring Tenant to protect the elevators and the Building lobby to
prevent damage thereto); if the tenant that occupies the Block B Space on the
date of this Lease holds over in the Block B Space after the date that Tenant
first occupies any portion of the Office Space in the elevator bank serving
floors 7-15 for the conduct of business, Landlord and Tenant shall reasonably
cooperate with each other with respect to the security of Tenant's passenger
elevators in such elevator bank;
(d) reasonable quantities of hot and cold water to the floors on which the
Office Space is located for core lavatory, pantry and cleaning purposes only and
cold water to the floors on which the Office Space is located for private
showers and lavatories and water cooler purposes only; if Tenant requires water
for any other purpose, Landlord shall furnish cold water at the Building core
riser through a capped outlet located on the floor on which such water is
required (within the core of the Building); Tenant shall install in accordance
with Landlord's specifications, and Landlord shall maintain, at Tenant's
reasonable expense, meters to measure Tenant's consumption of cold water and/or
hot water for such other purposes in which event Tenant shall reimburse Landlord
for the quantities of cold water and hot water shown on such meters (including
the reasonable cost incurred by Landlord for the production of such hot water,
if produced by Landlord), within 30 days after receipt of an itemized bill
therefor;
(e) electric energy in accordance with the specifications attached to this
Lease as Exhibit J; Tenant shall have the right to redistribute the electric
energy provided to Tenant in accordance with Exhibit J between the floors of the
Premises; provided, that Tenant, at its expense, performs such work in
compliance with the provisions of Section 4.02 and all applicable Laws and
installs any additional meters necessary to measure such redistributed electric
energy; if Tenant demonstrates the need for additional electric power for
<PAGE>
Tenant's use and occupancy of the Office Space as general and executive offices
(without limiting the foregoing, specifically excluding any such need by reason
of trading floors or large computer rooms), upon request by Tenant, Landlord
shall make available to Tenant additional electric energy sufficient to provide
Tenant with up to 8 watts demand load per rentable square foot per floor of the
Office Space (inclusive of the electric power already being made available to
Tenant as provided in Exhibit J of this Lease, other than the electricity being
provided by the express riser to be installed by Landlord in accordance with
paragraph 27 of Exhibit F); except as set forth above, Tenant shall have no
right to any unallocated power available in the Building;
(f) subject to Section 3.04(e), cleaning services in accordance with
Exhibit E attached hereto. Tenant shall pay to Landlord, within 30 days after
receipt of an itemized bill therefor, the reasonable costs incurred by Landlord
for (i) extra cleaning work in the Office Space required because of (A) misuse
on the part of Tenant, its subtenants or their respective employees or visitors
and/or (B) interior glass partitions or an unusual quantity of interior glass
surfaces and (ii) removal from the Office Space and the Building of any refuse
of Tenant (A) in excess of that ordinarily accumulated in business office
occupancy, including, without limitation, kitchen refuse, or (B) if requested by
Tenant or if required by reason of the acts or (where Tenant has an affirmative
obligation to act pursuant to the terms of this Lease) omissions of Tenant, its
agents, employees or contractors, at times other than Landlord's standard
cleaning times (i.e., at times other than between 5:00 p.m. and midnight on
Business Days). Notwithstanding the foregoing, Landlord shall not be required to
clean any portions of the Office Space used for preparation, serving or
consumption of food or beverages, training rooms, data processing or reproducing
operations, private lavatories or toilets or other special purposes requiring
greater or more difficult cleaning work than office areas and Tenant shall
retain Landlord's cleaning contractor or any other contractor reasonably
acceptable to Landlord (which will utilize the same union local as Landlord's
cleaning contractor) to perform such cleaning at Tenant's expense. Landlord's
cleaning contractor shall have access to the Office Space after 6:00 p.m. and
before 8:00 a.m. and shall have the right to use, without charge therefor, all
light, power and water in the Office Space reasonably required to clean the
Office Space. Tenant shall have the right (x) to use Tenant's employees to
perform day porter services in the Office Space and/or (y) provided the same
does not disturb harmony with any trade engaged in performing any other work in
the Building or create any actual interference with the operation of the
Building, to hire day porters to perform day porter services in the Office
Space;
(g) except as expressly provided in Section 4.01(a)(iii), use of the
Building's loading docks between the hours of 6:00 a.m. and 6:00 p.m. on
Business Days, on a first come-first served basis (i.e., no advance scheduling)
and on a reserved basis at all other times, and Tenant shall pay Landlord's
actual out-of-pocket costs for such after-hours use of the loading docks;
(h) Landlord shall reasonably cooperate with Tenant, at Tenant's expense
(if Landlord incurs any out-of-pocket expenses therefor), so that Tenant may
obtain gas service from the public utility and, upon reasonable prior notice
from Tenant, shall provide any necessary shutdowns required for Tenant's tap
into the gas riser and Tenant shall pay to Landlord the actual out-of-pocket
costs incurred by Landlord in connection with such shutdown (provided, that such
shutdown shall be at no charge to Tenant if performed as part of Tenant's
initial Alterations to the Blocks); and
(i) the ambient noise level in the Office Space, measured 8 feet from the
induction units therein, shall not exceed NC 45, excluding any noise caused by
any of Tenant's Fixtures or Tenant's Property.
3.02 Concourse Space Services . From and after the date that Tenant first
occupies the Concourse Space for the performance of Tenant's initial
improvements therein, Landlord shall, at Landlord's expense (except as otherwise
expressly provided and subject to reimbursement as part of Operating Expenses to
the extent properly includable therein), furnish Tenant with the following
services to the Concourse Space:
(a) heat, ventilation and air-conditioning to the Primary Concourse Space
during Business Hours on Business Days substantially in accordance with the
design specifications set forth in Exhibit G attached hereto, but based upon (i)
an electric heat dissipation load of 4 watts per usable square foot and (ii) an
occupancy rate of 1 person per 300 usable square feet, and ventilation to the
Secondary Concourse Space during Business Hours on Business Days;
(b) freight elevator service in the same manner described in Section
3.01(c)(ii);
(c) electric energy at a 400 amp. fuse disconnect switch at 480 volts
located in the switchgear room (Tenant being responsible for bringing such
electric energy from such switch to the Concourse Space);
<PAGE>
(d) from and after the completion, in accordance with Section 4.01(a)(xi)
below, of the work necessary to provide such service, 2 of the 4 passenger
elevators in the elevator bank serving floors 7-15 which serve the Office Space
shall also serve the Concourse Space during Business Hours on Business Days,
with at least one of such passenger elevators subject to call at all other
times; (e) up to 20 tons of condenser water to the Primary Concourse Space on a
year-round basis through the Building's condenser water system; and (f)
reasonable quantities of hot and cold water to the Primary Concourse Space for
core lavatory, pantry and cleaning purposes only.
3.03 Other Building Services . (a) Landlord shall employ, or cause to be
provided, the services of a staff comparable to the staffs of comparable
first-class office buildings in midtown Manhattan to perform all of the services
that Landlord is obligated to perform pursuant to this Lease. Landlord shall
operate and maintain the Building and all systems servicing the Building in a
first-class manner.
(b) Landlord shall provide Building security in accordance with the
specifications attached to this Lease as Exhibit L; provided, that Landlord
shall have the right to modify such specifications during the Term so long as
Building security is provided in a manner which is equal to or better than the
level of security set forth in the specifications attached to this Lease as
Exhibit L.
(c) Landlord shall maintain listings on the Building directory of the name
of Tenant and/or Tenant's permitted subtenants, and the names of their
respective officers and employees; provided, that, unless Landlord shall have
installed in the Building a computerized directory, the names so listed shall
equal the product of (i) Tenant's Operating Share and (ii) the total number of
listings available on such directory. Landlord shall install a computerized
Building directory on or before the Phase II Target Date. If Landlord removes
the manual directory existing on the date of this Lease prior to the
installation of such computerized directory, Landlord shall provide a lobby
attendant during Business Hours on Business Days to direct visitors to the
tenants of the Building.
(d) Landlord shall retain a qualified independent contractor to test, not
less often than once in any 12 month period, the indoor air quality in the
Building. Upon request of Tenant, Landlord shall provide to Tenant a copy of the
report of any such test.
(e) Landlord shall retain a New York State certified laboratory to test and
evaluate the Building water annually (or, at Tenant's expense, more frequently
upon reasonable request of Tenant) to detect bacteriological contamination and
levels of priority metals, including, without limitation, lead. Upon request of
Tenant, Landlord shall provide to Tenant a copy of the report of any such test.
3.04 General Provisions . (a) Except as provided elsewhere in this Lease,
Landlord shall have no liability to Tenant by reason of any stoppage or
interruption of any Landlord Service, electricity or other service or the use of
any Building facilities and systems. Landlord shall provide Tenant with such
advance notice, if any, as is reasonable under the circumstances of such
stoppage or interruption. Landlord shall use commercially reasonable efforts
(including the use of overtime labor to the extent that the curing of the
problem in question is within Landlord's reasonable control) to begin and
diligently prosecute to completion such repairs as may be required to machinery
or equipment within the Project to provide restoration of any Landlord Service
as promptly as possible and in a manner so as to minimize interference with
Tenant's use and enjoyment of the Premises, and, where the cessation or
interruption of such Landlord Service has occurred due to circumstances or
conditions beyond the Project boundaries, to cause the same to be restored by
diligent application or request to the provider. To the extent reasonably
possible, Landlord shall confine all such stoppages within Landlord's reasonable
control to times that are not Business Hours.
(b) Without limiting any of Landlord's other rights and remedies, if Tenant
shall be in default of any Fixed Rent or recurring Additional Charges after
notice and beyond all applicable grace periods, Landlord shall not be obligated
to furnish to the Premises any service outside of Business Hours on Business
Days, and Landlord shall have no liability to Tenant by reason of any failure to
provide, or discontinuance of, any such service; provided, that if Tenant shall
pay to Landlord, in advance, the cost payable by Tenant under this Lease for any
such service, Landlord shall furnish such service in accordance with this Lease.
(c) "Business Hours" means 8:00 a.m. to 6:00 p.m. "Business Days" means all
days except Saturday, Sundays, New Year's Day, Washington's Birthday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, the day following Thanksgiving,
Christmas and any other days which are designated as a holiday by the applicable
Building Service Union Employee Service contract or Operating Engineers
contract. Notwithstanding the foregoing, for purposes of any Notice which may or
<PAGE>
is required to be given by either party to the other under this Lease, "Business
Days" shall exclude any days which are observed by both the federal and the
state governments as legal holidays.
(d) In no event shall Tenant's consumption of electricity exceed the
capacity of existing feeders to the Building or the risers or wiring serving the
Premises.
(e) (i) Tenant may, upon not less than 60 days prior notice to Landlord (the
"Direct Cleaning Notice"), elect to contract directly with Landlord's cleaning
contractor for the cleaning of the Office Space. Within 30 days after the
delivery of the Direct Cleaning Notice to Landlord, Tenant shall submit to
Landlord Tenant's specifications for the cleaning of the Office Space. Upon
receipt of such specifications, Landlord shall submit the same to the contractor
who is cleaning the Building, and shall obtain from such contractor a bid which
specifies the portion of the total bid price for cleaning the Building which is
allocable to the cleaning of the Office Space. Provided that the bid submitted
by such contractor is reasonably competitive, Tenant shall retain such
contractor for the cleaning of the Office Space. If such bid is not reasonably
competitive, or if Tenant shall in good faith determine that the cleaning
services provided by Landlord's contractor are not satisfactory, Tenant may
retain another contractor reasonably acceptable to Landlord (which will utilize
the same union local as Landlord's cleaning contractor) for the cleaning of the
Office Space; provided, that if Tenant retains a contractor other than
Landlord's contractor, then (A) any reasonable out-of-pocket security expenses
incurred from time to time by Landlord (which expenses would not have been
incurred but for the presence of more than one cleaning contractor in the
Building) shall be paid by Tenant within 30 days after demand therefor;
provided, that Landlord shall have substantiated to Tenant both the amount
thereof and the need therefor, (B) Tenant's contractor shall store all of its
equipment and supplies and material within the Premises, and Landlord shall
furnish no space therefor; except that (x) with respect to floors of the
Premises which are fully leased to Tenant, Tenant shall have the right to use
the janitor closets on such floors to store such equipment, supplies and
materials; and (y) upon request by Tenant, Landlord shall lease to Tenant up to
200 rentable square feet in the sub-cellar of the Building or in another
location in the Building selected by Landlord (with Landlord to endeavor to
select a location at which running water is available) for locker space for
Tenant's cleaning contractor (and Landlord and Tenant shall execute and exchange
an amendment to this Lease to reflect the leasing of such locker space by
Tenant; provided, that (1) Tenant shall not pay Fixed Rent, Tax Payments or
Operating Payments in respect of such space, nor shall Tenant's Tax Share or
Tenant's Operating Share be affected by the leasing of such space and (2)
Landlord shall not be required to perform any work or pay any amounts in
connection with such space), and (C) Tenant shall bag and place all rubbish,
garbage, waste and other debris in an area within the Premises reasonably
designated by Landlord daily prior to the hour that Tenant's contractor's
employees are required to leave the Building and Tenant shall arrange with the
contractor designated by Landlord or at Landlord's option Landlord shall
arrange, at Tenant's reasonable expense, for removal of such items from the
Premises to the Building loading dock at such times as are reasonably designated
by Landlord. If Tenant increases the number of cleaning personnel beyond the
number of cleaners which would be assigned to clean the Office Space if Landlord
were doing such cleaning (such increased number of cleaners are called "Excess
Cleaners"), then Tenant shall cause Tenant's cleaning contractor to have such
Excess Cleaners perform "special cleaning services", and Tenant shall be solely
responsible for all termination costs in connection with the termination of the
Excess Cleaners at such time as Tenant no longer cleans its own Office Space
whether by reason of the expiration of this Lease or otherwise. If Tenant shall
elect to contract directly with another cleaning contractor in accordance with
this Section 3.04(e)(i), then, upon request by Tenant, Landlord shall notify
Tenant of the number of cleaning personnel which would be assigned to clean the
Office Space if Landlord were doing such cleaning. Tenant shall pay the
contractor retained by Tenant directly for the cost of cleaning the Office
Space, and Landlord shall not be required to clean the Office Space or any part
thereof. Notwithstanding the foregoing, Landlord shall supervise the work of any
contractor performing cleaning services in the Office Space (at Tenant's
request, such supervision to include taking such reasonable measures to ensure
the security of the Premises as would be taken by Landlord if Landlord were
contracting with such cleaning contractor) but only Tenant shall have the right
to enforce the contractor's obligations. During and for the period that Tenant
shall be receiving cleaning services directly from a contractor and not from
Landlord, Tenant shall pay to Landlord, as Additional Charges, a supervisory fee
(the "Supervisory Fee") equal to 2-1/2% of the sums that would have been due by
Landlord to Landlord's cleaning contractor to provide to the Premises the
cleaning services specified in Exhibit E, which fee shall be paid by adjustment
to the Fixed Cleaning Rent, as described in Section 3.04(e)(ii) below. (ii) If
and so long as Tenant obtains cleaning under Section 3.04(e)(i) above, then (A)
there shall be excluded from Operating Expenses all costs incurred for the
cleaning of the Office Space in accordance with Exhibit E and the Building
standard cleaning of all other tenant areas of the Building, (B) Operating
<PAGE>
Expenses for the Base Operating Year shall be reduced by the cost (the "Base
Cleaning Cost") incurred by Landlord in the Base Operating Year for the cleaning
of the Office Space in accordance with Exhibit E and the Building standard
cleaning of all other tenant areas of the Building (provided that there shall be
no retroactive Operating Payment resulting from such reduction in the Base
Operating Year), and (C) the Fixed Rent provided in Section 2.02 shall be
reduced by an amount equal to the Fixed Cleaning Rent. "Fixed Cleaning Rent"
means the amount determined from time to time by (x) multiplying (1) the
quotient obtained by dividing the Base Cleaning Cost by the Operating
Denominator, and (2) the number of rentable square feet from time to time
constituting the Office Space and (y) subtracting from such product the
applicable Supervisory Fee. (iii) If Tenant shall elect to contract directly
with another cleaning contractor in accordance with Section 3.04(e)(i) above for
the provision of cleaning services to the Office Space, Tenant may discontinue
obtaining cleaning services from such contractor and require Landlord, upon not
less than 30 days prior notice, to clean the Office Space in accordance with the
provisions of Section 3.01(f). If Tenant elects to have Landlord resume
furnishing cleaning to the Office Space, then if and so long as Tenant receives
cleaning from Landlord, (A) there shall be included in Operating Expenses the
cost and expenses incurred for the cleaning of the Office Space in accordance
with Exhibit E and the Building standard cleaning of all other tenant areas of
the Building, (B) Operating Expenses for the Base Operating Year shall be
increased by the Base Cleaning Cost and (C) the Fixed Rent provided in Section
2.02 shall be increased by the Fixed Cleaning Rent.
(f) Any provision of this Lease which provides that Landlord or employees
of Landlord shall perform a service for Tenant at Tenant's cost, charge or
expense shall be deemed to mean that Landlord or Landlord's designated
contractor shall perform such service and Tenant shall pay such cost, charge or
expense for such service to, at Landlord's election, either Landlord or such
contractor (subject to the relevant provisions of this Lease with respect to
timing of payment, furnishing of back-up and Tenant's dispute rights).
(g) Prior to the first billing (and any time thereafter at the request of
Tenant) of any Landlord Service for which the payment that Landlord is entitled
to be reimbursed by Tenant requires a computation to determine Landlord's cost
of providing such service, Tenant shall be given a reasonable opportunity to
review such computation. With respect to all Additional Charges invoiced by
Landlord to Tenant, other than Tax Payments, Operating Payments and payments in
respect of electricity (which remain subject to the relevant provisions of this
Lease with respect thereto), Landlord shall provide to Tenant, within 5 Business
Days after notice from Tenant, such back-up as Tenant may reasonably request
with respect to the amount of such invoice.
(h) Any installation or item of work permitted or required to be made by
Tenant under this Article 3 shall be made in accordance with the provisions of
Section 4.02.
<PAGE>
ARTICLE 4
Leasehold Improvements; Tenant Covenants
4.01 Initial Improvements. (a) (i) Landlord shall perform or cause to be
performed in each Block the work described on Exhibit F ("Landlord's Work"). All
Landlord's Work shall be performed by Landlord at Landlord's expense, except for
the work described in Paragraph 27 of Exhibit F which shall be performed by
Landlord at Tenant's reasonable expense. Subject to delays by reason of Force
Majeure and/or Tenant Delays, Landlord shall, with respect to each Block (A)
perform each item of Landlord's Work which, as set forth on Exhibit F, is a
condition to delivery of such Block, in a manner so that the same shall be
substantially completed on or before the Fixed Relevant Date applicable to such
Block and (B) perform each item of Landlord's Work which, as set forth on
Exhibit F, is not a condition to delivery of such Block, in a manner so that the
same shall be substantially completed on or before the date set forth for such
substantial completion on Exhibit F. All initial improvements that Tenant
desires to make to the Premises which do not constitute Landlord's Work shall
constitute Alterations and shall be performed by Tenant at Tenant's expense in
accordance with Section 4.02. Subject to delays by reason of Force Majeure,
within 1 year after the last Relevant Date with respect to any Block, Tenant
shall have expended not less than $45 per rentable square foot of such Block in
connection with Tenant's initial Alterations in such Block (inclusive of soft
costs). (ii) As part of Tenant's initial Alterations to the Blocks and any other
space included in the Premises, Tenant shall have the right to tie-into the
Building's Class E system through a sub-panel and to install on any stair tower
re-entry doors in the Premises electronic locks which fail-safe open tied to the
Building's Class E system through a sub-panel. In no event shall any direct
tie-ins to the Building's Class E system be permitted. (iii) During Tenant's
initial Alterations to the Blocks, upon reasonable notice to Landlord and
subject to reasonable scheduling requirements of Landlord, Landlord shall make
the Building's loading docks available (A) from 4:00 a.m. until 6:00 p.m. each
Business Day, at no charge to Tenant and (B) at other times, for which Tenant
shall pay to Landlord $28 per hour in the case of Tenant's initial Alterations
to the Block A Space and the Block B Space and Landlord's actual cost per hour
in the case of Tenant's initial Alterations to the Block C Space.
Notwithstanding the foregoing, Landlord shall only be obligated to make such
loading docks available to Tenant (x) for the period commencing on the first
Relevant Date applicable to the Block A Space or the Block B Space through and
including the last day of the 9-month period commencing on the last Relevant
Date applicable to the Block A Space or the Block B Space and (y) for a 9-month
period commencing on the Relevant Date applicable to the Block C Space. (iv)
During Tenant's initial Alterations to the Block A Space and the Block B Space,
Landlord shall dedicate 1 freight elevator car to Tenant between the hours of
4:00 a.m. and 6:00 p.m. on Business Days; provided, that the Building's other
freight elevator car shall then be operational (and if either freight elevator
shall not be in service, Landlord shall use commercially reasonable efforts to
repair same); and provided further, that such dedicated freight elevator car
shall at all times be operated by Building personnel. Notwithstanding the
foregoing, Landlord shall only be obligated to dedicate such freight elevator
car to Tenant for the period commencing on the first Relevant Date applicable to
the Block A Space or the Block B Space through and including the last day of the
9-month period commencing on the last Relevant Date applicable to the Block A
Space or the Block B Space. During such Alterations, Tenant shall not be charged
for overtime freight elevator usage except for any such usage between the hours
of 6:00 p.m. and 4:00 a.m. on Business Days and at any time on days other than
Business Days; provided, that Tenant shall not be charged for the first 20 man
hours of such overtime freight elevator usage. (v) During Tenant's initial
Alterations to the Blocks, Tenant shall have the non-exclusive right, but
subject to the schedule for the elevator renovations and upgrades to be
performed by Landlord as part of the Lobby Renovation Work, to use (A) the
passenger elevators in the elevator bank serving floors 15-22 and (B) 2
passenger elevators in the elevator bank serving floors 7-15 (which passenger
elevators are the same elevators being made available to Tenant in accordance
with Section 3.01(c)(i)(A) above and are not in addition to such elevators), for
transporting construction personnel; provided, that (w) such personnel shall
enter the Building from the 52nd Street entrance or such other entrance as
Landlord shall reasonably designate, (x) Tenant shall be responsible for any
costs for union personnel to operate such elevators and for any damage caused to
such elevators by Tenant's construction personnel after the renovation of such
elevators (or before such renovation if and to the extent such damage increases
the cost of such renovation), (y) such elevators shall be used solely for
transporting Tenant's construction personnel and in no event shall the same be
used for transporting any equipment, machinery, tools, materials or supplies
other than hand tools and other small items and (z) the use of such elevators
shall be subject to such reasonable rules and regulations as Landlord may
prescribe for such use (including, without limitation, reasonable rules and
regulations requiring Tenant to take certain actions to prevent damage to such
elevators). If Tenant or Tenant's construction personnel shall at any time fail
to comply with any of the foregoing requirements, upon notice to Tenant by
<PAGE>
Landlord specifying such failure, Tenant shall immediately cease such improper
use of the passenger elevators. If Tenant or Tenant's construction personnel
fail to comply with any of the foregoing requirements more than 2 times, then,
upon notice from Landlord, Tenant shall have no further right to use such
passenger elevators. If Tenant disputes any determination by Landlord that
Tenant or Tenant's construction personnel violated any of the foregoing
requirements, such dispute shall be resolved by arbitration pursuant to Section
8.09, and, pending the resolution of such dispute, Tenant shall have no right to
use such elevators for transporting construction personnel. Anything to the
contrary contained in this Section 4.01(a)(v) notwithstanding, Tenant shall only
have the right to use such passenger elevators for transporting construction
personnel in accordance with this Section 4.01(a)(v) (1) for the period
commencing on the first Relevant Date applicable to the Block A Space or the
Block B Space through and including the last day of the 9-month period
commencing on the last Relevant Date applicable to the Block A Space or the
Block B Space and (2) for a 9-month period commencing on the Relevant Date
applicable to the Block C Space. (vi) As part of Tenant's initial Alterations to
the Premises, Tenant shall perform the work set forth on Exhibit Q annexed
hereto ("Tenant's Required Work"). If any Unforeseen Condition arises during the
performance by Tenant of any item of Tenant's Required Work, Tenant shall
promptly notify Landlord thereof. Landlord shall at Landlord's option, either
remedy such Unforeseen Condition at Landlord's expense using commercially
reasonable diligence or, provided Landlord and Tenant agree as to the scope of
and cost of the work to be performed, have Tenant remedy such Unforeseen
Condition and reimburse Tenant for the incremental costs reasonably incurred by
Tenant to remedy such Unforeseen Condition. "Unforeseen Condition" means any
condition affecting the Building structure or Building systems (i) which
increases the cost to Tenant of performing any item of Tenant's Required Work
above the amount of the work allowance provided by Landlord to Tenant for the
performance thereof as specified on Exhibit Q annexed hereto and (ii) which
Tenant did not have actual knowledge of prior to the date of this Lease, or
reasonably should have had knowledge of based upon the joint inspection of the
Premises, the Building structure and Building systems conducted by Landlord and
Tenant prior to the date of this Lease. (vii) As part of Tenant's initial
Alterations to the Blocks, Landlord shall permit NYNEX, at Tenant's expense, to
install a second port of entry into the Building; provided, that such
installation shall be performed in accordance with all provisions of this Lease
applicable to Alterations (including, without limitation, Landlord's right to
approve plans and specifications therefor) and such port of entry shall be
installed in one of the 3 locations indicated on Exhibit S annexed hereto.
(viii) During Tenant's initial Alterations to the Block A Space and the Block B
Space (but not after the date that is 9 months after the Relevant Date
applicable to the last space included in the Block B Space), Tenant shall have
the exclusive right to use, without charge, the portion of the sub-cellar floor
of the Building substantially as shown hatched on the plan thereof attached
hereto as Exhibit B-14 (the "Sub-Cellar Space") as a staging area. If, in
connection with Tenant's use of the Sub-Cellar Space as a staging area for the
construction of Tenant's initial Alterations to the Block A Space and the Block
B Space, Tenant shall have demolished any portion of the cinder block demising
wall of the Sub-Cellar Space, then promptly following the last day on which
Tenant has the right to so use the Sub-Cellar Space under this Section
4.01(a)(viii), Tenant shall restore such wall to not less than the condition it
was in upon delivery of the Sub-Cellar Space to Tenant. During Tenant's initial
Alterations to the Block C Space, and if and for so long as at any other time
during the Term Tenant undertakes Alterations of a scope which in accordance
with good construction practice reasonably requires a staging area located
outside of the Premises, Landlord shall make available to Tenant, without
charge, either the Sub-Cellar Space or other suitable space in the Building as a
staging area. Notwithstanding the foregoing, Landlord shall only be obligated to
make such staging area available to Tenant in connection with (A) Tenant's
initial Alterations to the Block C Space (or any applicable portion thereof),
for the 9-month period commencing on the Relevant Date applicable to the Block C
Space (or such portion thereof) and (B) any other Alterations, if Landlord has
space available in the Building at the time of such Alteration and, if Landlord
does have available space, then such space shall be made available to Tenant
only for a reasonable period of time commensurate with the scope of work being
performed by Tenant. Tenant, at its expense, shall be solely responsible for
providing security to any staging area made available to Tenant pursuant to this
Section 4.01(a)(viii) and Landlord shall have no liability for any loss or
damage to any item of Tenant's property stored in such staging area. (ix)
Without limiting the generality of any other provision of this Lease, if, with
respect to any Block, Landlord shall fail to substantially complete the work
described in paragraph 24 of Exhibit F (i.e., installation of isolation dampers
and modification of fans) on or before the date required for such substantial
completion as set forth on Exhibit F, subject to extension for Tenant Delays,
Landlord shall reimburse Tenant for any incremental costs reasonably incurred by
Tenant by reason of such failure, such reimbursement to be made within 30 days
after submission by Tenant to Landlord of reasonably detailed invoices
substantiating such costs. (x) Upon reasonable notice to Landlord (which notice
may be oral), Tenant shall have the right to enter, inspect and monitor the
Premises during the course of Landlord's Work. If and to the extent that such
<PAGE>
entry, inspection and monitoring is performed in accordance with good
construction practices, the same shall not constitute a Tenant Delay. (xi)
Landlord shall install, at Tenant's expense, new elevator logic to control the
passenger elevators in the elevator bank serving floors 7-15 which provide
passenger elevator service to the Premises. Landlord shall not be permitted to
use such logic to control the other elevators in such bank or otherwise unless
Landlord shall first pay to Tenant an amount equal to 50% of the actual cost
incurred by Tenant for the purchase and installation of such elevator logic.
Landlord shall perform, at Tenant's expense, the work necessary to cause the
passenger elevators described in Section 3.02(d) to serve the Concourse Space,
which work shall be substantially completed by Landlord on or before June 1,
1996, provided, that (A) there are no material changes to the plans and
specifications for such work which exist on July 17, 1995 and (B) Tenant
approves a bid for the performance of such work on or before July 27, 1995.
(xii) Landlord shall, at Tenant's reasonable expense, modify the Building's
sprinkler system to provide a 30 minute reserve. Landlord shall submit the plans
and specifications for such work to Tenant for Tenant's reasonable approval and,
after such approval by Tenant, perform the work shown on such plans and
specifications and make all necessary filings with the Building Department and
Tenant shall reimburse Landlord for the reasonable expenses incurred by Landlord
in connection therewith. Subject to Tenant Delay and Force Majeure, Landlord
shall complete such work to modify the Building's sprinkler system on or before
February 1, 1996; provided, that Tenant acknowledges that all necessary Building
Department sign-offs and approvals for such work may not be obtained by such
date (but Landlord shall diligently attempt to obtain such sign-offs and
approvals). (xiii) Tenant may request, by notice given to Landlord no earlier
than 7 days prior to September 1, 1996, that Landlord inform Tenant of
Landlord's proposed schedule for the removal of any remaining vinyl asbestos
tiles in the Block B Space. (xiv) Subject to Tenant's compliance with the
provisions of Section 4.02, Tenant shall have the right to relocate the 2
express electric risers which serve the Block B Space on the date of this Lease,
which relocation may be performed by Tenant as soon as the occupants of such
Block vacate the same, notwithstanding that the Block B Relevant Date may not
have occurred at such time. (xv) As part of Tenant's initial alterations to the
Blocks, Tenant shall have the right, as part of Tenant's security program, to
install turnstiles at the entrances to Tenant's elevator banks in the Building
lobby subject to the location and design thereof being reasonably acceptable to
Landlord and Tenant.
(b) Landlord shall pay to Tenant a work allowance of $20,301,433 (the
"Block A and B Allowance") to be used by Tenant for costs and expenses incurred
by Tenant in connection with Tenant's moving into and preparation of the Block A
Space and the Block B Space for Tenant's occupancy. The Block A and B Allowance
shall be paid by Landlord to Tenant in installments as follows: (i) $3,425,499
on the date that this Lease is executed and delivered by Landlord and Tenant
(provided, that if this Lease is executed and delivered by Landlord and Tenant
into escrow, then such installment shall be paid on the date this Lease is
unconditionally released from such escrow; the date that Landlord is required to
pay to Tenant the first installment of the Block A and B Allowance in accordance
with this clause (i) is called the "Execution and Delivery Date"), (ii)
$3,425,499 on or before the 30th day after the Execution and Delivery Date,
(iii) $3,425,499 on or before the 60th day after the Execution and Delivery
Date, (iv) $3,425,499 on or before the 90th day after the Execution and Delivery
Date, (v) $3,425,497 on or before the 120th day after the Execution and Delivery
Date and (vi) $3,173,940 on or before the 150th day after the Execution and
Delivery Date. On or before January 1, 1999, Landlord shall pay to Tenant a work
allowance of $3,567,960 (the "Block C Allowance") to be used by Tenant for costs
and expenses incurred by Tenant in connection with Tenant's moving into and
preparation of the Block C Space for Tenant's occupancy. Each of the Block A and
B Allowance and the Block C Allowance is called an "Allowance". All installments
of the Block A and B Allowance and the Block C Allowance shall be paid by
Landlord to Tenant, at Landlord's election, either by wire transfer of
immediately available federal funds or by check drawn on a New York Clearing
House Association member bank.
(c) Tenant shall reasonably cooperate with Landlord in connection with the
performance by Landlord of Landlord's Work. If Landlord requests any information
from Tenant which is reasonably necessary to perform Landlord's Work or submits
any drawings, plans or other materials with respect to Landlord's Work to Tenant
for Tenant's authorization or approval, Tenant shall, within 5 Business Days
thereafter (or within such other time period set forth elsewhere in this Lease),
(i) provide such information or (ii) authorize or approve such drawings, plans
or materials or request Landlord to make specific changes therein.
(d) Within 30 days after Landlord gives to Tenant an invoice therefor
(together with reasonable back-up documentation), Tenant shall pay (i) the
actual costs incurred by Landlord, based on the bids that were approved by
Tenant for such work, in connection with (A) the installation of the elevator
logic in accordance with Section 4.01(a)(xi), (B) the performance of the work
described in Section 4.01(a)(xi) to cause the Concourse Space to receive
<PAGE>
passenger elevator service, and (C) the interior finishes to Tenant's security
desk areas in accordance with Section 8.21(b) and (ii) the reasonable costs
incurred by Landlord in connection with (A) the installation of the express
riser and electric meter in accordance with paragraph 27 of Exhibit F, (B) the
installation of Tenant's signage in accordance with Section 8.20, (C) the
installation of the electric meter in the Concourse Space in accordance with
Section 1.03(i), (D) the performance of the work to modify the Building's
sprinkler system to provide a 30 minute reserve in accordance with Section
4.01(xii) and the preparation of plans and specifications with respect to such
work and the making of all necessary filings with the Building Department, and
(E) any other work which is being performed by Landlord under this Lease at
Tenant's expense. Anything contained in this Lease to the contrary
notwithstanding, Landlord shall have no obligation to perform any of the work
described in clauses (i)(A), (i)(B) and (i)(C) above unless and until Tenant has
approved a bid for such item of work.
(e) With respect to the work described in paragraph 26 of Exhibit F,
Landlord shall deliver to Tenant a sketch therefor indicating the termination
points of the base building plumbing lines. With respect to the work described
in paragraph 27 of Exhibit F, Landlord shall deliver to Tenant for Tenant's
approval plans and specifications for such work; provided, that Tenant shall not
unreasonably withhold such approval and such approval shall be deemed given by
Tenant if Tenant fails to approve or disapprove the same within 14 days after
Tenant receives such plans and specifications.
(f) Anything to the contrary contained in this Lease notwithstanding
(including, without limitation, Sections 1.02 and 4.04), prior to the Relevant
Date with respect to the Initial Possession Space (i) Tenant shall have no right
to perform any Alterations in and to the Initial Possession Space or to possess,
use or occupy the Initial Possession Space in any manner which interferes with
Landlord's performance of Landlord's Work (or any other work being performed by
Landlord) in the Initial Possession Space and (ii) Landlord shall have the
unconditional right to enter the Initial Possession Space to perform Landlord's
Work therein (including, without limitation, demolishing the demising walls and
all systems servicing the Initial Possession Space) or for any other purpose and
all other provisions of this Lease regarding Landlord's right to enter the
Premises shall not be applicable to the Initial Possession Space (including,
without limitation, any provision of this Lease which requires that Landlord
notify Tenant prior to entering the Premises or that Landlord be accompanied by
a representative of Tenant or that Landlord perform its work therein in a manner
so as to mitigate interference with Tenant). The Relevant Date with respect to
the Initial Possession Space shall not be deemed to occur solely by reason of
Tenant's right to possess, use and occupy the Initial Possession Space from and
after the date of this Lease in accordance with Section 1.02, but shall occur in
accordance with the relevant provisions of Section 1.03. "Initial Possession
Space" means the portion of the 15th floor of the Building substantially as
shown hatched on the plan thereof attached hereto as Exhibit B-15.
4.02 Alterations. (a) Tenant shall make no improvements, changes or
alterations in or to the Premises ("Alterations") which constitute Material
Alterations without Landlord's prior approval. Prior to the commencement by
Tenant of any Alteration which does not constitute a Material Alteration, but
which does require Tenant to obtain a building permit therefor, Tenant shall
notify Landlord of such Alteration and of the names of the contractors to be
used by Tenant to perform such Alteration, which notice shall be accompanied by
any and all available plans and specifications for such Alteration. If Tenant
fails to give such notice to Landlord with respect to any such Alteration, such
failure shall not constitute a default hereunder and Tenant shall have no
liability to Landlord solely by reason of such failure, unless Landlord shall
incur any loss, liability or damage by reason of Tenant's performance of such
Alterations, in which case, subject to Section 7.05(f), Tenant shall be
responsible for all of such losses, liabilities and damages incurred by Landlord
(including, without limitation, any costs and expenses relating thereto) and, in
addition thereto, Tenant shall pay to Landlord a fee in respect of such
Alteration in an amount equal to 2% of the cost of such Alteration. "Material
Alteration" means any Alteration that (i) affects the floor slabs, ceiling
slabs, load-bearing walls, or load-bearing columns of the Building, (ii) affects
the exterior of the Building, (iii) affects areas outside of the Premises or
those portions of the Building systems servicing areas of the Building outside
of the Premises, (iv) requires work to be performed outside of the Premises or
(v) requires a change to the Building's certificate of occupancy.
(b) Tenant, in connection with any Alteration, shall comply with the
Alteration Rules and Regulations set forth as Exhibit D attached hereto. Tenant
shall not proceed with any Material Alteration unless and until Landlord
approves Tenant's plans and specifications therefor. Landlord shall not
unreasonably withhold its consent to any Material Alteration which will not
affect space leased to, or services provided to, another tenant or occupant of
<PAGE>
the Building. Landlord shall not arbitrarily withhold its consent to any
Material Alteration which affects space leased to, or services provided to,
another tenant or occupant of the Building. Landlord shall, within 10 Business
Days following receipt of Tenant's plans and specifications for the performance
of any Material Alteration, advise Tenant of Landlord's approval or disapproval
of such plans and specifications or any part thereof. If Landlord shall fail to
approve or disapprove Tenant's plans and specifications or any part thereof
within such 10 Business Day period, Tenant shall have the right to give a
reminder notice to Landlord and if Landlord fails to approve or disapprove
Tenant's plans and specifications or any part thereof within 1 Business Day
after receipt of such reminder notice, Landlord shall be deemed to have approved
such plans and specifications or the applicable part thereof. If Landlord shall
disapprove such plans and specifications (or any part thereof), Landlord shall
set forth its reasons for such disapproval in writing and in reasonable detail
and itemize those portions of the plans and specifications so disapproved.
Landlord shall advise Tenant within 5 Business Days following receipt of
Tenant's revised plans and specifications, or portions thereof, of Landlord's
approval or disapproval of the revised plans and specifications or any portion
thereof, and shall set forth Landlord's reasons for any such further disapproval
in writing and in reasonable detail. If Landlord fails to approve or disapprove
the revised plans and specifications or any portion thereof within such 5
Business Day period, Tenant shall have the right to give a reminder notice to
Landlord and if Landlord fails to approve or disapprove Tenant's plans and
specifications or any part thereof within 1 Business Day after receipt of such
reminder notice, Landlord shall be deemed to have approved the revised plans and
specifications or such portions thereof. Notwithstanding the foregoing, in the
case of Tenant's initial Alterations to any Block, Tenant shall not be required
to give the 1 Business Day reminder notice to Landlord prior to Landlord being
deemed to have approved Tenant's plans and specifications (including any revised
plans and specifications) or any part thereof in accordance with this Section
4.02(b). Any review or approval by Landlord of plans and specifications with
respect to any Alteration is solely for Landlord's benefit, and without any
representation or warranty to Tenant with respect to the adequacy, correctness,
its compliance with Laws or efficiency thereof or otherwise.
(c) If Landlord uses an outside consultant to review Tenant's plans and
specifications for any Material Alteration (other than Tenant's initial
Alterations to any portion of the Premises) and Tenant is not using an architect
or engineer designated by Landlord for the preparation of such plans and
specifications, then Tenant shall pay to Landlord the reasonable actual fees of
such outside consultant for reviewing such plans and specifications.
(d) Tenant shall obtain (and furnish copies to Landlord of) all necessary
governmental permits and certificates for the commencement and prosecution of
Alterations and for final approval thereof upon completion, and shall cause
Alterations to be performed in compliance therewith and in compliance with all
Laws and, in the case of Material Alterations, in compliance in all material
respects with the plans and specifications approved by Landlord. Alterations
shall be performed in a good and workmanlike manner, using new materials and
equipment at least equal in quality and class to the then standards for the
Building reasonably established by Landlord. Material Alterations shall be
performed by contractors first approved by Landlord which approval shall not be
unreasonably withheld or delayed; provided, that all tie-ins to the Building's
life safety systems shall be performed only by a contractor designated by
Landlord, provided the rates of such contractor are reasonably competitive with
rates charged by other contractors performing such services in first-class
office buildings in midtown Manhattan. The performance of any Alteration shall
not be done in a manner which would disturb harmony with any trade engaged in
performing any other work in the Building or create any actual interference with
the operation of the Building. Tenant shall immediately stop the performance of
any Alteration if Landlord notifies Tenant that continuing such Alteration would
so disturb harmony with any trade engaged in performing any other work in the
Building or create any actual interference with the operation of the Building.
(e) Throughout the performance of Alterations, Tenant shall carry worker's
compensation insurance in statutory limits, "all risk" Builders Risk coverage
and general liability insurance, with completed operation endorsement, for any
occurrence arising from the performance of such Alterations in or about the
Project, under which Landlord and its agent and any Superior Lessor and Superior
Mortgagee whose name and address have been furnished to Tenant shall (in the
case of such general liability insurance only) be named as additional parties
insured as their interest may appear, in such limits as Landlord may reasonably
require (but not in excess of such limits as are customarily required by
landlords of similar midtown Manhattan buildings for similar jobs costing the
amount of the particular job being performed for Tenant). Tenant shall furnish
Landlord with evidence that such insurance is in effect at or before the
commencement of the performance of Alterations and, on request, at reasonable
intervals thereafter during the continuance of the performance of Alterations.
<PAGE>
(f) Should any mechanics' or other lien be filed against any portion of the
Project by reason of the acts or (where Tenant has an affirmative obligation to
act pursuant to the terms of this Lease) omissions of, or because of a claim
against, Tenant, any subtenant of Tenant or any of their respective agents,
employees or contractors, Tenant shall cause the same to be canceled or
discharged of record by bond or otherwise within 45 days after notice from
Landlord. If Tenant shall fail to cancel or discharge any such lien within said
45 day period, Landlord may cancel or discharge the same only by bonding the
same, in which event Tenant shall obtain and substitute a bond for Landlord's
bond and reimburse Landlord for all reasonable costs incurred in canceling or
discharging such liens (including, without limitation, the cost of Landlord's
bond and of any security posted to obtain Landlord's bond), such substitution to
be effected and reimbursement to be made within 30 days after receipt by Tenant
of a detailed written statement from Landlord as to the amount of such bond and
costs. Except if and to the extent arising from an act or (where such party has
an affirmative obligation to act pursuant to the terms of this Lease) omission
of any Landlord Indemnified Party, Tenant shall indemnify and hold all Landlord
Indemnified Parties harmless from and against all costs (including, without
limitation, attorneys' fees and disbursements and costs of suit), losses,
liabilities or causes of action caused by the performance of any Alteration,
including, without limitation, any mechanics' or other liens asserted in
connection with the performance of such Alteration.
(g) At Landlord's request, Tenant shall deliver to Landlord, within 30 days
after the completion of an Alteration, "as-built" drawings thereof (but only if
the Building Department shall require Tenant to submit the same or if Tenant
shall otherwise have prepared the same) and, otherwise, the final working
drawings therefor. Tenant shall keep records of Alterations costing in excess of
$25,000 and of the cost thereof and shall, within 30 days after demand by
Landlord, furnish to Landlord copies of such records and cost.
(h) Landlord shall reasonably and diligently cooperate with Tenant in the
performance of Alterations, including, without limitation, by signing such
applications for governmental permits and certificates as Tenant may reasonably
require. Provided that Tenant shall have submitted to Landlord the plans and
specifications applicable to the Alteration in question, Landlord shall sign and
return any such application within 2 Business Days after receipt of Tenant's
request therefor. Notwithstanding the foregoing, Landlord shall not be deemed to
have approved Tenant's plans and specifications with respect to any Material
Alteration by reason of Landlord signing any such application prior to
Landlord's approval (or deemed approval) of such plans and specifications and,
notwithstanding Landlord's signing such application prior to Landlord's approval
(or deemed approval) of such plans and specifications, such plans and
specifications shall remain subject to Landlord's approval in accordance with
the terms of this Section 4.02 and Landlord shall not be responsible for any
additional costs incurred by Tenant by reason of any additional filing with the
Building Department required by reason of Landlord's subsequent review of such
plans and specifications.
4.03 Landlord's and Tenant's Property. (a) All fixtures, equipment,
improvements and appurtenances attached to or built into the Premises, whether
or not at the expense of Tenant, which cannot be removed without significant
damage to Premises or the Building (collectively, "Fixtures"), shall be and
remain a part of the Premises, and shall not be removed by Tenant, except as
provided in Section 4.03(b), and subject to Tenant's rights to alter or remove
Fixtures in connection with any Alteration. Upon such removal Tenant shall
immediately and at its expense, repair any damage to the Premises which Tenant
is required to repair in accordance with Section 4.05(a) due to such removal.
All Fixtures shall be the property of Tenant during the Term and, upon
expiration or earlier termination of this Lease, shall become the property of
Landlord.
(b) All fixtures, equipment, improvements and appurtenances which do not
constitute Fixtures and all furniture, furnishings and other articles of movable
personal property located in the Premises (collectively, "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by Tenant at
any time during the Term; provided, that if any Tenant's Property is removed,
Tenant shall repair any damage to the Premises which Tenant is required to
repair in accordance with Section 4.05(a) resulting from the installation and/or
removal thereof.
(c) At or before the Expiration Date, or within 15 days after any earlier
termination of this Lease, Tenant, at Tenant's expense, shall remove Tenant's
Property from the Premises (except such items thereof as Landlord shall have
expressly permitted to remain, which shall become the property of Landlord), and
Tenant shall repair any damage to the Premises which Tenant is required to
repair in accordance with Section 4.05(a) resulting from any installation and/or
removal of Tenant's Property. Any items of Tenant's Property which remain in the
Premises after the Expiration Date, or after 15 days following an earlier
termination date, may, after 10 days notice to Tenant (except that, in the case
<PAGE>
of an earlier termination of this Lease by reason of a default by Tenant, such
notice shall not be required), at the option of Landlord, be deemed to have been
abandoned, and may be retained by Landlord as Landlord's property or disposed of
by Landlord, without accountability, in such manner as Landlord shall determine,
at Tenant's expense; provided that, if after the Expiration Date or any earlier
termination date there shall remain in the Premises any Tenant's Property that
has not been abandoned or deemed abandoned by Tenant, and if Landlord shall then
require vacant possession of the Premises, Landlord shall have the right, at
Tenant's reasonable expense, using due care, to move Tenant's Property into
storage at a location in the Borough of Manhattan and, if Tenant shall fail to
remove such Tenant's Property from such storage area within 10 days after demand
by Landlord (such 10 days to be extended if Tenant shall be unable to so remove
Tenant's Property by reason of events beyond Tenant's reasonable control (for
example, a movers' strike; it being acknowledged by Tenant that Tenant's
inability to move into new premises by reason of a holdover therein or because
such premises is not then ready for occupancy shall not constitute an event
beyond Tenant's reasonable control for purposes hereof) until 10 days after the
date that Tenant is no longer so unable to remove Tenant's Property), such
Tenant's Property shall be deemed to have been abandoned, and may be retained by
Landlord as Landlord's property or disposed of by Landlord, without
accountability, in such manner as Landlord shall determine, at Tenant's expense.
(d) Anything contained in this Section 4.03 to the contrary
notwithstanding, Tenant, on or before the Expiration Date or within 15 days
after any earlier termination of this Lease, shall remove any equipment
installed by Tenant on the roof (provided, that Tenant shall not be required to
remove any conduits or cables installed in connection with the installation of
the Antenna) and any equipment installed by Tenant on any setback of the
Building which equipment is not in good working order on the Expiration Date or
such earlier date of termination of this Lease. Any such equipment which Tenant
is required to remove and which is not so removed after Landlord shall have
given Tenant reasonable access to the roof or setback, as the case may be, for
such removal shall be deemed to have been abandoned and may be retained by
Landlord as Landlord's property or disposed of by Landlord, without
accountability, in such manner as Landlord shall determine, at Tenant's
reasonable expense. If the removal of any such equipment (whether by Tenant or,
if pursuant to the preceding sentence, by Landlord) results in the impairment of
the integrity of the roof or any setback, as applicable, then Tenant shall
restore the integrity thereof.
4.04 Access and Changes to Building. (a) Landlord reserves the right, at
any time, to make changes in or to the Project (other than within the Premises
except as provided in the further provisions of this Section 4.04 or elsewhere
in this Lease) as Landlord may deem necessary or desirable, and Landlord shall
have no liability to Tenant therefor; provided, that any such change does not
interfere with Tenant's reasonable access to the Premises and does not affect
the first-class nature of the Project. Nothing contained in the preceding
sentence shall be deemed to relieve Landlord of any of its obligations expressly
set forth elsewhere in this Lease. Landlord may install and maintain pipes,
fans, ducts, wires and conduits within or through the walls, floors or ceilings
of the Premises; provided, that the same are concealed behind walls, below
floors, or above ceilings. In exercising its rights under this Section 4.04,
Landlord shall (i) use commercially reasonable efforts (including the use of
overtime labor if the performance of any work by Landlord shall materially
interfere with Tenant's use of the Premises for the ordinary conduct of Tenant's
business) to minimize any interference with Tenant's use of the Premises for the
ordinary conduct of Tenant's business by reason of the performance of any work
by Landlord and (ii) use best efforts to prevent any permanent interference with
Tenant's use of the Premises for the ordinary conduct of Tenant's business by
reason of any installation or change made by Landlord. Tenant shall not have any
easement or other right in or to the use of any door or any passage or any
concourse or any plaza connecting the Building with any subway or any other
building or to any public conveniences, and the use of such doors, passages,
concourses, plazas and conveniences may, upon reasonable prior notice to Tenant,
be reasonably regulated or discontinued at any time by Landlord; provided, that
no other tenants in the Building shall have the right to permanently use the
same in any manner more favorable than Tenant.
(b) Except for the space within the inside surfaces of all walls, ceiling
slabs, floors, windows and doors bounding the Premises, all of the Building,
including, without limitation, exterior Building walls, core corridor walls and
doors and any core corridor entrance, any terraces or roofs adjacent to the
Premises, and any space in or adjacent to the Premises used for shafts, stacks,
pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other
Building facilities, and the use thereof, as well as access thereto through the
Premises, are reserved to Landlord and are not part of the Premises. Nothing
contained in this Section 4.04(b) shall be construed (i) to require Landlord, or
to permit Tenant, to remove or relocate, on any partial floor leased by Tenant,
any item used by (or reserved for use by) another tenant or occupant of the
Building, or (ii) to diminish Tenant's right under Article 11 or other express
provisions of this Lease which permit Tenant to use shaft space or other
non-Premises space in the Building.
<PAGE>
(c) Landlord shall have no liability to Tenant if at any time any windows
of the Premises are either temporarily darkened or obstructed by reason of any
repairs, maintenance and/or cleaning in or about the Building (or permanently
darkened or obstructed if required by Law for reasons other than any act or
(where Landlord has an affirmative obligation to act pursuant to the terms of
this Lease) omission of Landlord or any of Landlord's Affiliates) or covered by
any translucent material for the purpose of energy conservation, or if any part
of the Building, other than the Premises and all other public areas of the
Building used by Tenant (subject to Landlord's rights under Section 4.04(a)), is
temporarily or permanently closed or inoperable. Notwithstanding the foregoing,
if more than 20% of the windows of the Premises shall be permanently darkened or
obstructed (exclusive of any such obstruction that is not materially worse than
any obstruction existing on the date of this Lease), Tenant may terminate this
Lease either as to the entire Premises or as to the portion(s) of the Premises
affected thereby (provided that any such portion(s) of the Premises as to which
Tenant terminates this Lease shall constitute tenantable units) without payment
of any penalty (and, in the case of a termination of less than the entire
Premises, with a pro rata reduction of Tenant's Rent obligations to reflect such
partial termination). In the event of any termination of this Lease under this
Section 4.04(c), whether as to all or a portion of the Premises, Tenant shall
pay to Landlord the amount, if any, due in accordance with Section 7.06 below.
(d) Landlord and persons authorized by Landlord shall have the right, upon
reasonable prior notice to Tenant (except in an emergency, in which case, upon
such notice, if any, as is feasible), to enter the Premises (together with any
necessary materials and/or equipment), to inspect or perform such work as
Landlord may reasonably deem necessary or desirable and as is permitted under
this Lease, or to exhibit the Premises to prospective purchasers or, during the
last 18 months of the Term, to prospective tenants. Landlord shall have no
liability to Tenant by reason of any such entry; provided, that (i) Landlord
shall use commercially reasonable efforts (unless a higher standard provided
elsewhere in this Lease is applicable to such entry by Landlord) to minimize
interference with Tenant's use and enjoyment of the Premises and to exercise due
care in entering or exhibiting the Premises and (ii) Landlord shall repair any
damage caused by Landlord in the Premises during such entry, including, without
limitation, any repair or replacement required to any finishes in the Premises
as a result of such entry. During the performance of any work by Landlord in any
portion of the Premises, Landlord shall have the right to store materials and
equipment utilized in connection with such work in the portion of the Premises
where such work is being performed, but only if Landlord would suffer a hardship
if Landlord were required to remove such materials and equipment at the end of
each day's work. Except in an emergency, Landlord shall not enter the Premises
unless accompanied by a representative of Tenant; provided, that Tenant makes
such representative available to Landlord upon reasonable prior notice.
(e) Landlord shall not change the address of the Building at any time.
4.05 Repairs. (a) Except if and to the extent the following shall be
Landlord's obligation pursuant to the express provisions of this Lease, Tenant
shall keep the Premises (including, without limitation, all Fixtures) in good
condition and, upon expiration or earlier termination of the Term, shall
surrender the same to Landlord in its then "as is" condition (but subject to
Section 4.03). All damage caused by Tenant, its agents, subtenants (including
any licensee or other occupant described in Section 5.01(d)) and its and their
respective employees, contractors and invitees (so long as such invitees are in
the Premises) (i) to the equipment and other installations in the Premises shall
be repaired by Tenant if and to the extent that Tenant's failure to repair such
damage causes or is reasonably likely to cause any loss, cost, liability,
damage, harm, material inconvenience or expense to Landlord or any other tenant
of the Building and (ii) to the solar film attached to the exterior windows of
the Premises shall be repaired by Landlord at Tenant's reasonable expense (it
being acknowledged that any repair to such solar film required by reason of
ordinary wear and tear shall be performed by Landlord at Landlord's expense).
Neither Tenant nor Tenant's agents, subtenants (including any licensee or other
occupant described in Section 5.01(d)) and their respective employees,
contractors and invitees (so long as such invitees are in the Premises) shall
commit any waste or damage to any portion of the Premises or the Building.
(b) Except if and to the extent the following shall be Tenant's obligation
pursuant to the express provisions of this Lease, Landlord shall, at Landlord's
cost and expense (subject to reimbursement by Tenant as Operating Expenses, but
only if and to the extent such costs and expenses are not excludable therefrom
pursuant to the express provisions of Section 2.05), operate, maintain, repair
and replace (if reasonably necessary) (i) all structural portions of the
Building (whether located within or outside of the Premises), such as, by way of
example only, the roof, foundation, footings, exterior walls, load-bearing
columns, ceiling and floor slabs, windows, window sills and sashes, (ii) all
<PAGE>
common and public service areas of the Building, including, without limitation,
all elevators, corridors, lobbies, core lavatories (including all fixtures
therein), core electric closets, core telecommunication closets, core janitor
closets (unless and for so long as Tenant elects to contract directly with a
contractor to clean the Office Space in accordance with Section 3.04(e) above)
and, on floors which are not fully leased by Tenant, core freight elevator
lobbies, (iii) all items of Tenant's Required Work, subject to the further
provisions of this Section 4.05(b), (iv) the solar film attached to the exterior
windows of the Premises, and (v) all Building systems (including, without
limitation, the sprinkler system, other than Tenant's distribution thereof)
(whether such Building systems are located within or outside of the Premises)
serving the common and public service areas and the Premises (other than any
distribution of such systems located in the Premises and installed by Tenant,
unless such distribution was installed by Tenant in place of Landlord (A) by
reason of the exercise by Tenant of its self-help remedy in accordance with
Section 10.01 or (B) as part of Tenant's Required Work) (the areas described in
clauses (i), (ii), (iii), (iv) and (v) are collectively called the "Landlord
Obligation Areas"), in each case throughout the Term, and in such manner as is
consistent with the maintenance, operation and repair standards of first-class
office buildings located in the vicinity of the Building. Tenant shall obtain
commercially reasonable warranties for each item of Tenant's Required Work. If
Tenant fails to obtain a commercially reasonable warranty for any item of
Tenant's Required Work, then Tenant shall reimburse Landlord for the reasonable
cost of any maintenance, repair or replacement with respect to such item of
Tenant's Required Work if and to the extent that the same would have been
covered by a commercially reasonable warranty. Landlord shall obtain
commercially reasonable warranties in connection with the installation by
Landlord in the Building of any item, if the cost of maintaining, repairing and
replacing such item would otherwise be payable by Tenant, whether by way of
Operating Expenses or otherwise. If Landlord fails to obtain any such
commercially reasonable warranty, then Tenant shall not be responsible for the
cost of any maintenance, repair or replacement thereof (by means of
reimbursement as part of Operating Expenses or otherwise) if and to the extent
that the same would have been covered by such a commercially reasonable
warranty. For purposes of this Section 4.05(b) (with respect to both Tenant and
Landlord), a commercially reasonable warranty means the warranty, if any, which
would be obtained by an owner of a first class office building, acting
prudently, in connection with the work in question.
4.06 Compliance with Laws. (a) Tenant shall comply with all laws,
ordinances, rules, orders and regulations (present, future, ordinary,
extraordinary, foreseen or unforeseen) of any governmental, public or
quasi-public authority or of the New York Board of Underwriters, the New York
Fire Insurance Rating Organization or any other entity performing similar
functions (including, without limitation, all building and fire codes, zoning
requirements, asbestos laws, environmental laws and ADA), at any time duly in
force (collectively "Laws"), but only if and to the extent such compliance
obligation is the result of any Alteration or particular manner of use by Tenant
(in contrast to use by Tenant for customary office purposes) of the Premises or
any part thereof; it being acknowledged that (i) all Laws affecting Tenant's
occupancy of the Premises (as opposed to Laws requiring physical changes to the
Premises) shall be Tenant's obligation and (ii) all Laws governing Tenant's use
of the Premises for the Identified Ancillary Uses shall be Tenant's obligation.
Notwithstanding the foregoing, Tenant shall comply with all Laws imposed by the
Occupational Safety and Health Administration or other governmental agency
relating to indoor air quality with respect to the distribution of the air
within the Premises (subject to Landlord's obligation under Section 4.06(c) to
comply with all such Laws with respect to air brought to the Premises through
the Building's systems). Without limiting the generality of the indemnity
obligation of Tenant under Section 6.12(b), Tenant shall indemnify and hold each
Landlord Indemnified Party harmless from and against any and all claims, costs,
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) and liabilities caused by Tenant's failure to comply with the
foregoing indoor air quality requirements, except if and to the extent such
failure is caused by the acts or (where Landlord has an affirmative obligation
to act pursuant to the terms of this Lease) omissions of Landlord or Landlord's
agents, employees or contractors. Tenant shall not place a load upon any floor
of the Premises exceeding the floor load per square foot which is allowed by
applicable Laws.
(b) Anything contained in this Lease to the contrary notwithstanding, as
part of Tenant's initial Alterations, Tenant shall perform all work and make all
installations necessary in order to fully sprinkler the Premises in compliance
with the provisions of Local Law 5 of the New York City Administrative Code, as
approved January 18, 1973, as amended from time to time. Landlord shall provide
a sprinkler riser in the Building in accordance with Paragraph 3 of Exhibit F.
<PAGE>
(c) Except as otherwise expressly made the obligation of Tenant pursuant to
this Lease, Landlord shall, at Landlord's own cost and expense (subject to
reimbursement as Operating Expenses to the extent such costs and expenses are
includable therein), comply with all Laws affecting the Landlord Obligation
Areas and all Laws that require physical changes in or to the Premises. Without
limiting the generality of the foregoing: (i) Landlord shall maintain in effect
a certificate of occupancy for the Building that shall allow the Office Space to
be used as general, professional, administrative and executive offices (but
Landlord shall have no obligation to modify such certificate of occupancy to
permit any of the Identified Ancillary Uses; provided, that if such certificate
of occupancy shall permit any of the Identified Ancillary Uses in the Office
Space, then Landlord shall not cause such certificate of occupancy to be
modified so as to prohibit Tenant from using such portion of the Office Space
for such permitted Identified Ancillary Use); and (ii) Landlord shall comply
with all Laws imposed by the Occupational Safety and Health Administration or
other governmental agency relating to indoor air quality with respect to (A) the
public and service areas of the Building, and (B) the heating, ventilating and
air-conditioning services and systems furnished by Landlord to the Premises (but
only up to the point of delivery of such services and systems to the supply duct
at the core wall on each floor of the Premises). Without limiting the generality
of the indemnity obligation of Landlord under Section 6.12(c), Landlord shall
indemnify and hold each Tenant Indemnified Party harmless from and against any
and all claims, costs, expenses (including, without limitation, reasonable
attorneys' fees and disbursements) and liabilities caused by Landlord's failure
to comply with the foregoing indoor air quality requirements, except if and to
the extent such failure is caused by the acts or (where Tenant has an
affirmative obligation to act pursuant to the terms of this Lease) omissions of
Tenant or Tenant's agents, employees or contractors.
4.07 Tenant Advertising. Tenant shall not use, and shall cause each of its
Affiliates not to use, the name or likeness of the Building or the Project in
any advertising (by whatever medium) without Landlord's consent (not to be
unreasonably withheld or delayed). Tenant shall not in any way represent,
whether in advertising, correspondence or otherwise, that the Building or the
Premises is part of Rockefeller Center or Rockefeller Plaza.
4.08 Right to Perform Tenant Covenants. If Tenant fails to perform any of
its obligations under this Lease, Landlord, any Superior Lessor or any Superior
Mortgagee (each, a "Curing Party") may perform the same at the reasonable
expense of Tenant (a) after such notice, if any, as is feasible under the
circumstances in the case of emergency, imminent violation of any Law, imminent
cancellation of any insurance policy maintained by Landlord, imminent threat of
danger to the health or safety of persons, imminent risk of civil or criminal
liability of Landlord, material adverse affect on the Project or any portion
thereof or Landlord's interest therein or unreasonable interference with the use
of another tenant's space or the operation of the Building, and (b) in any other
case, if such failure continues after notice and beyond all applicable grace
periods provided in this Lease, and thereafter such failure is not remedied
within 10 days after a second notice to Tenant (in which the Curing Party
notifies Tenant that the Curing Party will undertake such performance at
Tenant's expense). If a Curing Party performs any of Tenant's obligations under
this Lease pursuant to the immediately preceding sentence, Tenant shall pay to
such Curing Party (as Additional Charges) the reasonable costs thereof, together
with interest at the Interest Rate from the date such costs were incurred by the
Curing Party until paid by Tenant, within 30 days after receipt by Tenant of a
detailed statement as to the amounts of such costs. "Prime Rate" means an annual
interest rate equal to the prime or base rate from time to time announced by
Citibank, N.A. (or, if Citibank, N.A. shall not exist, such other New York
Clearing House Association member bank, as shall be designated by Landlord in a
notice to Tenant) to be in effect at its principal office in New York, New York.
"Interest Rate" means an annual interest rate equal to the lesser of (i) the
Prime Rate plus 2% or (ii) the maximum rate permitted by Law.
<PAGE>
ARTICLE 5
Assignment and Subletting
5.01 Assignment; Etc. (a) Subject to Section 5.02, neither this Lease nor
the term and estate hereby granted, nor any part hereof or thereof, shall be
assigned, mortgaged, pledged, encumbered or otherwise transferred, and neither
the Premises, nor any part thereof, shall be subleased or be encumbered in any
manner by reason of any act or omission on the part of Tenant, and no rents or
other sums receivable by Tenant under any sublease of all or any part of the
Premises shall be assigned or otherwise encumbered, without the prior consent of
Landlord. The transfer of more than 50% of the stock, partnership or other
beneficial ownership interests in Tenant or in any entity which, directly or
indirectly controls Tenant shall be deemed an assignment of this Lease;
provided, that the transfer of any such stock, partnership or other ownership
interests shall not constitute an assignment of this Lease if such stock,
partnership or other ownership interests are listed on a national securities
exchange (as defined in the Securities Exchange Act of 1934, as amended) or is
traded in the "over the counter" market with quotations reported by the National
Association of Securities Dealers. No assignment or other transfer of this Lease
and the term and estate hereby granted, and no subletting of all or any portion
of the Premises shall relieve Tenant of its liability under this Lease or of the
obligation to obtain Landlord's prior consent in accordance with Section 5.03(b)
to any further assignment, other transfer or subletting (unless otherwise
permitted by this Lease). Any attempt to assign this Lease or sublet all or any
portion of the Premises in violation of this Article 5 shall be null and void.
(b) Notwithstanding Section 5.01(a), without the consent of Landlord, this
Lease may be assigned to (i) an entity created by merger, reorganization or
recapitalization of or with Tenant or (ii) a purchaser of all or substantially
all of Tenant's assets; provided, in the case of both clause (i) and clause
(ii), that (A) Landlord shall receive contemporaneously therewith a notice of
such assignment from Tenant, (B) the assignee assumes by written instrument
substantially in the form attached to this Lease as Exhibit K all of Tenant's
obligations under this Lease (but, in the case of clause (i), the same shall
only be necessary if Tenant shall not be the surviving entity), (C) the
avoidance of any obligations under this Lease is not the primary purpose of such
assignment, and (D) the assignee shall have, immediately after giving effect to
such assignment, an aggregate net worth (computed in accordance with GAAP) of
not less than 95% of the aggregate net worth (as so computed) of Tenant
immediately prior to such assignment.
(c) Notwithstanding Section 5.01(a), without the consent of Landlord,
Tenant may assign this Lease or sublet all or any part of the Premises to an
Affiliate of Tenant; provided, that (i) Landlord shall receive contemporaneously
therewith a notice of such assignment or sublease from Tenant; and (ii) in the
case of any such assignment, (A) the avoidance of any obligations under this
Lease is not the primary purpose of such assignment, and (B) the assignee
assumes by written instrument substantially in the form attached to this Lease
as Exhibit K all of Tenant's obligations under this Lease. "Affiliate" means, as
to any designated person or entity, any other person or entity which controls,
is controlled by, or is under common control with, such designated person or
entity. "Control" (and with correlative meaning, "controlled by" and "under
common control with") means ownership or voting control, directly or indirectly,
of 25% or more of the voting stock, partnership interests or other beneficial
ownership interests of the entity in question.
(d) Notwithstanding anything to the contrary contained in this Article 5,
Tenant shall have the right, without being required to obtain the consent of
Landlord, to permit portions of the Premises not exceeding 50,000 rentable
square feet in the aggregate at any one time to be used under so-called
"desk-sharing" arrangements by service providers or other independent
contractors who use such space primarily in connection with Tenant's business.
(e) Notwithstanding Section 5.01(a), and without limiting the generality of
Section 5.01(c), without the consent of Landlord, Tenant may sublease the entire
22nd floor of the Building to Equitable Real Estate Investment Management, Inc.
("EREIM"); provided, that Landlord shall receive contemporaneously therewith a
notice of such sublease. On the date of this Lease, EREIM is an Affiliate of
Tenant. Notwithstanding Section 5.01(a), without the consent of Landlord, Tenant
may engage in a transaction which results in EREIM no longer being an Affiliate
of Tenant; provided, that Landlord shall receive contemporaneously therewith a
notice of such transaction. If Tenant engages in a transaction which results in
EREIM no longer being an Affiliate of Tenant and, at such time, no tenant (other
than Tenant or any Affiliate of Tenant) leases 6 or more floors of floors 23
through 29, then Tenant shall have the right to require by notice to Landlord,
that Landlord, at Tenant's reasonable expense, reprogram the passenger elevators
in the elevator bank serving floors 15-22 and the passenger elevators in the
elevator bank serving floors 23 - 29 so that the 22nd floor shall thereafter be
serviced by the elevator bank serving floors 23 - 29. Nothing contained in this
Section 5.01(e) shall be construed as a consent by Landlord to any subletting or
assignment by EREIM, to the extent that such consent is otherwise required
pursuant to this Article 5.
<PAGE>
5.02 Landlord's Right of First Offer. (a) If Tenant desires to assign this
Lease or sublet all or part of the Premises (other than in accordance with
Sections 5.01(b), (c) or (d)), Tenant shall give to Landlord notice ("Tenant's
Offer Notice") thereof, specifying (i) in the case of a proposed subletting, the
location of the space to be sublet (the "Sublet Space") and the term of the
subletting of such Sublet Space (the "Sublet Term"), (ii) (A) in the case of a
proposed assignment, Tenant's good faith offer of the consideration Tenant
desires to receive or pay for such assignment or (B) in the case of a proposed
subletting, Tenant's good faith offer of the fixed annual rent which Tenant
desires to receive for such proposed subletting (assuming that a subtenant will
pay for Taxes, Operating Expenses and electricity in the same manner, and
utilizing the same base year or base amount, as Tenant pays for such amounts
under this Lease) (the "Sublet Rent"), (iii) in the case of a proposed
subletting involving a partial floor, whether or not Tenant intends to demise
separately the subleased space or provide an allowance to the subtenant for the
purpose of performing such work and (iv) the proposed assignment or sublease
commencement date.
(b) Landlord (or its designee) shall have the option, exercisable by notice
("Landlord's Acceptance Notice") given to Tenant on or before the date that is
15 days after the giving of the applicable Tenant's Offer Notice (time of the
essence) (i) in the case of a proposed assignment, to have this Lease assigned
to it or (ii) in the case of a proposed sublease, to sublet the Sublet Space
from Tenant.
(c) If Landlord exercises its option under Section 5.02)(b)(i) to have this
Lease assigned to it (or its designee), then Tenant shall assign this Lease to
Landlord (or Landlord's designee) by an assignment in form and substance
reasonably satisfactory to Landlord and Tenant, effective on the proposed
assignment commencement date specified in the applicable Tenant's Offer Notice.
On such effective date, the appropriate party shall pay to the other the
consideration for such assignment specified in Tenant's Offer Notice.
(d) If Landlord exercises its option under Section 5.02(b)(ii) to sublet
the Sublet Space, then (i) during the Sublet Term, Tenant shall be relieved of
all of Tenant's obligations under this Lease with respect to the Sublet Space,
other than Tenant's obligation to pay Rent, (ii) during the Sublet Term, if and
to the extent that Landlord or its designee (as subtenant) fails to pay to
Tenant any amount that such subtenant is required to pay with respect to the
Sublet Space, then Tenant shall have the right to credit such amount against
Tenant's Rent obligations under this Lease and (iii) such sublease to Landlord
or its designee (as subtenant) shall be in form and substance reasonably
satisfactory to Landlord and Tenant, at the Sublet Rent as set forth in the
applicable Tenant's Offer Notice (provided, that if the Sublet Rent is greater
than Tenant's Qualified Sublet Cost, then the rent which Landlord (or its
designee) is required to pay to Tenant in respect of the Sublet Space shall be
reduced by an amount equal to 50% of the amount by which the Sublet Rent exceeds
Tenant's Qualified Sublet Cost; for purposes of this Section 5.02(d), "Tenant's
Qualified Sublet Cost" for any Sublet Space subleased to Landlord (or its
designee) in accordance with this Section 5.02 means the sum of (v) the portion
of the annual Fixed Rent which is attributable to such Sublet Space, plus (w)
the amount of any reasonable brokerage commissions and reasonable legal fees
paid by Tenant in connection with the sublease amortized on a straight-line
basis over the Sublet Term with interest at the Prime Rate, plus (x) 1/2 of any
costs incurred by Tenant for improvements to such Sublet Space within 12 months
prior to the sublease commencement date (as evidenced by paid invoices), plus
(y) the expenses, if any, which Tenant is required to reimburse Landlord for in
accordance with Section 5.02(d)(E)(3) or the amount of any allowance specified
in Tenant's Offer Notice to be paid by Tenant to the subtenant for the purpose
of performing the work to separately demise the Sublet Space, plus (z) all other
out-of-pocket costs incurred by Tenant in connection with such sublease), and
for the Sublet Term (commencing on the proposed sublease commencement date
specified in the applicable Tenant's Offer Notice), and: (A) shall be subject to
all of the terms and conditions of this Lease except such as are irrelevant or
inapplicable, and except as otherwise expressly set forth to the contrary in
this Section 5.02(d); (B) shall be upon the same terms and conditions as those
contained in Tenant's Offer Notice and otherwise on the terms and conditions of
this Lease (including, without limitation, an indemnity from Landlord (or its
designee) (as subtenant) in favor of the Tenant Indemnified Parties
substantially in the form of Section 6.12(b)), except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in this
Section 5.02(d); (C) shall permit the sublessee, without Tenant's consent,
freely to assign such sublease or any interest therein or to sublet all or any
part of the Sublet Space (provided, that (I) if (1) the Sublet Space includes a
partial floor and (2) on the commencement date of any such sublease and on the
commencement date of any further sublease by such sublessee or the effective
date of any assignment by such sublessee, Tenant and/or any Affiliated
subtenants of Tenant occupies the balance of such floor, then any such assignee
<PAGE>
or subtenant of such partial floor shall (x) use the applicable space for only
uses permitted under this Lease and (y) not be a Competitor and (II) if (1) the
Sublet Space includes a full floor and (2) on the commencement date of any such
sublease and on the commencement date of any further sublease by such sublessee
or the effective date of any assignment by such sublessee, Tenant and/or any
Affiliated subtenants of Tenant occupies not less than 50% of the floors
included in the elevator bank which services such full floor included in the
Sublet Space, then any such assignee or subtenant of such full floor shall not
be a Competitor); "Competitor" means any company that is (aa) known by the
general public primarily as an insurance company or (bb) engaged primarily in
the insurance business; (D) shall provide that any assignee or further subtenant
of Landlord or its designee may, at the election of Landlord, make alterations,
decorations and installations in the Sublet Space or any part thereof, any or
all of which may be removed, in whole or in part, by such assignee or subtenant,
at its option, prior to or upon the expiration or other termination of such
sublease, provided, that (1) such assignee or subtenant, at its expense, shall
repair any damage caused by such removal and (2) if the Sublet Term is less than
substantially all of the remaining Term (i.e., such Sublet Term is scheduled to
expire, assuming all sublease extension options are exercised, prior to the date
that is 1 year prior to the last day of the Term, which shall be deemed to
exclude the Renewal Term if the Renewal Option shall not have been previously
exercised), then any such alterations and installations shall require Tenant's
consent, not to be unreasonably withheld, unless such assignee or subtenant
agrees to remove same at the end of the Sublet Term and return the Sublet Space
to substantially its condition before the commencement of the Sublet Term,
ordinary wear and tear excepted, in which event no such consent shall be
required and (3) if the Sublet Space involves a partial floor, no such
alterations or installations shall (except to the extent required by applicable
Laws or, if not required by applicable Laws, except to a de minimis extent)
adversely impact the remainder of such floor or any other floor of the Premises;
and (E) shall provide that (1) the parties to such sublease expressly negate any
intention that any estate created under such sublease be merged with any other
estate held by either of said parties, (2) any assignment or subletting by
Landlord or its designee (as the subtenant) may be for any purpose or purposes
that Landlord shall deem appropriate (but subject to the proviso in Clause C
above), (3) on the commencement date of such sublease or on such other date
specified in Tenant's Offer Notice, Tenant shall pay to Landlord any allowance
specified in Tenant's Offer Notice for the purpose of separately demising the
Sublet Space or Landlord, at Tenant's expense, may make such alterations as may
be required or deemed necessary by Landlord to demise separately the Sublet
Space (unless, as set forth in Tenant's Offer Notice, Tenant did not intend to
demise separately the Sublet Space) and to comply with any Laws relating to such
demise, and (4) at the expiration of the term of such sublease, Tenant shall
accept the Sublet Space in its then existing condition, subject to (x) the
obligations of the sublessee to make such repairs thereto as may be necessary to
preserve such space in good order and condition and (y) any obligation to
restore the Sublet Space under Clause (D)(2) above, and if such sublessee fails
to make such repairs or perform such restoration, Landlord shall perform the
same.
(e) If the Sublet Rent (on a per rentable square foot basis) as specified
in Tenant's Offer Notice is equal to or exceeds the Fixed Rent (on a per
rentable square foot basis) payable by Tenant at the time such Tenant's Offer
Notice is given, Tenant shall not be permitted to sublet the applicable Sublet
Space to a third party at a Sublet Rent which is less (on a per rentable square
foot basis) than such Fixed Rent without complying once again with all of the
provisions of this Section 5.02 and re-offering such Sublet Space to Landlord at
such lower Sublet Rent. If Tenant offered in Tenant's Offer Notice to assign
this Lease to Landlord upon Landlord's payment of the consideration for such
assignment specified therein, Tenant shall not be permitted to assign this Lease
to a third party where Tenant pays consideration to such third party for such
assignment without complying once again with all of the provisions of this
Section 5.02 and re-offering to assign this Lease to Landlord and pay such
consideration to Landlord.
5.03 Assignment and Subletting Procedures. (a) If Tenant delivers to
Landlord a Tenant's Offer Notice with respect to any proposed assignment of this
Lease or subletting of all or part of the Premises and Landlord does not timely
exercise any of its options under Section 5.02, and Tenant thereafter desires to
assign this Lease or sublet the Sublet Space set forth in such Tenant's Offer
Notice, Tenant may notify Landlord (a "Transfer Notice") of such desire, which
notice shall be accompanied by a statement setting forth in reasonable detail
the identity of the proposed assignee or subtenant, the nature of its business
and its proposed use of the Premises. Tenant shall have the right to give the
Transfer Notice with respect to any proposed assignment or subletting
simultaneously with Tenant's giving of Tenant's Offer Notice with respect
thereto.
<PAGE>
(b) If Tenant gives a Transfer Notice, Landlord's consent to the proposed
assignment or sublease shall not be withheld, provided that: (i) the proposed
assignee or subtenant states its intention to use the Premises in a manner that
(A) is in keeping with or better than the then standards of the Building, and
(B) is limited to the use expressly permitted under this Lease; (ii) the
proposed assignee or subtenant is a reputable person or entity; (iii) except in
the case of Qualifying Transactions, neither the proposed assignee or sublessee
is then a tenant or an occupant of any part of the Building (but this
restriction shall apply only if Landlord then has, or within the next 6 months
is scheduled to have, comparable vacant space in the Building available for
lease for a comparable term); and (iv) except in the case of Qualifying
Transactions, the proposed assignee or sublessee is not a person with whom
Landlord is then actively negotiating to lease space in the Building (but this
restriction shall apply only if Landlord then has, or within the next 6 months
is scheduled to have, comparable vacant space in the Building available for
lease for a comparable term) (it being understood that a letter from such
proposed assignee or subtenant stating that such person is no longer interested
in negotiating with Landlord to lease space in the Building shall be sufficient
evidence that Landlord is no longer actively negotiating with such person;
provided, that neither Tenant nor Tenant's broker shall have induced such
proposed assignee or subtenant to send such letter).
(c) If Landlord consents to a proposed assignment or sublease and Tenant
fails to execute and deliver the assignment or sublease to which Landlord
consented within 270 days after the giving of such consent, then Tenant shall
again comply with Section 5.03(a) before assigning this Lease or subletting all
or the relevant part of the Premises.
(d) If Landlord fails to grant or deny consent to a proposed assignment or
subletting within 15 days after receipt of the relevant Transfer Notice, Tenant
shall have the right to give a reminder notice to Landlord (which notice shall
state that Landlord shall be deemed to have consented to the proposed assignment
or subletting if Landlord fails to grant or deny consent thereto within 1
Business Day) and if Landlord fails to grant or deny consent to such proposed
assignment or subletting within one Business Day after receipt of such reminder
notice, Landlord shall be deemed to have consented to such assignment or
subletting. Any denial of consent to a proposed assignment or subletting shall
be effective only if accompanied by a statement that sets forth in detail
Landlord's reason(s) for denying such consent; provided, that in the case of any
denial of consent by reason of a failure of the condition specified in Section
5.03(b)(ii), Landlord shall only be required to cite such Section in order to
comply with this sentence.
(e) "Qualifying Transactions" means any of the following: (i) any sublease
of less than 25,000 rentable square feet (including any option or must take
space and any space previously sublet by Tenant to the same subtenant), (ii) any
sublease with an entity with which Tenant then has a material ongoing business
relationship or (iii) any sublease or assignment if (A) the fair market rental
value (determined as if leased directly by Landlord) of the Sublet Space (or the
Premises in case of an assignment), on a per rentable square foot, net effective
basis is less than (B) the Rent, on a per rentable square foot basis, payable
under this Lease; provided, in the case of clause (iii), that Tenant pays to
Landlord in monthly installments an amount equal to 50% of the excess, if any,
of (x) the fair market rental value of the Sublet Space (or the Premises in case
of an assignment) determined as provided in clause (A) above over (y) (I) in the
case of a sublease, the rent, on a per rentable square foot, net effective
basis, payable by the subtenant with respect to the Sublet Space or (II) in the
case of an assignment, the Rent, on a per rentable square foot basis, payable
under this Lease, net of any consideration being paid by Tenant to such assignee
for such assignment. As an example for clause (iii) above, if Tenant desires to
sublet Sublet Space to a subtenant for $24 per rentable square foot on a net
effective basis and the fair market rental value of such Sublet Space
(determined as provided in subclause (A) above) is $30 per rentable square foot
on a net effective basis, then, because the fair market rental value of such
Sublet Space ($30 per rentable square foot) is less than the Rent payable under
this Lease ($36 per rentable square foot) and the proposed sublease rent ($24
per rentable square foot) is less than such fair market rental value, Tenant
must pay to Landlord an amount equal to 50% of the excess of the fair market
rental value of such Sublet Space ($30 per rentable square foot) over the
proposed sublease rent ($24 per rentable square foot) or $3 per rentable square
foot of such Sublet Space.
<PAGE>
5.04 General Provisions. (a) If this Lease is assigned, whether or not in
violation of this Lease, Landlord may collect rent from the assignee. If the
Premises or any part thereof are sublet or occupied by anybody other than
Tenant, whether or not in violation of this Lease, Landlord may, after default
by Tenant in the payment of any sum payable under this Lease after notice and
beyond applicable grace periods, collect rent from the subtenant or occupant
(but not in excess of the total amount of such monetary defaults by Tenant which
exist at such time). In either event, Landlord may apply the net amount
collected against Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 5.01(a),
or the acceptance of the assignee, subtenant or occupant as tenant, or a release
of Tenant from the performance of Tenant's obligations under this Lease.
(b) No assignment or transfer shall be effective until the assignee
delivers to Landlord (i) evidence that the assignee, as Tenant hereunder, has
complied with the requirements of Sections 7.02 and 7.03, and (ii) an agreement
substantially in the form attached to this Lease as Exhibit K whereby the
assignee assumes Tenant's obligations under this Lease, which agreement shall
only be required in the case of an actual assignment, but not in the case of a
deemed transfer pursuant to the second sentence of Section 5.01(a).
(c) Notwithstanding any assignment or transfer, whether or not in violation
of this Lease, and notwithstanding the acceptance of any Rent by Landlord from
an assignee, transferee, or any other party, the original named Tenant and each
successor Tenant shall remain fully liable for the payment of the Rent and the
performance of all of Tenant's other obligations under this Lease. The joint and
several liability of Tenant and any immediate or remote successor in interest of
Tenant shall not be discharged, released or impaired in any respect by any
agreement made by Landlord extending the time to perform, or otherwise
modifying, any of the obligations of Tenant under this Lease, or by any waiver
or failure of Landlord to enforce any of the obligations of Tenant under this
Lease; provided, that (i) in the case of any modification of this Lease made
after the date of an assignment or other transfer of this Lease by Tenant, if
such modification increases or enlarges the obligations of Tenant or reduces the
rights of Tenant, then the Tenant named herein and each respective assignor or
transferor that has not consented to such modification shall not be liable under
or bound by such increase, enlargement or reduction (but shall continue liable
under this Lease as though such modification were never made) and (ii) in the
case of any waiver by Landlord of a specific obligation of an assignee or
transferee of Tenant, or an extension of time to perform in connection
therewith, such waiver and/or extension shall also be deemed to apply to the
immediate and remote assignors or transferors of such assignee or transferee. If
this Lease shall have been assigned by the Initially Named Tenant (other than to
an Affiliate of the Initially Named Tenant), Landlord shall give the initially
named Tenant (or any entity which, pursuant to Section 5.01(b) above, directly
or indirectly succeeds to the interest of the initially named Tenant) (the
"Initially Named Tenant"), a copy of each notice of default given by Landlord to
the then current tenant under this Lease. Except if Landlord shall execute and
deliver a written instrument releasing the Initially Named Tenant from any
further liability under this Lease, Landlord shall not have any right to
terminate this Lease, or otherwise to exercise any of Landlord's rights and
remedies hereunder (other than Landlord's self-help remedy in accordance with
Section 4.08(a)), after a default by such current tenant, unless and until (A)
Landlord shall have made a demand on the then tenant to cure the default in
question, (B) the Initially Named Tenant receives a copy of the default notice
in question, and (C) the Initially Named Tenant has an opportunity to remedy
such default within the time periods set forth in this Lease (such time periods,
with respect to the Initially Named Tenant, being deemed to run from the date
that Landlord gives such Initially Named Tenant a copy of the default notice in
question); provided, that this sentence shall not be applicable if the then
current tenant under this Lease is an Affiliate of the Initially Named Tenant.
Landlord shall accept timely performance by the Initially Named Tenant of any
term, covenant, provision or agreement contained in this Lease on the then
current tenant's part to be observed and performed with the same force and
effect as if performed by the then current tenant (but only if such then current
tenant is not an Affiliate of the Initially Named Tenant). If the Initially
Named Tenant shall cure the default by such current tenant, or if the default
shall be incurable (such as bankruptcy), and Landlord or the current tenant
seeks to terminate this Lease, then the Initially Named Tenant shall have the
right to enter into a new lease with Landlord upon all of the then executory
terms of this Lease and to resume actual possession of the Premises for the
unexpired balance of the Term; provided, that this sentence shall not be
applicable if the then current tenant under this Lease is an Affiliate of the
Initially Named Tenant
(d) Each subletting by Tenant shall be subject to the following: (i) No
subletting shall be for a term (including any renewal or extension options
contained in the sublease, unless conditioned upon the exercise by Tenant of
Tenant's renewal option pursuant to the terms of this Lease) ending later than
one day prior to the Expiration Date. (ii) No sublease shall be valid, and no
<PAGE>
subtenant shall take possession of the Premises or any part thereof, until there
has been delivered to Landlord, both (A) an executed counterpart of such
sublease, the form of which shall comply with the applicable provisions of this
Article 5 and a certificate of insurance evidencing that there is in full force
and effect the insurance required by Section 7.02(a) covering the subtenant's
personal property, which insurance includes the waiver of subrogation required
pursuant to Section 7.03. (iii) Each sublease shall provide that it is subject
and subordinate to this Lease, and that in the event of termination, reentry 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 such
sublease, in which case such subtenant shall attorn to Landlord pursuant to the
then executory provisions of such sublease, except that Landlord shall not be
liable for, subject to or bound by any item of the type that a Superior
Mortgagee is not so liable for, subject to or bound by in the case of an
attornment by a subtenant to a Superior Mortgagee pursuant to Paragraph 3 of
Exhibit B attached to Exhibit M annexed hereto. (iv) Notwithstanding clause
(iii) above, provided Tenant is not then in default under this Lease after
notice and beyond applicable grace periods, with respect to any sublease
(including a further sublease by a subtenant of Tenant (a "Second Tier
Sublease") but not a further subletting) other than pursuant to Section 5.01(c)
or 5.01(e), to which Landlord has given its consent or is deemed to have given
its consent pursuant to the terms of this Article 5 and which (A) is for not
less than 20,000 rentable square feet of Office Space (50,000 rentable square
feet in the case of a Second Tier Sublease), (B) consists of either (x) not less
than 100,000 rentable square feet of Office Space or (y) contiguous space which
includes the highest or lowest floor then comprising the Office Space or is
contiguous to another floor that has, in substantial part, been sublet by Tenant
and with respect to which Landlord has executed and delivered one or more
non-disturbance and attornment agreements hereunder with respect to
substantially all of such floor, (C) provides for a rental which, after taking
into account any free rent periods, credits, offsets or deductions to which the
subtenant may be entitled thereunder, is equal to or in excess (on a per
rentable square foot basis) of the Fixed Rent and recurring Additional Charges
payable hereunder by Tenant with respect to such space from time to time
throughout the Term (or if less (on a per rentable square foot basis) than the
Fixed Rent and recurring Additional Charges payable hereunder by Tenant, if such
subtenant agrees, in the non-disturbance and attornment agreement hereinafter
referred to, that such rental will automatically and without condition become so
equal, if, as and when the attornment provided for in such non-disturbance and
attornment agreement becomes effective between Landlord and the subtenant
following the termination of this Lease), (D) consists of space that will be
demised separately from the remainder of the Premises in accordance with all
applicable Laws and (E) provides for other obligations of the subtenant at least
substantially identical to the obligations of Tenant under this Lease (but in
compliance, to the extent applicable, with Section 8.24 below), Landlord shall,
at Tenant's request, execute and deliver to such subtenant a non-disturbance and
attornment agreement substantially in the form of Exhibit B attached to Exhibit
M annexed hereto, modified as necessary to reflect that the non-disturbance is
being granted by Landlord rather than by a Superior Mortgagee, provided and upon
condition that (1) in the case of any subtenant that is a partnership that is
not publicly traded, such subtenant shall have had net income determined in
accordance with GAAP (i.e., the excess of all gross revenues and fees over all
expenses (including, without limitation, all partnership debt service), as
determined by a firm of independent certified public accountants) for the 12
month period ending on the last day of the most recently ended fiscal quarter of
such subtenant equal to or in excess of the product of (I) 5 multiplied by (II)
the greater of (aa) the Rent payable by Tenant with respect to the sublease
space for the 12 month period commencing on the sublease commencement date
(determined without giving effect to any credits, offsets, abatements or free
rent periods) and (bb) all sums payable under the sublease for such 12 month
period (as so determined), (2) in the case of any subtenant other than a
subtenant described in clause (1) above, Tenant has furnished to Landlord's
reasonable satisfaction proof that the subtenant has a financial worth
sufficient to timely fulfill its obligations under such sublease as a primary
tenant of Landlord (and not as a subtenant of Tenant), including any increase in
such financial obligations which may become effective pursuant to this clause
(iv), and (3) the subtenant executes and delivers to Landlord such
non-disturbance and attornment agreement. Notwithstanding anything to the
contrary set forth in this clause (iv), any non-disturbance and attornment
agreement delivered by Landlord pursuant to this clause (iv) shall, pursuant to
this Lease, be conditional and by its terms expressly contain the condition such
that, in the event of any termination of this Lease other than by reason of
Tenant's default (e.g., by reason of a casualty pursuant to Section 7.05), then
any non-disturbance and attornment agreement to a subtenant shall, automatically
and without further act of the parties, terminate and be of no further force or
effect from and after the applicable termination date; provided, that if (AA)
this Lease is terminated with respect to less than all of the Premises, or (BB)
Tenant pursuant to Article 9 exercises the Renewal Option with respect to less
than all of the Premises, only such non-disturbance and attornment agreements to
subtenants who sublease any of such space with respect to which this Lease is
terminated or not renewed, as the case may be, shall, automatically and without
<PAGE>
further act of the parties, terminate and be of no further force or effect from
and after the applicable termination date or the day preceding the commencement
of the Renewal Term, as the case may be. Anything contained in this Section
5.04(d)(iv) to the contrary notwithstanding, with respect to any sublease for
which Landlord has delivered a non-disturbance and attornment agreement pursuant
hereto, no provision of any such sublease providing in substance for the
exculpation from personal liability of the partners of a partnership subtenant
shall be binding on Landlord unless such subtenant, on the date the attornment
provided for in such non-disturbance and attornment agreement becomes effective
between Landlord and such subtenant, shall post with Landlord, as security for
such subtenant's obligations under its sublease, cash or a clean, unconditional
and irrevocable letter of credit (in form and from a bank reasonably
satisfactory to Landlord) in either case in an amount equal to the annual fixed
rent and recurring charges (without regard to any abatements, credits or
offsets) payable by such subtenant to Landlord at such time (such security to be
increased from time to time to reflect increases in such fixed rent and
recurring charges). Any subletting by Tenant to an Affiliate of Tenant in
accordance with Section 5.01(c) or 5.01(e) and any subletting by Tenant to the
Agency or by the Agency to Tenant in accordance with Section 12.01 shall not
constitute a subletting tier for purposes of this Section 5.04(d)(iv).
(e) Each sublease shall provide that the subtenant may not assign its
rights thereunder or further sublet the space demised under the sublease, in
whole or in part, without Landlord's consent in accordance with Section 5.03(b)
and without complying with all of the terms and conditions of this Article 5,
including, without limitation, Section 5.05, which Article 5 for purposes of
this Section 5.04(e) shall be deemed to be appropriately modified to take into
account that the transaction in question is an assignment of the sublease or a
further subletting of the space demised under the sublease, as the case may be.
(f) Tenant shall not publicly advertise the availability of the Premises or
any portion thereof as sublet space or by way of an assignment of this Lease,
without first obtaining Landlord's consent, which consent shall not be
unreasonably withheld or delayed; provided, that Tenant shall in no event
publicly advertise the rental rate or any description of such rental rate.
Notwithstanding the foregoing, Landlord's consent shall not be required for
Tenant to list the Premises or any portion thereof with brokers or for Tenant or
such brokers to distribute flyers with respect to the availability of the
Premises or any portion thereof, subject to the proviso set forth in the
preceding sentence.
(g) If this Lease is assigned to a partnership in accordance with the
provisions of this Article 5, then the partners of such partnership shall be
exculpated from personal liability for the obligations of such partnership as
Tenant hereunder; provided, that (i) in the case of any such assignee that is
not a publicly traded partnership, such assignee shall, as of the effective date
of such assignment, have had net income determined in accordance with GAAP
(i.e., the excess of all gross revenues and fees over all expenses (including,
without limitation, all partnership debt service), as determined by a firm of
independent certified public accountants) for the 12 month period ending on the
last day of the most recently ended fiscal quarter of such assignee equal to or
in excess of the product of (A) 5 multiplied by (B) the Rent payable by Tenant
with respect to the Premises for the 12 month period commencing on the
assignment commencement date (determined without giving effect to any credits,
offsets, abatements or free rent periods), (ii) in the case of any such assignee
that is a publicly traded partnership, such assignee has furnished to Landlord's
reasonable satisfaction proof that such assignee, as of the effective date of
such assignment, has financial worth sufficient to timely fulfill its
obligations under this Lease, and (iii) in all cases, such assignee shall post
with Landlord cash or a clean, unconditional and irrevocable letter of credit
(in form and from a bank reasonably satisfactory to Landlord) in an amount equal
to the annual Rent payable from time to time by Tenant to Landlord.
5.05 Assignment and Sublease Profits. (a) If the aggregate of the amounts
payable as fixed rent and as additional rent on account of Taxes, Operating
Expenses and electricity by a subtenant under a sublease of any part of the
Premises and the amount of any other consideration payable to Tenant by such
subtenant, whether received in a lump-sum payment or otherwise shall be in
excess of Tenant's Basic Cost therefor at that time then, promptly after the
collection thereof, Tenant shall pay to Landlord in monthly installments if, as
and when collected, as Additional Charges, 50% of such excess. Tenant shall
deliver to Landlord within 60 days after the end of each calendar year
(including, without limitation, the calendar year in which occurs the expiration
or earlier termination of this Lease) a statement specifying each sublease in
effect during such calendar year or partial calendar year, the rentable area
demised thereby, the term thereof and a computation in reasonable detail showing
the calculation of the amounts paid and payable by the subtenant to Tenant, and
by Tenant to Landlord, with respect to such sublease for the period covered by
such statement. Notwithstanding the foregoing, if Tenant fails to timely give
any such statement to Landlord, such failure shall not constitute a default
under this Lease unless Landlord gives notice to Tenant after the foregoing
60-day period and Tenant fails to give such statement to Landlord within 30 days
thereafter. "Tenant's Basic Cost" for sublet space at any time means the sum of
(i) the portion of the Fixed Rent, Tax Payments and Operating Payments which is
attributable to the sublet space, plus (ii) the amount payable by Tenant on
account of electricity in respect of the sublet space, plus (iii) the amount of
any costs reasonably incurred by Tenant in making changes in the layout and
finish of the sublet space for the subtenant amortized on a straight-line basis
over the term of the sublease with interest plus (iv) the amount of any
reasonable brokerage commissions and reasonable legal fees paid by Tenant in
connection with the sublease amortized on a straight-line basis over the term of
the sublease with interest, plus (v) 1/2 of any costs incurred by Tenant for
improvements made to the sublet space within 12 months prior to the subletting
in question (as evidenced by paid invoices), plus (vi) any take-over costs in
excess of any income from any such take-over received by Tenant, plus (vii) any
contribution for work and/or the subtenant's moving expenses, plus (viii) all
other out-of-pocket costs incurred by Tenant in connection therewith. All
references to interest in this Section 5.05 shall be deemed to be interest at
the Prime Rate.
(b) Upon any assignment of this Lease, Tenant shall pay to Landlord 50% of
the consideration received by Tenant for such assignment, after deducting
therefrom (i) all out-of-pocket expenses actually incurred by Tenant in
connection with such assignment (including, without limitation, all of the
expenses referred to in Section 5.05(a), if and to the extent applicable), plus
(ii) (without duplicating any amounts deducted under clause (i)) 1/2 of any
costs incurred by Tenant for improvements made to the Premises within 12 months
prior to the assignment in question (as evidenced by paid invoices).
(c) For the purpose of determining whether Tenant is obligated to pay any
amounts (or how much Tenant is obligated to pay) under this Section 5.05 to
Landlord, the current and all previous (if any) sublease transactions
consummated within 24 months of the current sublease transaction and which are
all part of the same subletting program shall be aggregated, so as to allow
Tenant to off-set all "losses" incurred by Tenant in connection with such
transactions against any "profits".
(d) In no event shall Tenant be required to make any payment to Landlord by
reason of, or in connection with, any assignment or subletting, other than as
expressly set forth in this Section 5.05.
<PAGE>
ARTICLE 6
Subordination; Default; Indemnity
6.01 Subordination. (a) This Lease is subject and subordinate to each
mortgage (a "Superior Mortgage") and each underlying lease (a "Superior Lease")
which may now or hereafter affect all or any portion of the Project or any
interest therein; provided, that (i) in the case of the Indenture, the Superior
Mortgagee under the Indenture, concurrently with the execution and delivery of
this Lease by Landlord and Tenant, shall have executed, acknowledged and
delivered to Tenant the non-disturbance and attornment agreement attached to
this Lease as Exhibit M, (ii) in the case of the Ground Lease (if the Superior
Lessor thereunder shall no longer be Landlord or an Affiliate of Landlord) or
any other Superior Lease which may hereafter affect all or any portion of the
Project or any interest therein, the Superior Lessor shall have executed,
acknowledged and delivered a non-disturbance and attornment agreement containing
the same substantive provisions as those set forth in the form attached to this
Lease as Exhibit M, modified as necessary to reflect that the party granting the
non-disturbance is a Superior Lessor rather than a Superior Mortgagee and (iii)
in the case of any Superior Mortgage which may hereafter affect all or any
portion of the Project or any interest therein, the Superior Mortgagee
thereunder shall have executed, acknowledged and delivered to Tenant a
non-disturbance and attornment agreement containing the same substantive
provisions as those set forth in the form attached to this Lease as Exhibit O.
Notwithstanding anything contained in this Section 6.01(a) to the contrary, if
any such Superior Lessor or Superior Mortgagee executes, acknowledges and
delivers to Tenant a non-disturbance and attornment agreement in the form herein
required, and Tenant either fails or refuses to execute and deliver such
agreement within 20 days after delivery of such agreement to Tenant, then this
Lease shall automatically and without further act be deemed to be subject and
subordinate to such Superior Lease or Superior Mortgage, as the case may be, and
such non-disturbance and attornment agreement shall then be deemed to be in
effect with respect to such Superior Lease or Superior Mortgage, as the case may
be. If the foregoing conditions are satisfied, Tenant shall execute, acknowledge
and deliver such instrument as may be reasonably requested by Landlord, a
Superior Lessor or Superior Mortgagee to evidence the subordination described in
this Section 6.01(a), 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 or a Superior Lessor (other than the Superior
Lessor under the Ground Lease so long as such Superior Lessor is Landlord or an
Affiliate of Landlord), provided such amendment shall not reduce or extend the
Term, increase the Rent, reduce the area of the Premises, increase Tenant's
obligations or decrease Tenant's rights under this Lease (other than to a de
minimis extent) or decrease Landlord's obligations or increase Landlord's rights
under this Lease (other than to a de minimis extent). Any dispute under the
preceding sentence shall be determined by arbitration in accordance with Section
8.09. In the event of the enforcement by a Superior Mortgagee of the remedies
provided for by law or by such Superior Mortgage, or in the event of the
termination or expiration of a Superior Lease, Tenant, upon request of such
Superior Mortgagee, Superior Lessor or any person succeeding to the interest of
such mortgagee or lessor (each, a "Successor Landlord"), shall automatically
become the tenant of such Successor Landlord without change in the terms or
provisions of this Lease (it being understood that Tenant shall, if requested,
enter into a new lease on terms identical to those in this Lease). Upon request
by such Successor Landlord, Tenant shall execute and deliver an instrument or
instruments, reasonably requested by such Successor Landlord, confirming the
attornment provided for herein, but no such instrument shall be necessary to
make such attornment effective. The lessor under a Superior Lease is called a
"Superior Lessor" and the mortgagee under a Superior Mortgage is called a
"Superior Mortgagee".
(b) Without limiting the generality of this Section 6.01, this Lease is
subject and subordinate to (i) a certain Superior Lease, dated February 25,
1959, between Martha F. Keeping, as lessor, and 91078 Corporation, as lessee
(the "Ground Lease"), a memorandum of which was recorded in the office of the
Register of the City of New York, County of New York in Liber 5068 of
Conveyances, Page 489, and (ii) a certain Mortgage Spreader and Consolidation
Agreement and Trust Indenture dated as of March 20, 1984 (the "Indenture") made
between O&Y Equity Corp., Olympia & York Holdings Corporation, FAME Associates,
Olympia & York 2 Broadway Land Company and Olympia & York 2 Broadway Company
(collectively "Companies"), as mortgagor, and Nationsbank of Tennessee, N.A. (as
successor to Manufacturers Hanover Trust Company), as Trustee, as mortgagee.
Section 6.6D(1) and Section 6.6D(3) of the Indenture provide as follows: "D. The
Companies will not: "(1) receive or collect, or permit the receipt or collection
of, any rental or other payments under any Lease more than one month in advance
of the respective periods in respect of which they are to accrue, except that
(i) in connection with the execution and delivery of any Lease or of any
<PAGE>
amendment to any Lease, rental payments hereunder may be collected and received
in advance in an amount not in excess of three months' rent and/or a security
deposit may be required thereunder in an amount up to any amount permitted by
law (provided that such deposits are maintained in accordance with applicable
law) and (ii) the Companies may receive and collect escalation charges in
accordance with the terms of each Lease;" "(3) enter into any Lease that does
not contain terms to the effect as follows: (a) the Lease and the rights of the
tenants thereunder shall be subject and subordinate to the rights of the Trustee
under this Indenture; (b) the Lease has been assigned as collateral security by
the landlord thereunder to the Trustee under this Indenture but that the
landlord thereunder is entitled to receive and collect all rental and other
payments thereunder unless and until contrary notice is received from the
Trustee; (c) in the case of any foreclosure hereunder, the rights and remedies
of the tenant in respect of any obligations of any successor landlord thereunder
shall be nonrecourse as to any assets of such successor landlord other than its
equity in the building in which the leased premises are located; and (d) the
tenant's obligation to pay rent and any additional rent shall not be subject to
any abatement, deduction, counterclaim or setoff as against any mortgagee or
purchaser upon the foreclosure of any of the Properties by reason of any
landlord default occurring prior to such foreclosure." This Lease falls within
the definition of "Lease" referred to in the above quoted language from the
Indenture. Landlord and Tenant acknowledge that the non-disturbance and
attornment agreement delivered by the Superior Mortgagee under the Indenture by
its terms modifies and supersedes the provisions of Section 6.6D(3)(d) of the
Indenture quoted above.
(c) Landlord represents to Tenant that, as of the date of this Lease,
Landlord or an Affiliate of Landlord is the successor-in-interest to each of the
lessor and the lessee under the Ground Lease, and Landlord agrees that so long
as the lessor under the Ground Lease is Landlord or an Affiliate of Landlord, in
no event shall any action taken by said lessor serve to reduce any rights, or
increase any obligations, of Tenant under this Lease.
6.02 Estoppel Certificate. Each party shall, at any time and from time to
time, within 20 days after request by the other party, execute and deliver to
the requesting party (or to such person or entity as the requesting party may
designate) a statement certifying 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), certifying the
Relevant Dates, Expiration Date and the dates to which the Fixed Rent and
Additional Charges have been paid and stating whether or not, to the best
knowledge of such party, the other party is in default in performance of any of
its obligations under this Lease, and, if so, specifying each such default of
which such party shall have knowledge, it being intended that any such statement
shall be deemed a representation and warranty to be relied upon by the party to
whom such statement is addressed. Tenant also shall include or confirm in any
such statement such other information concerning this Lease as Landlord may
reasonably request in order to confirm the status of any rights or obligations
of Tenant or Landlord under this Lease.
6.03 Default. (a) This Lease and the term and estate hereby granted are
subject to the limitation that: (i) if Tenant defaults in the payment of any
Fixed Rent, Tax Payment, Operating Payment or payment in respect of electricity,
and such default continues for 5 Business Days after Landlord gives to Tenant
(and, if applicable, to the Initially Named Tenant if required pursuant to
Section 5.04(c) above) a notice specifying such default; provided, that if
Tenant, within such 5-Business Day period, notifies Landlord that Tenant
disputes the payment in question, specifying the basis for Tenant's dispute, and
pays to Landlord any undisputed portion of such payment, such 5-Business Day
period shall be extended as to the disputed portion of such payment by an
additional 10 Business Days (i.e., 15 Business Days in the aggregate), or (ii)
if Tenant defaults in the payment of any Additional Charges (other than a Tax
Payment, Operating Payment or payment in respect of electricity, each of which
is provided for in Section 6.03(a)(i) above), and such default continues for 15
Business Days after Landlord gives to Tenant (and, if applicable, to the
Initially Named Tenant if required pursuant to Section 5.04(c) above) a notice
specifying such default, or (iii) if Tenant defaults in the keeping, observance
or performance of any covenant or agreement (other than a default of the
character referred to in Sections 6.03(a)(i), (a)(ii) or (a)(iv)), and if such
default continues and is not cured within 30 days after Landlord gives to Tenant
(and, if applicable, to the Initially Named Tenant if required pursuant to
Section 5.04(c) above) a notice specifying the same, or, in the case of a
default which for causes beyond Tenant's reasonable control cannot with due
diligence be cured within such period of 30 days, if Tenant shall not within
said 30 days institute and thereafter diligently prosecute to completion, in a
commercially reasonable manner, all steps necessary to cure the same, or (iv) if
this Lease or the estate hereby granted would, by operation of law or otherwise,
devolve upon or pass to any person or entity other than Tenant, except as
expressly permitted by Article 5, and Tenant shall fail to remedy such default
within 30 days after notice by Landlord to Tenant (and, if applicable, to the
Initially Named Tenant if required pursuant to Section 5.04(c) above) specifying
such default, then, in any of such cases, in addition to any other remedies
available to Landlord at law or in equity (but subject to Section 6.06(a) with
respect to such other remedies), Landlord shall be entitled to give to Tenant a
notice of intention to end the Term at the expiration of 5 days from the date of
<PAGE>
the giving of such notice, and, in the event such notice is given, this Lease
and the term and estate hereby granted shall terminate upon the expiration of
such 5 days with the same effect as if the last of such 5 days were the
Expiration Date, but Tenant shall remain liable for damages as provided herein
or pursuant to law.
(b) (i) If Tenant shall dispute, in good faith, the occurrence of any
default described in Section 6.03(a)(iii) or (iv), subject to the following
sentence, Tenant shall have the right, within 30 days after Tenant receives
notice of such default, to institute an arbitration proceeding in accordance
with the provisions of Section 8.09 for the purpose of determining whether or
not such default exists and pending the final outcome of such arbitration and
during the cure period hereinafter provided for, Landlord shall not be entitled
to terminate this Lease by reason of the occurrence of such default. Tenant's
right to dispute such default under this Section 6.03(b)(i) and the restriction
on Landlord's right to terminate this Lease by reason of the occurrence of such
default shall exist only if and to the extent that (A) neither the Land nor the
Building nor any portion thereof, nor Landlord's interest therein, shall be
materially and adversely affected by such contest, (B) the health or safety of
persons shall not be in imminent danger of being threatened, (C) such default
shall not subject Landlord to imminent risk of civil or criminal liability, (D)
such default shall not be the cause of the imminent cancellation of any
insurance policy maintained by Landlord, (E) such default shall not cause
unreasonable interference to the use of space by another tenant or occupant of
the Building and (F) Tenant shall prosecute such arbitration in compliance with
all of the provisions of Section 8.09; provided, that in the case of clauses (A)
through (F), Landlord shall give Tenant notice of its determination that such
dispute by Tenant would violate any such clause and the basis therefor. The
determination of the arbitration proceeding shall be final and binding upon
Landlord and Tenant and (x) if the arbitration shall determine that such default
exists, Tenant shall have no rights at law or in equity (all of which are hereby
waived by Tenant) to contest the existence of such default and (y) if the
arbitration shall determine that such default does not exist, Landlord shall
have no right to thereafter give to Tenant a default notice with respect to the
specific event that the arbitrator determined not to be a default. Without
limiting the generality of Section 8.09, the non-prevailing party in such
arbitration shall pay all of the reasonable costs and expenses incurred by the
parties in connection with such proceeding. If the arbitration shall determine
that a default exists, then the date on which the arbitrators give Landlord and
Tenant notice of such determination shall be deemed to be the date that Tenant
was given notice of such default under Section 6.03 (a)(iii) or (iv), as the
case may be, for all purposes hereunder, so that Tenant shall thereafter have
the cure periods set forth in such Section to cure such default. The dispute
rights provided for in this Section 6.03(b)(i) shall not apply in the case of
any default described in Section 6.03(a)(i) or Section 6.03(a)(ii) (but payment
by Tenant of any Rent shall not preclude Tenant from thereafter arbitrating the
correctness of such payment in accordance with Section 8.09). (ii) If Landlord
gives a notice to Tenant in accordance with Section 6.03(b)(i) informing Tenant
that the dispute by Tenant of any default in accordance with such Section would
violate any of clauses (A) through (F) of such Section, then Tenant shall
perform the disputed obligation, and if Tenant fails to do so, Landlord shall be
entitled to exercise all rights and remedies under this Lease or otherwise with
respect to such failure (including, without limitation, the right to terminate
this Lease). Notwithstanding the foregoing, after Tenant completes the
performance of such disputed obligation, Tenant shall have the right to initiate
an arbitration in accordance with Section 8.09 for the purpose of determining
whether or not Tenant was obligated to perform such disputed obligation in
accordance with the provisions of this Lease. If such arbitration shall
determine that Tenant was not obligated to perform such obligation, then
Landlord shall promptly reimburse Tenant for all amounts reasonably incurred by
Tenant in performing such obligation, together with interest thereon at the
Prime Rate from the date that such expenditure was incurred by Tenant through
the date of reimbursement by Landlord; provided, that if such arbitration shall
determine that Landlord acted in bad faith in requiring Tenant to perform such
obligation, then such reimbursement by Landlord shall be with interest at the
Interest Rate (instead of at the Prime Rate).
6.04 Re-entry by Landlord. If this Lease shall terminate, either (a) as in
Section 6.03 provided or (b) after a default by Tenant in the payment of any
Rent, by summary dispossess or other appropriate proceeding (a termination under
clause (a) or (b) is called a "Termination"), Landlord or Landlord's agents and
servants may immediately or at any time thereafter re-enter into or upon the
Premises, or any part thereof, without being liable to indictment, prosecution
or damages therefor, and may repossess the same, and may remove any persons
therefrom, to the end that Landlord may have, hold and enjoy the Premises. The
words "re-enter" and "re-entering" as used in this Lease are not restricted to
their technical legal meanings. Upon any Termination, Tenant shall pay to
Landlord any Rent then due and owing (in addition to any damages payable under
Section 6.05).
<PAGE>
6.05 Damages. In the event of a Termination, Tenant shall pay to Landlord
as damages, at the election of Landlord, either: (a) a sum which, at the time of
such termination, represents the then value of the excess, if any, of (i) the
aggregate of the Rent which, had this Lease not terminated, would have been
payable hereunder by Tenant for the period commencing on the day following the
date of such termination or re-entry to and including the Expiration Date over
(ii) the aggregate fair rental value of the Premises for the same period (for
the purposes of this clause (a) the amount of Additional Charges which would
have been payable by Tenant under Sections 2.04 and 2.05 shall, for each
calendar year ending after such termination or re-entry, be deemed to be an
amount equal to the amount of such Additional Charges payable by Tenant for the
calendar year immediately preceding the calendar year in which such termination
or re-entry shall occur), or
(b) sums equal to the Rent that would have been payable by Tenant through
and including the Expiration Date had this Lease not terminated, payable upon
the due dates therefor specified in this Lease; provided, that if Landlord shall
relet all or any part of the Premises for all or any part of the period
commencing on the day following the date of such termination or re-entry to and
including the Expiration Date, Landlord shall credit Tenant with the net rents
received by Landlord from such reletting, such net rents to be determined by
first deducting from the gross rents as and when received by Landlord from such
reletting the expenses incurred or paid by Landlord in terminating this Lease
and of re-entering the Premises and of securing possession thereof, as well as
the actual expenses of reletting, including, without limitation, altering and
preparing the Premises for new tenants, brokers' commissions, and all other
actual expenses properly chargeable against the Premises and the rental
therefrom in connection with such reletting, it being understood that any such
reletting may be for a period equal to or shorter or longer than said period;
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 under this
Lease, (ii) in no event shall Tenant be entitled, in any suit for the collection
of damages pursuant to this Section 6.05(b), to a credit in respect of any net
rents from a reletting except to the extent that such net rents are actually
received by Landlord on account of any period that is the subject of such suit
and (iii) if the Premises or any part thereof should be relet in combination
with other space, then proper apportionment on a square foot rentable area basis
shall be made of the rent received from such reletting and of the expenses of
reletting. 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 require Landlord to
postpone suit until the date when the Term would have expired but for such
Termination.
6.06 Other Remedies. (a) Nothing contained in this Lease (other than
Section 7.05(f) below) 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; provided, that Landlord's
damages solely in respect of Tenant's failure to pay Rent for the remainder of
the Term in the event of a Termination shall be limited to amounts calculated in
accordance with Section 6.05.
(b) Except where any provision of this Lease provides that Tenant's sole
remedy for any failure by Landlord to perform any of its obligations under this
Lease is as specified in this Lease (or words to that effect), nothing contained
in this Lease (other than Section 7.05(f) below) shall be construed as limiting
or precluding the recovery by Tenant against Landlord of any sums or damages to
which, in addition to the damages particularly provided in this Lease, Tenant
may lawfully be entitled by reason of any default hereunder on the part of
Landlord (but subject in all events to Section 8.06).
(c) Anything to the contrary contained in this Lease notwithstanding, in no
event shall Landlord or Tenant be liable to the other for consequential damages
under this Lease.
6.07 Right to Injunction. In the event of a breach or threatened breach by
Landlord or Tenant of any of its obligations under this Lease, the other party
shall also have the right of injunction. Except as set forth in Sections 6.06(a)
and (b) above, the specified remedies to which Landlord or Tenant may resort
hereunder are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Landlord or Tenant may lawfully be
entitled, and Landlord or Tenant may invoke any remedy allowed at law or in
equity as if specific remedies were not herein provided for.
6.08 Certain Waivers. Tenant waives and surrenders all right and privilege
that Tenant might have under or by reason of any present or future law to redeem
the Premises or to have a continuance of this Lease after Tenant is dispossessed
or ejected therefrom by process of law or under the terms of this Lease or after
any termination of this Lease. Tenant also waives the right to seek a delay in
<PAGE>
levy of execution in case of any eviction or dispossession for nonpayment of
rent. Landlord and Tenant each waive trial by jury in any action in connection
with this Lease.
6.09 No Waiver. Failure by either party to declare any default immediately
upon its occurrence or delay in taking any action in connection with such
default shall not waive such default but such party shall have the right to
declare any such default at any time thereafter. If either party designates by
notice to the other party that a payment made by the paying party is to be
applied by the receiving party to a particular item then owing by the paying
party to the receiving party, then the receiving party shall apply such payment
to such particular item. Any amounts paid by Landlord or Tenant to the other
party, without notice of a particular item to which such payment is to be
applied, may be applied by the receiving party, in its discretion, to any
amounts then owing by the paying party to the receiving party. Receipt by
Landlord of a partial payment shall not be deemed to be an accord and
satisfaction (notwithstanding any endorsement or statement on any check or any
letter accompanying any check or payment) nor shall such receipt constitute a
waiver by Landlord of Tenant's obligation to make full payment. No act or thing
done by Landlord or its agents shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept such surrender shall be valid unless in
writing and signed by Landlord and by each Superior Lessor (other than the
Superior Lessor under the Ground Lease so long as such Superior Lessor is
Landlord or an Affiliate of Landlord) and Superior Mortgagee with whom Tenant
has (or is deemed to have) in effect a binding non-disturbance and attornment
agreement.
6.10 Holding Over. (a) If Tenant holds over without the consent of Landlord
after expiration or termination of this Lease, Tenant shall pay as holdover
rental for each month of the holdover tenancy an amount equal to the product of
(i) the Holdover Percentage multiplied by (ii) the greater of (A) the fair
market rental value of the Premises for such month or (B) the Fixed Rent and
recurring Additional Changes which Tenant was obligated to pay for the month
immediately preceding the end of the Term. "Holdover Percentage" means, with
respect to any holdover by Tenant after the expiration or termination of this
Lease, (I) for the first 30 days of such holdover tenancy, 110%, (II) for the
second 30 days of such holdover tenancy, 120%, (III) for the third 30 days of
such holdover tenancy, 130%, (IV) for the fourth 30 days of such holdover
tenancy, 140% and (V) thereafter, 150%. Subject to Section 6.10(b), 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 6.10 shall not preclude Landlord from commencing and prosecuting a
holdover or summary eviction proceeding.
(b) If (i) Tenant holds over for more than 9 months after the expiration or
termination of this Lease, (ii) Landlord enters into a lease ("Landlord's New
Lease") with a tenant for all or any part of the Premises (a "New Tenant") and
such New Tenant terminates Landlord's New Lease by reason of the holding over by
Tenant and (iii) either (A) Tenant shall not have entered into a lease for new
premises ("Tenant's New Lease") on or before the date that is the later of (x)
the date that the New Tenant terminates Landlord's New Lease and (y) the date
that is 9 months after the expiration or termination of this Lease or (B) Tenant
shall have entered into Tenant's New Lease on or before the later of the dates
described in clauses (x) and (y) above, and Tenant shall have terminated, or
shall then have the right to terminate (provided that such right shall continue
to be available for at least 2 Business Days after the giving of Landlord's
notice of exercise of Landlord's option next described), Tenant's New Lease,
then, at Landlord's option exercisable upon 2 Business Days notice to Tenant,
this Lease shall be deemed to be automatically renewed upon all of the terms and
conditions set forth in this Lease, except that (I) the term of this Lease shall
be extended for an additional period equal in duration to the initial term of
Landlord's New Lease (the "Holdover Renewal Term"), (II) Fixed Rent with respect
to the Premises for the Holdover Renewal Term shall be equal (on a per rentable
square foot basis) to the Fixed Rent payable in accordance with Landlord's New
Lease for the initial term thereof (after giving effect to the value of any
concessions under Landlord's New Lease that are not received by Tenant), (III)
Tenant's Tax Payment and Tenant's Operating Payment shall be payable in
accordance with Article 2; provided, that the Base Tax Amount and the Base
Operating Year shall be as specified in Landlord's New Lease, (IV) Tenant shall
accept the Premises in its "as is" condition at the commencement of the Holdover
Renewal Term, and any provisions of this Lease with respect to Landlord's Work,
payment of a work allowance and any abatement of Fixed Rent and any Additional
Charges (relating only to Tenant's initial construction period with respect to
any space comprising the Premises, i.e., the period prior to the rent
commencement date for such space) shall not be applicable during the Holdover
Renewal Term and (V) Tenant shall have no option to renew this Lease beyond the
expiration of the Holdover Renewal Term. Promptly after the commencement of the
Holdover Renewal Term, the parties shall execute and deliver an instrument
confirming the extension of the term of this Lease for the Holdover Renewal Term
upon the terms and conditions of this Section 6.10(b), but the failure to so
execute and deliver such instrument shall not affect such extension of the term
<PAGE>
of this Lease. Landlord shall promptly notify Tenant of the terms of any
termination right contained in Landlord's New Lease which permits the New Tenant
to terminate Landlord's New Lease by reason of the failure of Landlord to
deliver the premises leased to the New Tenant within a certain time period or by
a certain date. Tenant shall promptly notify Landlord of the terms of any
termination right contained in Tenant's New Lease which permits Tenant to
terminate Tenant's New Lease by reason of the failure of the landlord thereunder
to deliver Tenant's new premises within a certain time period or by a certain
date.
6.11 Attorneys' Fees. If either party places the enforcement of this Lease
or any part thereof, or the collection of any Rent or other payment due or to
become due hereunder, or recovery of the possession of the Premises, in the
hands of an attorney, or files suit upon the same, the prevailing party shall be
reimbursed by the losing party, within 30 days after demand, for its reasonable
attorneys' fees and disbursements and court costs.
6.12 Nonliability and Indemnification. (a) Neither Landlord, any Superior
Lessor or any Superior Mortgagee, nor any partner, director, officer,
shareholder, principal, agent, servant or employee of Landlord, any Superior
Lessor or any Superior Mortgagee (whether disclosed or undisclosed), shall be
liable to Tenant for (i) any loss, injury or damage to Tenant or to any other
person, or to its or their property, irrespective of the cause of such injury,
damage or loss, nor shall the aforesaid parties be liable for any loss of or
damage to property of Tenant or of others entrusted to employees of Landlord;
provided, that, subject to Sections 7.03 and 7.05(f), the foregoing shall not be
deemed to relieve Landlord, any Superior Lessor or any Superior Mortgagee,
respectively, of any liability to the extent resulting from the negligence or
willful misconduct of such party or its agents, servants, employees or
contractors in the operation or maintenance of the Premises or the Building,
(ii) any loss, injury or damage described in clause (i) above caused by other
tenants or persons in, upon or about the Building, or caused by operations in
construction of any public or quasi-public work, except in the case of Landlord,
if and to the extent caused by the negligence or willful misconduct of Landlord
or Landlord's agents, servants, employees or contractors (but subject to
Sections 7.03 and 7.05(f)), or (iii) even if negligent, consequential damages
arising out of any loss of use of the Premises or any equipment, facilities or
other Tenant's Property therein. This Section 6.12(a) shall not be construed to
relieve Landlord of any of Landlord's obligations set forth elsewhere in this
Lease or to deprive Tenant of any remedies to which Tenant may be entitled in
the event of the breach by Landlord of any of Landlord's obligations under this
Lease.
(b) Subject to the provisions of Sections 7.03 and 7.05(f), Tenant shall
indemnify and hold harmless Landlord, all Superior Lessors and all Superior
Mortgagees and each of their respective partners, directors, officers,
shareholders, principals, agents and employees (each (including Landlord and
such superior parties), a "Landlord Indemnified Party"), from and against any
and all claims caused by (i) the conduct or management of the Premises or of any
business therein, or any work or thing done, or any condition created, in the
Premises; provided, that Tenant's indemnity pursuant to this clause (i) shall
not apply to the extent such claim results from the acts (other than any act in
connection with the exercise by Landlord of its self-help remedy set forth in
Section 4.08, in which case Tenant's indemnity pursuant to this clause (i) shall
not apply only to the extent that any such claim results from the negligence or
willful misconduct of Landlord) or (where a Landlord Indemnified Party has an
affirmative obligation to act pursuant to the terms of this Lease) omissions of
any Landlord Indemnified Party, (ii) any negligence or willful misconduct of
Tenant or any person claiming through or under Tenant or any of their respective
partners, directors, officers, agents, employees, contractors or invitees (so
long as such invitees are in the Premises) with respect to any accident, injury
or damage occurring in, at or upon the Project or (iii) the use by Tenant or any
other person of Tenant's Parking Spaces; provided, that Tenant's indemnity
pursuant to clauses (ii) and (iii) above shall not apply to the extent such
claim results from the negligence or willful misconduct of any Landlord
Indemnified Party, in each case together with all reasonable costs and expenses
incurred in connection with each such claim or action or proceeding brought
thereon, including, without limitation, all reasonable attorneys' fees and
disbursements. If any action or proceeding is brought against any Landlord
Indemnified Party by reason of any such claim, Tenant, upon notice from such
Landlord Indemnified Party, shall resist and defend such action or proceeding
(by counsel reasonably satisfactory to such Landlord Indemnified Party, and
counsel selected by Tenant's insurance company to resist and defend such action
or proceeding is hereby deemed to be satisfactory to such Landlord Indemnified
Party).
(c) Subject to the provisions of Sections 7.03 and 7.05(f), Landlord shall
indemnify and hold harmless Tenant and Tenant's partners, directors, officers,
shareholders, principals, agents and employees (each (including Tenant), a
"Tenant Indemnified Party"), from and against any and all claims arising from or
in connection with any negligence or willful misconduct of Landlord or any
Landlord Indemnified Party with respect to any accident, injury or damage
<PAGE>
occurring in, at or upon the Project; together with all reasonable costs,
expenses and liabilities incurred in connection with each such claim or action
or proceeding brought thereon, including, without limitation, all attorneys'
fees and disbursements; provided, that (except in the case of Tenant's exercise
of its self-help remedies under Section 10.01(a), in which case the foregoing
indemnity shall apply with respect to claims made by third parties arising from
or in connection with the acts or omissions of Tenant or any Affiliated agent of
Tenant, but not those of any contractor or non-Affiliated agent of Tenant) the
foregoing indemnity shall not apply to the extent such claim results from the
negligence or willful misconduct of any Tenant Indemnified Party. If any action
or proceeding is brought against any Tenant Indemnified Party by reason of any
such claim, Landlord, upon notice from such Tenant Indemnified Party, shall
resist and defend such action or proceeding (by counsel reasonably satisfactory
to such Tenant Indemnified Party, and counsel selected by Landlord's insurance
company to resist and defend such action or proceeding is hereby deemed to be
satisfactory to such Tenant Indemnified Party).
<PAGE>
ARTICLE 7
Insurance; Casualty; Condemnation
7.01 Compliance with Insurance Standards. (a) Neither Tenant nor any person
claiming through or under Tenant, nor any of their respective agents, employees,
contractors or invitees (so long as such invitees are in the Premises) shall
violate any reasonable condition imposed by any insurance policy then issued in
respect of the Project or do or keep anything in the Premises (after Landlord
shall have notified Tenant not to do so) which would subject Landlord, any
Superior Lessor or any Superior Mortgagee to any liability or responsibility for
personal injury or death or property damage, or which would increase any
insurance rate in respect of the Project over the rate which would otherwise
then be in effect or which would result in insurance companies of good standing
refusing to insure the Project in amounts reasonably satisfactory to Landlord,
or which would result in the cancellation of, or the assertion of any defense by
the insurer in whole or in part to claims under, any policy of insurance in
respect of the Project; but nothing in this Section 7.01(a) shall be construed
to prohibit Tenant's use of the Premises for the uses permitted under Section
1.05. Tenant shall not be responsible for any increased insurance rate in
respect of the Project over the rate that would otherwise then be in effect, and
this Section 7.01(a) shall not be construed to impose any liability on Tenant,
in each case solely by reason of Tenant's use of the Premises for the purposes
stated in Section 1.05; provided, that, in the case of Tenant's use of the
Premises as a Cafeteria, Tenant complies with all Laws and the reasonable
requirements of Landlord's insurer applicable to such use.
(b) If, as a direct result of any failure of Tenant to comply with this
Lease, the premiums on Landlord's insurance on the Project shall be higher than
they otherwise would be, Tenant shall reimburse Landlord, within 30 days after
demand, for that part of such premiums paid by reason of such failure on the
part of Tenant, provided that said demand shall be accompanied by a statement
from the insurer which shall expressly identify the specific act or activity of
Tenant causing the increase in the insurance rate. A schedule or "make up" of
rates for the Project or the Premises, as the case may be, issued by the New
York Fire Insurance Rating Organization or other similar body making rates for
insurance for the Project or the Premises, as the case may be, shall be
presumptive evidence of the facts therein stated and of the several items and
charges in the insurance rate then applicable to the Project or the Premises, as
the case may be.
(c) Notwithstanding anything to the contrary contained herein, Tenant shall
not be liable for any increases in fire insurance premiums, unless Tenant shall
have received not less than 120 days advance notice of the imposition of such
increases, during which period Tenant may notify Landlord that Tenant desires
Landlord to contest the imposition of such increases with Landlord's insurance
company. If Tenant timely gives such notice to Landlord, Landlord shall
vigorously contest the imposition of such increases with Landlord's insurance
company. Pending the final determination of any such contest, Tenant shall not
be required to pay any such disputed amount. If it is finally determined that
Tenant is required to pay such disputed amount, Tenant shall pay the same,
together with interest thereon at the Prime Rate (or the Interest Rate if Tenant
is determined by an arbitration in accordance with Section 8.09 to have
contested any such increase in insurance premiums in bad faith) from the date
such disputed amounts were paid by Landlord through the date of payment by
Tenant, within 30 days after demand therefor by Landlord.
(d) Landlord, at Landlord's expense, shall maintain at all times during the
Term, with a reputable insurance company licensed to do business in New York
State and rated by Best's Insurance Reports or any successor publication of
comparable standing as "A VIII" or better or the then equivalent of such rating,
the following insurance: (i) commercial general liability insurance against all
claims, demands or actions for injury to or death of person or property having a
limit of not less than $25,000,000 per occurrence and/or in the aggregate,
including products liability, contractual liability and independent contractors'
coverage, arising from or related to, the conduct of Landlord, the operation of
the Project and/or caused by the acts or omissions of Landlord, the managing
agent for the Building and their respective employees; (ii) if there is a boiler
or other similar refrigeration equipment or pressure object or other similar
equipment in the Building, steam boiler, air conditioning and machinery
insurance written on broad form basis with a limit of not less than the full
replacement value of such equipment; (iii) "all-risk" insurance, to the extent
of 100% of the replacement cost of the Building (including, without limitation,
the Landlord Obligation Areas, but excluding the Premises, other than any
Landlord Obligation Areas within the Premises, and all Tenant's Fixtures); and
(iv) worker's compensation, disability and such other similar insurance covering
all persons employed in connection with Landlord's Work and with respect to whom
death or bodily injury claims could be asserted against Landlord, Tenant, the
Premises or the Building.
<PAGE>
(e) Within 10 days after Landlord's receipt of notice from Tenant
requesting same, Landlord shall give Tenant reasonable evidence that the
insurance required to be carried by Landlord under Section 7.01(d) is in full
force and effect.
7.02 Tenant's Insurance. Tenant shall maintain at all times during the Term
(a) "all risk" property insurance covering the Premises (including, without
limitation, all present and future Tenant's Property and Tenant's Fixtures, but
excluding any Landlord Obligation Areas) to a limit of not less than the full
replacement cost thereof, (b) commercial general liability insurance, including
a contractual liability endorsement, and personal injury liability coverage, in
respect of the Premises and the conduct or operation of business therein, with
Landlord and its managing agent, if any, and each Superior Lessor and Superior
Mortgagee whose name and address shall have been furnished to Tenant, as
additional insureds, with limits of not less than $5,000,000 combined single
limit for bodily injury and property damage liability in any one occurrence (c)
steam boiler, air conditioning or machinery insurance, if there is a boiler or
pressure object or similar equipment in the Premises, with limits of not less
than the full replacement value of such equipment, (d) when Alterations are in
process, the insurance specified in Section 4.02(e) hereof and (e) the insurance
specified in Section 8.25(d). Such insurance may be carried under blanket and/or
umbrella policies covering the Premises and other properties owned or leased by
Tenant; provided, that each such policy shall in all respects comply with this
Section 7.02, shall specify that the portion of the total coverage of such
policy that is allocated to the Premises is in the amounts required pursuant to
this Section 7.02 and shall provide that the amount of coverage afforded
thereunder with respect to the Premises shall not be reduced by claims
thereunder against such other properties. The limits of the insurance required
under this Section 7.02 shall not limit the liability of Tenant. Tenant shall
deliver to Landlord and any additional insureds, on or before the Relevant Date
with respect to each Block (or any applicable portion thereof), certificates of
insurance evidencing the insurance required to be maintained by Tenant under
this Section 7.02 issued by the insurance company or its authorized agent.
Tenant shall procure renewals of such insurance from time to time before the
expiration thereof, and Tenant shall deliver to Landlord and any additional
insureds such renewal certificate before the expiration of any existing policy.
All such policies shall be issued by companies of recognized responsibility
licensed to do business in New York State and rated by Best's Insurance Reports
or any successor publication of comparable standing as "A VIII" or better or the
then equivalent of such rating, and all such policies shall contain a provision
whereby the same cannot be canceled unless Landlord and any additional insureds
are given at least 30 days' prior written notice of such cancellation. Landlord
and Tenant shall cooperate with each other in connection with the collection of
any insurance monies that may be due in the event of loss and Landlord and
Tenant shall execute and deliver to each other such proofs of loss and other
instruments which may be required to recover any such insurance monies. Landlord
may from time to time (but not more frequently than once every 3 years) require
that the amount of the insurance to be maintained by Tenant under this Section
7.02 be increased, so that the amount thereof is equal to the amount of
insurance which landlords of midtown Manhattan buildings comparable to the
Building are then requiring tenants to carry.
7.03 Subrogation Waiver. Landlord and Tenant shall each include in each of
its respective insurance policies insuring the Building, any portion thereof or
any property therein against loss, damage or destruction by fire or other
casualty, a waiver of the insurer's right of subrogation against the other party
during the Term or, if such waiver should be unobtainable or unenforceable, (a)
an express agreement that such policy shall not be invalidated if the assured
waives the right of recovery against any party responsible for a casualty
covered by the policy before the casualty or (b) any other form of permission
for the release of the other party. Each party hereby releases the other party
with respect to any claim (including a claim for negligence) which it might
otherwise have against the other party for loss, damage or destruction with
respect to its property occurring during the Term to the extent to which it is,
or is required to be, insured under a policy or policies containing a waiver of
subrogation or permission to release liability. Nothing contained in this
Section 7.03 shall be deemed to relieve either party of any duty imposed
elsewhere in this Lease to repair, restore or rebuild or to nullify any
abatement of rents provided for elsewhere in this Lease.
7.04 Condemnation. (a) If there shall be a total taking of the Building in
condemnation proceedings or by any right of eminent domain, this Lease and the
term and estate hereby granted shall terminate as of the date of taking of
possession by the condemning authority and all Rent shall be prorated and paid
as of such termination date. If there shall be a taking of the Land or the
Building (whether or not the Premises are affected by such taking) of such scope
such that the untaken part thereof would be in Landlord's reasonable judgment
uneconomic or undesirable to operate, then Landlord may terminate this Lease and
the term and estate granted hereby by giving notice to Tenant within 60 days
after the date of taking of possession by the condemning authority; provided,
<PAGE>
that if no part of the Premises is subject to such taking, Landlord shall be
entitled to terminate this Lease only if Landlord then terminates all other
leases for office space in the Building. If there shall be a taking of the
Premises of such scope that the untaken part of the Premises would in Tenant's
reasonable judgment be uneconomic or undesirable to operate, then Tenant may
terminate this Lease and the term and estate granted thereby by giving notice to
Landlord within 60 days after the date of taking of possession by the condemning
authority. If either Landlord or Tenant shall give a termination notice as
aforesaid, then this Lease and the term and estate granted hereby shall
terminate as of the date of such notice and all Rent shall be prorated and paid
as of such termination date. In the event of a taking of the Premises which does
not result in the termination of this Lease (i) the term and estate hereby
granted with respect to the taken part of the Premises shall terminate as of the
date of taking of possession by the condemning authority and all Rent applicable
to the taken part of the Premises shall be appropriately abated for the period
from such date to the Expiration Date and (ii) Landlord shall with reasonable
diligence restore the remaining portion of the Premises (exclusive of Tenant's
Property) as nearly as practicable to its condition prior to such taking. In the
case of any termination of this Lease under this Section 7.04, whether as to all
or a portion of the Premises, Tenant shall pay to Landlord the amount, if any,
due in accordance with Section 7.06 below.
(b) In the event of any taking of all or a part of the Building, Landlord
shall be entitled to make a claim for and receive the entire award in the
condemnation proceeding made for the value of the estate vested by this Lease in
Tenant or any value attributable to the unexpired portion of the Term and for
the costs to perform the repairs to the Building and the Premises which Landlord
is required to perform pursuant to Section 7.04(d), and Tenant shall be entitled
to make a claim for and receive from the condemning authority, any compensation
to which Tenant may otherwise lawfully be entitled in such case in respect of
Tenant's Property, the unamortized cost (as shown on Tenant's financial
statements) of all Alterations made by Tenant to the Premises at Tenant's
expense (without the use of any work allowance provided by Landlord), any
increased rent which Tenant is (or would be) required to pay for new space to
the extent such space is comparable to the Premises, moving expenses and the
unamortized cost of all Alterations for which Tenant was reimbursed by any work
allowance provided by Landlord to Tenant for each Block or any other space
included in the Premises which shall have been repaid to Landlord through the
payment of Fixed Rent by Tenant (for purposes solely of determining the portion
of any such work allowance which shall have been so repaid, work allowances for
each Block or any other space shall be deemed to be amortized on a straight-line
basis during the period commencing on the rent commencement date for such Block
or other space and ending on the last day of the initial Term (or, if such work
allowance is provided by Landlord during any renewal term, the last day of such
renewal term), so that each Fixed Rent payment made by Tenant during such period
shall include an equal amount of such work allowance); provided, that if such
taking shall include only a portion of any Block or a portion of any other space
included in the Premises and this Lease shall not be terminated by reason
thereof, any work allowance provided by Landlord with respect to such Block or
other space shall be appropriately prorated based upon the rentable area of the
taken portion of such Block or other space and amortized in accordance with the
foregoing provisions. Notwithstanding the foregoing, Tenant shall not be
permitted to make a claim in any such condemnation proceeding which shall reduce
the award to Landlord for the costs to perform the repairs to the Building and
the Premises which Landlord is required to perform pursuant to Section 7.04(d).
(c) If all or any part of the Premises shall be taken for a limited period,
Tenant shall be entitled, except as hereinafter set forth, to that portion of
the award for such taking which represents compensation for the use and
occupancy of the Premises, for the taking of Tenant's Property and for moving
expenses, and Landlord shall be entitled to that portion which represents
reimbursement for the cost of restoration of the Premises (including Tenant's
Alterations). Notwithstanding anything to the contrary contained in this Section
7.04(c), if any such temporary taking shall continue for a period in excess of 6
months, the same shall be deemed a permanent taking, and the provisions of
Sections 7.04(a) and (b) shall apply thereto. This Lease shall remain unaffected
by such taking (unless such taking exceeds 6 months and one of the parties
terminates this Lease under the preceding sentence) and Tenant shall continue
responsible for all of its obligations under this Lease to the extent such
obligations are not affected by such taking and shall continue to pay in full
all Rent when due. If the period of temporary use or occupancy shall extend
beyond the Expiration Date, that part of the award which represents compensation
for the use and occupancy of the Premises shall be apportioned between Landlord
and Tenant as of the Expiration Date. Any award for temporary use and occupancy
for a period beyond the date to which the Rent has been paid shall be paid to,
held and applied by Tenant as a trust fund for payment of the Rent thereafter
becoming due.
<PAGE>
(d) In the event of any taking which does not result in termination of this
Lease, Landlord, whether or not any award shall be sufficient therefor, shall
proceed with reasonable diligence to repair the remaining parts of the Building
and the Premises (including all Fixtures, but excluding Tenant's Property) to
substantially their former condition to the extent that the same may be feasible
(subject to reasonable changes which Landlord deems desirable) and so as to
constitute a complete and rentable Building and Premises.
7.05 Casualty. (a) If the Building or the Premises shall be partially or
totally damaged or destroyed by fire or other casualty (each, a "Casualty") and
if this Lease is not terminated as provided below, then (i) Landlord shall
repair and restore the Building (including, without limitation, the Landlord
Obligation Areas, but excluding the Premises, other than any Landlord Obligation
Areas within the Premises, and all Fixtures and Tenant's Property) with due
diligence (provided, that Landlord shall not be required to perform the same on
an overtime or premium pay basis except to the extent the insurance carrier
agrees to pay for such overtime without reducing the total insurance proceeds
available to be paid to Landlord) after Landlord has actual knowledge of such
Casualty and (ii) Tenant shall repair and restore, in accordance with Section
4.02, the Premises (including, without limitation, all Fixtures and Tenant's
Property, but excluding all Landlord Obligation Areas) with reasonable dispatch
after the Casualty.
(b) If, by reason of a Casualty, all or part of the Premises shall be
rendered Untenantable, whether by reason of damage to the Premises or by reason
of damage to other portions of the Building which results in a lack of
reasonable access to, or a material interference with the ability to use, the
Premises, the Fixed Rent and Additional Charges under Sections 2.04 and 2.05
shall be abated in the proportion that the Untenantable area of the Premises
bears to the total area of the Premises, for the period from the date of the
Casualty to the earlier of (i) the date (the "Substantial Completion Date") that
Landlord substantially completes the repair and restoration to the portions of
the Building (including, without limitation, the Landlord Obligation Areas, but
excluding the Premises, other than any Landlord Obligation Areas within the
Premises, and all Fixtures and Tenant's Property) necessary in order to render
the Premises tenantable (the "Required Restoration Work") (provided, that if
such repair and restoration would have been substantially completed at an
earlier date but for Tenant having failed to cooperate with Landlord in
effecting repairs or restoration or collecting insurance proceeds or any Tenant
Delay, then such repair and restoration shall be deemed to have been
substantially completed on such earlier date and the abatement shall cease on
such earlier date) or (ii) the date Tenant or any subtenant reoccupies a portion
of the Premises for the conduct of Tenant's normal business operations therein
(in which case the Fixed Rent and the Additional Charges allocable to such
reoccupied portion shall be payable by Tenant from the date of such occupancy).
Landlord's determination of the Substantial Completion Date shall be controlling
unless Tenant disputes same by notice to Landlord within 10 days after Landlord
shall have given notice of such determination to Tenant, and pending resolution
of such dispute, Tenant shall pay Rent in accordance with Landlord's
determination. If it is resolved that the Substantial Completion Date was not
the date so fixed by Landlord, any payments of Rent paid by Tenant to Landlord
during the period commencing on such date fixed by Landlord and ending on the
day before the proper Substantial Completion Date, together with interest
thereon at the Prime Rate from the date of the applicable payments by Tenant to
the date of payment by Landlord, shall be paid by Landlord to Tenant within 30
days after the resolution of such dispute. Nothing contained in this Section
7.05 shall relieve Tenant from any liability that may exist as a result of any
Casualty. For purposes of this Section 7.05(b), in the case of any Casualty
which renders all or part of the Premises Untenantable, the Required Restoration
Work shall be deemed to be substantially completed on the date upon which such
work is completed other than minor details or adjustments to such work, but only
if such details or adjustments shall not interfere in any material respect with
Tenant's ability to repair and restore the portion of the Premises (including,
without limitation, Tenant's Fixtures and Tenant's Property) rendered
Untenantable by such Casualty or thereafter use and occupy such portion of the
Premises for the ordinary conduct of Tenant's intended use of such portion of
the Premises (as such use is shown on, or reasonably inferable from Tenant's
then current plans and specifications with respect to Tenant's repair and
restoration work); provided, that such intended use is permitted pursuant to
Section 1.05. "Untenantable" means that Tenant (or any applicable subtenant of
Tenant) shall be unable to occupy, and shall not be occupying, the Premises or
the applicable portion thereof for the purposes for which Tenant (or such
subtenant) was using the Premises or such portion thereof immediately prior to
the Casualty or other event in question (including for the purpose of
construction if Tenant (or such subtenant) was then performing Alterations in
the Premises or such portion thereof).
<PAGE>
(c) If by reason of a Casualty (i) the Building shall be totally damaged or
destroyed, (ii) the Building shall be so damaged or destroyed (whether or not
the Premises are damaged or destroyed) that repair or restoration shall require
more than 270 days or the expenditure of more than 33% percent of the full
insurable value of the Building (which, for purposes of this Section 7.05(c),
shall mean replacement cost less the cost of footings, foundations and other
structures below the street and first floors of the Building) immediately prior
to the Casualty, then in any such case Landlord may terminate this Lease by
notice given to Tenant within 180 days after the Casualty; provided, that
Landlord may only terminate this Lease if Landlord then also terminates the
leases of all of the other office tenants in the Building. In the event of any
termination of this Lease under this Section 7.05(c), Tenant shall pay to
Landlord the amount, if any, due in accordance with Section 7.06 below.
(d) (i) Within 45 days after Landlord has actual knowledge of any Casualty,
Landlord shall deliver to Tenant an estimate prepared by a reputable contractor
selected by Landlord and reasonably acceptable to Tenant setting forth such
contractor's estimate as to the time reasonably required to repair the damage in
order to make the Office Space no longer Untenantable (other than any Long Lead
Work which the Contractor estimates will take more than 315 days from the date
of such Casualty to repair); provided, that if Landlord shall fail to deliver
such estimate within said 45-day period, Tenant may designate a contractor
(subject to Landlord's reasonable approval thereof; provided, that if Landlord
fails to approve or disapprove any contractor designated by Tenant within 5 days
after the giving of notice by Tenant, such contractor shall be deemed to be
approved by Landlord) to prepare the same (the contractor designated by either
Landlord or Tenant pursuant to this sentence is called the "Contractor" and the
estimate prepared by the Contractor is called the "Estimate"). (ii) If at least
the lesser of (A) one full floor of the Building included in the Office Space or
(B) 25,000 contiguous rentable square feet of space in the Office Space shall be
rendered Untenantable by reason of a Casualty and the period set forth in the
applicable Estimate exceeds 315 days from the date of such Casualty, Tenant may
elect to terminate this Lease with respect to the Casualty Terminated Space by
notice (a "Termination Notice") to Landlord given not later than 30 days
following Tenant's receipt of such Estimate. (iii) If at least the lesser of (A)
one full floor of the Building included in the Office Space or (B) 25,000
contiguous rentable square feet of space in the Office Space shall be rendered
Untenantable by reason of a Casualty, the time period set forth in the
applicable Estimate does not exceed 315 days from the date of such Casualty, and
for any reason whatsoever Landlord shall not substantially complete the Required
Restoration Work on or before the date (the "First Outside Date") which is 410
days after the date of such Casualty (provided, that the First Outside Date
shall be extended to the extent that Landlord is delayed in substantially
completing the Required Restoration Work by reason of Tenant Delay and/or Force
Majeure; provided, further, that any such extension of the First Outside Date by
reason of Force Majeure shall not exceed 60 days), then Tenant shall have the
right to terminate this Lease with respect to the Casualty Terminated Space by
giving a Termination Notice to Landlord on or before the earlier to occur of (x)
the date that Landlord substantially completes the Required Restoration Work or
(y) the date that is 30 days after the First Outside Date. (iv) If at least the
lesser of (A) one full floor of the Building included in the Office Space or (B)
25,000 contiguous rentable square feet of space in the Office Space shall be
rendered Untenantable by reason of a Casualty, the time period set forth in the
applicable Estimate does exceed 315 days from the date of such Casualty and
Tenant has not elected to terminate this Lease under Section 7.05(d)(ii), and
for any reason whatsoever Landlord shall not substantially complete the Required
Restoration Work on or before the date (the "Second Outside Date") that is 6
months after the date set forth in the applicable Estimate as the date by which
the repair and restoration (other than any Long Lead Work which the Contractor
estimated would take more than 315 days from the date of such Casualty to
repair) should reasonably be completed (provided, that the Second Outside Date
shall be extended if and to the extent that Landlord is delayed in substantially
completing the Required Restoration Work by reason of Tenant Delay, but shall
not be extended for any other reason, including, without limitation, if Landlord
is so delayed by reason of Force Majeure), then Tenant shall have the right to
terminate this Lease with respect to the Casualty Terminated Space by giving a
Termination Notice to Landlord on or before the earlier to occur of (x) the date
that Landlord substantially completes the Required Restoration Work or (y) the
date that is 30 days after the Second Outside Date. (v) If Tenant timely gives a
Termination Notice pursuant to this Section 7.05(d), this Lease shall terminate
<PAGE>
with respect to the Casualty Terminated Space on the 20th day after such notice
is given by Tenant and Tenant shall vacate the Casualty Terminated Space and
surrender the same to Landlord in accordance with the terms of this Lease. Upon
any such termination, Tenant's liability for Fixed Rent and Additional Charges
hereunder with respect to the Casualty Terminated Space shall cease as of the
date of such termination, and any prepaid portion of Rent with respect to the
Casualty Terminated Space for any period after such date shall be refunded by
Landlord to Tenant within 30 days after such termination date. Upon a
termination of this Lease with respect to less than the entire Office Space,
there shall be a pro rata reduction of Tenant's Rent obligations to reflect such
partial termination and Landlord and Tenant shall promptly enter into an
instrument evidencing such partial termination and the reduced rentable area of
the Office Space (such rentable area to be determined in a manner consistent
with the methods used in calculating the rentable area of the Premises initially
demised under this Lease); provided, that the failure to enter into such
instrument shall not affect the effectiveness of such partial termination. In
the event of any termination of this Lease under this Section 7.05(d), whether
as to all or a portion of the Premises, Tenant shall pay to Landlord the amount,
if any, due in accordance with Section 7.06 below. (vi) Anything to the contrary
contained in this Section 7.05(d) notwithstanding, if any Casualty occurs during
the last 3 years of the Term, all references in this Section 7.05(d) to "315
days" and "410 days" shall be deemed to be replaced with the following number of
days (provided, that such number of days shall not be extended even if Landlord
is delayed in substantially completing the Required Restoration Work by reason
of Force Majeure, but such number of days shall be extended if and to the extent
Landlord is delayed in substantially completing the Required Restoration Work by
reason of Tenant Delay): (A) if such Casualty occurs during the 12-month period
commencing on the date that is 3 years prior to the last day of the Term, "240
days" and "365 days", respectively; (B) if such Casualty occurs during the
12-month period commencing on the date that is 2 years prior to the last day of
the Term, "180 days" and "270 days", respectively; and (C) if such Casualty
occurs during the last 12-months of the Term, "120 days" and "180 days",
respectively. (vii) Subject to Section 7.07, "Casualty Terminated Space" means,
at Tenant's election as specified in the applicable Termination Notice, either
(A) the entire Premises or (B) a portion of the Premises consisting of entire
<PAGE>
floors of the Building (or so much of any floor as shall then be part of the
Premises); provided, that in the case of any such partial termination, (x) all
floors included within the Casualty Terminated Space shall be contiguous and (y)
the Casualty Terminated Space shall consist of either (I) all or any of the
floors which shall have been rendered Untenantable by such Casualty or (II)
either the highest or lowest floor then included in the Office Space and any
other floor(s) contiguous to such highest or lowest floor so long as the total
rentable area of the Casualty Terminated Space does not exceed the rentable area
of the portion of the Premises which was rendered Untenantable by such Casualty.
(viii) Time is of the essence with respect to all of the time periods set forth
in this Section 7.05(d).
(e) If Landlord terminates this Lease in accordance with Section 7.05(c),
Landlord shall inform Tenant in Landlord's termination notice whether or not
Landlord intends to rebuild the Building for use as a first class office
building. If Landlord so notifies Tenant that Landlord intends to rebuild the
Building, then Tenant shall have the right, by notice given to Landlord within
30 days after the giving by Landlord of such notice, to reject Landlord's
termination of this Lease. If Tenant timely gives such rejection notice, then
(i) Landlord's termination notice shall be null and void and of no further force
and effect, (ii) anything to the contrary contained in this Section 7.05
notwithstanding, Tenant shall have no further right to terminate this Lease on
account of such Casualty and (iii) the Term shall be extended by a period which
is equal to the period commencing on the date of such Casualty and ending on the
date that Landlord notifies Tenant that the Premises are tenantable.
(f) Landlord shall not be obligated to repair or replace the Premises
(other than any Landlord Obligation Areas within the Premises) or any Tenant's
Fixtures or Tenant's Property, notwithstanding that Landlord may carry its own
insurance covering the same. Tenant shall look solely to its insurance for
recovery of any damage to or loss of the Premises (other than any Landlord
Obligation Areas within the Premises) or any Tenant's Fixtures or Tenant's
Property. Tenant shall notify Landlord promptly of any Casualty in the Premises,
unless Landlord has actual knowledge thereof. Tenant shall not be obligated to
repair or replace the Building or any portion thereof (other than the Premises
(but excluding any Landlord Obligation Areas within the Premises) and Tenant's
Fixtures), notwithstanding that Tenant may carry its own insurance covering the
same. Landlord shall look solely to its insurance for recovery of any damage to
or loss of the Building or any portion thereof (other than the Premises (but
excluding any Landlord Obligation areas within the Premises) and Tenant's
Fixtures). Anything to the contrary contained in this Lease notwithstanding,
neither Landlord nor Tenant shall be responsible for any property damage
suffered by the other party if and to the extent that such damage is covered by
any insurance carried by such other party (or would have been so covered had
such party carried the insurance required to be carried by such party under this
Lease), except that, to the extent so provided in Section 4.05(a), Tenant shall
be responsible for certain damage to the solar film attached to the exterior
windows of the Premises.
<PAGE>
(g) This Section 7.05 shall be deemed an express agreement governing any
damage or destruction of the Premises by fire or other casualty, and Section 227
of the New York Real Property Law providing for such a contingency in the
absence of an express agreement, and any other law of like import now or
hereafter in force, shall have no application.
(h) "Long Lead Work" means any item of repair to Tenant's Alterations which
is not a stock item and must be specifically manufactured, fabricated or
installed or is of such an unusual, delicate or fragile nature that there is a
substantial risk that (i) there will be a delay in its manufacture, fabrication,
delivery or installation, or (ii) after delivery, such item will need to be
reshipped or redelivered, so that the item of work in question would delay the
completion of the standard items of such work even though the items of Long Lead
Work in question are (A) ordered together with the other items required for such
work and (B) then installed or performed (after the manufacture or fabrication
thereof) in order and sequence that such Long Lead Work and other items of work
are normally installed or performed in accordance with good construction
practice.
(i) If in case of a Casualty, Landlord shall be delayed in completing the
repair and restoration that Landlord is obligated to perform under this Section
7.05 by reason of Force Majeure, Landlord shall promptly notify Tenant of the
occurrence of such Force Majeure and, to the extent possible, Landlord's good
faith estimate of the duration of such Force Majeure delays and, if requested by
Tenant from time to time, Landlord shall update Tenant as to the status of such
Force Majeure delays.
(j) In case of any Casualty which renders all or part of the Premises
Untenantable, prior to the substantial completion of the repair and restoration
that Landlord is obligated to perform under this Section 7.05, Landlord shall
provide Tenant and Tenant's contractors access to the Premises to repair and
restore the Premises on the following terms and conditions. Tenant shall not
commence work in any portion of the Premises until the date specified in a
notice from Landlord to Tenant (which notice shall be given by Landlord to
Tenant as soon as the giving of such notice shall be feasible) stating that the
repairs required to be made by Landlord have been or will be completed to the
extent reasonably necessary, in the reasonable opinion of Landlord, to permit
the repair and restoration of the portion of the Premises in question then
prudent to be performed in accordance with good construction practice without
interference with, and consistent with the performance of, the repairs and
restoration, remaining to be performed by Landlord.
7.06 Certain Termination Payments. In the event of any termination of this
Lease as to all or any portion of the Premises pursuant to Sections 4.04(c),
7.04, 7.05 or 10.03 (but excluding a termination under Section 10.03 by reason
of an Eviction that results from the willful acts or (where Landlord has an
affirmative obligation to act pursuant to the terms of this Lease) omissions of
Landlord), then (a) if such termination is with respect to all of the Premises,
Tenant shall pay to Landlord an amount equal to the excess of (i) all work
allowances (including, without limitation, the Allowances) theretofore paid by
Landlord to Tenant over (ii) the costs and expenses incurred by Tenant in
connection with Tenant's moving into and preparation for Tenant's occupancy of
the Premises (including, without limitation, all soft costs incurred in
connection therewith, but excluding all actual costs incurred to purchase and
install Tenant's Property), and (b) if such termination is with respect to less
than the entire Premises, Tenant shall pay to Landlord an amount equal to the
excess of (i) the Deemed Termination Allowance for such terminated space over
(ii) the costs and expenses incurred by Tenant in connection with Tenant's
moving into and preparation for Tenant's occupancy of such terminated space
(including, without limitation, all soft costs incurred in connection therewith,
but excluding all actual costs incurred to purchase and install Tenant's
Property). "Deemed Termination Allowance" means, with respect to any terminated
space, an amount equal to the sum of (A) the product of (x) $45 multiplied by
(y) the number of rentable square feet included in such terminated space that is
part of the Blocks and (B) any work allowance paid by Landlord to Tenant with
respect to any portion of such terminated space that is not part of the Blocks
(such work allowance to be appropriately prorated based upon the rentable area
of such terminated space if such work allowance was paid by Landlord with
respect to a larger space which included such terminated space). Any payment
required to be made under this Section 7.06 shall be paid by Tenant to Landlord
(1) in the case of Tenant exercising a right of termination, together with the
giving of Tenant's notice of termination (and any such notice shall be null and
void unless (I) accompanied by such payment or (II) such notice states that no
payment is required to be paid by Tenant under this Section 7.06) and (2) in the
case of any termination other than as described in clause (1) above, on or
before the date that such termination becomes effective; provided, that if
Tenant claims that no payment is required to be paid by Tenant under this
Section 7.06, Tenant shall so notify Landlord in Tenant's termination notice.
Any such payment (or notice that no such payment is required to be paid) shall
be accompanied by invoices or other evidence reasonably satisfactory to Landlord
establishing the amount of such payment or that no payment is due.
<PAGE>
Notwithstanding the foregoing, if Tenant timely notifies Landlord that no
payment is required to be paid by Tenant under this Section 7.06 and, as of the
date of such notice, Tenant has occupied substantially all of the Block or
Blocks in which the terminated space is located (or if such terminated space
consists of or includes Offer Space, Tenant has occupied substantially all of
the applicable Offer Space), and Tenant informs Landlord thereof in such notice,
then Tenant shall not be required to deliver such invoices or other evidence to
Landlord together with such notice; provided, that upon request by Landlord,
Tenant shall promptly deliver such invoices or other evidence to Landlord. If
Landlord disputes the amount of any payment by Tenant under this Section 7.06
and it is subsequently determined that the amount so paid by Tenant was less
than the amount due to Landlord hereunder, then the termination of this Lease as
to the applicable space shall nevertheless be effective and Tenant shall pay to
Landlord the amount of such underpayment together with interest at the Interest
Rate from the date such amount was first due from Tenant until paid.
7.07 Termination Rights As To Sublet Space. Anything to the contrary
contained in Section 7.05(d) or 10.03 notwithstanding, if (a) a Casualty occurs
and Tenant would have the right to terminate this Lease as to the Casualty
Terminated Space in accordance with Section 7.05(d) or if an Eviction occurs and
Tenant would have the right to terminate this Lease as to the Terminated Space
in accordance with Section 10.03 (in either case, without regard to this Section
7.07), (b) the space rendered Untenantable by such Casualty or Eviction, as the
case may be, includes space that was occupied by a non-Affiliated subtenant of
Tenant at the time of such Casualty or Eviction, as the case may be, and (c) (i)
in the case of any such Casualty, the space rendered Untenantable by such
Casualty does not include at least the lesser of (x) one full floor of the
Building included in the Office Space, which floor was occupied by Tenant and/or
any Affiliated subtenants of Tenant at the time of such Casualty or (y) 25,000
contiguous rentable square feet of space in the Office Space, which space was
occupied by Tenant and/or any Affiliated subtenants of Tenant at the time of
such Casualty or (ii) in the case of any such Eviction, the space rendered
Untenantable by such Eviction does not include 50,000 or more rentable square
feet of the Office Space, which space was occupied by Tenant and/or any
Affiliated subtenants of Tenant at the time of such Eviction, then, provided
that (1) in the case of any such Casualty, the space rendered Untenantable by
such Casualty includes at least the lesser of (A) one full floor of the Building
included in the Office Space, which space was occupied by such non-Affiliated
subtenant of Tenant at the time of such Casualty or (B) 25,000 contiguous
rentable square feet of space in the Office Space, which space was occupied by
such non-Affiliated subtenant of Tenant at the time of such Casualty or (2) in
the case of any such Eviction, the space rendered Untenantable by such Eviction
includes 50,000 or more rentable square feet of the Office Space, which space
was occupied by such non-Affiliated subtenant of Tenant at the time of such
Eviction, Tenant shall only have the right to terminate this Lease in accordance
with Section 7.05(d) or 10.03, as applicable, with respect to the space that was
occupied by such non-Affiliated subtenant of Tenant at the time of such Casualty
or Eviction, as the case may be, and, for purposes of any such termination,
"Casualty Terminated Space" or "Terminated Space", as applicable, shall mean
only such space.
<PAGE>
ARTICLE 8
Miscellaneous Provisions
8.01 Notice. All notices, demands, consents, approvals, advices, waivers or
other communications (each, a "Notice") which may or are required to be given by
either party to the other under this Lease shall be in writing and, unless
otherwise required by any Laws, shall be sent (a) by hand, (b) by United States
Mail, certified or registered, postage prepaid, return receipt requested or (c)
by a nationally recognized overnight carrier, in each case addressed to the
party to be notified at the address for such party specified in the first
paragraph of this Lease (in the case of any Notice to Tenant, to the attention
of the Vice President, Facilities), or to such other place in the continental
United States as the party to be notified may from time to time designate by at
least 20 days' notice to the notifying party (with a copy, in the case of each
Notice to Landlord, to Landlord's Managing Attorney, c/o Olympia & York
Companies (U.S.A.), 237 Park Avenue, New York, New York 10017 and, in the case
of each Notice to Tenant, to the attention of the General Counsel, at the
address for Tenant specified in the first paragraph of this Lease). 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 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.
8.02 Building Rules. Tenant shall comply with, and Tenant shall cause its
licensees, employees, contractors, agents and (while on the Premises) invitees
to comply with, the rules of the Building set forth in Exhibit C, as the same
may be reasonably modified or supplemented by Landlord from time to time for the
safety, care and cleanliness of the Premises and the Building and for
preservation of good order therein; provided, that in no event shall any such
modified or supplemented rule increase Tenant's obligations or reduce Tenant's
rights under this Lease (in either case, other than to a de minimis extent).
Landlord shall not be obligated to enforce the rules of the Building against
Tenant or any other tenant of the Building or any other party (unless Tenant is
adversely affected with respect to Tenant's use or occupancy of the Premises in
any material respect and Tenant notifies Landlord thereof, specifying in
reasonable detail the manner in which Tenant's use or occupancy is being so
adversely affected). Unless Landlord shall willfully or negligently fail to so
enforce said rules (and Tenant's use or occupancy of the Premises is adversely
affected in any material respect by reason of such failure by Landlord and
Tenant notifies Landlord thereof, specifying in reasonable detail the manner in
which Tenant's use or occupancy is being so adversely affected), Landlord shall
have no liability to Tenant by reason of the violation by any tenant or other
party of the rules of the Building. In no event shall Landlord enforce the rules
of the Building in a manner which discriminates against Tenant. If any rule of
the Building shall conflict with any provision of this Lease, such provision of
this Lease shall govern.
8.03 Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected, and each provision of this
Lease shall be valid and shall be enforceable to the extent permitted by law.
8.04 Certain Definitions. (a) "Landlord" means only the owner, at the time
in question, of the Building or that portion of the Building of which the
Premises are a part, or of a lease of the Building or that portion of the
Building of which the Premises are a part, so that in the event of any transfer
or transfers of title to the Building or of Landlord's interest in a lease of
the Building or such portion of the Building, the transferor shall be and hereby
is relieved and freed of all obligations of Landlord under this Lease accruing
from and after the date of such transfer, and it shall be deemed, without
further agreement, that such transferee has assumed all obligations of Landlord
during the period it is the holder of Landlord's interest under this Lease;
provided, that any such transferee shall not be deemed to have assumed any
liabilities of Landlord accruing prior to the date of such transfer, except for
(i) any such liabilities set forth in sufficient detail to identify the claim by
Tenant in an estoppel certificate or other notice given by Tenant to Landlord
within 30 days after Landlord notifies Tenant of such transfer, (ii) any amounts
to which Tenant is entitled under Section 2.05 in respect of Operating Payments
made by Tenant for periods prior to such transfer (and which amounts have not
been previously paid to Tenant), but only if Tenant, on or before the Operating
Expense Cutoff Date, delivers to such transferee a Tenant's Statement setting
forth in reasonable detail any such amounts which Tenant claims to be due and
(iii) any liabilities for unpaid tax refunds owed to Tenant pursuant to Section
2.04(f) in respect of periods prior to such transfer. "Operating Expense Cutoff
Date" means, in the case of any transfer or transfers of title to the Building
or of Landlord's interest in a lease of the Building or the applicable portion
of the Building, the date that is the later of (A) 365 days after the last day
of the Operating Year immediately preceding the Operating Year in which such
transfer takes place (the "Preceding Operating Year") and (B) 180 days after the
date that Landlord delivers to Tenant (x) a Landlord's Statement with respect to
<PAGE>
the Preceding Operating Year, and (y) a notice stating that Tenant's failure to
deliver a Tenant's Statement under Section 8.04(a)(ii) shall result in Tenant
being estopped from further claiming any refund for the period to which such
Landlord's Statement relates and for any prior periods. In case of any such
transfer, Landlord shall reasonably cooperate with Tenant in making the Records
with respect to Operating Years prior to such transfer which Tenant has the
right to examine in accordance with Section 2.05(l)(i) available to Tenant in
accordance with Section 2.05(l)(i).
(b) "Landlord shall have no liability to Tenant" or words of similar import
mean that Tenant is not entitled to terminate this Lease, or to claim actual or
constructive eviction, partial, or total, or to receive any abatement or
diminution of Rent, or to be relieved in any manner of any of its other
obligations under this Lease, or to be compensated for loss or injury suffered
or to enforce any other right or kind of liability whatsoever against Landlord
under or with respect to this Lease or with respect to Tenant's use or occupancy
of the Premises.
(c) Wherever in this Lease it is provided that a party shall not
unreasonably withhold a consent or approval, such party shall also not
unreasonably delay such consent or approval.
8.05 Quiet Enjoyment. During the Term, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises, subject to the other terms of this
Lease and to Superior Leases and Superior Mortgages.
8.06 Limitation of Landlord's Personal Liability. Tenant shall look solely
to Landlord's interest in the Project for the recovery of any judgment against
Landlord, and no other property or assets of Landlord or Landlord's partners,
officers, directors, shareholders or principals, direct or indirect, 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. For purposes of the preceding sentence, "Landlord's interest in the
Project" shall be deemed to include (a) all rent or other consideration received
by Landlord (and/or by the lessor under the Ground Lease; provided, that such
lessor is Landlord or an Affiliate of Landlord) in respect of the Building, (b)
proceeds of a sale (net of transaction costs), financing or refinancing (but
only to the extent the proceeds of a financing or refinancing exceed (i) the
amount of any indebtedness that was paid with the proceeds of such financing or
refinancing plus (ii) all transaction costs associated with such financing or
refinancing) of the Building or the Project (or any portion thereof), or of
Landlord's (or such lessor's) estate or interest therein, or in any property,
equipment or improvements in the Project (or any portion thereof), and (c) any
insurance proceeds or condemnation awards relating to any portion of the Project
(to the extent in excess of any restoration costs and net of all costs of
obtaining such proceeds or awards); provided, in each case that Tenant (A) shall
have delivered a notice to Landlord asserting a claim for a breach of Landlord's
obligations under this Lease prior to the receipt by Landlord (or such lessor)
of such rent or other consideration, proceeds or awards, (B) shall have
commenced an appropriate proceeding against Landlord asserting such breach
within 6 months after the date such notice was delivered to Landlord and (C)
shall be diligently prosecuting such claim to completion, and Tenant shall have
the right to look to such rent, consideration, proceeds or awards only as to the
subject matter of such action.
8.07 Counterclaims. If Landlord commences any summary proceeding or action
for nonpayment of Rent or to recover possession of the Premises, Tenant shall
not interpose any counterclaim of any nature or description in any such
proceeding or action, unless Tenant's failure to interpose such counterclaim in
such proceeding or action would result in the waiver of Tenant's right to bring
such claim in a separate proceeding under applicable law.
8.08 Survival. All obligations and liabilities of Landlord or Tenant to the
other which accrued before the expiration or other termination of this Lease and
all such obligations and liabilities which by their nature or under the
circumstances can only be, or by the provisions of this Lease may be, performed
after such expiration or other termination, shall survive the expiration or
other termination of this Lease. Without limiting the generality of the
foregoing, the rights and obligations of the parties with respect to any
indemnity under this Lease, and with respect to Tax Payments, Operating Payments
and any other amounts payable under this Lease, shall survive the expiration or
other termination of this Lease.
8.09 Arbitration. (a) Except as otherwise expressly set forth elsewhere in
this Lease, each party shall have the right to submit all disputes regarding the
interpretation of the provisions of this Lease and all determinations made by
any party under this Lease to arbitration, which shall be conducted in Manhattan
in accordance with the Commercial Arbitration Rules (Expedited Procedures) of
the AAA, except that the provisions of this Section 8.09 shall supersede any
conflicting or inconsistent provisions of said rules. The party requesting
arbitration shall do so by giving notice to that effect to the other party,
<PAGE>
specifying in said notice the nature of the dispute, and that said dispute shall
be determined in the City of New York, by a panel of 3 arbitrators in accordance
with this Section 8.09. Landlord and Tenant shall each appoint their own
arbitrator within 5 days after the giving of notice by either party. If either
Landlord or Tenant shall fail timely to appoint an arbitrator, the appointed
arbitrator shall select the second arbitrator, who shall be impartial, within 5
days after such party's failure to appoint. The arbitrators so appointed shall
meet and shall, if possible, determine such matter within 10 days after the
second arbitrator is appointed and their determination shall be binding on the
parties. If for any reason such two arbitrators fail to agree on such matter
within such period of 10 days, then either Landlord or Tenant may request
ENDISPUTE/JAMS (or any organization which is the successor thereto or any other
arbitration or mediation organization, including, without limitation, the AAA,
which will provide an impartial arbitrator that is an active or retired state or
federal judge) to appoint an arbitrator who shall be impartial within 7 days of
such request and both parties shall be bound by any appointment so made within
such 7-day period. The third arbitrator (and the second arbitrator if selected
by the other arbitrator as provided above) only shall subscribe and swear to an
oath fairly and impartially to determine such dispute. Within 7 days after the
third arbitrator has been appointed, each of the first two arbitrators shall
submit their respective determinations to the third arbitrator who must select
one or the other of such determinations (whichever the third arbitrator believes
to be correct or closest to a correct determination) within 7 days after the
first two arbitrators shall have submitted their respective determinations to
the third arbitrator, and the selection so made shall in all cases be binding
upon the parties, and judgment upon such decision may be entered into any court
having jurisdiction. In the event of the failure, refusal or inability of an
arbitrator to act, a successor shall be appointed within 10 days as hereinbefore
provided. Except as provided in the next sentence, in the case of all disputes
to be determined by arbitration in accordance with this Section 8.09, the third
arbitrator shall be an active or retired federal or New York State judge.
Notwithstanding the foregoing, (i) in the case of an arbitration involving the
determination of Fair Market Rent or the fair market rental value of any Offer
Space or (ii) if no arbitration or mediation organization shall be able to
appoint an active or retired state or federal judge to serve as arbitrator of
the dispute in question within the 7-day period specified above for such
appointment, then either Landlord or Tenant may request AAA to appoint the third
arbitrator who 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 10 years before the date of his or her appointment hereunder. If the
second arbitrator is appointed by the first arbitrator as provided above, such
second arbitrator shall also be experienced in the issue with which the
arbitration is concerned and have been actively engaged in such field for a
period of at least 10 years before the date of his or her appointment hereunder.
The third arbitrator shall apply the laws of the State of New York, without
giving effect to any principles of conflicts of laws. The third arbitrator shall
schedule a hearing where the parties and their advocates shall have the right to
present evidence, call witnesses and experts and cross-examine the other party's
witnesses and experts. Either party shall have the right, at any time, to make a
motion to the third arbitrator to grant summary judgment as to any question of
law.
(b) Except with respect to an arbitration involving the determination of
Fair Market Rent or the fair market rental value of any Offer Space (which shall
be governed by the provisions of Sections 9.02 and 1.06, respectively), the
losing party shall pay the fees and expenses of all arbitrators acting under
this Section 8.09.
(c) Landlord and Tenant agree to sign all documents and to do all other
things necessary to submit any such matter to arbitration and further agree to,
and hereby do, waive any and all rights they or either of them may at any time
have to revoke their agreement hereunder to submit to arbitration and to abide
by the decision rendered thereunder. For such period, if any, as this agreement
to arbitrate is not legally binding or the arbitrator's award is not legally
enforceable, the provisions requiring arbitration shall be deemed deleted and
matters to be determined by arbitration shall be subject to litigation.
(d) If there shall be submitted to arbitration in accordance with this
Section 8.09 any dispute concerning the payment of any Rent by Tenant (other
than any dispute under Section 2.05(l)(ii), which dispute shall be governed by
the provisions of said Section), pending the resolution of such dispute, Tenant
shall pay the disputed Rent to Landlord. If the arbitrator shall determine that
such disputed payment was not required to be paid by Tenant, Landlord shall pay
to Tenant, within 30 days after such determination, such disputed payment,
together with interest thereon at the Prime Rate from the date the applicable
payment was made by Tenant through the date of payment by Landlord pursuant to
this Section 8.09(d); provided, that if the arbitrator shall determine that the
disputed payment was charged to Tenant by Landlord in bad faith, then such
payment by Landlord shall include interest thereon at the Interest Rate (instead
of at the Prime Rate).
<PAGE>
8.10 No Offer. The submission by Landlord of this Lease in draft form shall
be solely for Tenant's consideration and not for acceptance and execution. Such
submission shall have no binding force or effect and shall confer no rights nor
impose any obligations, including brokerage obligations, on either party unless
and until both Landlord and Tenant shall have executed a lease and duplicate
originals thereof shall have been delivered to the respective parties.
8.11 Captions; Construction. The table of contents, captions, headings and
titles in this Lease are solely for convenience of reference and shall not
affect its interpretation. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
8.12 Amendments. This Lease may not be altered, changed or amended, except
by an instrument in writing signed by the party to be charged.
8.13 Broker. (a) Each party represents to the other that such party has
dealt with no broker other than EREIM and Newmark & Company Real Estate Inc.
(collectively, the "Brokers") in connection with this Lease or the Building, and
each party shall indemnify and hold the other harmless from and against all
loss, cost, liability and expense (including, without limitation, reasonable
attorneys' fees and disbursements) arising out of any claim for a commission or
other compensation by any broker other than the Brokers who alleges that it has
dealt with the indemnifying party in connection with this Lease or the Building.
Landlord shall enter into a separate agreement with EREIM (the "Brokerage
Agreement") which provides that, if this Lease is executed and delivered by both
Landlord and Tenant, Landlord shall pay to EREIM a commission (the "Commission")
to be agreed upon between Landlord and EREIM, subject to, and in accordance
with, the terms and conditions of such agreement.
(b) If and to the extent that (i) the Commission or any portion thereof is
not paid by Landlord when due in accordance with the provisions of the Brokerage
Agreement and (ii) Tenant delivers to Landlord a release, signed by EREIM,
releasing Landlord from any obligation to pay to EREIM the unpaid amount then
overdue (the "Unpaid Commission"), then Tenant shall be entitled to a credit (a
"Commission Rent Credit") against installments of Rent next coming due under
this Lease in an amount equal to the Unpaid Commission, together with interest
on the Unpaid Commission at the Prime Rate plus 6% from the date the Unpaid
Commission was due in accordance with the provisions of the Brokerage Agreement
to the date such amount is credited against Rent in accordance with the
provisions of this Section 8.13(b). If Tenant delivers a release from EREIM with
respect to any Unpaid Commission, Landlord shall have the right, at any time
prior to Tenant crediting against Rent in accordance with this Section 8.13(b)
the full amount of such Commission Rent Credit, to pay to Tenant an amount equal
to the remaining Commission Rent Credit to which Tenant is entitled in
accordance with this Section 8.13(b) in respect of such Unpaid Commission
(together with interest to the date of such payment) and, upon Landlord paying
such amount to Tenant, Tenant shall have no further right to any credit against
Rent with respect to such Unpaid Commission. Nothing contained in this Section
8.13(b) shall be construed to impose any obligation on Tenant to pay any Unpaid
Commission. If Landlord fails to pay any installment of the Commission in a
timely manner in accordance with the provisions of the Brokerage Agreement, in
no event shall there be any duplication of interest payable by Landlord with
respect to such installment of the Commission pursuant to the Brokerage
Agreement and this Section 8.13(b) or any other provision of this Lease.
8.14 Merger. Tenant acknowledges that Landlord has not made and is not
making, and Tenant, in executing and delivering this Lease, is not relying upon,
any warranties, representations, promises or statements, except to the extent
that the same are expressly set forth in this Lease. This Lease embodies the
entire understanding between the parties with respect to the subject matter
hereof, and all prior agreements, understanding and statements, oral or written,
with respect thereto are merged in this Lease.
8.15 Successors. This Lease shall be binding upon and inure to the benefit
of Landlord, its successors and assigns, and shall be binding upon and inure to
the benefit of Tenant, its successors, and to the extent that an assignment is
permitted under this Lease, Tenant's assigns.
8.16 Applicable Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any
principles of conflicts of laws.
<PAGE>
8.17 No Development Rights. Tenant acknowledges that this Lease does not
grant to Tenant any development rights, air rights or comparable rights
appurtenant to the Project, and Tenant consents, without further consideration,
to any utilization of such rights by Landlord. Tenant shall promptly execute and
deliver any instruments which may be reasonably requested by Landlord, including
instruments merging zoning lots, evidencing such acknowledgment and consent. The
provisions of this Section 8.17 shall be construed as an express waiver by
Tenant of any interest Tenant may have (arising out of Tenant having entered
into this Lease) as a "party in interest" (as such term is defined in Section
12-10 Zoning Lot of the Zoning Resolution of the City of New York) in the
Project.
8.18 Parking. During the Term, Landlord (or any person or entity designated
by Landlord to operate the indoor parking spaces in the Building) shall make
available to Tenant, and Tenant shall hire from Landlord (or Landlord's
designated operator), on a non-reserved basis, 6 of the indoor parking spaces in
the Building ("Tenant's Parking Spaces"); provided, that if Tenant terminates
this Lease with respect to less than all of the Premises or exercises the
Renewal Option with respect to less than all of the Premises or if Tenant leases
Offer Space in accordance with Section 1.06 or if the number of indoor parking
spaces in the Building shall be increased, the number of Tenant's Parking Spaces
shall be appropriately reduced or increased, as the case may be, so that Tenant
shall have Tenant's Operating Share of the indoor parking spaces in the
Building. Landlord and Tenant acknowledge that on the date of this Lease there
are 25 indoor parking spaces in the Building. Tenant shall pay to Landlord (or
Landlord's designated operator) monthly, as an Additional Charge, on the first
day of each month, the Building's established charges for Tenant's Parking
Spaces (which charges are subject to change from time to time and shall be
comparable to those charged by neighboring garages which are comparable to the
Building's garage). Landlord (or Landlord's designated operator) may require
Tenant to use reasonable visible identification (e.g., bumper decal, window
sticker, or pass) to evidence authorized use of Tenant's Parking Spaces. Tenant
shall from time to time furnish Landlord (or Landlord's designated operator)
with a list of the persons that Tenant has permitted to use Tenant's Parking
Spaces, together with such other corresponding identification (e.g., license
plates, car models or addresses) as Landlord (or Landlord's designated operator)
may require. Tenant's use of Tenant's Parking Spaces shall be subject to such
reasonable rules and regulations as may from time to time be promulgated by
Landlord in accordance with the provisions of this Lease (which may include the
obligation to leave the car keys as designated by Landlord (or Landlord's
designated operator)). Except as may otherwise be required pursuant to Section
3.03(b), Landlord shall not be obligated to police the use of any elevators or
any other points of access which may connect Tenant's Parking Spaces with any
other areas of the Building. Landlord shall have no responsibility for loss,
theft or damage, howsoever caused, to person or property arising out of or
attributable to Tenant's Parking Spaces, except to the extent the same arise out
of the gross negligence or willful misconduct of Landlord or Landlord's
contractors or employees (subject, however, to Section 7.03).
8.19 Emergency Generator. (a) To the extent permitted by Law, Tenant may,
at Tenant's sole cost and expense, install an emergency generator, at Tenant's
option, in any of the following locations: (i) on the Building setback on the
17th floor of the Building in a location designated by Tenant and reasonably
satisfactory to Landlord, (ii) alongside Landlord's emergency generator in the
pit located on the sub-cellar floor of the Building or (iii) in the mechanical
equipment room on the 8th floor of the Building in the location shown on that
certain drawing dated 6/20/95, Sketch No. SKM-3, prepared by Edwards and Zuck,
P.C. and titled "8th Floor MER Room Proposed Generator Loc.", together with all
required controls, wiring, distribution and other ancillary equipment normally
associated therewith; provided, that any fuel tank shall be located on the
sub-cellar level of the Building adjacent to Landlord's fuel tanks. Tenant may
replace or modify such equipment (and modify Tenant's electrical distribution
system connected to such generator) from time to time during the Term, subject
to the provisions of this Lease.
(b) In any case where, pursuant to the provisions of this Lease, Tenant is
permitted to install equipment on a setback of the Building, or in the case
where Tenant is permitted to install an emergency generator in the sub-cellar or
8th floor mechanical equipment room in accordance with Section 8.19(a) above,
Tenant's installation of such equipment shall be done as an Alteration, and
shall constitute a Material Alteration. Any installation, maintenance, repair
and replacement of such equipment shall be done at Tenant's expense, and
Landlord shall have no liability in respect thereof. No installation on a
Building setback may be closer than 5 feet to the parapet wall, and any
installation shall provide for adequate drainage and decking and be done in a
manner to provide that such equipment shall not cause unreasonable noise,
unreasonable vibration or other unreasonable interference with any other
occupants of the Building or the operation of the Building. Any reinforcement of
the setback area or other reasonable requirements of Landlord's structural
<PAGE>
engineer required as a result of Tenant's installation shall be performed by
Landlord at Tenant's reasonable expense. Landlord may at all times use the
setback area, sub-cellar or 8th floor mechanical equipment room in connection
with any cleaning, maintenance, repair or operation of the Building, and
Landlord shall have no liability to Tenant by reason thereof, provided that
Landlord does not interfere with the operation of Tenant's equipment. Subject to
Sections 7.03 and 7.05(f), Tenant shall be responsible for all damage to persons
or property which results from Tenant's use of the setback area, sub-cellar or
8th floor mechanical equipment room except to the extent caused by the
negligence or willful misconduct of any Landlord Indemnified Party. Landlord
makes no warranty to Tenant as to the permissibility under Laws of using the
setback, sub-cellar or 8th floor mechanical equipment room for any purpose
permitted under this Lease or as to the suitability of the setback, sub-cellar
or 8th floor mechanical equipment room for any such purpose. Tenant shall comply
with all Laws applicable to the equipment so installed and Tenant's use of the
setback area, sub-cellar or 8th floor mechanical equipment room. Tenant shall
secure and keep in full force and effect, from and after the time Tenant begins
installation of such equipment, such supplementary insurance with respect to
such equipment as Landlord may reasonably require, provided that the same shall
not be in excess of that which would customarily be required from time to time
by landlords of buildings of similar class and character in New York City with
respect to similar installations.
(c) Landlord shall give Tenant reasonable access to the setback area, the
sub-cellar space or the 8th floor mechanical equipment room, as the case may be,
so as to permit Tenant to install, operate, maintain, repair and replace its
emergency generator and to connect the same to the Premises; provided, that, in
any such case, Tenant shall be accompanied by a representative of Landlord who
shall be made available to Tenant at reasonable times upon reasonable advance
notice from Tenant. If Tenant installs the emergency generator in the sub-cellar
space, Landlord may at any time and from time to time during the Term (but only
after such prior notice, if any, as is reasonable under the circumstances) at
Tenant's reasonable expense, temporarily disconnect and remove Tenant's
generator if reasonably required in order to access the Building emergency
generator or other emergency generators at such location, in which event, upon
completion of Landlord's work, Landlord shall, at Tenant's reasonable expense,
re-install the same in substantially its original location.
8.20 Signage. (a) Subject to the provisions of Section 8.20(b), Tenant
shall have the right to place signs containing Tenant's name in the Building
lobby and on the exterior of the Building; provided, that (i) in the case of
such Building lobby signage, the same shall be installed as part of the Lobby
Renovation Work only in the locations shown on the applicable drawings referred
to in Exhibit W and shall meet the design criteria set forth in the applicable
specifications referred to in Exhibit W and (ii) in the case of such exterior
signage, the same shall be installed only in the locations shown, and shall meet
the design criteria set forth, on the drawings referred to on Exhibit V attached
hereto (provided that Tenant may use a style of lettering other than as
described on Exhibit V subject to the reasonable approval of Landlord). All such
signage (including, without limitation, such Building lobby signage,
notwithstanding that the same is being installed as part of the Lobby Renovation
Work) shall be installed, maintained and repaired by Landlord at Tenant's
reasonable expense.
(b) The provisions of Section 8.20(a) shall be null and void and of no
further force or effect, and Landlord shall have the right to remove any signage
theretofore installed pursuant to Section 8.20(a), if (i) ELAS is no longer the
Tenant under this Lease, (ii) ELAS and/or any Affiliated subtenants of ELAS
shall be occupying less than 300,000 rentable square feet in the Building or
(iii) the Term shall expire or terminate. "ELAS" means (A) The Equitable Life
Assurance Society of the United States, the original Tenant under this Lease,
(B) any entity which, pursuant to Section 5.01(b) above, directly or indirectly
succeeds to the interest of The Equitable Life Assurance Society of the United
States as Tenant under this Lease, and/or (C) any Affiliate of The Equitable
Life Assurance Society of the United States or of any entity described in clause
(B) above.
(c) Upon the expiration or earlier termination of the Term (or earlier, if
required by Landlord under Section 8.20(b)), any signage of Tenant shall be
removed by Landlord and Tenant shall reimburse Landlord for any reasonable costs
incurred by Landlord to remove such signage and to repair or restore the areas
from which such signage was removed (ordinary wear and tear excepted).
(d) Subject to the provisions of Section 8.20(e), Landlord shall not grant
to any other tenant the right to place exterior signage containing such tenant's
name on the Sixth Avenue or 52nd Street sides of the Building; provided, that
Landlord may grant to retail tenants the right to place on the Sixth Avenue
and/or 52nd Street sides of the Building exterior signage, so long as such
signage (i) is in keeping with the character of the Building, (ii) does not
diminish the impact of Tenant's exterior signage and (iii) is in keeping with
<PAGE>
the standards of retail signage in comparable buildings in the vicinity of the
Building. The restrictions on retail signage in the preceding sentence shall not
apply to retail signage existing at the Building on the date of this Lease.
(e) The provisions of Section 8.20(d) shall be null and void and of no
further force or effect and Landlord shall have the right to grant to any tenant
the right to place any exterior signage on the Sixth Avenue and/or 52nd Street
sides of the Building (i) if (A) ELAS is no longer the Tenant under this Lease,
(B) ELAS and/or any Affiliated subtenants of ELAS shall be occupying less than
300,000 rentable square feet in the Building, or (C) the Term shall expire or
terminate and (ii) during the last 18 months of the Term.
(f) Notwithstanding the foregoing, if (i) the provisions of Sections
8.20(a) and 8.20(d) shall become null and void because ELAS and/or any
Affiliated subtenants of ELAS fail to occupy at least 300,000 rentable square
feet in the Building, (ii) such failure constitutes the first time that ELAS
and/or any Affiliated subtenants of ELAS failed to meet such occupancy
requirement and (iii) at a later date during the Term, ELAS and/or any
Affiliated subtenants of ELAS shall again be occupying at least 300,000 rentable
square feet in the Building, then, provided Landlord shall not have previously
granted the signage rights granted to ELAS pursuant to Section 8.20(a) to
another tenant and shall not then be engaged in active negotiations with another
tenant to do so (provided, that, for so long as this Section 8.20(f) shall be
relevant, Landlord shall not have the right to so grant to any other tenant
exterior signage in the locations shown on the plans attached hereto as Exhibit
U unless, at the time such right is granted to such tenant, such tenant occupies
in the Building at least the amount of rentable square feet occupied by ELAS
and/or any Affiliated subtenants of ELAS in the Building at such time), the
provisions of Sections 8.20(a) and 8.20(d) shall be reinstated. Tenant
acknowledges that the reinstatement of Tenant's rights under Sections 8.20(a)
and 8.20(d) pursuant to the preceding sentence is a one-time right.
8.21 Lobby Renovation. (a) For purposes of this Lease, the following terms
shall have the following meanings: "Lobby Renovation Work" means, collectively,
the Phase I Lobby Renovation Work and the Phase II Lobby Renovation Work. "Phase
I Lobby Renovation Work" means the work shown on the drawings referred to in
Exhibit W annexed hereto, to the extent such drawings identify the work shown on
such drawings to be part of the Phase I Lobby Renovation Work; provided, that
Landlord shall have the right to change such work after having received Tenant's
consent thereto if such consent is required pursuant to Section 8.21(e) below.
"Phase II Lobby Renovation Work" means the work shown on the drawings referred
to in Exhibit W annexed hereto, to the extent such drawings identify the work
shown on such drawings to be part of the Phase II Lobby Renovation Work;
provided, that Landlord shall have the right to change such work after having
received Tenant's consent thereto if such consent is required pursuant to
Section 8.21(e) below. "Phase I Target Date" means August 15, 1996; provided,
that the Phase I Target Date shall be postponed one day for each day that
Landlord is delayed in substantially completing the Phase I Lobby Renovation
Work by reason of either Force Majeure or Tenant Delay; provided, further, that
if Tenant fails substantially to move into the Block A Space on or before August
15, 1996, then the Phase I Target Date shall be postponed one day for each day
occurring in the period commencing on August 16, 1996 through and including the
date that is 30 days after Tenant has substantially moved into the Block A Space
and Tenant notifies Landlord of the same. "Phase II Target Date" means December
31, 1997; provided, that the Phase II Target Date shall be postponed one day for
each day that Landlord is delayed in substantially completing the Phase II Lobby
Renovation Work by reason of either Force Majeure or Tenant Delay; provided,
further, that the Phase II Target Date shall be postponed one day for each day
that the Phase I Target Date is postponed beyond August 15, 1996 as provided in
the definition of "Phase I Target Date".
(b) Landlord, at Landlord's expense (except as provided in Section 8.20(a)
above with respect to the installation of Tenant's Building lobby signage),
shall perform the Lobby Renovation Work; provided, that Tenant shall be
responsible for the installation of the security desks in Tenant's elevator
lobbies and Tenant shall reimburse Landlord, in accordance with Section 4.01(d)
above, for Landlord's actual costs incurred to perform the interior finishes to
the security desk areas (it being understood that Landlord shall be responsible
for the cost of exterior finishes to such areas). Landlord shall substantially
complete the Phase I Lobby Renovation Work on or prior to the Phase I Target
Date and the Phase II Lobby Renovation Work on or prior to the Phase II Target
Date. For purposes of this Section 8.21, the Phase I Lobby Renovation Work or
the Phase II Lobby Renovation Work, as the case may be, shall be deemed to be
substantially completed on the date upon which such work has been completed,
other than minor details or adjustments to such work.
<PAGE>
(c) If Landlord shall fail substantially to complete either the Phase I
Lobby Renovation Work on or before the Phase I Target Date or the Phase II Lobby
Renovation Work on or before the Phase II Target Date, then as Tenant's sole
remedy for such failure of Landlord, Tenant shall be entitled to an abatement of
Rent in the amount set forth in the next sentence during the period (the "Lobby
Abatement Period") from the day after the Phase I Target Date or the Phase II
Target Date, as applicable, to and including, the date upon which the Phase I
Lobby Renovation Work or the Phase II Lobby Renovation Work, as applicable,
shall be substantially completed. The Rent to be abated under the preceding
sentence shall consist of (i) during the first 180 days of any Lobby Abatement
Period, all Fixed Rent, Tax Payments and Operating Payments and (ii) thereafter,
in any month (appropriately prorated in the case of a partial month), the excess
of (A) Fixed Rent over (B) the sum of Tenant's Tax Share of Taxes for such month
plus Tenant's Operating Share of Operating Expenses for such month (i.e., after
the initial 180 day period described in clause (i) above to and including the
last day of the applicable Lobby Abatement Period, but subject to the other
provisions of this Lease, Tenant shall be obligated to pay the amounts described
in this clause (B) (the "Tax and Operating Payments")). If, as of the first day
of any Lobby Abatement Period, the Relevant Date with respect to any space
included in the Premises has occurred, but the Rent Commencement Date with
respect to such space has not occurred, then, in lieu of the rent abatement
provided in this Section 8.21(c), the Rent Commencement Date with respect to
such space shall be delayed for the number of days occurring in the Lobby
Abatement Period, except that from and after the 181st day that such Rent
Commencement Date is so postponed to and including the last day of such
postponement, but subject to the other provisions of this Lease, Tenant shall be
obligated to pay the Tax and Operating Payments.
(d) If requested by Landlord at any time on or after July 1, 1996, Tenant
shall notify Landlord, within 10 days after such request, whether or not Tenant
reasonably expects to be able to move into substantially all of the Block A
Space on or before August 15, 1996, and, if not, of Tenant's reasonable estimate
of the date on which Tenant expects to be moved into substantially all of the
Block A Space.
(e) Landlord shall not change the Lobby Renovation Work in any material
respect without Tenant's prior consent, which consent shall not be unreasonably
withheld if such change does not diminish the scope or quality of such work
(except to a de minimis extent).
(f) Tenant shall provide Landlord with access to the Secondary Concourse
Space as reasonably required by Landlord for the performance of the Lobby
Renovation Work.
8.22 Force Majeure. If, by reason of strike, lockouts or other labor or
industrial troubles, governmental pre-emption in connection with a national
emergency, any rule, order or regulation of any governmental agency applicable
to the Building or to the party obligated to perform, conditions of supply or
demand that are affected by war or other national, state or municipal emergency,
fire or other casualty, acts of God such as (by way of example only) tornado,
earthquake, hurricane, washout or storm, civil disturbance, act of the public
enemy, riot, sabotage, blockade, embargo, explosion or any other cause beyond a
party's reasonable control, whether or not similar to any of the causes
hereinabove stated (collectively, "Force Majeure"), such party shall be unable
to perform any obligation that such party is obligated to perform, then such
party's obligation to perform shall be excused for the duration of such Force
Majeure, and, except as otherwise set forth in this Lease, this Lease and the
other party's rights and obligations hereunder shall not be affected, impaired
or excused. Notwithstanding anything to the contrary contained in this Section
8.22, any party's failure timely to fulfill an obligation required to be
fulfilled by such party under this Lease shall not be excused or deemed to be an
event of Force Majeure if (a) said obligation is an obligation to pay money, (b)
said failure shall be attributable to such party's lack of funds, (c) said
obligation relates to Tenant's obligation to vacate the Premises or any
applicable portion thereof at the end of the term of this Lease applicable
thereto (in which case Sections 4.03 and 6.10 shall apply thereto) or (d) the
provisions of this Lease expressly limit the amount of time by which such
obligation shall be excused by reason of Force Majeure.
8.23 Memorandum of Lease. Upon the request of Tenant, Landlord shall,
contemporaneously with the execution of this Lease, execute, acknowledge and
deliver to Tenant a short form or memorandum of this Lease in recordable form
and otherwise in form reasonably satisfactory to Landlord. Recording, filing and
like charges imposed by any governmental agency to effect such recording shall
be paid by Tenant. Upon the termination of this Lease, Tenant shall execute,
acknowledge and deliver to Landlord all necessary instrument(s) in recordable
form evidencing a termination of this Lease and sufficient to discharge any
memorandum hereof of record, and Tenant shall pay for all recording, filing and
like charges imposed by any governmental agency to effect such recording.
<PAGE>
8.24 Major Tenant Rights. (a) "Major Tenant Rights" means: (i) the right to
lease, and the obligation of Landlord to deliver, the Block C Space; (ii) the
rights granted under Section 1.06; (iii) the right to use the Premises for the
Identified Ancillary Uses; (iv) the right to initiate an examination of
Landlord's Records with respect to any Operating Year up to 4 years after
Landlord delivers a Landlord's Statement with respect to such Operating Year;
(v) the right to require Landlord to consent to a sublease or assignment which
is a Qualifying Transaction; (vi) the right to require Landlord to execute and
deliver a non-disturbance and attornment agreement with respect to a Second Tier
Sublease; (vii) the right to an abatement of certain Rent payments under Section
8.21(c); (viii) the right to maintain a partitioning of the elevator banks
servicing the 7th through the 15th floors of the Building and interior signage
and a dedicated security desk adjacent to such elevator bank and turnstiles at
the entrances to such elevator banks; (ix) the right to maintain a dedicated
security desk and interior signage adjacent to the elevator bank servicing the
15th through the 22nd floors of the Building; (x) the rights granted under
Section 10.01(a); (xi) the rights granted under Section 10.03; (xii) the rights
granted under Section 10.05; (xiii) the right to an abatement of Rent under
Section 10.02 prior to the 3rd Business Day after notice from Tenant of an
Eviction; (xiv) the right to terminate this Lease pursuant to Section 7.05 or
10.03 with respect to less than the entire Premises; and (xv) the rights granted
under Section 3.04(e).
(b) If this Lease terminates prior to the Block C Relevant Date and Tenant
has granted the Major Tenant Right described in Section 8.24(a)(i) to any
subtenant that has received a non-disturbance and attornment agreement from
Landlord (or who Landlord elects to have attorn to Landlord in accordance with
Section 5.04(d)(iii) above), then such Major Tenant Right shall be null and void
with respect to such subtenant if such subtenant at any time prior to the
delivery of the Block C Space leases less than 300,000 rentable square feet of
the Office Space.
(c) The Major Tenant Rights described in Section 8.24(a)(ii), (vii), (x),
(xiii) and (xv) shall be null and void if at any time the Office Space shall
consist of less than 300,000 rentable square feet in the Building.
Notwithstanding the foregoing, so long as the Office Space shall consist of less
than 300,000, but more than 100,000, rentable square feet then (i) the rights
granted under Section 1.06 shall continue in effect but the term "Offer Space"
shall mean only the one floor in the Building that is contiguous to the highest
floor then comprising the Office Space and the one floor in the Building that is
contiguous to the lowest floor then comprising the Office Space; provided, that
(A) in no event shall Offer Space include any floor in the Building below the
7th floor or above the 23rd floor and (B) if such floor that is contiguous to
such highest or lowest floor then comprising the Office Space becomes Available
and Tenant leases the same in accordance with Section 1.06, "Offer Space" shall
not include the floor that is contiguous to such floor leased by Tenant in
accordance with Section 1.06 (for example, if the Office Space at any time
consists of floors 14 through 21, then "Offer Space" shall mean only the 13th
and 22nd floors and if Tenant leases the 13th floor or the 22nd floor in
accordance with Section 1.06, "Offer Space" would not include the 12th floor or
the 23rd floor, as the case may be) and (ii) the right to an abatement of
certain Rent payments under Section 8.21(c) shall continue in effect but such
abatement shall be limited to 25% of the Fixed Rent, Tax Payments and Operating
Payments payable during the period that Tenant is entitled to such abatement (or
if Tenant is entitled under Section 8.21(c) to a deferral of a rent commencement
date, the same shall be deferred by only 1/4 of one day for each day in the
applicable Lobby Abatement Period).
(d) The Major Tenant Right described in Section 8.24(a)(viii) shall be null
and void if at any time more than one floor of floors 11 through 15 is leased by
a tenant other than Tenant or an Affiliate of Tenant and the Major Tenant Right
described in Section 8.24(a)(ix) shall be null and void if at any time more than
one floor of floors 15 through 22 is leased by a tenant other than Tenant or an
Affiliate of Tenant. If either or both of such Major Tenant Rights become null
and void in accordance with the preceding sentence, Landlord and Tenant shall
reasonably cooperate with each other to establish a modified security and
interior signage program for Tenant so that Tenant shall continue to receive
security and interior signage rights commensurate with the security and interior
signage rights customarily granted by Landlord to tenants leasing the number of
rentable square feet then included in the Office Space in a multi-tenanted
elevator bank. If Tenant at any time no longer leases all of floors 11 through
15 (but continues to lease at least 4 of such floors) or all of floors 15
through 22 (but continues to lease at least 7 of such floors), so that the
applicable Major Tenant Right shall not become null and void in accordance with
this clause (d), Tenant shall cooperate with any tenant who leases such portion
of such floor so that such tenant shall have access to its premises 24 hours per
day, 365 days per year, subject only to reasonable security requirements of
Tenant which do not render such portion of such floor unreasonably difficult to
market and lease.
<PAGE>
(e) If at any time the Office Space shall consist of less than 300,000
rentable square feet in the Building, the Major Tenant Right described in
Section 8.24(a)(iii) shall be null and void, except with respect to any
Identified Ancillary Uses existing in the Office Space at the time that the
Office Space first consisted of less than 300,000 rentable square feet.
(f) If at any time the Office Space shall consist of less than 300,000
rentable square feet in the Building, the Major Tenant Right described in
Section 8.24(a)(iv) shall be null and void; provided, that (i) during such time,
if any, that the Office Space consists of less than 300,000, but at least
200,000, rentable square feet, Tenant shall have the right to initiate an
examination of Landlord's Records with respect to any Operating Year up to 3
years after Landlord delivers a Landlord's Statement with respect to such
Operating Year, (ii) during such time, if any, that the Office Space consists of
less than 200,000, but at least 100,000, rentable square feet, Tenant shall have
the right to initiate such examination up to 2 years after Landlord delivers a
Landlord's Statement with respect to any Operating Year and (iii) during such
time, if any, that the Office Space consists of less than 100,000 rentable
square feet, Tenant shall have the right to initiate such examination up to 1
year after Landlord delivers a Landlord's Statement with respect to any
Operating Year. Landlord's time period to deliver a corrected Landlord's
Statement for any Operating Year or a corrected Tax Statement for any Tax Year
shall be reduced from 4 years commensurate with the reduction in Tenant's time
period to initiate an examination of Landlord's Records pursuant to this Section
8.24(f).
(g) The Major Tenant Rights described in Section 8.24(a)(v) and (vi) shall
be null and void if at any time the Office Space consists of less than 200,000
rentable square feet. During the Term, no subtenant of Tenant shall have the
Major Tenant Right described in Section 8.24(a)(v), unless such subtenant
subleases from Tenant not less than 200,000 rentable square feet of Office
Space. If this Lease terminates and Tenant has granted either or both of the
Major Tenant Rights described in Section 8.24(a)(v) and (vi) to any subtenant
that has received a non-disturbance and attornment agreement from Landlord (or
who Landlord elects to have attorn to Landlord in accordance with Section
5.04(d)(iii) above), then such Major Tenant Rights shall be null and void with
respect to such subtenant if such subtenant at any time leases less than 300,000
rentable square feet of the Office Space.
(h) The Major Tenant Rights described in Section 8.24(a)(xi) and (xiv)
shall be null and void if at any time the Office Space shall consist of less
than 100,000 rentable square feet.
(i) If this Lease terminates and Tenant has granted the Major Tenant Right
described in Section 8.24(a)(xii) to any subtenant who has received a
non-disturbance and attornment agreement from Landlord (or who Landlord elects
to have attorn to Landlord in accordance with Section 5.04(d)(iii) above), then
such Major Tenant Right shall be null and void with respect to such subtenant if
at any time such subtenant leases less than 100,000 rentable square feet of the
Office Space; provided, that, if and to the extent Tenant granted the following
rights to such subtenant in its sublease, such subtenant shall have the right to
set-off against the rent payable to Landlord (i) such subtenant's share of any
tax refund to which such subtenant may become entitled pursuant to Section
2.04(f) if such tax refund is not timely paid to such subtenant in accordance
with Section 2.04(f) and (ii) any amount required to be reimbursed by Landlord
to such subtenant in accordance with Section 2.05 with respect to any Operating
Payment made by such subtenant to Landlord, if such reimbursement is not timely
made by Landlord to such subtenant in accordance with Section 2.05.
8.25 Lobby Artwork. (a) Tenant shall install in the Building lobby the work
consisting of 10 panels and known as the "America Today" murals by Thomas Hart
Benton (the "Benton"). Tenant, at Tenant's expense, shall be responsible for
deinstalling the Benton from its present location at 787 Seventh Avenue and
moving the Benton to the Building. Landlord shall reimburse Tenant, within 30
days after submission of an invoice therefor, for the reasonable cost of
installing the Benton in the Building. The Benton shall be moved to, and
installed in, the Building by Tenant, under the supervision of Tenant's curator,
upon completion of the Lobby Renovation Work. The Benton shall be installed in
the locations in the Building lobby shown on the drawing designated SK7-7-2,
dated June 7, 1995, prepared by David Kenneth Specter & Associates, Architects
P.C. Exhibit U annexed hereto shows where each panel of the Benton is to be
located, except for the panel known as "Outreaching Hands", which shall be
located in the Building lobby in a location reasonably acceptable to Landlord
and Tenant.
<PAGE>
(b) Tenant shall not be permitted to deinstall and remove the Benton from
the Building before the later of (i) the date that is one year before the
scheduled Expiration Date of the initial Term and (ii) the date that is 12
months after Tenant notifies Landlord of Tenant's intention to deinstall and
remove the Benton from the Building. The provisions of the preceding sentence
shall apply notwithstanding any earlier expiration or termination of this Lease.
Notwithstanding the foregoing (A) if this Lease shall terminate by reason of the
default of Landlord (it being understood that any termination of this Lease by
reason of the occurrence of any Force Majeure event (including, without
limitation, any Casualty) shall not constitute the default of Landlord), then
Tenant shall have the right at any time, upon notice to Landlord, to deinstall
and remove the Benton from the Building and (B) if this Lease shall terminate or
expire for any reason as to the entire Premises, Landlord may, upon not less
than 12 months prior notice to Tenant, require Tenant to deinstall and remove
the Benton from the Building. Any removal of the Benton from the Building shall
be at Tenant's expense.
(c) Landlord, at Landlord's expense, shall install as part of the Lobby
Renovation Work glass barriers approximately 3 feet in height and motion
detectors, in each case to protect the panels of the Benton installed on the
north and south sides of the lobby (but not the panels over the escalator). The
glass barriers shall be substantially as shown on the drawing designated as
SK7-7-1, dated July 18, 1995, prepared by David Kenneth Specter & Associates,
Architects P.C.
(d) For so long as the Benton is in the Building, Tenant, at Tenant's
expense, shall (i) provide all maintenance and repair of the Benton necessary or
appropriate to preserve the Benton in excellent condition and (ii) maintain a
fine arts policy covering the Benton with sufficient limits to cover 100% of the
replacement value of the Benton and including a waiver of subrogation in
accordance with Section 7.03 above. If Tenant shall at any time deem it
reasonably necessary to provide security measures for the Benton in excess of
those described in Section 8.25(c) above and on Exhibit L annexed hereto,
Landlord shall provide such security measures and Tenant shall reimburse
Landlord for the reasonable cost thereof within 30 days after demand. Landlord
and Tenant shall cooperate to agree on the scope of any such additional security
measures. Tenant shall have no claim against Landlord by reason of the security
specifications described in Section 8.25(c) above and on Exhibit L annexed
hereto, or any excess security measures provided by Landlord pursuant to the
preceding sentence, being insufficient to prevent damage to the Benton.
(e) Tenant represents to Landlord that Tenant is the owner of the Benton
and that the moving of the Benton to the Building, the installation of the
Benton in the Building lobby and the other provisions of this Section 8.25 do
not violate the provisions of any agreement to which Tenant or any Affiliate of
Tenant is a party. Anything to the contrary contained in this Lease
notwithstanding, the Benton shall in all events remain Tenant's property.
(f) The provisions of this Section 8.25 shall survive the expiration or
earlier termination of this Lease.
<PAGE>
ARTICLE 9
Renewal Right
9.01 Renewal Right. (a) Provided that on the date Tenant exercises the
Renewal Option (i) this Lease shall not have been terminated, (ii) Tenant shall
not be in default under this Lease after notice and beyond all applicable grace
periods and (iii) Tenant shall occupy at least 50% of the Premises, Tenant shall
have the option (the "Renewal Option") to extend the term of this Lease for, at
Tenant's option, either an additional 5 year period or an additional 10 year
period (the "Renewal Term"), to commence at the expiration of the initial Term.
(b) The Renewal Option shall be exercised with respect to, at Tenant's option,
(i) the entire Premises, (ii) all space then included in the Premises and
located on floors 7 through 15 or (iii) all space then included in the Premises
and located on floors 15 through 22 (the "Renewal Premises"), and shall be
exercisable by Tenant giving notice to Landlord (the "Renewal Notice") at least
18 months before the last day of the initial Term. Tenant shall specify in the
Renewal Notice the duration of the Renewal Term and the space to be included in
the Renewal Premises. Time is of the essence with respect to the giving of the
Renewal Notice.
9.02 Renewal Rent and Other Terms. (a) The Renewal Term shall be upon all
of the terms and conditions set forth in this Lease, except that (i) Fixed Rent
shall be as determined pursuant to the further provisions of this Section 9.02;
(ii) Tenant shall accept the Renewal Premises in its "as is" condition at the
commencement of the Renewal Term, and any provisions of this Lease with respect
to Landlord's Work, payment of a work allowance and any abatement of Fixed Rent
and Additional Charges (relating only to Tenant's initial construction period
with respect to any space comprising the Premises, i.e., the period prior to the
rent commencement date for any such space) shall not be applicable during the
Renewal Term; (iii) Tenant shall have no option to renew this Lease beyond the
expiration of the Renewal Term; (iv) all references in this Lease to the
"Premises" shall be deemed to refer to the "Renewal Premises", and (v) Tenant's
Tax Share and Tenant's Operating Share shall be recalculated to reflect the
rentable area of the Renewal Premises (such rentable area to be determined based
on the measurements set forth in Exhibit H annexed hereto).
(b) The annual Fixed Rent for the Renewal Premises for the Renewal Term
shall be the Fair Market Rent therefor multiplied by the Renewal Percentage.
"Fair Market Rent" means the fixed annual rent that, as of the date that is 18
months before the commencement of the Renewal Term, a willing lessee would pay
and a willing lessor would accept for the Renewal Premises during the Renewal
Term in an arms-length transaction, taking into account all relevant factors at
the time in question. "Renewal Percentage" means (i) if the Renewal Term is for
5 years, 97.5% and (ii) if the Renewal Term is for 10 years, 95%.
(c) If Tenant timely exercises the Renewal Option, Landlord shall notify
Tenant (the "Rent Notice") within 30 days after Landlord's receipt of the
Renewal Notice of Landlord's determination of the Fair Market Rent ("Landlord's
Determination"), which Rent Notice shall state that if Tenant fails to give
Tenant's Notice within 30 days after Tenant's receipt of the Rent Notice, Tenant
shall be deemed to have accepted Landlord's Determination. Tenant shall notify
Landlord ("Tenant's Notice"), within 30 days after Tenant's receipt of the Rent
Notice, whether Tenant accepts or disputes Landlord's Determination, and if
Tenant disputes Landlord's Determination, Tenant's Notice shall set forth
Tenant's determination of the Fair Market Rent ("Tenant's Determination"). If
Tenant fails to give Tenant's Notice within such 30 day period, Tenant shall be
deemed to have accepted Landlord's Determination. If Landlord fails to give
Landlord's Determination within 30 days after Landlord's receipt of the Renewal
Notice, Tenant shall have the right, at any time prior to Tenant's receipt of
Landlord's Determination, to give to Landlord a notice setting forth Tenant's
Determination, which notice shall state that if Landlord fails to give
Landlord's Determination within 30 days after Landlord's receipt of such notice,
Landlord shall be deemed to have accepted Tenant's Determination. If Tenant
timely gives such notice setting forth Tenant's Determination in accordance with
the preceding sentence and Landlord fails to give Landlord's Determination
within 30 days after Landlord's receipt of Tenant's Notice, Landlord shall be
deemed to have accepted Tenant's Determination.
(d) If Tenant timely disputes Landlord's Determination and Landlord and
Tenant fail to agree as to the Fair Market Rent within 20 days after Landlord's
receipt of Tenant's Determination (or if Tenant gives Tenant's Determination
prior to Landlord giving Landlord's Determination as provided in clause (c)
above and thereafter Landlord timely gives Landlord's Determination and Landlord
and Tenant fail to agree as to the Fair Market Rent within 20 days after
Tenant's receipt of Landlord's Determination), then the Fair Market Rent shall
be determined as follows: Such dispute shall be resolved by arbitration
conducted in accordance with the Real Estate Valuation Arbitration Rules
(Expedited Procedures) of the AAA, except that the provisions of Section 8.09
shall supersede any conflicting or inconsistent provisions of said rules. The
fees and expenses of any arbitration of Fair Market Rent shall be borne by the
parties equally, but each party shall bear the expense of its own arbitrator,
attorneys and experts and the additional expenses of presenting its own proof.
<PAGE>
(e) If Tenant disputes Landlord's Determination (or, if applicable,
Landlord disputes Tenant's Determination) and if the final determination of Fair
Market Rent shall not be made on or before the first day of the Renewal Term,
then, pending such final determination, Tenant shall pay, as Fixed Rent for the
Renewal Term, an amount equal to the applicable Renewal Percentage of the
average of Landlord's Determination and Tenant's Determination. If, based upon
the final determination of the Fair Market Rent, the Fixed Rent payments made by
Tenant for such portion of the Renewal Term were (i) less than the Fair Market
Rent therefor, Tenant shall pay to Landlord the amount of such deficiency within
30 days after demand therefor or (ii) greater than the Fair Market Rent
therefor, Landlord shall credit the amount of such excess against future
installments of Fixed Rent and/or Additional Charges payable by Tenant.
(f) Notwithstanding the foregoing provisions of this Article 9, if, at any
time after Tenant's delivery of the Renewal Notice and before the commencement
of the Renewal Term, this Lease shall be terminated, then such Renewal Notice
shall be null and void and of no further force and effect and Tenant shall have
no further right or option to extend the Term.
<PAGE>
ARTICLE 10
Self-Help; Rent Abatement; Set-Off
10.01 Tenant's Right To Perform Landlord's Obligations. (a) If (i) for any
reason, including, without limitation, Force Majeure, there is a failure to
furnish any of the services which Landlord is required to furnish pursuant to
this Lease, or to make any repairs or replacements which Landlord is required to
make pursuant to the terms of this Lease, or to perform any other obligation of
Landlord under this Lease, and as a result thereof the conduct of Tenant's
normal business operations in the Premises (or a material portion thereof) shall
be materially impaired (any or all of the foregoing hereinafter sometimes
referred to as an "Interruption"), (ii) the curing of such Interruption would
require work to be performed, or otherwise affect any space, in the Landlord
Obligation Areas or elsewhere outside of the Premises, (iii) either (A) Tenant
obtains the decision of an arbitrator in accordance with Section 8.09 that an
Interruption has occurred and Landlord does not immediately after such
arbitration decision commence and diligently prosecute action to remedy such
Interruption or (B) Landlord, in bad faith, fails to comply with the arbitration
procedures set forth in Section 8.09, then, in any such event, and upon the
giving of 5 days notice to Landlord (which notice shall expressly state that
Tenant intends to exercise its self-help remedy in accordance with this Section
10.01(a)), Tenant shall have the right (but not the obligation) to furnish any
such Landlord's services or to make any such repairs or replacements which
Landlord shall have failed to make, or to perform such other obligation of
Landlord as Landlord shall have failed to perform. Landlord hereby irrevocably
appoints Tenant as Landlord's agent, coupled with an interest, for the sole and
limited purpose of permitting Tenant access to areas of the Building outside of
the Premises to the extent necessary to perform, in accordance with this Section
10.01(a), any obligation or furnish any service that Landlord so failed to
perform. If at any time Tenant becomes entitled in accordance with this Section
10.01(a) to cure any Interruption and, thereafter, Landlord prevents Tenant from
exercising its right to cure such Interruption, then the parties agree that, in
such case, damages would be an inadequate remedy and Tenant shall be entitled to
injunctive relief or specific performance in order to enable Tenant to cure such
Interruption. If (x) Tenant becomes entitled in accordance with this Section
10.01(a) to cure any Interruption, (y) in order to cure such Interruption Tenant
must obtain access to another tenant's premises, and (z) after compliance by
Tenant with all requirements set forth in such tenant's lease regarding access
thereto for Landlord and its agents, such tenant prevents Tenant from entering
its premises in breach of such tenant's lease, then Landlord shall enforce all
of its rights and remedies against such tenant in order to permit Tenant to
enter such tenant's premises in order to cure such Interruption. Without
limiting the generality of any other provision of this Lease, Tenant shall have
no right to perform any obligation or furnish any service that Landlord has
failed to perform or furnish, the curing of which failure will require work to
be performed, or otherwise affect any space in the Landlord Obligation Areas or
elsewhere outside the Premises unless such failure results in an Interruption,
and, in the case of an Interruption, Tenant's sole right to perform such
obligation or furnish such service shall be as set forth in this Section
10.01(a). Nothing contained in this Article 10 shall be construed to permit
Tenant to cause Landlord's managing agent for the Building to be removed or
replaced.
(b) If (i) any Interruption shall occur, (ii) the curing of such
Interruption would not require work to be performed, or otherwise affect any
space, in the Landlord Obligation Areas or elsewhere outside of the Premises and
(iii) after notice thereof by Tenant to Landlord, Landlord does not immediately
commence action to remedy such Interruption, or if so commenced, does not
continue such action with reasonable diligence, and complete the same within 7
days or, in the case of emergency, within 2 days, then, in any such event, and
upon the giving of 5 days notice to Landlord (which notice shall expressly state
that Tenant intends to exercise its self-help remedy in accordance with this
Section 10.01(b)) or, in the case of emergency, upon the giving of such notice,
oral or written, as may be reasonable under the circumstances, Tenant shall have
the right (but not the obligation) to furnish any such Landlord's services or to
make any such repairs or replacements which Landlord shall have failed to make,
or to perform such other obligation of Landlord as Landlord shall have failed to
perform.
(c) If (i) for any reason, including, without limitation, Force Majeure,
there is a failure to furnish any of the services which Landlord is required to
furnish pursuant to this Lease, or to make any repairs or replacements which
Landlord is required to make pursuant to the terms of this Lease, or to perform
any other obligation of Landlord under this Lease, (ii) such failure does not
result in an Interruption, (iii) the curing of such failure would not require
work to be performed, or otherwise affect any space, in the Landlord Obligation
Areas or elsewhere outside of the Premises, (iv) such failure continues for 30
days after notice by Tenant to Landlord; provided, that if the cure of such
failure cannot with due diligence be performed within such 30-day period, such
30-day period shall be extended for so long as Landlord shall be diligently
<PAGE>
prosecuting the performance of such cure and (v) such failure continues for 10
days after a second notice by Tenant to Landlord (which notice shall expressly
state that Tenant intends to exercise its self-help remedy in accordance with
this Section 10.01(c)), then Tenant shall have the right (but not the
obligation) to furnish any such Landlord's services or to make any such repairs
or replacements which Landlord shall have failed to make, or to perform such
other obligation of Landlord as Landlord shall have failed to perform.
(d) If Tenant exercises its self-help remedy in accordance with clauses
(a), (b) or (c) of this Section 10.01, Landlord shall pay to Tenant the
reasonable costs incurred by Tenant in furnishing such Landlord's services which
Landlord failed to furnish or making such repairs or replacements which Landlord
failed to make or performing such other obligations of Landlord which Landlord
failed to perform, as the case may be, together with interest at the Interest
Rate (unless Landlord shall have been unable to perform the obligation in
question by reason of Force Majeure, in which case such interest shall be at the
Prime Rate) from the date of the expenditure by Tenant to the date that such
costs plus interest shall have been paid to Tenant, within 30 days after receipt
by Landlord of a detailed statement as to the amount of such costs. If Landlord
notifies Tenant within the 30-day period described in the preceding sentence
that in lieu of making such payment to Tenant, Landlord shall allow Tenant to
credit against the next installments of Rent to come due any amounts to which
Tenant may be entitled under this Section 10.01(d), then, subject to Section
10.05(b), Tenant shall so credit such amounts.
(e) For all purposes of this Article 10, a material portion of the Premises
shall mean at least 5,000 contiguous rentable square feet of the Office Space or
at least 10,000 rentable square feet of the Office Space (regardless of
contiguity).
(f) If and to the extent that Tenant successfully exercises its self-help
remedy in accordance with this Section 10.01, Tenant shall have no right to
terminate this Lease in accordance with Section 10.03 on account of the failure
by Landlord to perform the obligation with respect to which Tenant exercises
such self-help remedy. If Landlord fails to perform any of its obligations under
this Lease by reason of Force Majeure and Tenant exercises its self-help remedy
in accordance with this Section 10.01 with respect thereto, then such self-help
remedy (including Tenant's right to reimbursement in accordance with Section
10.01(d) above) and, if applicable, any rent abatement which Tenant may be
entitled to pursuant to Section 10.03 shall be Tenant's sole remedies in respect
of Landlord's failure to perform such obligation. 10.02 Tenant Abatement Rights.
If, for any reason, including, without limitation, Force Majeure (but not by
reason of (a) a Casualty or (b) any act or (where Tenant has an affirmative
obligation to act pursuant to the terms of this Lease) omission of Tenant or any
person claiming through or under Tenant or any of their respective agents,
employees, contractors or (while in the Premises) invitees), there is a failure
to furnish any of the services which Landlord is required to furnish pursuant to
this Lease, or to make any repairs or replacements which Landlord is required to
make pursuant to this Lease, or to perform any other obligation of Landlord
under this Lease or if Landlord performs any repair, replacement, alteration,
addition, improvement or installation in or about the Premises which Landlord is
required or permitted to make under this Lease (other than in connection with
the exercise by Landlord of its self-help remedy set forth in Section 4.08) and
as a result of any of the foregoing all or any material portion of the Premises
shall be Untenantable (an "Eviction") for 1 Business Day after notice from
Tenant, then Fixed Rent and the Additional Charges payable under Sections 2.04
and 2.05 shall abate solely with respect to the portion or portions of the
Premises that are Untenantable from the day after such one Business Day until
such space is no longer Untenantable.
10.03 Tenant Termination Rights. (a) If, by reason of an Eviction, 50,000
or more rentable square feet of the Office Space are Untenantable (A) for
reasons other than Force Majeure for 60 or more consecutive days after notice
from Tenant to Landlord, (B) for reasons other than Force Majeure for 90 or more
days in any consecutive 12-month period (such reference to 90 days being deemed
to refer to the number of days that the applicable space is so Untenantable
after Tenant has given Landlord notice of each occurrence of such
Untenantability) or (C) as a result of Force Majeure for 365 or more consecutive
days after notice from Tenant to Landlord (such 60, 90 and 365 day periods to be
extended for up to an additional 90 days during which time Landlord is
diligently prosecuting to cure the cause of such Untenantability), then in each
such case Tenant may, by notice given to Landlord on or before the earlier to
occur of (x) the date that the applicable portion of the Office Space is
rendered tenantable and (y) the date that is 30 days after the end of such 60,
90 or 365 day period (as so extended), as applicable (time of the essence),
terminate this Lease, at Tenant's option, with respect to the Terminated Space.
If Tenant timely gives a termination notice in accordance with this Section
10.03, this Lease shall terminate with respect to the Terminated Space on the
20th day after such notice is given by Tenant and Tenant shall vacate the
Terminated Space and surrender the same to Landlord in accordance with the terms
<PAGE>
of this Lease. Upon any such termination, Tenant's liability for Fixed Rent and
Additional Charges hereunder with respect to the Terminated Space shall cease as
of the date of such termination, and any prepaid portion of Rent with respect to
the Terminated Space for any period after such date shall be refunded by
Landlord to Tenant within 30 days after Landlord receives Tenant's termination
notice. Upon a termination of this Lease with respect to less than the entire
Premises, there shall be a pro rata reduction of Tenant's Rent obligations to
reflect such partial termination and the reduced rentable area of the Premises
(such rentable area to be determined in a manner consistent with the methods
used in calculating the rentable area of the Premises initially demised under
this Lease) and Landlord and Tenant shall promptly enter into an instrument
evidencing such partial termination; provided, that the failure to enter into
such instrument shall not affect the effectiveness of such partial termination.
In the event of any termination of this Lease under this Section 10.03, whether
as to all or a portion of the Premises, Tenant shall pay to Landlord the amount,
if any, due in accordance with Section 7.06 above. Tenant acknowledges that, in
the case of an Eviction, Tenant's sole rights to terminate this Lease by reason
of such Eviction are as expressly set forth in this Section 10.03(a) and Tenant
hereby waives all other rights at law or in equity (including, without
limitation, any right to claim a constructive eviction) to terminate this Lease
by reason of such Eviction; provided, that this sentence (i) shall not be
applicable if such Eviction occurs by reason of Landlord's bad faith acts or
(where Landlord has an affirmative obligation to act pursuant to the terms of
this Lease) omissions and (ii) shall not be deemed to constitute a waiver by
Tenant of any right that Tenant may have under this Lease or at law or in equity
to make a claim for any damages suffered by Tenant by reason of such Eviction.
Any notice given by Tenant pursuant to this Section 10.03 as to the occurrence
of an Eviction which renders all or a portion of the Premises Untenantable shall
not be effective unless such notice expressly states that such notice is being
given pursuant to this Section 10.03 and that Tenant may have the right to
terminate this Lease in accordance with the provisions of this Section 10.03.
(b) Subject to Section 7.07, "Terminated Space" means, at Tenant's election
as specified in the applicable termination notice, either (i) the entire
Premises or (ii) a portion of the Premises consisting of entire floors of the
Building (or so much of any floor as shall then be part of the Premises);
provided, that in the case of any such partial termination, (x) all floors
included within the Terminated Space shall be contiguous and (y) the Terminated
Space shall include either (I) all or any of the floors the Untenantability of
which gave rise to such termination right or (II) either the highest or lowest
floor then included in the Office Space and any other floor(s) contiguous to
such highest or lowest floor so long as the total rentable area of the
Terminated Space does not exceed the rentable area of the portion of the
Premises the Untenantability of which gave rise to such termination right. If an
Eviction occurs by reason of Force Majeure, then Tenant's sole remedies in
respect of such Eviction shall be as set forth in Sections 10.02 and 10.03 and
Tenant hereby waives all other rights or remedies at law or in equity
(including, without limitation, any right to claim a constructive eviction), if
and to the extent that Tenant may be entitled to such rights or remedies by
reason of such Eviction.
10.04 Tenant's Right to Interest on Late Payments. Any amounts payable by
Landlord to Tenant under this Lease shall be due and payable on the 30th day
after the date of invoice, unless a different due date is specified in this
Lease. If Landlord fails to pay any amount which is due and payable to Tenant
under this Lease on or before the due date therefor, Landlord shall pay interest
thereon at the Interest Rate (provided, that if Landlord fails timely to pay any
installment of the Block A and B Allowance or the Block C Allowance to Tenant,
the same shall bear interest at the Prime Rate plus 5%) from the date when such
amount became due and payable to the date of Landlord's payment of such amount;
provided, that in no event shall there be any duplication of any interest
payable by Landlord pursuant to this Section 10.04 and any other provision of
this Lease.
10.05 Tenant's Set-Off Right. (a) If Landlord fails to pay any amount which
is due and payable to Tenant under this Lease on or before the due date therefor
and such failure continues for 30 days after Tenant notifies Landlord of such
failure (which notice shall state that Tenant intends to set-off such amount
against the next installment of Rent unless Landlord pays such amount to Tenant)
(an "Offset Notice"), then, as Tenant's sole remedy (but subject to Section
10.05(b)), Tenant may set-off such amount, together with any interest accrued
thereon in accordance with Section 10.04 or the other applicable provisions of
this Lease (collectively, the "Offset Amount"), against the next installments of
Rent coming due. If any portion of any Offset Amount shall not have been
credited as of the end of the Term, Landlord, within 30 days after the end of
the Term, shall pay such amount to Tenant (but subject to Landlord's right to
offset against such unused rent credit any amounts which are then due and
payable by Tenant to Landlord). The preceding sentence shall survive the
expiration or earlier termination of this Lease. Notwithstanding the preceding
provisions of this Section 10.05(a), if Landlord, within 30 days after the
giving of an Offset Notice, notifies Tenant that Landlord disputes Tenant's
entitlement to all or any portion of the Offset Amount, specifying in such
<PAGE>
notice the reasons for such dispute and the exact amount (if less than all) that
Landlord so disputes, then Tenant shall not be entitled to so offset the Offset
Amount (or such portion thereof as is in dispute) pending resolution of such
dispute by arbitration in accordance with Section 8.09 of this Lease.
(b) If pursuant to any provision of this Lease Tenant is entitled to a
credit, for any amount owed by Landlord to Tenant under this Lease, against Rent
and such credit, together with all other such credits to which Tenant is then
entitled, exceeds the Rent which is required to be paid by Tenant for the next
calendar month, then, within 30 days after notice by Tenant to Landlord,
Landlord shall pay to Tenant the total amount of such credits.
10.06 Effect of Rejection by Landlord. Landlord and Tenant acknowledge that
this Lease is being executed and exchanged by the parties in contemplation of a
bankruptcy proceeding involving Landlord and Landlord agrees that, in connection
with any bankruptcy proceeding involving Landlord, Landlord shall not reject
this Lease. If, notwithstanding the agreement by Landlord in the preceding
sentence, in connection with any bankruptcy proceeding involving Landlord, this
Lease shall be rejected by Landlord or any legal representative of Landlord, and
if Tenant shall elect to retain its rights under this Lease under Section
365(h)(1)(A)(ii) or other then applicable provision of the Federal Bankruptcy
Code, then Tenant's occupancy of the Premises for the remainder of the Term
shall be on all of the same terms and conditions set forth in this Lease as
though such rejection had not occurred.
<PAGE>
ARTICLE 11
Tenant Antenna
11.01 Tenant Antenna. (a) Tenant may, subject to and in accordance with the
provisions of this Section 11.01, use those portions of the roof of the Building
designated on Exhibit T-1 attached hereto to install, maintain and operate one
8-foot whip antenna, three microwave dishes and one satellite dish and related
equipment, mountings and support structures (collectively, the "Antenna") and to
run lines therefrom into the Premises, as shall be reasonably required in
connection with the operation of the Antenna. Landlord shall permit Tenant to
construct a telecommunications riser along a path that is reasonably acceptable
to Landlord and Tenant to connect the Antenna to the Premises, and Landlord
shall cooperate with Tenant to provide Tenant with access to other tenants'
premises to the extent required to construct such riser. Tenant's use of the
roof of the Building is a non exclusive use and Landlord may permit the use of
any other portion of the roof by any other person for any use including
installation of other antennas and related equipment and support structures.
Landlord shall use reasonable efforts (at no cost to Tenant, subject to
reimbursement as part of Operating Expenses if and to the extent properly
includable therein) to ensure that such use does not impair Tenant's data
transmission and reception via Tenant's Antenna. Tenant shall use its reasonable
efforts to ensure that its use of the roof does not impair such other person's
data transmission and reception via its respective antennas and support
equipment. If Tenant's construction, installation, maintenance, repair,
operation or use of the Antenna shall interfere with the rights of Landlord
(including, without limitation, Landlord's right reasonably to use the remainder
of the roof) or other tenants in the Building, Tenant shall cooperate with
Landlord or such other tenants in exercising reasonable efforts in eliminating
such interference; provided, that the cost of remedying such interference shall
be borne by the party which is suffering such interference, unless such party
was using the roof in the manner suffering such interference prior in time to
the use of the Antenna in the manner causing such interference by Tenant, in
which case the cost of remedying such interference shall be borne by Tenant.
Tenant shall secure and keep in full force and effect, from and after the time
Tenant begins construction and installation of the Antenna, such supplementary
insurance with respect to the Antenna as Landlord may reasonably require,
provided that the same shall not be in excess of that which would customarily be
required from time to time by landlords of buildings of similar class and
character in New York City with respect to similar installations.
(b) Tenant shall comply with all Laws applicable to the Antenna. Landlord
makes no warranties as to the permissibility of an Antenna under applicable Laws
or the suitability of the roof of the Building for the installation thereof. If
Landlord's structural engineer reasonably deems it necessary that there be
structural reinforcement of the roof or other structural requirements in
connection with the installation of the antenna, Landlord shall perform same at
Tenant's reasonable cost within 120 days after Tenant delivers to Landlord final
plans and specifications with respect to the installation of the Antenna and
Tenant shall not perform any such installation prior to the completion of any
such structural reinforcement or other structural requirements. If Tenant
disputes the need for any such structural reinforcement or other structural
requirements or whether such need arises out of Tenant's installation of the
Antenna, then, pending the resolution of such dispute in accordance with Section
8.09, (i) Landlord shall not perform such structural reinforcement or other
structural requirements, (ii) Landlord's time period for completing such work
shall be extended by the number of days that it takes to resolve such dispute
and (iii) Tenant shall not perform the installation of the Antenna until such
dispute is resolved and any structural reinforcement or other structural
requirements determined by such arbitration as necessary are completed. The
installation of the Antenna shall be an Alteration subject to Article 4. For the
purpose of installing, servicing or repairing the Antenna, Tenant shall have
access to the roof of the Building at reasonable times upon reasonable notice to
Landlord and Landlord shall have the right to require, as a condition to such
access, that Tenant (or its employee, contractor or other representative) at all
times be accompanied by a representative of Landlord whom Landlord shall make
available upon reasonable notice (except that such accompaniment shall be
required in the case of an emergency only if practicable). All work required to
be performed to the roof and other parts of the Building outside of the Premises
in connection with the installation of the Antenna (including, without
limitation, any roof penetrations, structural modifications and reroofing) shall
be performed by Landlord at Tenant's reasonable expense.
(c) Tenant shall be responsible for all costs and expenses for maintenance
of the roof if and to the extent the same actually results from Tenant's use of
the roof for the construction, installation, maintenance, repair, operation, and
use or removal of the Antenna.
<PAGE>
(d) Notwithstanding anything to the contrary contained in this Section
11.01, Landlord may, at Landlord's expense (except as provided in the last
sentence of this Section 11.01(d)), on not less than 90 days' prior notice,
relocate the Antenna to another location on the roof of the Building, provided
that Landlord does not, except during such relocation (which shall be scheduled
at a time reasonably convenient to Tenant), either interfere with or adversely
affect the receipt of and/or transmittal of microwaves or other similar signals,
and Tenant shall cooperate in all reasonable respects with Landlord in any such
relocations. If such relocation is done pursuant to any Law, Tenant shall
reimburse Landlord for the cost thereof within 30 days after receipt of
statements therefor.
(e) The rights granted in this Section 11.01 are given in connection with,
and as part of the rights created under, this Lease and are not separately
transferable or assignable. Tenant shall use the Antenna solely in connection
with activities permitted under Section 1.05. Tenant shall not sell any services
arising out of the use of the Antenna (i) to any other tenant or (ii) to the
general public.
<PAGE>
ARTICLE 12
Corporate Retention Benefits
12.01 Incentive Benefits. Landlord hereby consents to Tenant entering into
an arrangement with agencies of the City and State of New York, including,
without limitation, the New York City Economic Development Corporation and the
Industrial Development Agency (such agencies are referred to herein collectively
as the "Agency") pursuant to which Tenant subleases the Premises to the Agency
and the Agency sub-subleases the Premises to Tenant. Landlord shall fully
cooperate with Tenant in connection with such arrangement between Tenant and the
Agency; provided, that the same shall be accomplished without Landlord being
required to incur any out-of-pocket cost or expense thereby. If such cooperation
by Landlord shall result in any out-of-pocket cost or expense to Landlord,
Tenant shall nonetheless have the right to require Landlord's cooperation in
connection therewith, provided that Tenant shall reimburse Landlord for such
out-of-pocket costs or expenses within 30 days after demand.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year first written above.
Landlord: 1290 ASSOCIATES
By: O&Y Management Corp., As Agent
By: /s/Tom Falus
--------------------------------------
Tom Falus
Executive Vice President
Tenant: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/William T. McCaffrey
-------------------------------------
William T. McCaffrey
Executive Vice President and
Chief Administrative Officer
Tenant's Federal Tax I.D. No.: 13-5570651
1290 Associates, in its capacity as the lessor ("Lessor") under the Ground Lease
(as defined in Section 6.01(c)(i) of the within Lease) hereby consents to the
within Lease and agrees, for itself and each of its successors and assigns which
is an Affiliate of the then Landlord, that in the event of the termination of
the Ground Lease, the Lease shall continue in full force and effect as a direct
lease between Lessor and Tenant, and Lessor and Tenant shall be bound to each
other under all of the terms, covenants and conditions of the Lease for the
balance of the term thereof remaining, with the same force and effect as if
Lessor were the Landlord, and Tenant does hereby (i) agree to attorn to Lessor,
as its Landlord, (ii) affirm its obligations under the Lease, and (iii) agree to
make payment to Lessor of all sums required to be paid by Tenant to Landlord
under the Lease, and Lessor does hereby (a) agree to recognize Tenant, as its
Tenant, (b) affirm all of its obligations as Landlord under the Lease, and (c)
agree to make payment to Tenant of all sums required to be paid by Landlord to
Tenant under the Lease, said attornment (recognition), affirmation and agreement
by Tenant and Lessor to be effective and self-operative without the execution of
any further instruments, upon Lessor succeeding to the interest of Landlord
under the Lease; provided, that if Lessor or Tenant requests, without implying
any obligation to do so on either party's part, Lessor and Tenant shall confirm
the attornment and recognition described herein in writing. Tenant waives the
provisions of any statute or rule of law now or hereafter in effect that may
give or purport to give it any right or election to terminate or otherwise
adversely affect the Lease or the obligations of Tenant thereunder by reason of
any termination of the Ground Lease.
1290 ASSOCIATES
By: O&Y Management Corp., As Agent
By: /s/Tom Falus
--------------------------------------
Tom Falus
Executive Vice President
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/William T. McCaffrey
-------------------------------------
William T. McCaffrey
Executive Vice President and
Chief Administrative Officer
<PAGE>
EXHIBIT A
DESCRIPTION OF LAND
All that certain plot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side of
West 51st Street with the easterly side of Avenue of the Americas (formerly
Sixth Avenue); running thence Easterly along the northerly side of West 51st
Street 448 feet to a point distant 472 feet Westerly from the corner formed by
the intersection of the northerly side of West 51st Street with the westerly
side of Fifth Avenue, thence Northerly parallel with Fifth Avenue and part of
the distance through a party wall 100 feet 5 inches to the center line of the
block between West 51st Street and West 52nd Street, thence Westerly along said
center line of the block 2 feet, thence Northerly parallel with Fifth Avenue and
part of the distance through a party wall 100 feet 5 inches to the southerly
side of West 52nd Street, at a point therein distant 474 feet Westerly from the
southwest corner of West 52nd Street and Fifth Avenue; running thence Westerly
along the southerly side of West 52nd Street 446 feet to the easterly side of
Avenue of the Americas, thence Southerly along the easterly side of Avenue of
the Americas 200 feet 10 inches to the northerly side of West 51st Street at the
point or place of BEGINNING.
A-1
<PAGE>
EXHIBIT B (B1 through B15)
FLOOR PLANS
See Exhibit AA
B-1
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The rights of each tenant in the entrances, corridors, elevators and
escalators servicing the Building are limited to ingress and egress from such
tenant's premises for the tenant and its employees, licensees and invitees, and
no tenant shall use, or permit the use of, the entrances, corridors, escalators
or elevators for any other purpose. No tenant shall invite to the tenant's
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by any other tenants. Fire exits and stairways are for emergency use only, and
they shall not be used for any other purpose by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of, any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building.
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it in its reasonable judgment deems
best for the benefit of the tenants generally.
2. Landlord may refuse admission to the Building outside of Business Hours
on Business Days to any person not known to the watchman in charge or not having
a pass issued by Landlord or the tenant whose premises are to be entered or not
otherwise properly identified, and Landlord may require all persons admitted to
or leaving the Building outside of Business Hours on Business Days to provide
appropriate identification. Tenant shall be responsible for all persons for whom
it issues any such pass and shall be liable to Landlord for all acts or
omissions of such persons. Any person whose presence in the Building at any time
shall, in the judgment of Landlord, be prejudicial to the safety of the Building
or of its tenants may be ejected therefrom. During any invasion, riot, public
excitement or other commotion, Landlord may prevent all access to the Building
by closing the doors or otherwise for the safety of the tenants and protection
of property in the Building.
3. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens which are different from
the standards adopted by Landlord for the Building shall be attached to or hung
in, or used in connection with, any exterior window or door of the premises of
any tenant, without the prior written consent of Landlord. Such curtains,
blinds, shades or screens must be of a quality, type, design and color, and
attached in the manner approved by Landlord, which approval shall not be
unreasonably withheld.
4. No lettering, sign, advertisement or notice shall be displayed in or on
the exterior windows or doors, or on the outside of any tenant's premises, or at
any point inside any tenant's premises (except in the elevator lobbies on floors
fully leased by Tenant) where the same is designed or intended to be visible
outside of such premises, without the prior written consent of Landlord. In the
event of the violation of the foregoing by any tenant and if such tenant shall
not cure such violation within 10 days after notice from Landlord, Landlord may
remove the same without any liability, and may charge the reasonable expense
incurred in such removal to the tenant violating this rule.
C-1
<PAGE>
5. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant.
6. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules.
7. No bicycles, vehicles, animals (other than seeing eye dogs to aid the
handicapped), fish or birds of any kind shall be brought into or kept in or
about the premises of any tenant or the Building.
8. No noise, including, without limitation, music or the playing of musical
instruments, recordings, radios or television, which actually disturbs other
tenants in the Building, shall be made or permitted by any tenant. Nothing shall
be done or permitted in the premises of any tenant which actually impairs or
interferes with the use or enjoyment by any other tenant of any space in the
Building.
9. No tenant, nor any tenant's contractors, employees, agents, visitors or
licensees, shall at any time bring into or keep upon the premises or the
Building any inflammable, combustible, explosive, or otherwise hazardous or
dangerous fluid, chemical, substance or material; provided, that Tenant shall
have the right to use and store such materials in the Premises so long as the
same are reasonably required for the performance of Tenant's Alterations or in
the ordinary conduct of Tenant's use and occupancy of the Premises, and, in
either of such cases, such materials are used and stored in compliance with all
Laws.
10. Additional locks or bolts of any kind which shall not be operable by
the Grand Master Key for the Building shall not be placed upon any of the doors
or windows by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said Grand Master
Key. Notwithstanding the foregoing, Tenant shall have the right to install a
separate security/access system for the Premises; provided, that Tenant delivers
to Landlord keys or other access devices which allow Landlord to always have
access to the Premises.
11. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description must take place during such hours and in such elevators, and in such
manner as Landlord or its agent may reasonably determine from time to time. The
persons employed to move safes and other heavy objects shall be reasonably
acceptable to Landlord and, if so required by law, shall hold a Master Rigger's
license. Arrangements will be made by Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building. All
out-of-pocket labor and engineering costs incurred by Landlord in connection
with any moving specified in this rule shall be paid by tenant to Landlord, on
demand, subject to Sections 3.04(c)(ii) and 4.01(a)(iv) of the Lease.
C-2
<PAGE>
12. Landlord reserves the right to inspect all objects and matter (other
than confidential documents) to be brought into the Building and to exclude from
the Building all objects and matter which violate any of these Rules and
Regulations or the lease of which this Exhibit is a part. Landlord may require
any person leaving the Building with any package or other object or matter to
submit a pass, listing such package or object or matter, from the tenant from
whose premises the package or object or matter is being removed, but the
establishment and enlargement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of such tenant. Except as may otherwise be
expressly provided in the lease to which this Exhibit is attached. Landlord
shall in no way be liable to any tenant for damages or loss arising from the
admission, exclusion or ejection of any person to or from the premises or the
Building under the provisions of this Rule or of Rule 2 hereof.
13. No tenant shall occupy or permit any portion of its premises to be
occupied as an office for a public stenographer or public typist, or for the
possession, storage, manufacture, or sale of liquor, narcotics, dope, tobacco in
any form, or as a barber, beauty or manicure shop, or as a school. No tenant
shall use, or permit its premises or any part thereof to be used, for
manufacturing, or the sale at retail or auction of merchandise, goods or
property of any kind, except for the sale of food and beverages to Tenant's
employees and invitees from vending machines in its premises.
14. No machinery or mechanical equipment other than such as are customarily
found in general, executive or administrative offices (or are customary for the
ancillary uses permitted in Section 1.05 of the lease to which this Exhibit is
attached) may be installed or operated in any tenant's premises without
Landlord's prior written consent which consent shall not be unreasonably
withheld or delayed, and in no case (even where the same are of a type so
excepted or as so consented to by Landlord) shall any machines or mechanical
equipment be so placed or operated as to actually disturb other tenants; but
machines and mechanical equipment which may be permitted to be installed and
used in a tenant's premises shall be so equipped, installed and maintained by
such tenant as to prevent any noise, vibration or electrical or other
interference from being transmitted from such premises to any other area of the
Building, which noise, vibration or electrical or other interference actually
interferes with or disturbs any other tenant or unreasonably interferes with or
disturbs Landlord.
C-3
<PAGE>
15. Landlord, its contractors, and their respective employees shall have
the right to use, without charge therefor, all light, power and water in the
premises of any tenant while cleaning or making repairs or alterations in the
premises of such tenant. If Landlord, its contractors or their employees turn on
any lights, power or water in the premises for purposes of performing such
cleaning, repairs or alterations, they shall turn the same off upon completing
such work.
16. No premises of any tenant shall be used for lodging or sleeping or for
any illegal purpose.
17. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties, unless under special
instructions from Landlord.
18. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
19. Tenant shall not cause or permit any unusual or objectionable fumes,
vapors or odors to emanate from the Premises which would annoy other tenants or
create a public or private nuisance. No cooking shall be done in the Premises
except as is expressly permitted in the Lease.
C-4
<PAGE>
20. No acids, vapors or other materials shall be discharged or permitted to
be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purposes of which they were designed or constructed, and no sweepings, rubbish,
rags, acids or other foreign substances shall be deposited therein. Subject to
the waiver of subrogation described in Section 7.03 of the Lease, all damages
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees shall have, caused the
same. Any cuspidors or containers or receptacles used as such in the premises of
any tenant, or for garbage or similar refuse, shall be emptied, cared for and
cleaned by and at the expense of such tenant.
21. All entrance doors in each tenant's premises shall be left locked and
all windows shall be left closed by the tenant when the tenant's premises are
not in use. Entrance doors on any floor not fully leased to Tenant shall not be
left open at any time. If Tenant installs a security system for the Premises,
Tenant shall provide Landlord with a reasonable number of keys/cards for access
thereto.
22. Hand trucks not equipped with rubber tires and side guards shall not be
used within the Building.
23. All windows in each tenant's premises shall be kept closed. If Landlord
shall elect to install any energy saving film on the windows of the Premises or
to install energy saving windows in place of the present windows, tenant shall
cooperate with the reasonable requirements of Landlord in connection with such
installation and thereafter the maintenance and replacement of the film and/or
windows and permit Landlord to have access to the tenant's premises at
reasonable times during Business Hours to perform such work.
24. If the Premises shall at any time be infested with vermin or rodents as
a result of the use or any misuse or neglect of the Premises by Tenant, its
agents, employees, licensees or invitees, Tenant shall cause the same to be
exterminated from time to time to the reasonable satisfaction of Landlord and
Tenant shall employ for such purpose an exterminator reasonably approved by
Landlord.
25. To the extent there is a conflict or inconsistency between the
provisions contained in the Lease or this Exhibit C annexed thereto, the
provisions of the Lease shall govern and control.
C-5
<PAGE>
EXHIBIT D
ALTERATIONS RULES AND REGULATIONS
A. General
1) Tenant will make no Alterations (as defined in the Lease), in, to or
about the Premises except in compliance with Section 4.02 of the Lease.
2) Prior to the commencement of any Alterations, Landlord and Tenant shall
perform a walk-through of the Premises to determine the existing condition of
Premises.
3) Prior to the commencement of any Alterations, Tenant shall submit for
Landlord's written approval all required items described in Paragraphs 1, 2 and
3 of Section B hereof.
4) Tenant shall ensure that the proposed Alterations comply with The
Administrative Code of The City of New York and all other laws, ordinances,
rules and regulations promulgated by all governmental agencies and bodies having
jurisdiction over such Alterations, including, without limitation, the Americans
With Disabilities Act.
5) Tenant shall ensure that all proposed Alterations comply with Building
standards listed in Section C hereof, and are adequately designed to serve
Tenant's needs while remaining in conformity with, and not adversely affecting,
any Building systems.
6) All (i) demolition or removal of construction materials, or (ii) moving
of construction materials to or from the Building, or (iii) other categories of
work which actually disturb or interfere with other Tenants of the Building or
unreasonably disturb or interfere with Building operations, must be scheduled
and performed before or after Business Hours; provided, that clause (ii) above
shall not be applicable to Tenant's initial Alterations to the Blocks. Tenant
shall provide the Building Manager with written notice at least 24 hours prior
to scheduling any Alteration, and except as may otherwise be expressly provided
in the Lease, shall pay Landlord's standard charges for overtime porters,
security, engineers and other costs incurred by Landlord in connection with such
after hours scheduling.
7) All inquiries, Tenant plans, requests for approvals, and all other
matters concerning Alterations shall be initially processed through the Building
Manager.
D-1
<PAGE>
8) Except if and to the extent expressly provided to the contrary in this
Exhibit D, Tenant shall not be required to pay any fees or other charges for any
of the obligations of Landlord set forth in this Exhibit D (subject to
reimbursement of Landlord's costs and expenses as part of Operating Expenses to
the extent properly includable therein).
B. Tenant Submittals
1) Tenant to submit, to Landlord, the following information for Landlord's
review and approval prior to commencement of any Alterations for which
Landlord's approval is required under the Lease. Landlord's review and approval
period will not commence until the Building Manager is in receipt of the
following items, as one complete package:
a) Letter of Intent to perform construction. Letter to include a brief
description of the proposed Alterations, Tenant contact, list of proposed
contractors and estimated work schedule. Such letter of intent shall not be
required with respect to Tenant's initial Alterations to the Blocks.
b) 2 sets of design drawings and specifications noting full scope of work
involved in performing such Alterations. All drawings must be signed and sealed
by Tenant's Registered Architect or Professional Engineer licensed to conduct
business in the State of New York. Part plan drawings will not be acceptable.
(i) If full height partition walls are being installed in an area that is
sprinklered, the existing sprinkler head locations must be included to show that
new partitions are not in conflict with sprinkler coverage.
(ii) If the area being altered includes existing compartmentation walls,
those compartmentation walls must be indicated on Tenant's layout.
c) A letter from Tenant's Registered Architect or Professional Engineer
stating that their design and scope of work complies with all applicable codes,
and local laws, especially noting Local Laws 16/84, 58/87, and 5/73. This letter
must be signed and include their professional seal.
d) Proper New York City Building Department filing applications, as
required, for all Alterations indicated on drawings.
2) Upon completion of Landlord's review, the following will be returned to
Tenant:
D-2
<PAGE>
a) A letter (i) granting approval to file drawings; or (ii) granting
conditional approval, subject to Tenant incorporating Landlord's comments and
suggested revisions into a revised set of design drawings (no Alterations will
commence or applications be filed until Landlord is in receipt of such revised
set of drawings); or (iii) disapproving such Alterations (it being understood
that the time period for Landlord's approval shall be governed by Section 4.02
of the Lease); and
b) If approved, or conditionally approved, Building Department applications
signed by Landlord (it being understood that the time period for Landlord's
signing such applications shall be governed by Section 4.02(h) of the Lease).
Landlord's review is for conformance with Building standards only and is not a
review for compliance with law or a review of the adequacy of Tenant's design.
No such approval, or comments shall constitute a waiver of the obligation that
Tenant's Alterations comply with all laws and receive Buildings Department or
other governmental approvals.
3) Prior to commencement of Alterations:
Tenant to submit to Landlord the following:
a) A letter or revised drawings addressing Landlord's comments, if any.
b) Approved New York City Building Department filing applications,
drawings, and all work permits for work then being performed by Tenant.
c) A final list of all contractors and subcontractors who will perform the
Alterations.
d) A work schedule noting duration of work.
e) Valid Certificates of Insurance and a Contractors Agreement signed by
each contractor with whom Tenant contracts directly, including, without
limitation, any construction manager (see Insurance Requirements in Section D
hereof).
4) Upon completion of Alterations:
Tenant to submit to Landlord, in a timely manner, the following:
a) All sign-off documents which pertain to work filed from all agencies
having jurisdiction.
b) As-built drawings or final working drawings (to the extent required
under the Lease).
c) A properly executed Air Balancing Report, signed by a Professional
Engineer (other than in connection with Tenant's initial Alterations to the
Premises).
D-3
<PAGE>
C. Building Standard Requirements
1) All structural or floor loading requirements, mechanical (HVAC),
plumbing, sprinkler, electrical, fire alarm, elevator, of any proposed Tenant
installation shall be subject to the prior approval of Landlord's consultants.
All actual out-of-pocket expenses reasonably incurred by Landlord's consultant
regarding review and approval of Tenant's design shall be at Tenant's expense;
provided, that such expenses shall not be payable by Tenant in connection with
Tenant's initial Alterations to the Blocks.
2) Landlord or its representative shall have the right to monitor all
demolition.
3) Except as otherwise may be expressly provided in the Lease, elevator
service for construction work shall be charged to Tenant at standard Building
rates. Prior arrangements for elevator use shall be made with Building Manager
by Tenant. No material or equipment shall be carried under or on top of
elevators. Except as otherwise may be expressly provided in the Lease, if
workmen (including, without limitation, Operating Engineers and Personnel
Carriers), are required by any union regulations for material or personnel
hoisting, such workmen shall be paid for by Tenant.
4) If shutdown of any mechanical or electrical risers (other than any
express risers serving only the Premises) are required, such shutdown shall be
performed by Landlord's contractors at Tenant's reasonable expense or, at
Landlord's option, supervised by Landlord's representative at Tenant's
reasonable expense; provided, that there shall be no charge to Tenant by
Landlord for such shutdown unless Tenant requests that such shutdown be
performed on an overtime basis.
5) Tenant's contractor shall:
a) have a Superintendent or Foreman on the Premises at all times;
b) police the job at all times, continually keeping the Premises orderly;
protection and maintenance will be Tenant's responsibility;
c) maintain cleanliness and protection of all areas, including elevators
and lobbies;
d) protect the front and top of all peripheral HVAC units and thoroughly
clean them at the completion of work;
e) block off supply and return grills, diffusers and ducts to keep dust
from entering into the Building air conditioning system;
f) protect all Class "E" fire alarm devices and wiring; and
g) avoid the actual disturbance of other Tenants.
D-4
<PAGE>
6) If any part of Tenant's Alteration is improperly performed, Tenant shall
be charged for the reasonable and actual cost of corrective work done by
Landlord's personnel or contractors engaged for such purpose by Landlord.
Landlord may not perform any such corrective work unless, in Landlord's
reasonable judgment, Tenant's Alteration adversely affects any Landlord
Obligation Area or any other area outside of the Premises, and Tenant is given
such notice and cure period as is reasonable under the circumstances.
7) All equipment and installations must be equal to or better than the
standards of the Building.
8) Tenant shall pay Landlord for any amounts billed in connection with any
Alteration within 30 days after receipt by Tenant of an invoice therefor
reasonably describing the charges and accompanied by reasonable back-up for the
amount invoiced.
9) Landlord's contract fire alarm service personnel shall be the only
personnel permitted to perform the final tie-in to the Class "E" System;
provided, that the rates of such personnel are reasonably competitive with rates
charged by other contractors providing such services in first-class office
buildings in midtown Manhattan.
10) During such times that Tenant's alterations or demolition of the
Premises require that fire protection afforded by the Class "E" System or
sprinkler system be disabled, Tenant, at Tenant's expense, shall maintain fire
watch service deemed reasonably suitable to Landlord, and any governmental
authority having jurisdiction.
11) Landlord, at Tenant's expense, shall repair or cause to have repaired,
any and all defects, deficiencies or malfunctions of the Class "E" System caused
by Tenant's Alterations or related demolition performed by Tenant or its
contractors. Such expense may include reasonable expenses of engineering,
supervision and standby fire watch personnel that Landlord deems reasonably
necessary to protect the Building during the time such defects, deficiencies and
malfunctions are being corrected.
12) Should Tenant desire to install its own internal fire alarm system,
Tenant shall request Landlord to connect such system to the Class "E" System at
Tenant's expense in such reasonable manner as prescribed by Landlord. Tenant
shall, at Tenant's reasonable expense, have such internal fire alarm system
approved by governmental agencies having jurisdiction, and shall submit to
Landlord an approved copy of plans of such system before initiating any
installation of such system. Tenant must demonstrate that system is in working
order prior to requesting tie-in.
13) Tenant, at Tenant's expense, shall be responsible for the maintenance
and proper operation of any Tenant Class "E" Fire Alarm sub-system.
D-5
<PAGE>
14) When Tenant's use of any space requires a change in the Certificate of
Occupancy, whether a building has a Final Certificate of Occupancy or Temporary
Certificate of Occupancy, or (as in the case of a new Building with a Temporary
Certificate of Occupancy) involves the initial inclusion of the Premises on the
Certificate of Occupancy, Tenant shall have the right to engage its own
consultant to perform such work. Tenant shall be responsible for all costs in
connection with such consultant's services, other than any costs relating to the
removal of violations or other encumbrances affecting the Building which must be
removed by Landlord in accordance with the Lease.
15) Tenant shall be responsible for keeping, on Premises, a copy of all
required Building Department approved applications, drawings, permits, and
sign-offs during and after completion of construction and shall deliver same to
Landlord upon Landlord's request (provided such request is made within 1 year
after completion of construction of the Alteration in question).
16) Tenant shall be responsible for the payment of all fines and penalties
assessed by any governmental agency and for the removal of any violations noted
by any governmental agency, in either case by reason of Tenant's failure to
obtain any governmental sign-off required for any Alteration.
17) The attachment of any work to Building window mullions, HVAC
enclosures, window soffets, will not be permitted. Notwithstanding the
foregoing, Landlord shall not unreasonably withhold its consent to any
Alteration which provides for dry wall partitions abutting the Building window
mullions or the modification of window soffets in connection with the
installation of louvers.
18) Electrical wire mold will not be permitted without written approval
from Landlord, which approval shall not be unreasonably withheld. Whips to feed
furniture panels are permitted; provided, that the same comply with all Laws.
19) Chasing of structural slab or Building masonry walls will not be
permitted unless consent is given by Landlord. Such consent shall not be
unreasonably withheld if such work will not affect space leased to, or services
provided to, another tenant or occupant of the Building. Such consent shall not
be arbitrarily withheld if such work affects space leased to, or services
provided to, another tenant or occupant of the Building.
20) The attachment of drywall metal studs or track to mechanical,
electrical, plumbing, sprinkler, or any Building systems will not be permitted.
21) All valves or equipment controlling Building systems or Tenant systems
must be tagged and identified.
22) Access doors must be provided to all Building equipment and Tenant
equipment.
23) Tenant's design consultant is responsible to ensure that base Building
systems are adequately sized to meet Tenant's requirements. Tenant shall be
responsible for alterations to any existing HVAC ductwork or system and shall
ensure that such work is integrated so as not to adversely affect the Building
system.
D-6
<PAGE>
24) All hardware is to match Building standards.
25) Tenant shall have the right to install outside louvers on the windows
of the Premises; provided, that no louvers shall be installed on any windows
facing 6th Avenue or on the first 2 windows in from 6th Avenue on the north and
south sides of the Building. Tenant shall not install any other outside louvers
without Landlord's prior written approval. Detailed sketches of all proposed
louvers shall be submitted for Landlord's approval. Such approval shall not be
unreasonably withheld if the installation of such louvers will not affect space
leased to, or services provided to, another tenant or occupant of the Building.
Such approval shall not be arbitrarily withheld if the installation of such
louvers affects space leased to, or services provided to, another tenant or
occupant of the Building.
26) Any connections to Building systems must be of the same materials as
existing Building standards.
27) All elevator devices must remain accessible for maintenance.
28) Tenant is not to mount any equipment in Building Electrical Closets,
Telephone Closets, or Mechanical Equipment Rooms without prior written approval
from Landlord, which approval shall not be unreasonably withheld provided the
floor on which such closets or rooms are located is fully leased by Tenant.
29) Tenant is responsible to ensure that all work is performed in
accordance with good construction practices.
D. Contractors Agreement; Insurance Requirements
[To be retyped on Letterhead of Tenant's contractors, addressed to
Landlord; References below to "general contractor" shall be deemed to include
any construction manager]
Tenant:
Premises:
The undersigned contractor (hereinafter called "Contractor") has been hired
by the Tenant or occupant (hereinafter called "Tenant") of the Building named
above or by Tenant's contractor to perform certain work (hereinafter called
"Work") for Tenant in the Tenant's Premises in the Building. Contractor and
Tenant have requested the undersigned Landlord (hereinafter called "Landlord")
to grant Contractor access to the Building and its facilities in connection with
the performance of the Work and Landlord agrees to grant such access to
Contractor upon and subject to the following terms and conditions:
1) Contractor agrees to indemnify and save harmless the Landlord, any
Superior Lessor and any Superior Mortgagee and their respective officers,
employees, agents, affiliates, subsidiaries, and partners, and each of them,
from and with respect to any claims, demands, suits, liabilities, losses and
expenses, including reasonable attorneys' fees, arising out of or in connection
with the Work (and/or imposed by law upon any or all of them) because of
personal injuries, including death at any time resulting therefrom, and loss of
or damage to property, including consequential damages, whether such injuries to
persons or property are claimed to be due to negligence of the Contractor or
Tenant, except to the extent specifically prohibited by law (and any such
prohibition shall not void this Agreement but shall be applied only to the
minimum extent required by law).
2) Contractor shall provide and maintain at its own expense, until
completion of Work, the following insurance:
a) Workers' Compensation and Employers' Liability Insurance covering each
and every workman employed in, about or upon the Work, as provided for in each
and every statute applicable to Workers' Compensation and Employers' Liability
Insurance.
D-7
<PAGE>
b) Commercial General Liability Insurance Including Coverage for Completed
Operations, Broad Form Property Damage "XCU" exclusion if any deleted, and
Contractual Liability (to specifically include coverage for the indemnification
clause of this Agreement) for not less than the following limits:
Combined Single Limit
Bodily Injury and
Property Damage Liability: $5,000,000 (for Tenant's general
contractor and all Major Trade
contractors) and $1,000,000
(for all non-Major Trade
contractors), in each case written
on a per occurrence basis.
"Major Trades" means HVAC,
------------
electric, sprinkler and plumbing.
c) Commercial Automobile Liability Insurance (covering all owned, non-owned
and/or hired motor vehicles to be used in connection with the Work) for not less
than the following limits:
Bodily Injury: $5,000,000 (for Tenant's
general contractor and all Major
Trade contractors) and
$1,000,000 (for all non-Major
Trade contractors), in each case
per person
$5,000,000 (for Tenant's general contractor
and all Major Trade contractors)
and $1,000,000(for all non-Major Trade
contractors), in each case per occurrence
Property Damage: 5,000,000 (for Tenant's
general contractor and all Major
Trade contractors) and
$1,000,000 (for all non-Major
Trade contractors), in each case
per occurrence
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that it has
complied with the above requirements regarding insurance and providing that the
insurer will give Landlord 10 days prior written notice of the cancellation of
any of the foregoing policies. Such insurance may be carried under blanket
and/or umbrella policies covering the Building and/or the Work and other work
sites of Contractor; provided, that each such policy shall in all respects
comply with this Exhibit D, shall specify that the portion of the total coverage
of such policy that is allocated to the Building and/or the Work is in the
amounts required pursuant to this Exhibit D and shall provide that the amount of
coverage afforded thereunder with respect to the Building and/or the Work shall
not be reduced by claims thereunder against such other work sites of Contractor.
3) Contractor shall require all of its subcontractors engaged in the Work
to provide the following insurance:
a) Commercial General Liability Insurance Including Protective and
Contractual Liability Coverage with limits of liability at least equal to the
above stated limits.
D-8
<PAGE>
b) Commercial Automobile Liability Insurance (covering all owners,
non-owned and/or hired motor vehicles to be used in connection with the Work)
for not less than the following limits:
Bodily Injury: $5,000,000 (for Tenant's
general contractor and all Major
Trade contractors) and
$1,000,000 (for all non-Major Trade contractors),
in each case per person
$5,000,000 (for Tenant's general contractor and
all Major Trade contractors) and $1,000,000(for
all non-Major Trade contractors), in each case
per occurrence
Property Damage: $5,000,000 (for Tenant's
general contractor and all Major
Trade contractors) and
$1,000,000 (for all non-Major
Trade contractors), in each case
per occurrence
Agreed to and executed this day of , 19 . ---------- --------------------
- -----
Landlord: Contractor:
D-9
<PAGE>
EXHIBIT E
STANDARD CLEANING SPECIFICATIONS
All cleaning services except those performed by day porters, window
cleaners and matrons are to be performed nightly, 5 nights per week (except as
herein otherwise provided). No Saturday, Sunday or Holiday service.
Holiday are to be those days designated by the applicable Building service
union agreements, however, on "Holidays" other than New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, a cleaning crew will be provided by Contractor to empty waste
paper baskets, ash trays and remove rubbish in tenanted areas throughout the
Building and prepare public areas for the next business day that building is
open. (Such reduced service is "blitz cleaning," which will be provided at no
cost to Tenant.)
Sufficient day porters and matrons will be assigned to the Building to
perform daily tasks as specified below. However, one of such day porters will be
assigned to the Building on a Tuesday to Saturday work schedule. Competent
supervisors will be assigned to the Building both day and night. Supervisors
shall not leave until work is completed and they must check that all lights are
turned out, windows closed, doors locked and offices left in a neat, orderly
condition after nightly cleaning. Head day porter is not to act as daytime
on-site supervision.
Contractor will provide Building manager with a schedule of cleaning
services (e.g., high dusting) not performed daily or weekly ("projects") to
allow verification that work is completed in accordance with the Specifications.
TENANT SPACE
------------
In tenant areas, Contractor's employees will work behind locked doors, and
will only open a door for members of their cleaning crew who have been assigned
to remove rubbish or other like material from tenant's premises during the
nighttime cleaning operation.
The nighttime supervisor will verify that the work has been completed in
all tenant areas, that all venetian blinds have been lowered and set in a
uniform appearance, that all lights have been turned off, windows closed, doors
locked and offices left in a neat and orderly appearance for the next day's
business.
TENANT OFFICES AND WORK SPACE (INCLUDING TENANT ELEVATOR LOBBIES)
Hand dust and wipe clean with damp or treated cloth all furniture, file
cabinets, fixtures, horizontal surfaces of window frames, window sills and
convector enclosure tops nightly; wash said sills and tops when necessary. Dust
all chair rails, trim and baseboards as necessary, but at least weekly.
Empty all waste receptacles nightly, provide liners at no cost to Tenant,
and deliver the waste paper and waste materials to locations designated by
Customer. Contractor is to separate, bale and/or deposit the building waste
material in mechanical compactor, if applicable, or other designated areas, for
removal at no additional expense to Customer. Contractor will supply all bags
and related equipment necessary for a proper rubbish removal operation each
night.
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<PAGE>
If, in compliance with NYC recycling laws, tenant separates refuse at
source, Contractor will remove such refuse in accordance with such procedure.
Damp wipe all waste receptacles nightly.
Empty and clean all ashtrays nightly. Dust and wipe clean all telephones
nightly.
All venetian blinds to be lowered and set in a uniform appearance nightly
on all floors.
All uncarpeted flooring to be swept nightly, using approved dust-down
preparation, and damp mopped as needed.
All carpeting and rugs to be vacuum cleaned nightly.
Dust all door louvers and other ventilating louvers within reach nightly.
Clean all unpainted metal and remove fingerprints nightly, treat as
necessary.
Wash clean all water fountains and coolers nightly.
High dusting--done quarterly (unless specified otherwise in tenant lease),
including:
Dust all pictures, frames, charts, graphs, and similar wall hangings
not reached in nightly cleaning, except those works identified by
Tenant.
Dust clean all vertical surfaces, such as walls, partitions, doors,
and bucks and other surfaces not reached in nightly cleaning except as
otherwise herein provided.
Dust clean all pipes, ventilating and air conditioning louvers, ducts,
high moldings and other high areas not reached in nightly cleaning.
Dust all exterior surfaces of light fixtures, including glass and
plastic enclosures. Wash interior and exterior of lighting fixture
lenses annually.
Dust and inspect all venetian blinds.
Vacuum clean or replace (as directed by Builing manager) lint screens in
all perimeter HVAC enclosures semi-annually, if Building has such perimeter
units. At same time, vacuum clean coils/fins and nozzles.
E-2
<PAGE>
PRIVATE STAIRWELLS
Vacuum all carpeted private stairwells nightly and keep in clean condition.
Uncarpeted stairwells should be vacuumed or swept nightly using approved
dust-down preparation.
Certain ELAS rooms (to be identified by Tenant) will be off limits to
Contractor's cleaning personnel.
COMMON AREAS (BASE BUILDING)
----------------------------
SIDEWALKS AND PLAZAS
Remove gum and spot clean daily. Steam or power clean daily, autoscrub
weekly, temperatures permitting. Keep drain screens free of accummulated debris.
Clean subway grates, if any, monthly.
Day porter to keep all sand urns and equivalent fixtures screened and
clean. Screen and clean same nightly.
Remove snow from all regular and emergency Building entrances and
approaches; remove snow at curbs in front of the Building entrances to allow
adequate access by vehicles. Remove snow from concrete walkways immediately
adjacent to the Building, all as and when required, at no additional charge to
Customer. All entrances, exits, driveways, walkways (including plaza walkways if
applicable), and crosswalks are to be made accessible and kept clean all times.
Snow removal should not hamper water flow to street catch basins.
Day porter to keep exterior planting areas in clean condition.
EXTERIOR METAL, GLASS, AND POLISHED STONE
Day porter to maintain exterior granite and metalwork up to first
horizontal caulking joint above retail store fronts. Porter will also wipe down
and maintain in clean condition, metal in Building entrance doors, store front
trim, exterior window frames and mullions, standpipe and sprinkler siamese
connections, and hose bibs. Generally, porter will properly maintain the
exterior of the building so that there is uniformity of color and brightness at
all times. Graffitti and marks will be removed immediately.
LOBBY (INCLUDING GROUND FLOOR LOBBY AREA WITHIN TENANT'S CONTROLLED ELEVATOR
-------------------------------------------------------------------------
BANKS)
- ------
All stone, ceramic tile, marble, terrazzo and other unwaxed or untreated
flooring to be swept nightly, using approved dust-down preparation; machine
scrub such flooring nightly and polish as necessary, but at least once a week to
produce appearance satisfactory to Owner. All linoleum, rubber, asphalt tile and
other similar types of flooring (that may be waxed or treated) to be swept
nightly, using approved dust-down preparation. Such flooring in public areas to
be waxed or treated in approved manner as necessary, but at least once a month.
E-3
<PAGE>
All carpeting and rugs to be spot cleaned and vacuum cleaned nightly.
Shampoo carpeting to maintain appearance satisfactory to Customer, not less than
quarterly.
Wash all entrance mats as necessary to maintain clean condition and
appearance.
Clean all unpainted metal and remove fingerprints nightly, treat as
necessary. Polish all lobby entrance door push bars nightly, Wipe clean nightly
and polish as necessary all brass and other bright work.
Damp wipe all waste receptacles nightly.
Horizontal louvers to be dusted, spot cleaned, treated to maintain a
uniform appearance. Dust all door and other ventilating louvers within reach
nightly.
Day porter to maintain lobby floor in a clean condition throughout day and,
during wet weather, keep entrance mopped dry. Day porter to lay down, remove and
clean lobby rain mat runners as necessary.
Day porter to rub down Building directory daily.
Vertical surfaces, such as walls, partitions, doors, and bucks, of all
corridors and lobbies to be dusted, spot cleaned, treated and polished as
necessary.
Clean lights, globes, lenses and fixtures (including glass, metal and
plastic lenses and enclosures) in lobby, public areas, and maintenance areas as
often as necessary.
Day porter to keep lobby and planting areas in clean condition.
PUBLIC CORRIDORS
All carpet installed throughout the public corridor of the building will be
vacuumed nightly, spot cleaned nightly, and shampooed to maintain an appearance
suitable to Customer.
All stone, ceramic tile, marble, terrazzo and other unwaxed or untreated
flooring to be swept nightly, using approved dust-down preparation; machine
scrub such flooring daily and polish as necessary, but at least once a week to
achieve appearance satisfactory to Owner. All linoleum, rubber, asphalt tile and
other similar types of flooring (that may be waxed or treated) to be swept
nightly, using approved dust-down preparation. Such flooring in public areas to
be waxed or treated in approved manner as necessary, but at least once a month.
E-4
<PAGE>
Horizonal louvers to be dusted, spot cleaned, treated to maintain a uniform
appearance. Dust all door and other ventilating louvers within reach nightly.
Clean all unpainted metal and remove fingerprints nightly, treat as
necessary. Wipe clean nightly and polish as necessary all brass and other bright
work.
Contractor to clean public corridors and facilities.
LAVATORIES AND REST ROOMS (INCLUDING ALL CORE LAVATORIES SERVING FULL FLOOR
TENANTS)
Check all bathroom fixtures for leaks, clogs, and proper operation nightly.
Report any deficiencies to Building manager daily.
Scour, wash and disinfect all basins, bowls, and urinals nightly; odorless
disinfectants to be used.
Wash all toilet seats both sides nightly.
Hand dust and clean, washing where necessary, all partitions, tile walls,
dispensers and receptacles in all lavatories and rest rooms nightly. Thoroughly
wash and polish all wall tile and stall surfaces as necessary but no less than
once a week.
Sweep and wash all lavatory and rest room floors nightly, using approved
disinfectants. Wash and polish all mirrors, powder shelves, bright work and
enameled surfaces in all lavatories and rest rooms nightly. Machine scrub rest
room floors with disinfectants weekly.
Empty paper towel and sanitary napkin disposal receptacles nightly. Deliver
waste paper and waste materials to location designated by the Customer.
Fill all toilet tissue holders nightly (tissue to be furnished by the
Owner). Fill toilet seat cover dispensers, if any, nightly (covers to be
provided by tenant or Contractor).
Wash waste cans, towel dispensers, and receptacles as necessary to keep
them clean and odor free, but at least once a week.
Fill soap dispensers and paper towel dispensers nightly as required (soap
and paper towels to be furnished by Contractor or Owner at no expense to
tenant.)
Day porter to check all bathroom walls and partitions for graffiti daily
and remove same immediately.
E-5
<PAGE>
Day porter to inspect and service men's lavatories and rest rooms (tissue
to be furnished by Owner) as necessary at no cost to Tenant.
Day porter to fill soap dispensers and paper towel dispensers in men's
lavatories and rest rooms (soap and paper towels to be furnished by the
Contractor or Owner at no cost to the tenant). If required, waste cans and
receptacles to be emptied. Lavatories and restrooms to be visited and policed a
minimum of once in the morning and once in the afternoon.
Sufficient day matrons will be assigned to the Building inspect all ladies'
lavatories and rest rooms at least twice a day. They will insert toilet tissue
(tissue to be furnished by the Owner). They will also service sanitary npakin
dispensers with sanitary napkins furnished by the Contractor. Fill soap
dispensers and paper towel dispensers in ladies' lavatories and rest rooms (soap
and paper towels to be furnished by the Contractor or Owner at no cost to the
tenant).
ELEVATORS
Day porter will keep elevator cars and escalators clean and neat during the
day.
Elevator cab floors are to be treated with same methods and frequencies as
comparable lobby floor surfaces. For example, if carpeted, vacuum and spot clean
nightly, shampoo as necessary to maintain appearance satisfactory to Customer.
Elevator cab walls, metal work, and saddles to be dusted and rubbed down
nightly.
Interior and exterior of metal car and hatch doors (including saddles) of
all elevators to be properly cleaned and treated. Saddles to hand rubbed and
polished nightly.
Day porter to dust and rub down all elevator doors, frames.
STAIRWELLS
Police all public stairwells throughout building daily and maintain in
clean condition. Wet mop floors and stairs as required, but at least once a
month. Wash quarterly. Wipe down handrails and posts weekly.
Day porter to dust and clean fire hoses monthly, report any obvious damage
to Building manager immediately.
Day porter to keep public staircases policed during the day.
LOADING DOCK
Day porter to sweep loading dock, trucking area, etc., daily.
Contractor will scrub and steam-clean loading dock walls and floors and
ceilings as necessary, but at least weekly,
E-6
<PAGE>
Night porter to clean truck dock and ramps.
Night porter to separate, bail and/or deposit waste paper and rubbish as
directed by Customer in the loading dock area compactor or in area designated by
Customer for removal by others.
ROOF AND SETBACK ROOFS
Day porter to police and sweep, where possible, roof and setbacks weekly
(weather permitting). Clean out roof drains weekly.
LOCKER ROOMS AND STOREROOMS
Keep locker rooms storerooms, and slop sink rooms in a neat and orderly
condition at all times.
MECHANICAL EQUIPMENT ROOMS
Porter will keep fan rooms, motor rooms, electric closets, telephone
closets and air conditioning rooms in neat and clean condition. Electric and
telephone closets to be policed weekly. Police, sweep, and mop engine rooms as
necessary, but at least monthly. Maintain all drain screens free of debris.
GARAGES
Night porter to police and broom sweep any private garage areas operated by
Customer and maintain appearance suitable to Customer. Floors and walls to be
steam cleaned or hosed down monthly. Maintain all drain screens free of debris.
INITIAL CLEANING REQUIREMENTS
Contractor shall provide an "initial cleaning" for newly occupied tenant
areas and for any public building areas subsequent to major renovations as per
the specifications set forth below at no additional cost to owner.
1. Scrub all floors and wax resilient floors.
2. Wipe finger marks and dust from painted metal and other partitions and
doors. Remove packing material where encountered.
3. Vacuum clean carpets and rugs.
4. Wash, clean and vacuum all air conditioning units and enclosures, inside
and outside along perimeter and interior areas of the Building.
E-7
<PAGE>
5. Clean and set all venetian blinds for uniform appearance.
6. Dust lighting fixtures, inside and outside.
7. Wash and scrape clean all windows, inside and outside, partition glass,
glass doors, mail chutes and directory boards.
8. Clean metal window frames and surrounding metal, inside and outside. Clean
exterior curtain wall column cover, sills and spandrels.
9. Remove existing packing material and clean elevator floors, walls,
ceilings, panels, doors, hoistway entrance frames and doors and lighting
and signal fixtures.
10. Remove existing packing material and clean all escalators including steps
and maintain metal in uniform bright appearance.
11. Scrub, wash, dust and scrape all toilet room floors, walls, partitions,
fixtures and accessories. Polish all bright work, tile walls, partitions
and install supplies prior to tenant occupancy.
12. Prepare areas to be occupied, in advance of moving date as required by
Building manager and re-clean after tenants move in for first business
day.
13. Scrub and mop main floor lobby and clean public areas continuously upon
completion of renovation.
14. Clean sidewalks, driveways, loading dock and garage areas which have been
released by construction contractor.
E-8
<PAGE>
WINDOW CLEANING SERVICE
-----------------------
All windows, and fixed glass from 2nd floor up to and including roof to be
cleaned inside and outside approximately once every five weeks, weather
permitting. Other polished surfaces and spandrels which can be cleaned by
squeegee once a year.
Damp wipe all interior metal window frames, pilasters and other unpainted
interior metal surfaces of the perimeter walls of the building each time window
interiors are washed. Clean these surfaces annually with a suitable cleaning
solution to obtain results satisfactory to Building manager. Plaster walls or
other surfaces adjacent to these window frames to be prtected from staining or
damage; if damage occurs, Contractor to restore areas to original condition.
Entrance doors and lobby glass to be cleaned twice daily and kept in clean
condition at all times during the day.
Exterior store front glass to be cleaned weekly.
A daily work slip to indicate location and amount of windows cleaned and
panels of interior-partition glass cleaned will be provided to Customer's
representative to enable verification of services performed.
Contractor to provide necessary labor and materials to properly maintain
and operate all window cleaning rigs (Customer's and/or Contractor's) at all
times. Contractor will be responsible to insure that rigs meet all Federal,
State, and City regulations governing use and operation of window cleaning rigs,
including operation and maintenance of a radio communication system (walkie
talkie) compatible with Building radio communications system.
Wherever in this Exhibit E reference is made to Customer or Owner, this
shall be taken to mean the Landlord.
E-9
<PAGE>
EXHIBIT F
LANDLORD'S WORK
Landlord shall (i) perform each of the items of work described below and
(ii) in the case of each item below which is not a condition to delivery of the
applicable Block, substantially complete each item of work on or before the date
designated therefor.
<TABLE>
<CAPTION>
ITEM OF WORK CONDITION TO DELIVERY
Block A Block B Block C
<S> <C> <C> <C> <C>
1. Demolish all applicable space from slab-to-slab, yes yes yes
including without limitation, all interior
partitioning, hung ceilings and support systems, lighting, floor tile and
glue, carpeting and padding, unused conduits, cables, plumbing lines,
miscellaneous steel, duct work, the partitions and doors at the elevator
lobbies, plumbing fixtures, all electrical closets which are not base
Building electrical closets and removal of materials (i.e., other than
paint) which have been applied to convector enclosures. All existing
horizontal cables and all conduits and wiring in electric and telephone
closets shall be cleaned out. The applicable space shall be delivered free
of debris and in broom-clean condition. Any damaged fireproofing on the
columns shall be repaired.
2. Landlord shall provide in the stairwell adjacent to yes yes yes
the electrical closet on each applicable floor at
least 2 points on each floor for Tenant to tie into the Building's Class E
System. All existing fire and safety systems in the applicable space,
including alarms, speakers, communications, etc. shall be in working order
and comply with applicable code (other than any compliance required by
reason of Tenant's Alterations). Landlord shall provide a riser with
sufficient power for all speakers and strobes required by Laws, including
ADA. Landlord shall leave all existing speakers and strobes in place.
3. Landlord shall provide all necessary infrastructure yes yes yes
with a sufficient sprinkler capacity and reserve to
the applicable space so as to enable installation in such space of a
sprinkler system compliant with NYC building code. Tenant acknowledges that
a 20 minute reserve will be provided. Landlord shall deliver valve
connections to the main sprinkler line on each applicable floor. The main
sprinkler loop on each floor of the Premises, if not already installed,
shall be installed by Tenant.
4. Landlord shall deliver main HVAC supply duct and yes yes yes
return opening to the core wall on each floor,
including fire dampers.
5. The induction units in the applicable space shall be yes yes yes
cleaned and vacuumed.
F-1
<PAGE>
6. Landlord shall balance all induction units and no - 15 Business no - 15 days after no - 15 days after
deliver a balancing report to Tenant for review by Days after Tenant Tenant notifies Tenant notifies
Tenant's engineers. notifies Landlord Landlord of Landlord of
of substantial substantial substantial
completion of completion of completion of
Tenant's initial Tenant's initial Tenant's initial
Alterations in the Alterations in the Alterations in the
applicable space applicable space applicable space
7. Repair and close off the internal stairwell slab-cuts yes - as to yes - as to the N/A
between the 22nd and 23rd floors. Repair and close stairwell slab-cut, mezzanine and
off the mezzanine and two internal stairwell slab-cuts structural supports stairwell
between the 12th and 13th floors. The replaced slabs and columns between slab-cuts,
shall have a load bearing capacity not less than the the 22nd and 23rd structural supports
capacity for such space permitted by the certificate floors and columns between
of occupancy for the Building. The structural the 12th and 13th
supports shall be fireproofed and shall provide the floors
same above ceiling clearances as available on the
balance of the floor. If columns need to be
installed, they shall be lined up with existing
columns on contiguous floors of the Building.
8. Landlord shall furnish all required yes yes yes
firestopping/fireproofing on walls, floors, ceilings
and structural steel.
9. All exposed piping is to be enclosed and insulated as yes yes yes
required to meet New York City Codes, including
Building, Fire and Electrical Codes.
10. All windows shall be weathertight with all broken and yes yes yes
chipped glass replaced.
11. Landlord shall remove all asbestos, asbestos yes yes yes
containing materials and other hazardous materials, if
any, from the applicable space and other areas in which Tenant will be
performing work (other than shafts and mechanical rooms), refireproof the
applicable space and such other areas after removal of asbestos and deliver
an ACP-5 Certificate (multiple originals) to Tenant for each portion of the
Premises. All asbestos removal shall be performed by a licensed removal
company.
12. Landlord shall not be required to perform a complete no - 30 days after no
- 30 days after no - 30 days after removal of asbestos from the shafts and
mechanical Tenant designates Tenant designates Tenant designates rooms in
which Tenant shall be performing work, the portions of the the portions of
the the portions of the provided, however, Landlord shall perform a spot
shafts and shafts and shafts and abatement of the affected area, so Tenant
is not mechanical rooms in mechanical rooms in mechanical rooms in
performing work in an asbestos condition. which work is to be which work is
to be which work is to be performed performed performed
13. All local law 5 devices are to be left in place, yes yes yes
temporarily supported.
14. Landlord will provide sufficient hose cabinets on each yes yes yes
applicable floor (after demolition is completed) at
locations with the core areas to comply with Code.
15. The weatherstripping on all doors, if any, opening to yes yes yes
the exterior shall be weathertight.
F-2
<PAGE>
16. Landlord shall replace all solar film on the windows no - 30 days after no
- 10 days after no - 6 days after in the applicable space which are shown
as damaged on notice from Tenant notice from Tenant notice from Tenant a
punch list prepared by Landlord and Tenant after to Landlord to Landlord to
Landlord completion of demolition and before the commencement (provided
such (provided such (provided such of Tenant's work in such space, with new
P-19 film notice may not be notice may not be notice may not be
manufactured by 3M. given before such given before such given before such
space is delivered space is delivered space is delivered
to Tenant). to Tenant). to Tenant).
17. Landlord shall be responsible for ADA compliance with yes yes yes
respect to fire pull stations, warden stations,
elevator call buttons and hall lanterns in the core areas on each
applicable floor.
18. Landlord shall provide building standard venetian yes yes yes
blinds for all windows in the applicable space.
19. Landlord shall install a valved outlet on the base no - 30 days after N/A N/A
Building steam riser at a location designated by Tenant notifies
Tenant. Landlord of the
location
accompanied by
applicable plans
20. There shall be no violations against the Building yes yes yes
which would delay Tenant from obtaining a building
permit for the performance by Tenant of Tenant's
initial Alterations.
21. Landlord shall provide Tenant with 2 scfms of yes N/A N/A
compressed air for Tenant's supplemental
air-conditioning requirements at a valved outlet in
close proximity to the 17th floor setback.
22. Landlord shall install submeters to measure Tenant's no - 60 days after no - 60 days after yes
consumption of electricity in the applicable space, delivery of delivery of
except for Tenant's express riser to the 15th floor applicable space to applicable space to
UPS system. Tenant Tenant
23. Landlord shall provide an express riser, terminating N/A N/A no - 60 days after
with a disconnect switch, with all associated delivery of space
transformers (which need not be "K" type) and panels to Tenant
to an electrical closet designated by Tenant on the
11th floor. Riser will consist of one set of four 500
MCMCU.
F-3
<PAGE>
24. Landlord shall install isolation dampers on all no - the later of yes yes
applicable floors and modify fans for variable speed March 1, 1996 and
drive. the date Landlord
delivers the
applicable space to
Tenant.
25. All induction units shall be in working condition yes yes yes
(consistent with the original specifications
therefor), including all piping, valves and
thermostats.
26. Landlord shall demolish the bathrooms on the 11th N/A N/A yes
floor which are located outside the core of the
Building.
27. Landlord shall provide additional power via an express February 15, 1996 N/A N/A
riser from the basement to a disconnect switch to be
identified by Tenant on the 15th floor for Tenant's
telecommunications room requirement. This riser will
be provided from the new westerly service take-off
located in the switch gear room. Landlord shall
install an electric meter with respect to such riser.
28. Landlord shall provide the necessary roughing for the N/A N/A yes
11th core toilet either in accordance with base
Building plans or reasonably modified therefrom to accommodate the
telecommunications room immediately below on the 10th floor (e.g., fixtures
may be wall mounted instead of floor mounted) and Tenant's design criteria.
</TABLE>
F-4
<PAGE>
EXHIBIT G
HVAC SPECIFICATIONS
The Building heating, ventilation and air conditioning system shall be capable
of maintaining (a) 76+2 degrees Fahrenheit dry bulb & 50% relative humidity when
outdoor conditions are 95 degrees Fahrenheit dry bulb and 74 degrees Fahrenheit
wet bulb and (b) 70 degrees Fahrenheit dry bulb when outdoor conditions are 0
degrees Fahrenheit dry bulb, and shall maintain ventilation for minimum outside
fresh air make-up rates of 0.25 CFM per usable square foot. Total air
distribution shall not be less than 1 CFM per usable square foot. Building air
conditioning supply air systems shall be provided with minimum 45-55% efficiency
air filters. The above design is based upon (i) an electrical heat dissipation
load of 5.3 watts per usable square foot, (ii) occupancy rate of 1 person per
100 usable square feet, and blinds drawn to 45 degrees in the exposures subject
to direct solar radiation. Interior conditions include both perimeter and
interior spaces and anticipate a ceiling height of 8'-0" above the finished
floor. The base Building interior air handling system shall deliver the supply
air at a temperature not to exceed 55(0)F at the supply air shaft, tapped to
each floor at a minimum static pressure of 1.25 w.g.
G-1
<PAGE>
EXHIBIT H
RSF AND TENANT'S SHARE
TAX OPERATING
FLOOR RSF SHARE SHARE
7 91,684 4.7486% 4.9547%
8 50,533 2.6172% 2.7308%
9 77,554 4.0167% 4.1911%
10 78,008 4.0402% 4.2156%
11 79,288 4.1065% 4.2848%
12 72,023 3.7303% 3.8922%
13 63,505 3.2891% 3.4319%
14 47,900 2.4809% 2.5886%
15 48,453 2.5095% 2.6184%
16 47,903 2.4810% 2.5887%
17 23,051 1.1939% 1.2457%
18 24,380 1.2627% 1.3175%
19 24,380 1.2627% 1.3175%
20 23,035 1.1930% 1.2448%
21 24,281 1.2576% 1.3122%
22 24,281 1.2576% 1.3122%
23 24,281 1.2576% 1.3122%
PRIMARY CONCOURSE SPACE 10,051 0.5206% 0.5432%
SECONDARY CONCOURSE SPACE 523 0.0271% 0.0283%
H-1
<PAGE>
EXHIBIT I
FORM OF LANDLORD'S STATEMENT
DATE
RE: TENANT NAME SQ. FT
- --------------------------------------------------------------------------------
In accordance with the terms of your lease, tenant shall pay its proportionate
share of the increase in actual operating costs over the base year.
General Operating Costs For Operating
Year Ended $
Base Year Amount ___________
Increase over Base Year
Tenant's Proportionate Share
___________%
Annual Escalation Amount
I-1
<PAGE>
STATEMENT OF OPERATING COSTS
YEAR ENDING DECEMBER 31, 1994
PAYROLL and RELATED EXPENSES $ 2,448,071
PORTER SERVICES 3,480,017
ELECTRIC SERVICES 4,598,628
STEAM 965,640
WATER 203,462
REPAIRS & MAINTENANCE 1,353,294
RUBBISH REMOVAL 417,474
INSURANCE 361,498
MISCELLANEOUS 88,193
MANAGEMENT FEES 2,037,742
PROFESSIONAL FEES 166,027
---------------
16,120,046
COST OF TENANTS' ELECTRICITY (2,482,992)
COST OF TENANTS' SERVICES (558,447)
---------------
$ 13,078,607
===============
I-2
<PAGE>
EXHIBIT J
ELECTRICAL SPECIFICATIONS
Landlord shall provide, at the electrical closets on each floor of the
Office Space, the following amperes of electrical service:
- --------- ----------- -------------- -------------
FL ELEC BASE BLDG SUPPL
CLOSET AMPERES AMPERES
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
22 1 200 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
21 1 200 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
20 1 175 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
19 1 200 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
18 1 200 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
17 1 175 0
- --------- ----------- -------------- -------------
- --------- ----------- -------------- -------------
16 1 200 0
- --------- ----------- -------------- -------------
----------- -------------- -------------
4 175 0
----------- -------------- -------------
----------- -------------- -------------
5 175 0
----------- -------------- -------------
6 100 0
- --------- ----------- -------------- -------------
650
- --------- ----------- -------------- -------------
15 1 150 0
- --------- ----------- -------------- -------------
----------- -------------- -------------
4 175 0
----------- -------------- -------------
----------- -------------- -------------
5 175 0
----------- -------------- -------------
----------- -------------- -------------
6 100 0
- --------- ----------- -------------- -------------
600
- --------- ----------- -------------- -------------
J-1
<PAGE>
14 1 200 0
----------- -------------- -------------
- --------- ----------- -------------- -------------
4 175 0
----------- -------------- -------------
----------- -------------- -------------
5 175 0
----------- -------------- -------------
----------- -------------- -------------
6 100 0
- --------- ----------- -------------- -------------
650
- --------- ----------- -------------- -------------
13 2 100 0
----------- -------------- -------------
- --------- ----------- -------------- -------------
3 100 0
----------- -------------- -------------
----------- -------------- -------------
4 125 0
----------- -------------- -------------
----------- -------------- -------------
5 125 0
----------- -------------- -------------
----------- -------------- -------------
6 125 600
- --------- ----------- -------------- -------------
575
- --------- ----------- -------------- -------------
12 2 125
----------- -------------- -------------
- --------- ----------- -------------- -------------
3 125
----------- -------------- -------------
----------- -------------- -------------
4 125
----------- -------------- -------------
----------- -------------- -------------
5 125 800
----------- -------------- -------------
----------- -------------- -------------
6 125
- --------- ----------- -------------- -------------
625
- --------- ----------- -------------- -------------
11 2 125
----------- -------------- -------------
- --------- ----------- -------------- -------------
3 125
----------- -------------- -------------
----------- -------------- -------------
4 125 400 1
----------- -------------- -------------
----------- -------------- -------------
5 125
----------- -------------- -------------
----------- -------------- -------------
6 150
- --------- ----------- -------------- -------------
650
- --------------------- -------------- -------------
TOTAL 4,900 1,800
- --------------------- -------------- -------------
BASE BUILDING & SUPPLEMENTAL AVAILABLE POWER IS BASED ON SWITCH SIZE
1 Such supplemental power shall be located in an electrical closet on the
11th floor to be designated by Tenant.
J-2
<PAGE>
EXHIBIT K
FORM OF ASSUMPTION AGREEMENT
Assignment and Assumption of Lease, dated as of the ____ of ________, ____,
between __________________________ ("Assignor") and ____________________
("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor is the tenant under that certain lease dated
_____________, between 1290 Associates, as landlord, and Assignor, as tenant
(the "Lease"), covering the entire 11th through 22nd floors and a portion of the
concourse floor of a building known as 1290 Avenue of the Americas located in
New York, New York;
WHEREAS, Assignor desires to assign all of its interest in the Lease to
Assignee and Assignee desires to assume all Assignor's obligations under the
Lease, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignor hereby assigns to Assignee all of Assignor's right, title and
interest in, to and under the Lease, effective as of ___________ (the "Effective
Date").
2. Assignee, for the benefit of Assignor and the landlord, hereby assumes,
and agrees to be bound by and to perform, all of the covenants, agreements,
terms, provisions and conditions on the part of the tenant under the Lease to be
kept, performed and observed from and after the Effective Date.
3. This Assignment and Assumption of Lease shall be binding upon and inure
to the benefit of the parties' respective successors and assigns.
K-1
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and
Assumption of Lease as of the day and year first above written.
Assignor
----------------------------
By:__________________________
Name:
Title:
Assignee
----------------------------
By:__________________________
Name:
Title:
K-2
<PAGE>
EXHIBIT "L"
BUILDING SECURITY SPECIFICATIONS
SECURITY PROCEDURES
During the hours of 8 a.m. to 6 p.m. people can freely access and leave the
building without signing a log sheet or show identification. Security measures
are left to each tenant's discretion within their premises. This does not apply
to delivery or messenger personnel.
Messenger and delivery personnel are diverted by signage or lobby security
to the front desk where they are asked to show ID and sign in on a "MESSENGER
LOG SHEET".
If a messenger or delivery person refuses or is unable to produce a valid
company ID, they are not permitted into the building.
At that point, so as to minimize any inconvenience (caused by an
uncooperative messenger) to a tenant, security is instructed to call the tenant
expecting the package to ask them to meet the messenger in the lobby.
During non-business hours (6 p.m. to 8 a.m. weekdays and all-day on
weekends and holidays) all persons entering the building are required to show ID
and sign in and sign out when leaving.
At all times, any person leaving the building with packages, equipment,
etc. must have a tenant property pass to be given to the lobby guard.
The loading dock and freight cars operate Monday to Friday (excluding
holidays) form 8 a.m. to 6 p.m. All deliveries (other than hand held items) are
made through the loading dock.
Construction material, large furniture deliveries, and move projects must
be scheduled during non-business hours.
SECURITY EQUIPMENT FEATURES
The following areas are equipped with CCTV:
Front Lobby - With a panning feature
Freight Cars - Stationary
Concourse Corridor - Stationary (there are several cameras covering
the entire corridor to the Rockefeller Center
entrance)
L-1
<PAGE>
EXHIBIT "L"
1290 Avenue of the Americas
SECURITY EQUIPMENT FEATURES
Lobby renovation will include all passenger elevators - Stationary
Truck and Car Lifts - Stationary
Exterior Entrance to Garage - Stationary
Garage - With panning feature
Sub-Cellar Corridor - Stationary
Sub-Cellar Freight Elevator Lobby - Stationary
There are 2 recorders located in the security office in the concourse that
intermittently record all or specific CCTV cameras 24 hours a day 7 days a week.
All tapes are kept for 2 weeks before being re-used.
In addition to the above, we also have in place a guard tour system with 40
stations located at various common areas throughout the building.
The security guard carries a data recorder when he goes on a designated
tour of the building. Each station is numbered (1-40) and as the guard reaches
each station he uses the data recorder with the station box and each stop is
recorded (date, time, location). These tours are completed at least twice each
shift.
The following morning, the security supervisor prints out the information
from the data recorders and reviews the tours of each shift.
GARAGE & LOADING DOCK
The garage and loading dock share same entrance located on east end of the
building on 52nd street side.
During hours of 7 A.M. to 6 P.M. Mon to Fri, a security guard is posted at
entrance way. He will check each vehicle's license plate number to see if it is
authorized to park, log time and license plate number.
L-2
<PAGE>
EXHIBIT "L"
1290 Avenue of the Americas
GARAGE & LOADING DOCK
He will then allow the vehicle to enter either large or small hydraulic
elevator which will carry vehicle 2 levels below grade. A second security guard
will indicate what area the vehicle should be parked in that particular day.
Typically upon entering garage area right side has been dedicated for monthly
parking on a first come, first serve basis. The vehicle keys must be left with
security guard on duty.
The vehicle license plate number will be recorded when leaving the garage
area.
During all other hours & holidays the garage and loading dock are closed.
Monthly vehicles can enter the garage by notifying security by entering the
building via 6th Avenue night entrance. Security will open the garage area and
escort you down and up to lobby level where you must sign in and leave your keys
at register. Same procedure must be followed when exiting the garage.
L-3
<PAGE>
EXHIBIT M
FORM OF NON-DISTURBANCE
AND ATTORNMENT AGREEMENT BETWEEN
TENANT AND THE INDENTURE TRUSTEE
THIS AGREEMENT, made as of the _______ day of __________, 1995 by and
between NATIONSBANK OF TENNESSEE, N.A., a national banking corporation, having
an office at 1301 Gervais Street, Columbia, South Carolina 29201 (hereinafter
called "Mortgagee"), THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES,
a New York corporation, having an office at 787 Seventh Avenue, New York, New
York 10019 (hereinafter called "Tenant") and 1290 ASSOCIATES, a New York
partnership having an office c/o Olympia and York Companies (U.S.A.), 237 Park
Avenue, New York, New York 10019.
W I T N E S S E T H:
WHEREAS, Mortgagee is the trustee under that certain Mortgage Spreader and
Consolidation Agreement and Trust Indenture dated March 20, 1984 (said Mortgage
Spreader and Consolidation Agreement and Trust Indenture, as amended and
supplemented and as it may be amended, increased, renewed, modified,
consolidated, replaced, combined, substituted, severed, split, spread or
extended, being hereinafter referred to as the "Mortgage") between Manufacturers
Hanover Trust Company, predecessor-in-interest to Mortgagee, as trustee, and
certain mortgagors described therein which was recorded on March 20, 1984 in the
Office of the City Register, New York County in Reel 775, Page 1097, and which
encumbers, among other properties, the land and the building located at 1290
Avenue of the Americas, New York, New York (the "Property") and more
particularly described on Exhibit A annexed hereto,
WHEREAS, Tenant and 1290 Associates (together with any successor holder of
the Landlord's interest under the Lease, being hereinafter called "Landlord")
have entered into a certain agreement of lease dated as of _______________, 1995
(the "Lease") initially covering the eleventh through twenty-second floors (the
"Demised Premises") in the building forming a part of the Property,
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Tenant covenants and agrees that the Lease now is and shall at all times
continue to be subordinate to the Mortgage. Tenant, upon request, shall execute
and deliver any certificate or other instrument which the Mortgagee may
reasonably request to confirm said subordination by Tenant.
2. Tenant certifies that (i) Tenant is the owner and holder of the Tenant's
interest under the Lease, (ii) the Lease is presently in full force and effect
and unmodified, (iii) no rent or additional rent payable under the Lease has
been paid more than one (1) month in advance of its due date (it being expressly
agreed that any rent abatements, set-offs or deductions expressly provided for
in the Lease shall not be deemed an advance payment of rent or additional rent
under this Agreement), (iv) no default exists under the Lease, and (v) there are
no offsets or defenses as of the date hereof to the payment of the rents,
additional rents or other sums payable under the Lease.
M-1
<PAGE>
3. As long as no default exists under the Lease which has continued after
notice and beyond the expiration of any applicable grace period as and to the
extent provided in the Lease (and provided that nothing shall imply any right of
Tenant to further notice if Landlord has previously provided such notice),
Mortgagee shall not name Tenant as a party defendant to any action for
foreclosure or other enforcement of the Mortgage (unless required by law), nor
shall the Lease be terminated by Mortgagee in connection with, or by reason of,
foreclosure or other proceedings for the enforcement of the Mortgage, or by
reason of a transfer of the Landlord's interest under the Lease pursuant to the
taking of a deed in lieu of foreclosure (or similar device) whether in
connection with a bankruptcy proceeding or otherwise, nor shall Tenant's use or
possession of the Demised Premises be interfered with by Mortgagee (except to
the extent permitted under the Lease), except that the person acquiring, or
succeeding to, the interests of the Landlord in the Property as a result of any
such action or proceeding or taking of a deed in lieu of foreclosure (including,
without limitation, Mortgagee), and such person's successors and assigns (any of
the foregoing being hereinafter referred to as the "Successor"), shall not be:
(a) subject to any credits, offsets, defenses or claims which Tenant might
have against any prior Landlord, except that a Successor shall be subject to any
credits, offsets and defenses to which Tenant may be entitled pursuant to the
express provisions of the Lease; nor
(b) bound by any rent or additional rent which Tenant might have paid for
more than one (1) month in advance to any prior Landlord, unless such prepayment
shall have been made with Mortgagee's prior written consent; nor
(c) liable for any act or omission of any prior Landlord except as
expressly provided in this Agreement, it being understood that the foregoing is
not intended to (i) relieve a Successor of any liability arising by reason of
its acts or omissions from and after the date the Successor succeeds to the
rights of the prior Landlord, including a continuation of the failure of the
prior Landlord to perform its obligations under the Lease, in which case the
Successor upon receipt of notice of such continuation from Tenant shall have a
reasonable period of time to remedy same (it being agreed that to the extent a
time period is granted Landlord in the Lease for such remedy such time period
shall be deemed a reasonable period of time for purposes of this clause (i)), or
(ii) deny Tenant the benefit of any rent offset right, abatement or credit to
which Tenant is entitled under the Lease, subject to the express terms hereof.
Notwithstanding the foregoing, the Successor shall not be liable to Tenant for
any claim Tenant may have against a prior Landlord under the provisions of
Section 6.12 of the Lease (by way of example, the Successor shall not be liable
for any loss or damage to Tenant caused by the negligence of a prior Landlord or
its agents, servants, employees or contractors); nor
(d) bound by any covenant to undertake or complete any Landlord's Work with
respect to any Block of space or any Offer Space or the Lobby Renovation Work
(as such terms are defined in the Lease); provided however; that if the
Successor shall fail to complete any such work, then Tenant shall have the
following rights (which shall be the sole and exclusive remedies available to
Tenant for such failure): (i) in the case of the Successor's failure to complete
the Landlord's Work with respect to any Block of space Tenant shall, subject to
the terms hereof, have the rights described in Sections 1.03 and 10.01 of the
Lease, (ii) in the case of Successor's failure to complete the Landlord's Work
with respect to any Offer Space Tenant shall, subject to the terms hereof, have
the rights described in Sections 1.06 and 10.01 of the Lease, and (iii) in the
case of Successor's failure to complete the Lobby Renovation Work Tenant shall,
subject to the terms hereof, have the rights described in Section 8.21(c) of the
Lease. The Successor's failure to complete any such work shall not constitute a
default by the Successor under the Lease giving rise to any remedies other than
as expressly set forth in this paragraph (d); nor
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(e) be required to account for any security deposit other than any security
deposit actually delivered to the Successor; nor
(f) liable for any payment to Tenant of any sums or the granting to Tenant
of any credit in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Demised Premises or any portion thereof, or
otherwise (except to the extent provided in paragraph (a) above), provided,
however, that the Successor shall be responsible to pay to Tenant any unpaid
portion of the Block A and B Allowance, the Block C Allowance and the Expansion
Allowance (as such terms are defined in the Lease and collectively referred to
herein as "Landlord's Contributions") as and when the same are due and payable
under the Lease; provided, further, however, that the sole and exclusive remedy
available to Tenant in the event the Successor shall fail to pay any or all of
the Landlord's Contributions shall be to exercise the set-off rights described
in Section 10.05 of the Lease and the Successor's failure to make any such
payment shall not constitute a default by the Successor under the Lease giving
rise to any remedies other than the set-off rights expressly set forth in such
Section 10.05. Notwithstanding the foregoing, Mortgagee shall have the right
(but not the obligation) if Landlord shall default in funding all or any portion
of the Landlord's Contributions to pay such amounts to Tenant; nor
(g) bound by any modification of the Lease made without the written consent
of Mortgagee, including without limitation any agreement by Tenant to surrender
the Lease. Mortgagee agrees not to unreasonably withhold, delay or condition its
consent to a modification of the Lease.
4. (a) If the interest of the Landlord under the Lease shall be transferred
by reason of foreclosure or other proceedings for enforcement of the Mortgage in
which Tenant has not been named as party defendant or pursuant to a taking of a
deed in lieu of foreclosure (or similar device) whether in connection with a
bankruptcy proceeding or otherwise, the Lease shall not be terminated or
affected thereby but shall continue in full force and effect as a direct lease
between the Successor and Tenant and Tenant shall be bound to the Successor,
and, except as expressly provided in this Agreement, the Successor shall be
bound to Tenant, under all of the terms, covenants and conditions of the Lease
for the balance of the term thereof remaining, with the same force and effect as
if the Successor were the Landlord, and Tenant does hereby (i) agree to attorn
to the Successor, including Mortgagee if it be the Successor, as its landlord,
(ii) affirm its obligations under the Lease, and (iii) agree to make payments of
all sums due under the Lease to the Successor, said attornment, affirmation and
agreement to be effective and self-operative without the execution of any
further instruments, upon the Successor succeeding to the interest of the
Landlord under the Lease, provided that if the Successor requests, without
implying any obligation to do so on the Successor's part, Tenant will confirm
the attornment described herein to the Successor in writing. Tenant waives the
provisions of any statute or rule of law now or hereafter in effect that may
give or purport to give it any right or election to terminate or otherwise
adversely affect the Lease or the obligations of Tenant thereunder by reason of
any foreclosure or similar proceeding.
(b) Provided the Lease has not been previously cancelled or terminated, if
(i) Mortgagee or any other Successor shall acquire title to the Property upon
foreclosure in an action in which Mortgagee shall have been required to name
Tenant as a party defendant, and (ii) Tenant is not in default under the Lease
after notice and beyond the expiration of all applicable cure periods as and to
the extent provided in the Lease (and provided that nothing shall imply any
right of Tenant to further notice if Landlord has previously provided such
notice), then, in such event, Mortgagee or any other Successor (as the case may
be) shall enter into a new lease with Tenant upon the same terms and conditions
as were contained in the Lease, except that (x) the obligations and liabilities
of Mortgagee or other Successor (as the case may be) under any such new lease
shall be subject to the terms and conditions of this Agreement, and (y) the
expiration date of such new lease shall coincide with the original expiration
date of the Lease. Tenant shall execute any such new lease and shall attorn to
Mortgagee or the other Successor (as the case may be) so as to establish direct
privity between Mortgagee or such other Successor (as the case may be) and
Tenant.
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(c) If (i) Landlord, as debtor-in-possession, or any trustee appointed in a
bankruptcy case of Landlord, obtains an order of the Bankruptcy Court
authorizing the rejection of the Lease in accordance with ss.365 of the
Bankruptcy Code (as hereinafter defined), and Tenant elects to retain its rights
under the Lease in accordance with ss.365(h) of the Bankruptcy Code, (ii)
Mortgagee or any other Successor shall acquire title to the Property upon
foreclosure or by the acceptance of a deed in lieu thereof or by any other
means, and (iii) Tenant is not in default under the Lease after notice and
beyond the expiration of all applicable cure periods as and to the extent
provided in the Lease (and provided that nothing shall imply any right of Tenant
to further notice if Landlord has previously provided such notice) then, in such
event, Mortgagee or any other Successor (as the case may be) shall enter into a
new lease with Tenant upon the same terms and conditions as were contained in
the Lease, except that (x) the obligations and liabilities of Mortgagee or other
Successor (as the case may be) under any such new lease shall be subject to the
terms and conditions of this Agreement, and (y) the expiration date of such new
lease shall coincide with the original expiration date of the Lease. Tenant
shall execute any such new lease and shall attorn to Mortgagee or the other
Successor (as the case may be) so as to establish direct privity between
Mortgagee or such other Successor (as the case may be) and Tenant.
5. (a) Tenant shall notify Mortgagee of any default, breach or other
failure (a "Default") by Landlord under the Lease which would entitle Tenant to
cancel or terminate the Lease. If Landlord fails to cure any Default as to which
Tenant is obligated to give notice pursuant to the preceding sentence within the
time period, if any, provided for in the Lease and such Default is of a nature
which can be cured by the payment of money, then Mortgagee shall have an
additional 10 days within which to cure such Default after receipt of Tenant's
notice that Landlord has failed to cure same, and the Lease shall not be
cancelled or terminated unless Mortgagee shall have failed to cure such Default
(without implying any obligation to do so) prior to the expiration of such 10
day period.
(b) If (A) an Eviction shall occur causing a portion of the Demised
Premises constituting not less than 50,000 rentable square feet of Office Space
to become Untenantable (as such terms are defined in the Lease) and such
Eviction shall continue for the requisite number of days provided for in Section
10.03 of the Lease such that Tenant shall then be entitled to deliver a
termination notice under Section 10.03 of the Lease or (B) Tenant shall be
entitled to terminate the Lease by reason of an Eviction described in clause (i)
of Section 10.03(a) of the Lease, then in either such case, Tenant shall provide
Mortgagee notice of such event (the date of such notice being referred to as the
"Notice Date") and Tenant shall not exercise its right to terminate the Lease if
(x) (i) within 15 days after the Notice Date Mortgagee shall commence an action
seeking the appointment of a receiver, (ii) within 30 days after commencement of
such action such receiver has been appointed, and (iii) upon such appointment,
Mortgagee shall request such receiver to cure the Eviction and such receiver
shall thereafter diligently pursue the cure of the Eviction, or (y) Mortgagee,
within 15 days after the Notice Date, shall otherwise commence and thereafter
diligently pursue the actual cure of the Eviction (it being agreed for the
purposes hereof that taking steps to foreclose the Mortgage or to obtain
possession of the Property shall not be deemed to be a commencement of such
cure).
(c) The provisions of paragraphs (a) and (b) above are intended to be
applicable to Mortgagee prior to its becoming the Successor, and, from and after
the date on which Mortgagee shall become the Successor, Mortgagee's rights as
the Successor in the circumstances described in this paragraph 5 shall be
governed by the provisions of paragraph 3(c)(i) above such that Mortgagee, as
the Successor, shall have a reasonable period of time to remedy the matter in
question (taking into account the time which Mortgagee had available to it for
such purpose under this paragraph 5 prior to becoming the Successor).
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(d) Any termination of the Lease by Tenant pursuant to Section 10.03
without compliance with the applicable provisions of this paragraph 5 shall be
without force or effect and shall be void ab initio.
6. (a) If (i) Landlord shall fail to (x) furnish any of the services which
it is required to furnish pursuant to the Lease or (y) make any repair or
replacement which it is required to make under the Lease or (z) perform any
other obligation of the Landlord under the Lease, (ii) such failure results in a
material interference with Tenant's use and occupancy of the Demised Premises,
(iii) the curing of such condition would require work to be performed or
otherwise affect space in the Landlord Obligation Areas (as defined in the
Lease) or elsewhere outside of the Demised Premises, (iv) Tenant has obtained an
arbitrator's decision as provided in Section 8.09 of the Lease that such event
has occurred and is Landlord's responsibility to remedy, or Landlord, in bad
faith, fails to comply with the arbitration procedures set forth in the Lease
and Mortgagee fails to elect to participate in such arbitration proceeding
pursuant to paragraph (c) below, and (v) Landlord shall thereafter fail to act
diligently (subject to Force Majeure and Tenant Delay, as such terms are defined
in the Lease) to cure such condition and Tenant shall deliver to Mortgagee
notice of Landlord's continued failure (which notice shall reference this
paragraph 6(a) of this Agreement, shall state that the events described in
clauses (i) through (v) above have occurred and shall include Tenant's request
that Mortgagee take the hereinafter described actions), then (A) Mortgagee shall
as immediately as practicable commence an action seeking specific performance by
Landlord of the Landlord's obligations in question, and (B) if Landlord
continues to fail to perform such obligations (subject to Force Majeure and
Tenant Delay) notwithstanding a court order directing performance, then upon
Tenant's request Mortgagee shall as immediately as practicable commence and
diligently pursue an action for the appointment of a receiver for the Property
and, upon appointment of such receiver, Mortgagee shall request the court to
authorize and direct the receiver to perform the obligations which Landlord
shall have failed to perform. In the event that Mortgagee is unable to pursue
the actions described in clauses (A) and (B) above by reason of the commencement
by or against Landlord of a proceeding under the Bankruptcy Code, 11 U.S.C.
ss.101 et seq., as now in effect or as hereafter amended, or under the
provisions of any successor statute thereto (the "Bankruptcy Code"), Mortgagee
shall as immediately as practicable seek the relief in question from the
Bankruptcy Court or otherwise seek authorization from the Bankruptcy Court to
pursue such relief notwithstanding the commencement of such proceeding. Tenant
acknowledges that the determination of whether a matter constitutes a "material
interference with Tenant's use and occupancy of the Demised Premises" as
provided in clause (ii) above shall be without regard to the provisions of
Section 10.01(e) of the Lease which reflect Landlord's and Tenant's agreement as
to what constitutes a material portion of the Demised Premises. Notwithstanding
the foregoing, Mortgagee shall not be obligated to make rents and other income
from the Property available for the purpose of funding Landlord obligations to
be performed by the receiver under this paragraph 6 in excess of $4,500,000 in
any year, Mortgagee agreeing to make rents and other income from the Property
actually received by it up to $4,500,000 in any year available to the receiver
for such purpose. Tenant agrees that it shall not request Mortgagee to take the
actions described in clauses (A) and (B) above with respect to a particular
Landlord default if and to the extent Tenant shall have exercised its self-help
rights set forth in the Lease and thereby cured the Landlord's default, unless
such default is of a recurring nature and Tenant has delivered to Landlord and
Mortgagee a notice stating that Tenant no longer intends to exercise its
self-help rights with respect to such default. In addition, the provisions of
this paragraph 6(a) shall be applicable only to matters which give rise to
Tenant's right of self-help under Section 10.01(a) of the Lease and which
constitute a "material interference with the Tenant's use and occupancy of the
Demised Premises" and shall be inapplicable to matters which do not give rise to
any such right of self-help under Section 10.01(a) of the Lease or which do give
rise thereto but which do not constitute a "material interference with Tenant's
use and occupancy of the Demised Premises".
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(b) Subject to the provisions of this paragraph (b), Tenant's recourse
against Mortgagee for Mortgagee's failure to perform its obligations under this
paragraph 6 shall be limited to the interest of Mortgagee in the Property. For
purposes of this paragraph 6, the "interest of the Mortgagee" in the Property
shall be deemed to mean the rents and other income actually received by
Mortgagee from the Property after the payment of the costs of operating the
Property but prior to the payment of debt service. Mortgagee acknowledges that
the financial projections delivered by Landlord to Tenant reflect an anticipated
net operating deficit (prior to debt service) for the Property during calendar
year 1996. Mortgagee agrees that during calendar year 1996 only, Tenant shall
also have recourse against the "interest of Mortgagee" (as defined above) in 237
Park Avenue, New York, New York for Mortgagee's failure to perform its
obligations under this paragraph 6, provided that the requirements of this
sentence shall be of no further force or effect if Landlord or Mortgagee shall
(i) deliver to Tenant updated projections reflecting new or additional sources
of revenue (i.e., executed new leases or amendments to existing leases) or
documented reduction of expenses which eliminate the above-described deficit and
provide for projected net operating income for the Property for 1996 (or the
balance thereof) of not less than $4,500,000 (less any amount funded during 1996
under paragraph (a) above), or (ii) otherwise provide Tenant evidence of the
availability of not less than $4,500,000 (less any amount funded during 1996
under paragraph (a) above) to fund Mortgagee's agreements under this paragraph 6
for 1996. The foregoing provisions shall not limit Tenant's right to set-off
against the rents next coming due under the Lease any amounts payable under this
paragraph 6 in excess of the foregoing $4,500,000 limitation on the Mortgagee's
liability under this paragraph (as well as any other set-off) to the extent
Tenant elects to fund such excess costs pursuant to its self-help rights under
the Lease and such set-off is otherwise permitted under the terms of the Lease.
(c) Tenant's rights under this paragraph 6 are expressly conditioned upon
(i) Tenant delivering to Mortgagee copies of all notices delivered by Tenant
relating to the Landlord default which is the subject of Tenant's claim
concurrent with their delivery to Landlord, and (ii) Mortgagee being provided
the opportunity by Tenant to monitor and participate in any arbitration or other
proceeding related to the Landlord default. Tenant shall deliver to Mortgagee
concurrent with delivery to or receipt from Landlord or the arbitrators
determining any dispute, a copy of any submission, claim or pleading served by
or upon Tenant or delivered to or received from the arbitrators. Mortgagee shall
have the right to appear before and make presentations to the arbitrators
determining any dispute within the time periods provided in Section 8.09 of the
Lease.
(d) The provisions of this paragraph 6 shall terminate and be of no further
force or effect (except that the exculpatory provisions of paragraph (b) above
shall survive such termination) if (i) the ratio of (x) the projected net
operating income from the Property (calculated prior to debt service) for the
succeeding 24 month period to (y) the debt service projected to be payable under
the Mortgage for such period shall equal or exceed 1.25, or (ii) to the extent
that the Property remains cross-collateralized with 237 Park Avenue, the ratio
of (A) the projected net operating income from the Property and 237 Park Avenue
(calculated prior to debt service) for the succeeding 24 month period to (B) the
debt service projected to be payable under the Mortgage for such period shall
equal or exceed 1.25. For purposes of the foregoing, net operating income shall
include rental income only from signed leases for which the initial Landlord's
work or tenant work allowance has been funded or for which funds are available
and have been segregated, and projected debt service shall include projected
interest at the stated rate of accrual and the greater of actual scheduled
amortization or the amortization that would be payable during such period
assuming a 25 year self-liquidating amortization schedule.
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7. Notwithstanding anything to the contrary contained in this Agreement:
(a) In the event that a receiver, trustee or any other similar person or
entity acting in like capacity is appointed for the Property in any action or
proceeding, then provided the Lease has not been cancelled or terminated and for
so long as Tenant is not in default under the Lease after notice and beyond the
expiration of all applicable cure periods as and to the extent provided in the
Lease (and provided that nothing shall imply any right of Tenant to further
notice if Landlord has previously provided such notice), Mortgagee will neither
consent to nor cause or instruct such receiver, trustee or other similar person
or entity to (i) disturb Tenant in its possession of the Demised Premises
(except to the extent permitted under the Lease), (ii) diminish Tenant's rights
under the Lease, or (iii) terminate the Lease (except to the extent permitted
under the Lease). Without limiting the generality of the foregoing, Mortgagee
will file an objection to such receiver, trustee or other similar person or
entity taking any of the actions described in clauses (i) through (iii) above
provided Tenant shall deliver Mortgagee notice of same and will cooperate with
Tenant in its efforts to oppose and defeat such receiver, trustee or similar
person with respect to such actions.
(b) In the event that (i) Landlord becomes the subject of a bankruptcy case
under the provisions of the Bankruptcy Code, (ii) Landlord, as
debtor-in-possession, or any trustee approved in the bankruptcy case of
Landlord, seeks an order of the bankruptcy court or other court of competent
jurisdiction (the "Bankruptcy Court"), authorizing the rejection of the Lease,
then for so long as Tenant is not in default under the Lease after notice and
beyond the expiration of all applicable cure periods as and to the extent
provided in the Lease, Mortgagee will file an objection to such party's motion
seeking to reject the Lease;
(c) In the event that (i) Landlord, or a trustee in bankruptcy of the
Landlord obtains an order of the Bankruptcy Court authorizing the rejection of
the Lease in accordance with ss.365 of the Bankruptcy Code and Tenant elects to
retain its rights under the Lease in accordance with ss.365(h) of the Bankruptcy
Code, (ii) Mortgagee or any other Successor shall acquire possession and control
of the Property, and (iii) Tenant is not in default under the Lease after notice
and beyond the expiration of all applicable cure periods as and to the extent
provided in the Lease (and provided that nothing shall imply any right of Tenant
to further notice if Landlord has previously provided such notice) then, in such
event, Mortgagee or such other Successor (as the case may be) shall enter into a
new lease with the Tenant on the then executory terms of the original Lease, as
provided in this Agreement, if and to the extent that Mortgagee or such other
Successor has the legal right and power to do so; and
(d) Mortgagee acknowledges and agrees that (i) if Landlord, as
debtor-in-possession, or any trustee appointed in the bankruptcy case of the
Landlord, obtains an order of the Bankruptcy Court authorizing the rejection of
the Lease in accordance with ss.365 of the Bankruptcy Code, and (ii) Tenant
elects to retain its rights under the Lease in accordance with ss.365(h) of the
Bankruptcy Code, (x) the provisions of this Agreement shall continue to remain
in full force and effect, and (y) Tenant shall have all of Tenant's rights and
remedies provided under the Lease, including, without limitation, such right as
may be provided in the Lease to offset against any and all rents due and payable
by Tenant under the Lease, or under any new lease entered into pursuant to this
Agreement, any damages occurring after the date of rejection caused by the
non-performance of any obligation of Landlord under the Lease or any new lease
entered into pursuant to this Agreement. Tenant's right of offset provided for
in this paragraph (d) shall survive any transfer of the Property in foreclosure
or by deed in lieu of foreclosure and shall be binding upon Landlord, Mortgagee
or any other Successor.
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8. Provided Tenant is not in default under the Lease after notice and
beyond the expiration of applicable cure periods as and to the extent provided
in the Lease (and provided that nothing shall imply any right of Tenant to
further notice if Landlord has previously provided such notice) and the Lease
has not been cancelled or terminated, Mortgagee agrees that in the event
Landlord shall become the subject of a case under the Bankruptcy Code, (a)
Mortgagee shall consent to the use of cash collateral (as such term is defined
in Section 363(a) of the Bankruptcy Code) for the performance of the obligations
of the Landlord under the Lease, (b) Mortgagee shall consent to the inclusion in
any cash collateral order or stipulation of an assumption by Landlord of the
Lease under ss.365 of the Bankruptcy Code (without waiving the right of Trustee
to object to any other provision of any cash collateral order or committing
Trustee to agree to any other provision of a cash collateral stipulation), (c)
Mortgagee will file and pursue an objection to any rejection by Landlord of the
Lease, and (d) Mortgagee will file and pursue an objection to the confirmation
of any plan of reorganization of Landlord that provides for the rejection of the
Lease. The provisions of this Paragraph 8 shall be of no further force or effect
from and after the effective date of a plan of reorganization of Landlord which
has been confirmed and which provides for the assumption of the Lease.
9. Mortgagee agrees that, provided Tenant is not then in default under this
Agreement or the Lease after notice and beyond the expiration of applicable
grace periods as and to the extent provided under the Lease (and provided that
nothing shall imply any right of Tenant to further notice if Landlord has
previously provided such notice), with respect to any sublease (other than a
sublease to an affiliate of Tenant pursuant to Sections 5.01(c) or (e) of the
Lease or otherwise) and which (a) is not for less than 20,000 rentable square
feet of Office Space, (b) consists of either (x) not less than 100,000 rentable
square feet of Office Space or (y) contiguous space which includes the highest
or lowest floor then comprising the Office Space or is contiguous to another
floor substantially all of which has been sublet by Tenant and with respect to
which Mortgagee has executed and delivered one or more non-disturbance and
attornment agreements hereunder with respect to substantially all of such floor,
(c) provides for a rental which, after taking into account any free rent
periods, credits, offsets or deductions to which the subtenant may be entitled
thereunder, is equal to or in excess (on a per rentable square foot basis) of
the Fixed Rent and recurring Additional Charges (as such terms and defined in
the Lease) payable by Tenant under the Lease with respect to such space from
time to time throughout the term of the Lease (or if less (on a per rentable
square foot basis) than the Fixed Rent and recurring Additional Charges payable
by Tenant under the Lease, if such subtenant agrees, in the non-disturbance and
attornment agreement hereinafter referred to, that such rental will
automatically and without condition become so equal, if, as and when the
attornment provided for in such non-disturbance and attornment agreement becomes
effective between Mortgagee and the subtenant following the termination of the
Lease), (d) consists of space that will be demised separately from the remainder
of the Premises in accordance with all applicable laws and (e) provides for
other obligations of the subtenant at least substantially identical to the
obligations of Tenant under the Lease (but in compliance, to the extent
applicable, with Section 8.24 of the Lease), Mortgagee shall, at Tenant's
request, execute and deliver to such subtenant a non-disturbance and attornment
agreement substantially in the form attached to this Agreement as Exhibit B
provided and upon condition that (i) Tenant has furnished to Mortgagee's
reasonably satisfactory evidence that the subtenant has a financial worth
sufficient to timely fulfill its obligations under such sublease as a primary
tenant (and not as a subtenant), including any increase in such financial
obligations which may become effective as provided above, (ii) the sublease is
in a form reasonably satisfactory to Mortgagee, and (iii) the subtenant executes
and delivers to Landlord such non-disturbance and attornment agreement. Any
dispute as to the creditworthiness of a prospective subtenant may be submitted
to determination by arbitration in the manner provided in Section 8.09 of the
Lease as if such provisions were set forth herein and "Mortgagee" were
substituted for "Landlord" therein, and any such determination shall be binding
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upon Mortgagee and Tenant. Notwithstanding anything to the contrary set forth in
this paragraph 9, any non-disturbance and attornment agreement delivered by
Mortgagee pursuant to this paragraph 9 shall be conditional and by its terms
expressly contain the condition such that, in the event of any termination of
the Lease other than by reason of Tenant's default (e.g., by reason of a
casualty), then any non-disturbance and attornment agreement to a subtenant
shall, automatically and without further act of the parties, terminate and be of
no further force or effect from and after the applicable termination date;
provided, that if (A) the Lease is terminated with respect to less than all of
the Demised Premises, or (B) Tenant pursuant to Article 9 of the Lease exercises
the Renewal Option (as defined therein) with respect to less than all of the
Demised Premises, only such non-disturbance and attornment agreements to
subtenants who sublease any of such space with respect to which the Lease is
terminated or not renewed, as the case may be, shall automatically and without
further act of the parties, terminate and be of no further force or effect from
and after the applicable termination date or the day preceding the commencement
of the Renewal Term, as the case may be. In addition, to the extent any such
non-disturbance and attornment agreement relates to a subtenant which is a
partnership, such agreement shall provide that no provision of such sublease
providing in substance for the exculpation from personal liability of the
partners of such partnership shall be binding on Mortgagee or any other
Successor unless such subtenant shall, on the date the attornment provided in
such non-disturbance and attornment agreement becomes effective between
Mortgagee and such subtenant, post with Mortgagee or such other Successor as
security for such subtenant's obligations under its sublease, cash or a clean,
unconditional and irrevocable letter of credit (in form and from a bank
reasonably satisfactory to Mortgagee) in either case in an amount equal to the
annual fixed rent and recurring charges (without regard to any abatement,
credits or offsets) payable at such time (such security to be increased from
time to time to reflect increases in such fixed rent and recurring charges) by
such subtenant to Mortgagee, unless such cash or letter of credit was previously
delivered to Landlord in accordance with the provisions of the Lease.
10. Tenant shall deliver to Mortgagee copies of all notices under the Lease
concurrent with delivery to or receipt from Landlord (including, without
limitation, default notices, notices establishing delivery and commencement
dates and notices commencing arbitration proceedings but excluding routine
operational notices such as requests for overtime services). No notice shall be
effective as to Mortgagee unless properly served upon Mortgagee in the manner
provided herein.
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11. This Agreement may not be modified except by an agreement in writing
signed by Tenant and Mortgagee or their respective successors in interest. In
addition, any modification of this Agreement which would adversely affect
Landlord shall require the consent of Landlord. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, their respective heirs,
representatives, successors and assigns including, without limitation, with
respect to Mortgagee, the grantee under a deed in lieu of foreclosure and/or the
purchaser of the Demised Premises at a foreclosure sale or at any sale of the
Demised Premises following the granting of a deed in lieu of foreclosure or
following foreclosure.
12. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage except as specifically set forth herein.
13. Landlord, Tenant and Mortgagee agree that this Agreement satisfies any
condition or requirement in the Lease relating to the granting of a
non-disturbance agreement by Mortgagee. Mortgagee and Tenant further agree that
in the event there is any inconsistency between the terms and provisions hereof
and the terms and provisions of the Lease dealing with non-disturbance by
Mortgagee or the provisions of the Mortgage referred to in Section 6.01(b) of
the Lease (as they relate to Tenant's rights and obligations), the terms and
provisions hereof shall be controlling.
14. All notices, demands, consents, approvals, advices, waivers or other
communications (each, a "Notice") which may or are required to be given by
either party to the other under this Agreement shall be in writing and, unless
otherwise required by law, shall be sent (a) by hand, (b) by United States Mail,
certified or registered, postage prepaid, return receipt requested or (c) by a
nationally-recognized overnight carrier, in each case addressed to the party to
be notified at the address for such party specified in the first paragraph of
this Agreement (in the case of any Notice to Tenant, to the attention of the
Vice President, Facilities, and in the case of any Notice to Mortgagee, to the
attention of John S. Hiott, Vice President), or to such other place in the
continental United States as the party to be notified may from time to time
designate by at least 20 days' notice to the notifying party (with copy, in the
case of each Notice to Mortgagee, to Kelley Drye & Warren, 101 Park Avenue, 30th
floor, New York, New York 10178, Attention: David Retter, Esq., and in the case
of each Notice to Tenant, to the attention of the General Counsel, at the
address for Tenant specified in the first paragraph of this Agreement). 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 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. Tenant shall also deliver a
copy of any Notice provided to Mortgagee under paragraphs 5 and 6 hereof to
Landlord at the address and in the manner provided in the Lease, excluding
Notices which Tenant shall previously or concurrently have delivered to or
received from Landlord.
15. Notwithstanding anything to the contrary contained herein, Tenant
acknowledges and agrees that the provisions of paragraph (3)(c) set forth in
Section 6.01(b) of the Lease shall be effective and run to the benefit of any
Successor, including Mortgagee. Notwithstanding anything to the contrary
contained herein, Mortgagee acknowledges and agrees that the provisions of
paragraph (3)(d) set forth in Section 6.01(b) of the Lease shall be deemed null
and void and of no effect as against Tenant.
16. This Agreement shall be governed by the laws of the State of New York.
If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered will be deemed
to be an original and all of which taken together, will be deemed to be one and
the same instrument.
M-10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be duly executed as of the day and year first above written.
Mortgagee
NATIONSBANK OF TENNESSEE, N.A.
By:___________________________
Name:
Title:
Tenant
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By:____________________________
Name:
Title:
Landlord
1290 ASSOCIATES
By: O&Y Management Corp., As Agent
By:____________________________
Name:
Title:
M-11
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of __________, 1995, before me personally came
____________________________________ to me known, who being by me duly sworn,
did say that he resides at _____________________________, that he is
_____________________ of NationsBank of Tennessee, N.A., the corporation
described in and which executed the foregoing instrument as Mortgagee by order
of the board of directors of said corporation; and that he signed his name
thereto be like order.
----------------------------
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of __________, 1995, before me personally came
_____________________________ to me known, who being by me duly sworn, did say
that he resides at ___________ _____________________________ that (s)he is
_____________________________ of The Equitable Life Assurance Society of the
United States, the corporation described in and which executed the foregoing
instrument as Tenant by order of the board of directors of said corporation; and
that (s)he signed his name thereto be like order.
----------------------------
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of __________, 1995, before me personally came
_____________________________ to me known, who being by me duly sworn, did say
that he resides at ___________ _____________________________ that (s)he is
_____________________________ of O&Y Management Corp., the corporation described
in and which executed the foregoing instrument as Agent for 1290 Associates by
order of the board of directors of said corporation; and that (s)he signed his
name thereto be like order.
----------------------------
Notary Public
M-12
<PAGE>
EXHIBIT B - to Exhibit M
FORM OF SUBTENANT
NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made as of the _______ day of ___________, _____ by and
between NATIONSBANK OF TENNESSEE, N.A., a national banking corporation, having
an office at 1301 Gervais Street, Columbia, South Carolina 29201 (1)
(hereinafter called "Mortgagee"), ______________, a _________________, having an
office at ___________________________________ (hereinafter called "Subtenant"),
and THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York
corporation, having an office at 787 Seventh Avenue, New York, New York 10019
(hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, Mortgagee is the trustee under that certain Mortgage Spreader and
Consolidation Agreement and Trust Indenture dated March 20, 1984 (said Mortgage
Spreader and Consolidation Agreement and Trust Indenture, as amended and
supplemented and as it may be amended, increased, renewed, modified,
consolidated, replaced, combined, substituted, severed, split, spread or
extended, being hereinafter referred to as the "Mortgage") between Manufacturers
Hanover Trust Company, predecessor-in-interest to Mortgagee, as trustee, and
certain mortgagors described therein which was recorded on March 20, 1984 in the
Office of the City Register, New York County in Reel 775, Page 1097, and which
encumbers, among other properties, the land and the building located at 1290
Avenue of the Americas, New York, New York (the "Property"),
WHEREAS, Tenant has entered into a certain agreement of lease dated as of
July __, 1995 (the "Overlease") covering, inter alia, __________________________
(the "Sublet Premises") in the building forming a part of the Property,
WHEREAS, Subtenant has entered into a certain agreement of sublease dated
as of ___________, ____ with Tenant (the "Sublease") covering Sublet Premises,
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Subtenant covenants and agrees that the Sublease now is and shall at all
times continue to be subject and subordinate in each and every respect to the
Mortgage. Subtenant, upon request, shall execute and deliver any certificate or
other instrument which the Mortgagee may reasonably request to confirm said
subordination by Subtenant.
2. Subtenant certifies that (i) Subtenant is the owner and holder of the
Subtenant's interest under the Sublease, (ii) the Sublease is presently in full
force and effect and unmodified, (iii) no rent or additional rent payable under
the Sublease has been paid more than one (1) month in advance of its due date,
(iv) no default exists under the Sublease, and (v) there are no offsets or
defenses as of the date hereof to the payment of the rents, additional rents or
other sums payable under the Sublease.
(1) If the identity of the Trustee changes, this agreement must be
appropriately modified.
M-13
<PAGE>
3. As long as no default exists under the Sublease which has continued
after notice and beyond the expiration of any applicable grace period as and to
the extent provided in the Sublease (and provided that nothing shall imply any
right of Subtenant to further notice if Tenant or the Landlord (as defined
below) has previously provided such notice) and subject to the provisions of
paragraph 5 below, Mortgagee shall not name Subtenant as a party defendant to
any action for foreclosure or other enforcement of the Mortgage (unless required
by law), nor shall the Sublease be terminated by Mortgagee in connection with,
or by reason of, foreclosure or other proceedings for the enforcement of the
Mortgage, or by reason of a transfer of the landlord's interest under the
Overlease pursuant to the taking of a deed in lieu of foreclosure (or similar
device), nor shall Subtenant's use or possession of the Sublet Premises be
interfered with by Mortgagee, unless the Tenant or 1290 Associates or any
successor owner of the Property (the "Landlord") would have had such right if
the Mortgage had not been granted, except that the person acquiring or
succeeding by or through Mortgagee to the interests of the Landlord under the
Overlease as a result of any such action or proceeding (including Mortgagee
should it acquire or succeed to such interests), and such person's successors
and assigns (any of the foregoing being hereinafter referred to as the
"Successor"), shall not be:
(a) subject to any credits, offsets, defenses or claims which Subtenant
might have against any prior sublessor or landlord; nor
(b) bound by any rent or additional rent which Subtenant might have paid
for more than one month in advance to any prior sublessor or landlord, unless
such prepayment shall have been made with Mortgagee's prior written consent; nor
(c) liable for any act or omission of any prior sublessor or landlord; nor
(d) bound by any covenant to undertake or complete any improvement to the
Sublet Premises or the building forming a part of the Property; nor
(e) required to account for any security deposit other than any security
deposit actually delivered to the Successor; nor
(f) liable for any payment to Tenant of any sums, or the granting to Tenant
of any credit, in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Demised Premises or any portion thereof; nor
(g) bound by any modification of the Sublease which results in the Sublease
no longer conforming to the parameters set forth in the Overlease for the
granting by Landlord of a non-disturbance agreement to a subtenant made without
the written consent of Mortgagee.
4. If the interest of the Landlord in the Property shall be transferred by
reason of foreclosure or other proceedings for enforcement of the Mortgage or
pursuant to a taking of a deed in lieu of foreclosure (or similar device) and
the Overlease shall have previously terminated (and the Sublease shall have
become a direct lease between Subtenant and Landlord pursuant to a
non-disturbance and attornment agreement between such parties) or shall be
terminated concurrent with or subsequent to such foreclosure, other enforcement
proceeding or taking, then subject to the provisions of paragraph 5 below,
Subtenant shall be bound to the Successor, and, except as provided in this
Agreement, the Successor shall be bound to Subtenant, under all of the terms,
covenants and conditions of the Sublease for the balance of the term thereof
remaining, with the same force and effect as if the Successor were the Tenant
under the Sublease, and Subtenant does hereby (i) agree to attorn to the
Successor, including Mortgagee if it be the Successor, as its landlord, (ii)
affirm its obligations under the Sublease (subject to the provisions of
paragraph 5 below), and (iii) agree to make payments of all sums due under the
Sublease (as same may be adjusted pursuant to the terms of paragraph 5 below) to
the Successor, said attornment, affirmation and agreement to be effective and
self-operative without the execution of any further instruments, upon the
Successor succeeding to the interest of the Tenant under the Sublease, provided
that if the Successor requests, without implying any obligation to do so on the
Successor's part, Subtenant will confirm the attornment described herein to the
Successor in writing. Subtenant waives the provisions of any statute or rule of
law now or hereafter in effect that may give or purport to give it any right or
election to terminate or otherwise adversely affect the Sublease or the
obligations of Subtenant thereunder by reason of any foreclosure of similar
proceeding.
M-14
<PAGE>
5. (a) Subtenant agrees that to the extent the Sublease provides for a
rental which, after taking into account any free rent periods, credits, offsets
or deductions to which the Subtenant may be entitled thereunder, is less (on a
per rentable square foot basis) than the Fixed Rent and recurring Additional
Charges (as such terms are defined in the Overlease) payable by Tenant under the
Overlease with respect to the Sublet Premises (the "Overlease Rent") from time
to time throughout the term of the Sublease, Subtenant agrees that the rental
payable under the Sublease will automatically and without condition become equal
to the Overlease Rent, if, as and when the attornment provided for herein
becomes effective between Mortgagee or any other Successor and the Subtenant.
Subtenant further agrees that the Sublease shall at all times comply with the
provisions of Section 8.24 of the Overlease.
[(b) In addition, Subtenant agrees that no provision of the Sublease
providing in substance for the exculpation from personal liability of the
partners of Subtenant shall be binding on Mortgagee or any other Successor
unless Subtenant shall, on the date the attornment provided herein becomes
effective between Mortgagee or any other Successor and Subtenant, post with
Mortgagee or such Successor as security for Subtenant's obligations under the
Sublease, cash or a clean, unconditional and irrevocable letter of credit (in
M-15
<PAGE>
form and from a bank reasonably satisfactory to Mortgagee or such Successor) in
either case in an amount equal to the annual fixed rent and recurring charges
(without regard to any abatements, credits or offsets) payable at such time
(such security to be increased from time to time to reflect increases in such
fixed rent and recurring charges) by Subtenant to Mortgagee or such other
Successor as same may be modified in accordance with the terms of paragraph (a)
above, unless such cash or letter of credit was previously delivered to Landlord
in accordance with the provisions of the Overlease.]2
(c) Notwithstanding anything to the contrary set forth in this Agreement,
the agreements of the Mortgagee hereunder (on behalf of itself and any other
Successor) shall be effective only in the event the cause of termination of the
Overlease is the default of Tenant thereunder and if the Overlease is cancelled,
terminated or expires (in whole or in part but including the Sublet Premises)
for any other reason (e.g., by reason of a casualty or condemnation or the
exercise by Tenant of any termination or cancellation right or remedy provided
in the Overlease, at law or in equity or by reason of Tenant's failure to
exercise the Renewal Option (as defined in the Overlease)), then this Agreement
shall, automatically and without further act of the parties, terminate and be of
no further force or effect from and after the applicable termination date of the
Overlease (or portion thereof) or the day preceding the commencement of the
Renewal Term (as defined in the Overlease), as the case may be.
6. In the event the Overlease is terminated and Subtenant becomes a direct
tenant of Landlord pursuant to the terms of a non-disturbance and attornment
agreement between such parties, Subtenant shall notify Mortgagee of any default
by Landlord under the Sublease which would entitle Subtenant to cancel the
Sublease or abate the rents, additional rents or other sums payable thereunder
or to exercise any self-help or set-off rights thereunder. If Landlord fails to
cure any default as to which Subtenant is obligated to give notice pursuant to
the preceding sentence within the time provided for in the Sublease, Subtenant
shall provide Mortgagee notice of such occurrence and Mortgagee shall then have
an additional 30 days after receipt of such notice within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if, within such 30 days, Mortgagee shall
give Subtenant notice of its intention to diligently pursue the remedies
necessary to cure such default (including, without limitation, commencement of
foreclosure proceedings or eviction proceedings if necessary to effect such
cure) and thereafter does diligently pursue such remedies and cure, in which
event the Sublease shall not be terminated and Subtenant shall not exercise any
other rights or remedies under the Sublease or otherwise while such remedies are
being so diligently pursued by Mortgagee, other than Subtenant's right, subject
to Section 8.24 of the Overlease, to (a) any abatement, deduction, counterclaim
or setoff of any rent or additional rent expressly set forth in the Sublease, or
(b) self-help in accordance with the express provisions of the Sublease, or (c)
terminate the Sublease in accordance with the provisions thereof in connection
with a casualty or condemnation affecting the Sublet Premises or the Property.
For purposes hereof, the term Sublease shall include any successor direct lease
between Subtenant and Landlord.
2 To be deleted if Subtenant is not a partnership.
M-16
<PAGE>
7. This Agreement may not be modified except by an agreement in writing
signed by the parties or their respective successors in interest. This Agreement
shall inure to the benefit of and be binding upon the parties hereto, their
respective heirs, representatives, successors and assigns.
8. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage except as specifically set forth herein.
9. Subtenant agrees that in the event there is any inconsistency between
the terms and provisions hereof and the terms and provisions of the Sublease
dealing with non-disturbance by Mortgagee or the provisions of the Mortgage
referred to in Section 6.01(b) of the Lease (as they relate to Tenant's rights
and obligations), the terms and provisions hereof shall be controlling.
10. All notices, demands or requests made pursuant to, under, or by virtue
of the Sublease or this Agreement must be in writing and mailed to the party
whom the notice, demand or request is being made by certified or registered
mail, return receipt requested, at its address set forth above (in the case of
any Notice to Mortgagee, to the attention of John S. Hiott, Vice President). Any
party may change the place that notices and demands are to be sent by written
notice delivered in accordance with this Agreement.
11. Notwithstanding anything to the contrary contained herein, Subtenant
acknowledges and agrees that the provisions of paragraph (3)(c) set forth in
Section 6.01(b) of the Lease shall be effective and run to the benefit of
Mortgagee or any other Successor.
12. This Agreement shall be governed by the laws of the State of New York.
If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered will be deemed
to be an original and all of which taken together, will be deemed to be one and
the same instrument.
13. Tenant is executing this Agreement for the purpose of confirming that
this Agreement satisfies any condition or requirement in the Overlease or the
Subordination, Non-Disturbance and Attornment Agreement dated ____________, 1995
between Tenant and Mortgagee relating to the granting of a non-disturbance
agreement by Mortgagee to a subtenant of Tenant.
M-17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be duly executed as of the day and year first above written.
Mortgagee
NATIONSBANK OF TENNESSEE, N.A.
By:_______________________________
Name:
Title:
Subtenant
[--------------------------------]
By:_______________________________
Name:
Title:
Tenant
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By:_______________________________
Name:
Title:
[ADD NOTARY FORMS]
1 If the identity of the Trustee changes, this agreement must be
appropriately modified.
M-18
<PAGE>
EXHIBIT N
[INTENTIONALLY OMITTED FROM ORIGINAL DOCUMENT]
N-1
<PAGE>
EXHIBIT O
FORM OF NON-DISTURBANCE AND
ATTORNMENT AGREEMENT FOR SUPERIOR MORTGAGES
THIS AGREEMENT, made as of the _______ day of __________, _____ by and
between __________________________, a _________________, having an office at
________________________________ (hereinafter called "Mortgagee"), THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation, having an
office at 787 Seventh Avenue, New York, New York 10019 (hereinafter called
"Tenant") and 1290 ASSOCIATES, a New York partnership having an office c/o
Olympia and York Companies (U.S.A.), 237 Park Avenue, New York, New York 10019.
W I T N E S S E T H:
WHEREAS, Mortgagee is the ______ under that certain ____________________
______________________________________ (the "Mortgage") between ______________
___________________________________, as lender, and ________________, as
borrower, which was recorded on ________, ____ in the Office of the City
Register, New York County in Reel ___, Page ____, and which encumbers the land
and the building located at 1290 Avenue of the Americas, New York, New York (the
"Property") and more particularly described on Exhibit A annexed hereto,
WHEREAS, Tenant and 1290 Associates (together with any successor holder of
the Landlord's interest under the Lease, being hereinafter called "Landlord")
have entered into a certain agreement of lease dated as of July ___, 1995 (the
"Lease") initially covering the eleventh through twenty-second floors (the
"Demised Premises") in the building forming a part of the Property,
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Tenant covenants and agrees that the Lease now is and shall at all times
continue to be subordinate to the Mortgage. Tenant, upon request, shall execute
and deliver any certificate or other instrument which the Mortgagee may
reasonably request to confirm said subordination by Tenant.
2. Tenant certifies that (i) Tenant is the owner and holder of the Tenant's
interest under the Lease, (ii) the Lease is presently in full force and effect
and unmodified, (iii) no rent or additional rent payable under the Lease has
been paid more than one (1) month in advance of its due date (it being expressly
agreed that any rent abatements, set-offs or deductions expressly provided for
in the Lease shall not be deemed an advance payment of rent or additional rent
under this Agreement), (iv) no default exists under the Lease, and (v) there are
no offsets or defenses as of the date hereof to the payment of the rents,
additional rents or other sums payable under the Lease.
O-1
<PAGE>
3. As long as no default exists under the Lease which has continued after
notice and beyond the expiration of any applicable grace period as and to the
extent provided in the Lease (and provided that nothing shall imply any right of
Tenant to further notice if Landlord has previously provided such notice),
Mortgagee shall not name Tenant as a party defendant to any action for
foreclosure or other enforcement of the Mortgage (unless required by law), nor
shall the Lease be terminated by Mortgagee in connection with, or by reason of,
foreclosure or other proceedings for the enforcement of the Mortgage, or by
reason of a transfer of the Landlord's interest under the Lease pursuant to the
taking of a deed in lieu of foreclosure (or similar device) whether in
connection with a bankruptcy proceeding or otherwise, nor shall Tenant's use or
possession of the Demised Premises be interfered with by Mortgagee (except to
the extent permitted under the Lease), except that the person acquiring, or
succeeding to, the interests of the Landlord in the Property as a result of any
such action or proceeding or taking of a deed in lieu of foreclosure (including,
without limitation, Mortgagee), and such person's successors and assigns (any of
the foregoing being hereinafter referred to as the "Successor"), shall not be:
(a) subject to any credits, offsets, defenses or claims which Tenant might
have against any prior Landlord, except that a Successor shall be subject to any
credits, offsets and defenses to which Tenant may be entitled pursuant to the
express provisions of the Lease; nor
(b) bound by any rent or additional rent which Tenant might have paid for
more than one (1) month in advance to any prior Landlord, unless such prepayment
shall have been made with Mortgagee's prior written consent; nor
(c) liable for any act or omission of any prior Landlord except as
expressly provided in this Agreement, it being understood that the foregoing is
not intended to (i) relieve a Successor of any liability arising by reason of
its acts or omissions from and after the date the Successor succeeds to the
rights of the prior Landlord, including a continuation of the failure of the
prior Landlord to perform its obligations under the Lease, in which case the
Successor upon receipt of notice of such continuation from Tenant shall have a
reasonable period of time to remedy same (it being agreed that to the extent a
time period is granted Landlord in the Lease for such remedy such time period
shall be deemed a reasonable period of time for purposes of this clause (i)), or
(ii) deny Tenant the benefit of any rent offset right, abatement or credit to
which Tenant is entitled under the Lease, subject to the express terms hereof.
Notwithstanding the foregoing, the Successor shall not be liable to Tenant for
any claim Tenant may have against a prior Landlord under the provisions of
Section 6.12 of the Lease (by way of example, the Successor shall not be liable
for any loss or damage to Tenant caused by the negligence of a prior Landlord or
its agents, servants, employees or contractors); nor
(d) bound by any covenant to undertake or complete any Landlord's Work with
respect to any Block of space or any Offer Space or the Lobby Renovation Work
(as such terms are defined in the Lease); provided however; that if the
Successor shall fail to complete any such work, then Tenant shall have the
following rights (which shall be the sole and exclusive remedies available to
Tenant for such failure): (i) [OMIT IF NO LONGER APPLICABLE: in the case of the
Successor's failure to complete the Landlord's Work with respect to any Block of
space Tenant shall, subject to the terms hereof, have the rights described in
Sections 1.03 and 10.01 of the Lease, (ii)] in the case of Successor's failure
to complete the Landlord's Work with respect to any Offer Space Tenant shall,
subject to the terms hereof, have the rights described in Sections 1.06 and
10.01 of the Lease [OMIT IF NO LONGER APPLICABLE: and (iii) in the case of
Successor's failure to complete the Lobby Renovation Work Tenant shall, subject
to the terms hereof, have the rights described in Section 8.21(c) of the Lease.]
The Successor's failure to complete any such work shall not constitute a default
by the Successor under the Lease giving rise to any remedies other than as
expressly set forth in this paragraph (d); nor
O-2
<PAGE>
(e) be required to account for any security deposit other than any security
deposit actually delivered to the Successor; nor
(f) liable for any payment to Tenant of any sums or the granting to Tenant
of any credit in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Demised Premises or any portion thereof, or
otherwise (except to the extent provided in paragraph (a) above), provided,
however, that the Successor shall be responsible to pay to Tenant any unpaid
portion of the [OMIT ANY THAT ARE NO LONGER APPLICABLE: Block A and B Allowance,
the Block C Allowance and] the Expansion Allowance (as such terms are defined in
the Lease and collectively referred to herein as "Landlord's Contributions") as
and when the same are due and payable under the Lease; provided, further,
however, that the sole and exclusive remedy available to Tenant in the event the
Successor shall fail to pay any or all of the Landlord's Contributions shall be
to exercise the set-off rights described in Section 10.05 of the Lease and the
Successor's failure to make any such payment shall not constitute a default by
the Successor under the Lease giving rise to any remedies other than the set-off
rights expressly set forth in such Section 10.05. Notwithstanding the foregoing,
Mortgagee shall have the right (but not the obligation) if Landlord shall
default in funding all or any portion of the Landlord's Contributions to pay
such amounts to Tenant; nor
(g) bound by any modification of the Lease made without the written consent
of Mortgagee, including without limitation any agreement by Tenant to surrender
the Lease. Mortgagee agrees not to unreasonably withhold, delay or condition its
consent to a modification of the Lease.
4. (a) If the interest of the Landlord under the Lease shall be transferred
by reason of foreclosure or other proceedings for enforcement of the Mortgage in
which Tenant has not been named as party defendant or pursuant to a taking of a
deed in lieu of foreclosure (or similar device) whether in connection with a
bankruptcy proceeding or otherwise, the Lease shall not be terminated or
affected thereby but shall continue in full force and effect as a direct lease
between the Successor and Tenant and Tenant shall be bound to the Successor,
and, except as expressly provided in this Agreement, the Successor shall be
bound to Tenant, under all of the terms, covenants and conditions of the Lease
for the balance of the term thereof remaining, with the same force and effect as
if the Successor were the Landlord, and Tenant does hereby (i) agree to attorn
to the Successor, including Mortgagee if it be the Successor, as its landlord,
(ii) affirm its obligations under the Lease, and (iii) agree to make payments of
all sums due under the Lease to the Successor, said attornment, affirmation and
agreement to be effective and self-operative without the execution of any
further instruments, upon the Successor succeeding to the interest of the
Landlord under the Lease, provided that if the Successor requests, without
implying any obligation to do so on the Successor's part, Tenant will confirm
the attornment described herein to the Successor in writing. Tenant waives the
provisions of any statute or rule of law now or hereafter in effect that may
give or purport to give it any right or election to terminate or otherwise
adversely affect the Lease or the obligations of Tenant thereunder by reason of
any foreclosure or similar proceeding.
O-3
<PAGE>
(b) Provided the Lease has not been previously cancelled or terminated, if
(i) Mortgagee or any other Successor shall acquire title to the Property upon
foreclosure in an action in which Mortgagee shall have been required to name
Tenant as a party defendant, and (ii) Tenant is not in default under the Lease
after notice and beyond the expiration of all applicable cure periods as and to
the extent provided in the Lease (and provided that nothing shall imply any
right of Tenant to further notice if Landlord has previously provided such
notice), then, in such event, Mortgagee or any other Successor (as the case may
be) shall enter into a new lease with Tenant upon the same terms and conditions
as were contained in the Lease, except that (x) the obligations and liabilities
of Mortgagee or other Successor (as the case may be) under any such new lease
shall be subject to the terms and conditions of this Agreement, and (y) the
expiration date of such new lease shall coincide with the original expiration
date of the Lease. Tenant shall execute any such new lease and shall attorn to
Mortgagee or the other Successor (as the case may be) so as to establish direct
privity between Mortgagee or such other Successor (as the case may be) and
Tenant.
(c) If (i) Landlord, as debtor-in-possession, or any trustee appointed in a
bankruptcy case of Landlord, obtains an order of the Bankruptcy Court
authorizing the rejection of the Lease in accordance with ss.365 of the
Bankruptcy Code (as hereinafter defined), and Tenant elects to retain its rights
under the Lease in accordance with ss.365(h) of the Bankruptcy Code, (ii)
Mortgagee or any other Successor shall acquire title to the Property upon
foreclosure or by the acceptance of a deed in lieu thereof or by any other
means, and (iii) Tenant is not in default under the Lease after notice and
beyond the expiration of all applicable cure periods as and to the extent
provided in the Lease (and provided that nothing shall imply any right of Tenant
to further notice if Landlord has previously provided such notice) then, in such
event, Mortgagee or any other Successor (as the case may be) shall enter into a
new lease with Tenant upon the same terms and conditions as were contained in
the Lease, except that (x) the obligations and liabilities of Mortgagee or other
Successor (as the case may be) under any such new lease shall be subject to the
terms and conditions of this Agreement, and (y) the expiration date of such new
lease shall coincide with the original expiration date of the Lease. Tenant
shall execute any such new lease and shall attorn to Mortgagee or the other
Successor (as the case may be) so as to establish direct privity between
Mortgagee or such other Successor (as the case may be) and Tenant.
5. Tenant shall notify Mortgagee of any default by Landlord under the Lease
or any other circumstance which would entitle Tenant to cancel or terminate the
Lease. If Landlord fails to cure any default as to which Tenant is obligated to
give notice pursuant to the preceding sentence within the time provided for in
the Lease (or if no such period of time is provided in the Lease, within a
reasonable period of time), then Mortgagee shall have an additional 30 days
after receipt of such notice within which to cure such default or if such
default cannot be cured within that time, then such additional time as may be
necessary if, within such 30 days, Mortgagee has commenced and is diligently
pursuing the remedies necessary to cure such default (including, without
limitation, commencement of foreclosure proceedings or eviction proceedings, if
necessary to effect such cure), in which event the Lease shall not be terminated
and Tenant shall not exercise any other rights or remedies under the Lease or
otherwise while such remedies are being so diligently pursued, other than
Tenant's right to (a) any abatement, deduction, counterclaim or setoff of any
rent or additional rent expressly set forth in this Lease, (b) self-help in
accordance with Section 10.01 or (c) terminate the Lease pursuant to and in
accordance with Section 7.04 or Section 7.05 of the Lease. Nothing herein shall
be deemed to imply that Tenant has any right to terminate the Lease or any other
right or remedy, except as may be otherwise expressly provided for in the Lease.
6. Mortgagee agrees that, provided Tenant is not then in default under this
Agreement or the Lease after notice and beyond the expiration of applicable
grace periods as and to the extent provided under the Lease (and provided that
nothing shall imply any right of Tenant to further notice if Landlord has
previously provided such notice), with respect to any sublease (other than a
sublease to an affiliate of Tenant pursuant to Sections 5.01(c) or (e) of the
Lease or otherwise) and which (a) is not for less than 20,000 rentable square
feet of Office Space, (b) consists of either (x) not less than 100,000 rentable
square feet of Office Space or (y) contiguous space which includes the highest
or lowest floor then comprising the Office Space or is contiguous to another
floor substantially all of which has been sublet by Tenant and with respect to
which Mortgagee has executed and delivered one or more non-disturbance and
attornment agreements hereunder with respect to substantially all of such floor,
O-4
<PAGE>
(c) provides for a rental which, after taking into account any free rent
periods, credits, offsets or deductions to which the subtenant may be entitled
thereunder, is equal to or in excess (on a per rentable square foot basis) of
the Fixed Rent and recurring Additional Charges (as such terms and defined in
the Lease) payable by Tenant under the Lease with respect to such space from
time to time throughout the term of the Lease (or if less (on a per rentable
square foot basis) than the Fixed Rent and recurring Additional Charges payable
by Tenant under the Lease, if such subtenant agrees, in the non-disturbance and
attornment agreement hereinafter referred to, that such rental will
automatically and without condition become so equal, if, as and when the
attornment provided for in such non-disturbance and attornment agreement becomes
effective between Mortgagee and the subtenant following the termination of the
Lease), (d) consists of space that will be demised separately from the remainder
of the Premises in accordance with all applicable laws and (e) provides for
other obligations of the subtenant at least substantially identical to the
obligations of Tenant under the Lease (but in compliance, to the extent
applicable, with Section 8.24 of the Lease), Mortgagee shall, at Tenant's
request, execute and deliver to such subtenant a non-disturbance and attornment
agreement substantially in the form attached to this Agreement as Exhibit B
provided and upon condition that (i) Tenant has furnished to Mortgagee's
reasonably satisfactory evidence that the subtenant has a financial worth
sufficient to timely fulfill its obligations under such sublease as a primary
tenant (and not as a subtenant), including any increase in such financial
obligations which may become effective as provided above, (ii) the sublease is
in a form reasonably satisfactory to Mortgagee, and (iii) the subtenant executes
and delivers to Landlord such non-disturbance and attornment agreement. Any
dispute as to the creditworthiness of a prospective subtenant may be submitted
to determination by arbitration in the manner provided in Section 8.09 of the
Lease as if such provisions were set forth herein and "Mortgagee" were
substituted for "Landlord" therein, and any such determination shall be binding
upon Mortgagee and Tenant. Notwithstanding anything to the contrary set forth in
this paragraph 9, any non-disturbance and attornment agreement delivered by
Mortgagee pursuant to this paragraph 9 shall be conditional and by its terms
expressly contain the condition such that, in the event of any termination of
the Lease other than by reason of Tenant's default (e.g., by reason of a
casualty), then any non-disturbance and attornment agreement to a subtenant
shall, automatically and without further act of the parties, terminate and be of
no further force or effect from and after the applicable termination date;
provided, that if (A) the Lease is terminated with respect to less than all of
the Demised Premises, or (B) Tenant pursuant to Article 9 of the Lease exercises
the Renewal Option (as defined therein) with respect to less than all of the
Demised Premises, only such non-disturbance and attornment agreements to
subtenants who sublease any of such space with respect to which the Lease is
terminated or not renewed, as the case may be, shall automatically and without
further act of the parties, terminate and be of no further force or effect from
and after the applicable termination date or the day preceding the commencement
of the Renewal Term, as the case may be. In addition, to the extent any such
non-disturbance and attornment agreement relates to a subtenant which is a
partnership, such agreement shall provide that no provision of such sublease
providing in substance for the exculpation from personal liability of the
partners of such partnership shall be binding on Mortgagee or any other
Successor unless such subtenant shall, on the date the attornment provided in
such non-disturbance and attornment agreement becomes effective between
Mortgagee and such subtenant, post with Mortgagee or such other Successor, as
security for such subtenant's obligations under its sublease, cash or a clean,
unconditional and irrevocable letter of credit (in form and from a bank
reasonably satisfactory to Mortgagee) in either case in an amount equal to the
annual fixed rent and recurring charges (without regard to any abatements,
credits or offsets) payable by such subtenant to Mortgagee at such time (such
security to be increased from time to time to reflect increases in such fixed
rent and recurring charges), unless such cash or letter of credit was previously
delivered to Landlord in accordance with the provisions of the Lease.
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<PAGE>
7. Tenant shall deliver to Mortgagee copies of all notices under the Lease
concurrent with delivery to or receipt from Landlord (including, without
limitation, default notices, notices establishing delivery and commencement
dates and notices commencing arbitration proceedings but excluding routine
operational notices such as requests for overtime services). No notice shall be
effective as to Mortgagee unless properly served upon Mortgagee in the manner
provided herein.
8. This Agreement may not be modified except by an agreement in writing
signed by Tenant and Mortgagee or their respective successors in interest. In
addition, any modification of this Agreement which would adversely affect
Landlord shall require the consent of Landlord. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, their respective heirs,
representatives, successors and assigns including, without limitation, with
respect to Mortgagee, the grantee under a deed in lieu of foreclosure and/or the
purchaser of the Demised Premises at a foreclosure sale or at any sale of the
Demised Premises following the granting of a deed in lieu of foreclosure or
following foreclosure.
9. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage except as specifically set forth herein.
10. Landlord, Tenant and Mortgagee agree that this Agreement satisfies any
condition or requirement in the Lease relating to the granting of a
non-disturbance agreement by Mortgagee. Mortgagee and Tenant further agree that
in the event there is any inconsistency between the terms and provisions hereof
and the terms and provisions of the Lease dealing with non-disturbance by
Mortgagee or the provisions of the Mortgage referred to in Section 6.01(b) of
the Lease (as they relate to Tenant's rights and obligations), the terms and
provisions hereof shall be controlling.
11. All notices, demands, consents, approvals, advices, waivers or other
communications (each, a "Notice") which may or are required to be given by
either party to the other under this Agreement shall be in writing and, unless
otherwise required by law, shall be sent (a) by hand, (b) by United States Mail,
certified or registered, postage prepaid, return receipt requested or (c) by a
nationally-recognized overnight carrier, in each case addressed to the party to
be notified at the address for such party specified in the first paragraph of
this Agreement (in the case of any Notice to Tenant, to the attention of the
Vice President, Facilities, and in the case of any Notice to Mortgagee, to the
attention of __________________), or to such other place in the continental
United States as the party to be notified may from time to time designate by at
least 20 days' notice to the notifying party (with copy, in the case of each
Notice to Mortgagee, to ______________________________________________________,
Attention: __________, and in the case of each Notice to Tenant, to the
attention of the General Counsel, at the address for Tenant specified in the
first paragraph of this Agreement). 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 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. Tenant shall also deliver a copy of any Notice provided to
Mortgagee under paragraphs 5 and 6 hereof to Landlord at the address and in the
manner provided in the Lease, excluding Notices which Tenant shall previously or
concurrently have delivered to or received from Landlord.
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<PAGE>
12. Anything herein or in the Lease to the contrary notwithstanding, if
Mortgagee shall acquire title to the Property, or shall otherwise become liable
for any obligations of Landlord under the Lease, Mortgagee shall have no
obligation, nor incur any liability, beyond Mortgagee's then interest, if any,
in the Property (as such interest is defined in Section 8.06 of the Lease) and
Tenant shall look exclusively to such interest of Mortgagee, if any, in the
Property for the payment and discharge of any obligations imposed upon Mortgagee
hereunder or under the Lease. Tenant agrees that with respect to any money
judgment that may be obtained or secured by Tenant against Mortgagee, Tenant
shall look solely to the estate or interest owned by Mortgagee in the Property
(as such interest is defined in Section 8.06 of the Lease) and Tenant shall not
collect or attempt to collect any such judgment out of any other assets of
Mortgagee. Nothing contained in this Section 12 shall be construed to diminish
or impair Tenant's abatement, offset, credit or self-help rights under the
Lease.
13. This Agreement shall be governed by the laws of the State of New York.
If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered will be deemed
to be an original and all of which taken together, will be deemed to be one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be duly executed as of the day and year first above written.
Mortgagee
By:___________________________
Name:
Title:
Tenant
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By:____________________________
Name:
Title:
Landlord
1290 ASSOCIATES
By: O&Y Management Corp., As Agent
By:____________________________
Name:
Title:
[ADD NOTARY FORMS]
O-7
<PAGE>
EXHIBIT B TO EXHIBIT O
FORM OF SUBTENANT
NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made as of the _______ day of ___________, _____ by and
between ____________________________, a _________________, having an office at
_________________________________ (hereinafter called "Mortgagee"),
______________, a _________________, having an office at
___________________________________ (hereinafter called "Subtenant"), and THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation,
having an office at 787 Seventh Avenue, New York, New York 10019 (hereinafter
called "Tenant").
W I T N E S S E T H:
WHEREAS, Mortgagee is the ___________ under that certain _____________
____________________________________________________________________________
(the "Mortgage") between _________________________, as lender, and ____________
______________, as borrower, which was recorded on __________________ in the
Office of the City Register, New York County in Reel ____, Page ____, and which
encumbers, among other properties, the land and the building located at 1290
Avenue of the Americas, New York, New York (the "Property"),
WHEREAS, Tenant has entered into a certain agreement of lease dated as of
July 20, 1995 (the "Overlease") covering, inter alia, __________________________
(the "Sublet Premises") in the building forming a part of the Property,
WHEREAS, Subtenant has entered into a certain agreement of sublease dated
as of ___________, ____ with Tenant (the "Sublease") covering Sublet Premises,
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Subtenant covenants and agrees that the Sublease now is and shall at all
times continue to be subject and subordinate in each and every respect to the
Mortgage. Subtenant, upon request, shall execute and deliver any certificate or
other instrument which the Mortgagee may reasonably request to confirm said
subordination by Subtenant.
2. Subtenant certifies that (i) Subtenant is the owner and holder of the
Subtenant's interest under the Sublease, (ii) the Sublease is presently in full
force and effect and unmodified, (iii) no rent or additional rent payable under
the Sublease has been paid more than one (1) month in advance of its due date,
(iv) no default exists under the Sublease, and (v) there are no offsets or
defenses as of the date hereof to the payment of the rents, additional rents or
other sums payable under the Sublease.
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<PAGE>
3. As long as no default exists under the Sublease which has continued
after notice and beyond the expiration of any applicable grace period as and to
the extent provided in the Sublease (and provided that nothing shall imply any
right of Subtenant to further notice if Tenant or the Landlord (as defined
below) has previously provided such notice) and subject to the provisions of
paragraph 5 below, Mortgagee shall not name Subtenant as a party defendant to
any action for foreclosure or other enforcement of the Mortgage (unless required
by law), nor shall the Sublease be terminated by Mortgagee in connection with,
or by reason of, foreclosure or other proceedings for the enforcement of the
Mortgage, or by reason of a transfer of the landlord's interest under the
Overlease pursuant to the taking of a deed in lieu of foreclosure (or similar
device), nor shall Subtenant's use or possession of the Sublet Premises be
interfered with by Mortgagee, unless the Tenant or 1290 Associates or any
successor owner of the Property (the "Landlord") would have had such right if
the Mortgage had not been granted, except that the person acquiring or
succeeding by or through Mortgagee to the interests of the Landlord under the
Overlease as a result of any such action or proceeding (including Mortgagee
should it acquire or succeed to such interests), and such person's successors
and assigns (any of the foregoing being hereinafter referred to as the
"Successor"), shall not be:
(a) subject to any credits, offsets, defenses or claims which Subtenant
might have against any prior sublessor or landlord; nor
(b) bound by any rent or additional rent which Subtenant might have paid
for more than one month in advance to any prior sublessor or landlord, unless
such prepayment shall have been made with Mortgagee's prior written consent; nor
(c) liable for any act or omission of any prior sublessor or landlord; nor
(d) bound by any covenant to undertake or complete any improvement to the
Sublet Premises or the building forming a part of the Property; nor
(e) required to account for any security deposit other than any security
deposit actually delivered to the Successor; nor
(f) liable for any payment to Tenant of any sums, or the granting to Tenant
of any credit, in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Demised Premises or any portion thereof; nor
(g) bound by any modification of the Sublease which results in the Sublease
no longer conforming to the parameters set forth in the Overlease for the
granting by Landlord of a non-disturbance agreement to a subtenant made without
the written consent of Mortgagee.
4. If the interest of the Landlord in the Property shall be transferred by
reason of foreclosure or other proceedings for enforcement of the Mortgage or
pursuant to a taking of a deed in lieu of foreclosure (or similar device) and
the Overlease shall have previously terminated (and the Sublease shall have
become a direct lease between Subtenant and Landlord pursuant to a
non-disturbance and attornment agreement between such parties) or shall be
terminated concurrent with or subsequent to such foreclosure, other enforcement
proceeding or taking, then subject to the provisions of paragraph 5 below,
Subtenant shall be bound to the Successor, and, except as provided in this
Agreement, the Successor shall be bound to Subtenant, under all of the terms,
covenants and conditions of the Sublease for the balance of the term thereof
remaining, with the same force and effect as if the Successor were the Tenant
under the Sublease, and Subtenant does hereby (i) agree to attorn to the
Successor, including Mortgagee if it be the Successor, as its landlord, (ii)
affirm its obligations under the Sublease (subject to the provisions of
paragraph 5 below), and (iii) agree to make payments of all sums due under the
Sublease (as same may be adjusted pursuant to the terms of paragraph 5 below) to
the Successor, said attornment, affirmation and agreement to be effective and
self-operative without the execution of any further instruments, upon the
Successor succeeding to the interest of the Tenant under the Sublease, provided
that if the Successor requests, without implying any obligation to do so on the
Successor's part, Subtenant will confirm the attornment described herein to the
Successor in writing. Subtenant waives the provisions of any statute or rule of
law now or hereafter in effect that may give or purport to give it any right or
election to terminate or otherwise adversely affect the Sublease or the
obligations of Subtenant thereunder by reason of any foreclosure of similar
proceeding.
0-9
<PAGE>
5. (a) Subtenant agrees that to the extent the Sublease provides for a
rental which, after taking into account any free rent periods, credits, offsets
or deductions to which the Subtenant may be entitled thereunder, is less (on a
per rentable square foot basis) than the Fixed Rent and recurring Additional
Charges (as such terms are defined in the Overlease) payable by Tenant under the
Overlease with respect to the Sublet Premises (the "Overlease Rent") from time
to time throughout the term of the Sublease, Subtenant agrees that the rental
payable under the Sublease will automatically and without condition become equal
to the Overlease Rent, if, as and when the attornment provided for herein
becomes effective between Mortgagee or any other Successor and the Subtenant.
Subtenant further agrees that the Sublease shall at all times comply with the
provisions of Section 8.24 of the Overlease.
[(b) In addition, Subtenant agrees that no provision of the Sublease
providing in substance for the exculpation from personal liability of the
partners of Subtenant shall be binding on Mortgagee or any other Successor
unless Subtenant shall, on the date the attornment provided herein becomes
effective between Mortgagee or any other Successor and Subtenant, post with
Mortgagee or such Successor as security for Subtenant's obligations under the
Sublease, cash or a clean, unconditional and irrevocable letter of credit (in
form and from a bank reasonably satisfactory to Mortgagee or such Successor) in
either case in an amount equal to the annual fixed rent and recurring charges
(without regard to any abatements, credits or offsets) payable at such time
(such security to be increased from time to time to reflect increases in such
fixed rent and recurring charges) by Subtenant to Mortgagee or such other
Successor as same may be modified in accordance with the terms of paragraph (a)
above, unless such cash or letter of credit was previously delivered to Landlord
in accordance with the provisions of the Overlease.]1
(c) Notwithstanding anything to the contrary set forth in this Agreement,
the agreements of the Mortgagee hereunder (on behalf of itself and any other
Successor) shall be effective only in the event the cause of termination of the
Overlease is the default of Tenant thereunder and if the Overlease is cancelled,
terminated or expires (in whole or in part but including the Sublet Premises)
for any other reason (e.g., by reason of a casualty or condemnation or the
exercise by Tenant of any termination or cancellation right or remedy provided
in the Overlease, at law or in equity or by reason of Tenant's failure to
exercise the Renewal Option (as defined in the Overlease)), then this Agreement
shall, automatically and without further act of the parties, terminate and be of
no further force or effect from and after the applicable termination date of the
Overlease (or portion thereof) or the day preceding the commencement of the
Renewal Term (as defined in the Overlease), as the case may be.
6. In the event the Overlease is terminated and Subtenant becomes a direct
tenant of Landlord pursuant to the terms of a non-disturbance and attornment
agreement between such parties, Subtenant shall notify Mortgagee of any default
by Landlord under the Sublease which would entitle Subtenant to cancel the
Sublease or abate the rents, additional rents or other sums payable thereunder
or to exercise any self-help or set-off rights thereunder. If Landlord fails to
cure any default as to which Subtenant is obligated to give notice pursuant to
the preceding sentence within the time provided for in the Sublease, Subtenant
shall provide Mortgagee notice of such occurrence and Mortgagee shall then have
an additional 30 days after receipt of such notice within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if, within such 30 days, Mortgagee shall
give Subtenant notice of its intention to diligently pursue the remedies
necessary to cure such default (including, without limitation, commencement of
foreclosure proceedings or eviction proceedings if necessary to effect such
cure) and thereafter does diligently pursue such remedies and cure, in which
event the Sublease shall not be terminated and Subtenant shall not exercise any
other rights or remedies under the Sublease or otherwise while such remedies are
being so diligently pursued by Mortgagee, other than Subtenant's right, subject
to Section 8.24 of the Overlease, to (a) any abatement, deduction, counterclaim
or setoff of any rent or additional rent expressly set forth in the Sublease, or
(b) self-help in accordance with the express provisions of the Sublease, or (c)
terminate the Sublease in accordance with the provisions thereof in connection
with a casualty or condemnation affecting the Sublet Premises or the Property.
For purposes hereof, the term Sublease shall include any successor direct lease
between Subtenant and Landlord.
1 To be deleted if Subtenant is not a partnership.
O-10
<PAGE>
7. This Agreement may not be modified except by an agreement in writing
signed by the parties or their respective successors in interest. This Agreement
shall inure to the benefit of and be binding upon the parties hereto, their
respective heirs, representatives, successors and assigns.
8. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage except as specifically set forth herein.
9. Subtenant agrees that in the event there is any inconsistency between
the terms and provisions hereof and the terms and provisions of the Sublease
dealing with non-disturbance by Mortgagee or the provisions of the Mortgage
referred to in Section 6.01(b) of the Lease (as they relate to Tenant's rights
and obligations), the terms and provisions hereof shall be controlling.
10. All notices, demands or requests made pursuant to, under, or by virtue
of the Sublease or this Agreement must be in writing and mailed to the party
whom the notice, demand or request is being made by certified or registered
mail, return receipt requested, at its address set forth above (in the case of
any Notice to Mortgagee, to the attention of John S. Hiott, Vice President). Any
party may change the place that notices and demands are to be sent by written
notice delivered in accordance with this Agreement.
11. Notwithstanding anything to the contrary contained herein, Subtenant
acknowledges and agrees that the provisions of paragraph (3)(c) set forth in
Section 6.01(b) of the Lease shall be effective and run to the benefit of
Mortgagee or any other Successor.
12. This Agreement shall be governed by the laws of the State of New York.
If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered will be deemed
to be an original and all of which taken together, will be deemed to be one and
the same instrument.
13. Tenant is executing this Agreement for the purpose of confirming that
this Agreement satisfies any condition or requirement in the Overlease or the
Subordination, Non-Disturbance and Attornment Agreement dated ____________, 1995
between Tenant and Mortgagee relating to the granting of a non-disturbance
agreement by Mortgagee to a subtenant of Tenant.
O-11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be duly executed as of the day and year first above written.
Mortgagee
By:_______________________________
Name:
Title:
Subtenant
[--------------------------------]
By:_______________________________
Name:
Title:
Tenant
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By:_______________________________
Name:
Title:
[ADD NOTARY FORMS]
O-12
<PAGE>
EXHIBIT P
CONDENSER WATER SPECIFICATIONS
1290 6TH AVE
WATERTREATMENT CONTROL SPECIFICATION
MAIN & TENANT COOLING TOWER
- --------------------------------------------------------------------------------
CONTROL LIMITS PRODUCT
- --------------------------------------------------------------------------------
PH 7.0 - 8.5 N/A
CONDUCTIVITY 500 - 900 PPM RAW WATER X 10 CYCLES
CORROSION 6 - 8 PPM DREW # 2040 & 1625
FREE CHLORINE 0.1 - 0.25 PPM DREW # 261 T (TENANT TOWER)
BIOCIDES 10 X 5TH DREW # 250 & 255 (ALTERNATE FEED)
- --------------------------------------------------------------------------------
P-1
<PAGE>
Tenant's Required Work Allowance
EXHIBIT Q
TENANT'S REQUIRED WORK AND ALLOWANCE AMOUNTS
Tenant's Required Work Allowance 1. Tenant shall replace all disconnect
switches, transformers and all panels (both $200,000 high and low voltage) in
the electrical closets in the Premises with new equipment.
2. New (or refurbished and painted if substantially new) radiator covers
and grilles $360,000 shall be provided on all floors. The standard for
refurbishment shall be consistent with the condition of the radiator covers and
grilles on the 19th floor of the Building as of the date of this Lease as shown
on the photograph of such radiator covers and grills attached to this Lease as
Exhibit Z.
3. All floors shall be scraped, patched and leveled to the standard of a
first class $125,000 office building, ready to receive floor covering.
4. Tenant shall construct accessible bathrooms on each floor of the
Premises, with $180,000 handicapped facilities in compliance with NYC Building
Code, Local Law 58 and ADA. The specific location of, and the level of finish to
be used in, the ADA bathrooms shall be subject to the review and approval of
Landlord. Each ADA bathroom shall include:
(a) 1 handicap toilet and lavatory. (b) Drywall (greenboard) walls, 1
hollow metal door and buck with lever hardware. (c) American Olean Standard
floor tile with waterproofing and base. (d) Toilet accessories (2 grab bars,
soap dispenser, paper towel dispenser, tilt mirror, toilet paper holder,
sanitary napkin disposal). (e) Lay-in ceiling with light fixture - 1 G.F.I.
duplex outlet. (f) Strobe/speaker. (g) Toilet exhaust with exhaust fan. (h)
Sprinkler
5. All damaged window mullions are to be repaired to a "like new"
condition. The $145,000 standard for repair shall be consistent with the
condition of the mullions on the 19th floor of the Building as of the date of
this Lease as shown on the photograph of such mullions attached to this Lease as
Exhibit Z.
6. Tenant shall be responsible for ADA compliance in the core areas on each
floor of $35,000 the Premises, including, without limitation, core door
hardware, horn strobes, core signage, etc. (but excluding fire pull stations,
warden stations, elevator call buttons and hall lanterns). All core door
hardware shall be uniform and reasonably acceptable to Landlord.
7. Tenant shall refurbish all existing bathrooms to not less than Building
standard $101,000 condition. This refurbishment shall include, without
limitation, replacement of cracked, damaged and missing floor, wall and ceiling
tiles, cracked, damaged and missing mirrors, damaged partitions and ceilings and
damaged, broken and missing fixtures and hardware.
8. Tenant shall reinstate within the core the second men's and women's
bathrooms on $103,000 the 11th floor of the Building which are now located
outside the core. Such bathrooms shall be located within the core on the 11th
floor of the Building in the location designated on Schedule 1 attached to this
Exhibit Q. All hardware, doors, bucks, saddles, as well as 1 water closet and
lavatory in each new men's and women's bathroom must be ADA-compliant. Each new
bathroom shall include the following:
(a) Men's Room- 3 water closets (1 of which is handicap) 4 lavatories (1
handicap) 3 urinals Women's Room- 5 water closets (1 handicap) 4 lavatories (b)
New rated door/buck/hardware into each. (c) American Olean Standard floor tile
with waterproofing and wall tile (3/4 UP) (handicap-compliant saddles). (d) New
ceiling-hung toilet partitions. (e) New toilet accessories (all including grab
bars, etc.) and mirrors. (f) New lay-in ceiling with light fixtures (4 ea. 1 x
4's in each men's and women's rooms - 2 G.F.I outlet in each). (g)
Strobe/speaker in each. (h) Install toilet exhaust with exhaust fan in each. (i)
Relocate sprinklers as necessary.
9. Tenant shall install the main sprinkler loop on each floor (if not
already $211,000 installed) [and Tenant's sprinkler distribution shall include
all core bathrooms and utility closets].
Q-1
<PAGE>
SCHEDULE 1 TO EXHIBIT Q
LOCATION OF 11TH FLOOR CORE BATHROOMS
See Exhibit AA
Q-2
<PAGE>
EXHIBIT R
1290 Avenue of the Americas
ELEVATOR SPECIFICATIONS
Cars # 1 to 8 Lobby - 6th floor
4000# @500 F.P.M.
Cars # 9 to 16 Lobby, 7th - 15th floor
3500# @ 500 F.P.M.
Cars # 17 to 20 Lobby, 15th - 22nd floor
3500# @ 800 F.P.M.
Cars # 21 to 24 Lobby, 22nd - 29th floor
3500# @ 800 F.P.M.
Cars # 25 to 32 Lobby, 30th - 43rd floor
3500# @ 1000 F.P.M.
FREIGHT CARS
Cars # 33 & 34 Sub-cellar to 43rd floor
4000# @ 800 F.P.M.
HYDRAULIC LIFTS
#35 30,000#
#36 10,000#
Passenger car operating specifications
o Rated speed indicated +/-5%
o Floor to floor time 9.0 sec +/-5%
(From full door closure, next floor 3/4 open)
o Door operating time 2.0 seconds
o Door closure time 3.0 seconds
o Car call & hall call dwell time in accordance with ADA requirements
R-1
<PAGE>
EXHIBIT S
LOCATIONS FOR NYNEX SECOND PORT OF ENTRY
See Exhibit AA
S-1
<PAGE>
EXHIBIT T
ANTENNA LOCATION
See Exhibit AA
T-1
<PAGE>
EXHIBIT U
LOCATION OF BENTON PANELS
See Exhibit AA
U-1
<PAGE>
EXHIBIT V
EXTERIOR SIGNAGE LOCATIONS AND CRITERIA
See Exhibit AA
V-1
<PAGE>
EXHIBIT W
LOBBY RENOVATION WORK
LIST OF DRAWINGS, SPECIFICATIONS AND OTHER BID DOCUMENTS
- --------------------------------------------------------
CONTRACT DOCUMENTS - PREPARED BY O&Y
- ------------------------------------
Article 1 to 14 O&Y General Conditions 1 thru 34 11/1/94
Appendix A Insurance 1 thru 3 11/1/94
Sample Contractor Affidavit,
Lien Waiver and Release
of Claim 1 not dated
Sample Subcontractor Affidavit,
Lien Waiver and Release
of Claim 1 not dated
Building Rules and Regulations 1 thru 4 4/28/95
DRAWINGS & SPECIFICATIONS - PREPARED BY
DAVID KENNETH SPECTER & ASSOCIATES, ARCHITECTS, P.C.
SPECIFICATIONS
--------------
Section Pages Section Title
- ------- ----- -------------
Index 3 Index to Specifications
DIVISION #1 - GENERAL REQUIREMENTS
01000 4 Description of Work
01010 6 Alterations to Existing Facilities
01030 3 Alternate Proposals
01040 4 Project Coordination
01045 4 Cutting and Patching
01080 1 Permits and Compliance
01200 2 Project Meetings
01300 7 Submittal Requirements
STAMP 1 Combined Contract Shop Drawing
Submittal and Review Stamp
CSC 2 Certification of Specification Compliance
01420 2 Controlled Inspection
01500 6 Temporary Facilities
01600 2 Material and Equipment
01700 5 Project Close Out
W-1
<PAGE>
DIVISION #2 - SITE WORK
02070 6 Selective Removals and Demolition
02500 4 Pavements and Surfacing
02900 1 Landscaping
DIVISION #3 - CONCRETE WORK
03300 12 Plain and Reinforced Concrete
DIVISION #4 - MASONRY
04100 3 Mortars
04400 7 Stone Work
DIVISION #5 - METALS
05100 10 Structural Steel
05300 4 Metal Decking
05400 4 Cold Formed Metal Framing
05500 8 Miscellaneous Metals - General
05700 5 Ornamental Metal Systems
05741 4 Ornamental Metal Restoration
05750 3 Ornamental Metal Column Covers
DIVISION #6 - WOOD AND PLASTICS
06100 7 Rough Carpentry
06200 11 Finish Carpentry
DIVISION #7 - THERMAL AND MOISTURE PROTECTION
07110 8 Membrane Waterproofing
07250 5 Firestopping
07270 7 Firestopping
07410 10 Preformed Laminated Metal Panel System
07900 9 Caulking and Sealing
DIVISION #8 - DOORS AND WINDOWS
08110 7 Hollow Metal Work
08400 6 Entrance Construction
08470 6 Revolving Entrance Doors
08700 4 Finished Hardware
08800 5 Glazing
08810 5 Glass Ceiling System, Complete
08900 10 Structural Glazed Wall Systems
W-2
<PAGE>
DIVISION #9 - FINISHES
09200 6 Furring, Lathing and Plastering
09250 8 Gypsum Drywall
09600 7 Stone Flooring
09900 8 Painting
DIVISION #10 - SPECIALTIES
10400 3 Identifying Devices
DIVISION #11 - EQUIPMENT
NONE
DIVISION #12 - FURNISHINGS
NONE
DIVISION #13 - SPECIAL CONSTRUCTION
NONE
DIVISION #14 - CONVEYING SYSTEMS
NONE
ARCHITECTURAL DRAWING LIST
--------------------------
A-0 Title - Drawing Sheet List; Building Department Notes;
Plot Plan; Location Plan; Abbreviations; Symbol List
D-1 Demolition Plan and Notes
A-1 Partial Floor Plan A
A-2 Partial Floor Plan B, Column Details
A-3 Partial Floor Plan C, D & E Floor Details
A-4 Partial Reflected Ceiling Plan A Ceiling Details
A-5 Partial Reflected Ceiling Plan B Ceiling Details
A-6 Partial Reflected Ceiling Plan C, D & E
A-7 Exterior Elevations, Planter, Flagpole Details
A-8 Interior Elevation
A-9 Interior Elevation
A-10 Interior Elevation
A-11 Interior Elevation
A-12 Interior Elevation
A-13 Interior Elevation
A-14 Entrance & Storefront Details
A-15 Canopy Details
A-16 Canopy Details
A-17 Stone Details, Wood Details
A-18 Glass Ceiling Panel Details; Ceiling Details
A-19 Glass Ceiling Panel Details; Ceiling Details
A-20 Concierge Desk Details; Railing Details
A-21 Elevator Car Details
W-3
<PAGE>
DRAWINGS PREPARED BY STRUCTURAL ENGINEER,
OFFICE OF JAMES RUDERMAN
------------------------
S-1 Canopy Details and Floor Infill Details
S-2 Miscellaneous Details and General Notes
DRAWINGS & SPECIFICATIONS PREPARED BY
MECHANICAL & ELECTRICAL ENGINEERS, JAROS BAUM AND BOLLES
--------------------------------------------------------
DIVISION #15 - MECHANICAL
SECTION Section Title # of Pages Date
- ------- ------------- ---------- ----
15200 Plumbing 15200-TC-1 4/10/95
15200 Plumbing 15200-1 4/10/95
15300 Fire Protection 15300-TC-2 4/10/95
15300 Fire Protection 15300-1 4/10/95
15600 Heating, Ventilating
and Air Conditioning TC-1 &2 4/10/95
15600 Heating, Ventilating
and Air Conditioning 15600-1 4/10/95
16100 Electrical TC-1 4/10/95
16100 Electrical TC-2 4/10/95
MECHANICAL DRAWING LIST
- -----------------------
M-1 Mechanical Drawing Sheet List; Building Department Notes;
General Notes; Symbols List & Schedule
M-2 Partial Reflected Ceiling Plan A - Demolition
M-3 Partial Reflected Ceiling Plan B - Demolition
M-4 Partial Reflected Ceiling Plan C - Demolition
M-5 Partial Reflected Ceiling Plan A - Mechanical
M-6 Partial Reflected Ceiling Plan B - Mechanical
M-7 Partial Reflected Ceiling Plan C - Mechanical
M-8 Partial Floor Plan A - Heating
Electrical Drawing List
- -----------------------
E-1 Electrical Symbols List & Schedules
E-2 Partial Reflected Ceiling Plan A - Lighting
E-3 Partial Reflected Ceiling Plan B - Lighting
E-4 Partial Reflected Ceiling Plan C, D & E - Lighting
E-5 Plan - Lighting Demolition
E-6 Plan - Power
E-7 Electrical Fire Alarm & Power Distribution Riser Diagram
W-4
<PAGE>
Sprinkler Drawing List
- ----------------------
SP-1 Partial Reflected Ceiling Plan A - Sprinkler
SP-2 Partial Reflected Ceiling Plan B - Sprinkler
SP-3 Partial Reflected Ceiling Plan C, D & E - Sprinkler
Plumbing Drawing List
- ---------------------
P-1 Partial Floor Plan A - Plumbing
P-2 Partial Floor Plan C, D & E - Plumbing
ASBESTOS ABATEMENT SPECIFICATIONS
PREPARED BY HILLMANN ENVIRONMENTAL CO., INC.
--------------------------------------------
DIVISION #1 - GENERAL REQUIREMENTS
Section Title # of Pages
- ------- ----- ----------
-- Asbestos Abatement - Insurance Requirements 1
01013 Summary of Work 13
01043 Project Coordination 3
01092 Codes & Regulations 7
01313 Schedules, Reports, Payments 4
01314 Required Submittals 4
01410 Air Monitoring & Test Lab. Services 5
01503 Temporary Facilities 4
01513 Negative Air Containment System 6
01526 Preparation of Work Area 6
01527 Local Air Protection 4
01560 Worker Protection - Asbestos Abatement 4
01562 Respiratory Protection 5
01563 Decontamination Enclosure System 7
01701 Project Closeout 5
01714 Work Area Clearance 4
01810 Negative Air Containment 3
01830 Mini-Containment Technique 3
W-5
<PAGE>
EXHIBIT X
FORMULA TO DETERMINE OVERTIME HVAC COST
(PER ZONE)
HEATING (6 MONTHS) JAN TO MAR, OCT TO DEC
DETERMINE KW VALUE OF AIR HANDLERS & PUMPS WHICH SERVE
THE EQUITABLE PREMISES AFTER VAV SYSTEM IS COMMISSIONED. (CURRENTLY
PREDICTED AT 4 FLOOR MINIMUM)
DETERMINE OUTSIDE AIR REQUIREMENTS FOR OCCUPIED FLOORS.
ESTABLISH MONTHLY M/# STEAM & ENERGY
KWH RATE FROM CON EDISON BILL
APPLY PIPE FRICTION & DAMPER LOSS FACTOR OF 4%
SAMPLE BILL:
ELECTRIC
KW X ENERGY (KWH) RATE = COST
450 KW X .06/KWH = $27.00 HR
STEAM (INTERIOR)
OUTSIDE AIR CFM X (72 - AVG WINTER TEMP)X 1.08 X 1.04 X RATE = COST
-----------------------------------------
970,000 BTU'S M/#
31,000 X 30 DELTA "T" X 1.08 X 1.04 X $12.85 = $13.84 HR
----------------------------------------
970,000 BTU'S M/#
STEAM (PERIMETER)
DESIGN WATER LOAD M #'S X (AVG WINTER DD DAYS - 65)X 1.04 X RATE = COST
2.63 M#'S X (23/65) X 1.04 X $12.85 = $12.43 HR
- -------------------------------------
HOURLY WINTER RATE = $53.27
- -------------------------------------
X-1
<PAGE>
COOLING (6 MONTHS) APR TO SEPT
DETERMINE KW VALUE OF AIR HANDLERS & PUMPS WHICH SERVE
THE EQUITABLE PREMISES AFTER VAV SYSTEM IS COMMISSIONED. (CURRENTLY
PREDICTED AT 4 FLOOR MINIMUM)
DETERMINE CFM REQUIREMENT FOR OCCUPIED FLOORS.
ESTABLISH MONTHLY M/# STEAM & ENERGY
KWH RATE FROM CON EDISION BILL
APPLY PIPE FRICTION & DAMPER LOSS FACTOR OF 4%
DETERMINE CHILLER PUMPING & COOLING TOWER FAN KW
DETERMINE CHILLER STEAM TON HOUR LOAD @ 18.5 #'S TON/HR
DETERMINE MAKE UP WATER USE & PUMPING ELECTRIC
DETERMINE WATER TREATMENT MAKE UP
SAMPLE BILL:
BASE CHILLER PUMPING & TOWER FAN ELECTRIC
KW X ENERGY (KWH) RATE = COST
300 KW X .06/KWH = $24.00 HR
ELECTRIC
KW X ENERGY (KWH) RATE = COST
450 KW X .06/KWH = $27.00 HR
COOLING (INTERIOR)
SUPPLY AIR CFM X (81 - 53) X 1.08 X 1.04 = TONS HR
--------------------------------------------------
12,000 BTU'S
140,000 X 28 DELTA "T" X 1.08 X 1.04 = 367 TONS HR
-----------------------------------
12,000 BTU'S
COOLING (PERIMETER)
DESIGN WATER LOAD TON/HRS X LOAD FACTOR X 1.04= TONS HR
229 TONS X .66 = 96 TONS HR
96 + 347 = 463 TONS HR
463 x 18.5 #/TON = 8.56 M#'S
8.56 M#'S X $10.65 M# = $91.16 HR
MAKE UP WATER
GPM @ 2.5% EVAPORATION, BLOWDOWN & DRIFT RATE
500 TONS X 3 GPM TON X .025 = 37.5 GAL MIN
37.8 X 60 MIN/HR = 2,250 GAL HR
1 GAL = $.0050
2,250 X .0050/GAL = $11.25
DOMESTIC WATER PUMP ELECTRIC
REQUIRED GPH/RATED GPH X ENERGY KWH = COST
2,250/18,000 X 75 KW X .06 = $.56
WATER TREATMENT
$.00227 TON/HR
463 X .00227 = $1.05
- ----------------------------------------
HOURLY SUMMER RATE = $156.02
- ----------------------------------------
X-2
<PAGE>
EXHIBIT Y
[INTENTIONALLY OMITTED IN ORIGINAL DOCUMENT]
Y-1
<PAGE>
EXHIBIT Z
19TH FLOOR RADIATOR COVERS AND GRILLES AND MULLIONS
See Exhibit AA
Z-1
<PAGE>
Exhibit AA
The following Exhibits have been omitted from this filing because they
consist of graphic or image material and cannot be reproduced in an electronic
filing:
Exhibit B1 through B15: Contains floor plans of space being leased.
Exhibit Q: Schedule 1 to Exhibit Q contains a floor plan indicating the
location of certain work to be performed.
Exhibit S: Contains an electronic schematic indicating how a service
provider will access the building.
Exhibit T: Contains a plan indicating where an antenna is to be attached.
Exhibit U: Contains an elevation indicating where art is to be installed in
the lobby.
Exhibit V: Contains drawings of where exterior signs are to be located.
Exhibit Z: Contains photographs indicating the condition of certain
interior design features.
AA-1
FIRST AMENDMENT OF LEASE
Agreement, dated as of December _____, 1995, between 1290 ASSOCIATES,
L.L.C., a New York limited liability company having an office in care of Olympia
& York Companies (U.S.A.), 237 Park Avenue, New York, New York 10017
("Landlord") and THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a
New York corporation having an office at 787 Seventh Avenue, New York, New York
10019 ("Tenant").
WITNESSETH:
WHEREAS, Landlord (formerly 1290 Associates, a New York partnership) and
Tenant are parties to a Lease, dated as of July 20, 1995, (the "Lease"), whereby
Landlord leased to Tenant and Tenant hired from Landlord certain space in the
building located at 1290 Avenue of the Americas, New York, New York (the
"Building"); and
WHEREAS, Landlord and Tenant desire to amend the Lease to change the date
of the commencement of the term thereof and certain other matters as more
particularly set forth herein.
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. Defined Terms. All capitalized terms used herein but not defined shall
have the meanings ascribed to them in the Lease.
2. Tenant's Occupancy Rights. Anything contained in the Lease to the
contrary notwithstanding, in no event shall Tenant have the right to occupy any
portion of the Premises for the conduct of normal business therein prior to
August 1, 1996, and, until such date, Tenant's only right in respect of any
portion of the Premises with respect to which the Relevant Date has occurred
shall be to enter upon such portion of the Premises for the purposes of
preparing such portion of the Premises for Tenant's initial occupancy thereof,
including, without limitation, the performance of Alterations and the
installation of furniture, fixtures and equipment therein.
3. Deferral of Certain Payments. (a) Section 4.01(b) of the Lease is hereby
amended to postpone the due date of the final 2 installments of the Block A and
B Allowance as hereinafter set forth. Notwithstanding the provisions of Section
4.01(b) of the Lease, in lieu of the $3,425,497 installment of the Block A and B
Allowance described in clause (v) of said Section 4.01(b), and the $3,173,940
installment of the Block A and B Allowance described in clause (vi) of said
Section 4.01(b), Landlord shall pay to Tenant, on the later of (i) August 1,
1996 and (ii) the first Relevant Date applicable to any space included in the
Block A Space, a single payment of $6,724,893 (the later of the dates described
in clauses (i) and (ii) is called the "Block A/B Allowance Deferred Payment
Date").
(b) Tenant hereby acknowledges that the postponement of the final 2
installments of the Block A and B Allowance pursuant to Section 3(a) above
negates any alleged failure or default by Landlord timely to pay such
installments prior to the Block A/B Allowance Deferred Payment Date, and that
any notice of such failure or default given by Tenant to Landlord prior to the
Block A/B Allowance Deferred Payment Date (including, without limitation, that
certain notice of default dated December 20, 1995) is null and void and of no
force or effect.
4. Certain Amendments to Lease. Effective as of the date of this Agreement,
the Lease is hereby amended as follows:
(a) Section 1.02(b) of the Lease is amended by deleting therefrom (i) the
words "except for the Initial Possession Space (which Tenant may, subject to the
further provisions of this Lease, possess, use and occupy from and after the
date of this Lease)," in clause (ii) thereof and (ii) the words ", except that
in the case of the Initial Possession Space, Tenant shall comply with all of
Tenant's obligations under this Lease with respect to such space from and after
the date that Tenant takes possession of such space for the performance of
Alterations or for any other purpose" in clause (v) thereof. Without limiting
the generality of Section 2 above, Landlord and Tenant acknowledge that Section
2 above supersedes Section 1.02(b) of the Lease.
Page 1
<PAGE>
(b) The last sentence of Section 1.03(e) of the Lease is deleted.
(c) The last sentence of Section 1.03(f) of the Lease is deleted.
(d) The first sentence of Section 1.03(i) of the Lease is deleted and the
following is inserted in lieu thereof:
"'Concourse Relevant Date' means the later of (x) the date that Landlord
delivers to Tenant vacant possession of the Concourse Space in Qualifying
Condition and (y) the first Relevant Date applicable to any space included in
the Block A Space."
(e) Section 4.01(f) of the Lease is deleted.
(f) The text of Section D of Exhibit D to the Lease is deleted and there
shall be inserted in lieu thereof a new Section D as set forth on Exhibit A to
this Agreement.
5. No Other Changes. Except as expressly set forth in this Agreement, the
Lease shall remain unmodified and in full force and effect, and the Lease as
modified herein is ratified and confirmed. All references in the Lease to "this
Lease" shall hereafter be deemed to refer to the Lease as amended by this
Agreement.
Page 2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Agreement
as of the day and year first above written.
1290 ASSOCIATES, L.L.C.,
Landlord
By: O&Y Management Corp., as Agent
By: ________________________
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED
STATES,
Tenant
By: ____________________________
Name:
Title:
The Bank of New York, as successor trustee under the Indenture (as such
term is defined in the Lease) is executing this Agreement for the purpose of
indicating its consent thereto for purposes of Section 3(g) of that certain
Subordination Non-Disturbance and Attornment Agreement, dated as of August 17,
1995 among Nationsbank of Tennessee, N.A. (predecessor trustee to The Bank of
New York), The Equitable Life Assurance Society of the United States and 1290
Associates.
THE BANK OF NEW YORK
By: ___________________________
Name:
Title:
<PAGE>
The undersigned, as trustee under the Indenture (as such term is defined in
the Lease) is executing this Agreement for the sole purpose of indicating its
consent thereto for purposes of Section 3(g) of that certain Subordination
Non-Disturbance and Attornment Agreement, dated as of August 17, 1995 among
Nationsbank of Tennessee, N.A., The Equitable Life Assurance Society of the
United States and 1290 Associates.
NATIONSBANK OF TENNESSEE, N.A.
By: THE BANK OF NEW YORK, as agent
By: _____________________________
Name:
Title:
Page 3
<PAGE>
EXHIBIT A
Revised Section D of Exhibit D to the Lease
D. Contractors Agreement; Insurance Requirements
[To be retyped on letterhead of Tenant's contractors, addressed to
Landlord; References below to "contractor" shall be deemed to include
any construction manager]
________________, 199__
1290 Associates, L.L.C.
c/o Olympia & York Companies (U.S.A.)
237 Park Avenue
New York, New York 10017
Attn: Managing Attorney
Re: Tenant - The Equitable Life Assurance Society of the United States -
1290 Avenue of the Americas
Dear Sir/Madam:
The undersigned contractor (hereinafter called "Contractor") has been hired by
the Tenant or occupant (hereinafter called "Tenant") of the Building named above
[or by Tenant's contractor] to perform certain work (hereinafter called "Work")
for Tenant in the Tenant's Premises in the Building. Contractor and Tenant have
requested the undersigned Landlord (hereinafter called "Landlord") to grant
Contractor access to the Building and its facilities in connection with the
performance of the Work and Landlord agrees to grant such access to Contractor
upon and subject to the following terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord, any
Superior Lessor and any Superior Mortgagee and their respective officers,
employees, agents, affiliates, subsidiaries, and partners, and each of them,
from and with respect to any claims, demands, suits, liabilities, losses and
expenses, including reasonable attorneys' fees, arising out of or in connection
with the Work (and/or imposed by law upon any or all of them) because of
personal injuries, including death at any time resulting therefrom, and loss of
or damage to property, whether such injuries to persons or property are claimed
to be due to negligence of the Contractor or Tenant, except to the extent
specifically prohibited by law (and any such prohibition shall not void this
Agreement but shall be applied only to the minimum extent required by law).
Contractor shall provide, or require its subcontractors to provide, and
maintain at its or its subcontractors' expense, as the case may be, until
completion of Work, the following insurance:
(a) Workers' Compensation and Employers' Liability
Insurance covering each and every workman employed
in, about or upon the Work, as provided for in each
and every statute applicable to Workers' Compensation
and Employers' Liability Insurance.
(b) Commercial General Liability Insurance including
Coverage for Completed Operations, Broad Form
Property Damage "XCU" exclusion if any deleted, and
Contractual Liability (to specifically include
coverage for the indemnification clause of this
Agreement) for not less than the following limits:
Combined Single Limit Bodily
Injury and Property
Damage Liability:$5,000,000 (for Tenant's general
contractor and all Major Trade contractors) and
$1,000,000 (for all non-Major Trade contractors), in
each case written on a per occurrence basis. "Major
Trades" means HVAC, electric, sprinkler and plumbing.
(c) Commercial Automobile Liability Insurance (covering
all owned, non-owned and/or hired motor vehicles to
be used in connection with the Work) for not less
than the following limits:
Bodily Injury: $5,000,000 (for Tenant's general contractor
and all Major Trade contractors) and $1,000,000
(for all non-Major Trade contractors, in each case per
person
$5,000,000 (for Tenant's
general contractor and all
Major Trade contractors)
and $1,000,000 (for all
non-Major Trade contractors), in each case
per occurrence
Property Damage: $5,000,000 (for Tenant's general contractor and all
Major Trade contractors) and $1,000,000 (for all non-
Major Trade contractors), in each case per occurrence
Contractor shall furnish a certificate from its insurance carrier to the
Building office before commencing the Work, showing that it has complied with
the above requirements regarding insurance and providing that the insurer will
give Landlord 10 days prior written notice of the cancellation of any of the
foregoing policies. Such insurance may be carried under blanket and/or umbrella
policies covering the Building and/or the Work and other work sites of
Contractor, provided, that each such policy shall in all respects comply with
the provisions of this letter, shall specify that the portion of the total
coverage of such policy that is allocated to the Building and/or the Work is in
the amounts required pursuant to this letter and shall provide that the amount
of coverage afforded thereunder with respect to the Building and/or the Work
shall not be reduced by claims thereunder against such other work sites of
Contractor.
2. Contractor shall require all of its subcontractors engaged in the Work
to provide the following insurance:
(a) Workers' Compensation and Employers' Liability
Insurance covering each and every workman employed
in, about or upon the Work, as provided for in each
and every statute applicable to Workers' Compensation
and Employers' Liability Insurance.
(b) Commercial General Liability Insurance Including
Contractual Liability Coverage with limits of
liability at least equal to the above stated limits.
(c) Commercial Automotive Liability Insurance (covering
all owned, non-owned and/or hired motor vehicles to
be used in connection with the Work) for not less
than the above stated limits.
Upon the request of Landlord, Contractor shall require all of its subcontractors
engaged in the Work to execute an Insurance Requirements agreement in the same
form as this Agreement.
Agreed to and executed this ______ day of ____________, 199__.
Landlord Contractor
- ---------------------- ------------------------
Page 4
NEW YORK CITY
INDUSTRIAL DEVELOPMENT AGENCY
AND
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
and
EQUITABLE VARIABLE LIFE INSURANCE COMPANY,
as Lessees
------------------------------------------------------------
AMENDED AND RESTATED LEASE AGREEMENT (PROJECT PROPERTY)
------------------------------------------------------------
Dated as of May 1, 1996
New York City Industrial Development Agency
The Equitable Life Assurance Society of the United States Project
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TABLE OF CONTENTS
ARTICLE I
Definitions and Representations
Section 1.1. Definitions
Section 1.2. Construction
Section 1.3. Representations and Warranties by Agency
Section 1.4. Findings by Agency
Section 1.5. Representations and Warranties by Lessees
ARTICLE II
The Project
Section 2.1. The Project
Section 2.2. Commitment to Project
Section 2.3. Issuance of Bonds
Section 2.4. Title Insurance
ARTICLE III
Lease of Project Property and Rental Provisions
Section 3.1. Lease of the Project Property
Section 3.2. Duration of Term
Section 3.3. Rental Provisions; Pledge of Agreement and Rent
Section 3.4. Obligation of Lessees Unconditional
Section 3.5. Rent Relating to Leased Personalty and Maintenance Contracts
ARTICLE IV
Maintenance, Taxes and Insurance
Section 4.1. Maintenance, Alterations and Improvements
Section 4.2. Removal of Project Property
Section 4.3. Taxes, Assessments and Charges
Section 4.4. Insurance
Section 4.5. Advances by Agency
Section 4.6. Compliance with Law
Section 4.7. Enforcement of Rights Under Prime Lease Against Prime Landlord
ARTICLE V
Damage, Destruction and Condemnation
Section 5.1. Damage, Destruction and Condemnation
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ARTICLE VI
Particular Covenants
Section 6.1. Dissolution or Merger of Lessees; Restrictions on Lessees
Section 6.2. Indemnity
Section 6.3. Compensation and Expenses of Trustee, Bond Registrar,
Paying Agents and Agency
Section 6.4. Retention of Interest in Project Property
Section 6.5. Financial Statements; Annual Certificates
Section 6.6. Discharge of Liens
Section 6.7. Agency's Authority; Covenant of Quiet Enjoyment
Section 6.8. No Warranty of Condition or Suitability
Section 6.9. Amounts Remaining in Funds
Section 6.10. Obligations under and Covenants with Respect to the Prime
Lease
Section 6.11. [Reserved]
Section 6.12. Redemption Under Certain Circumstances
Section 6.13. Further Assurances
Section 6.14. Project Property Registry
Section 6.15. Recording and Filing
Section 6.16. Right to Cure Agency Defaults
Section 6.17. Release of Portions of the Facility Realty
Section 6.18. Additions to the Facility Realty
Section 6.19 Equitable to Remain Tenant Under Prime Lease
Section 6.20. Joint and Several Liability of the Lessees
Section 6.21. Eligibility of EVLICO as Lessee
Section 6.22. Equitable to Act as Agent of Lessees
ARTICLE VII
Events of Default; Remedies
Section 7.1. Events of Default
Section 7.2. Remedies on Default
Section 7.3. Remedies Cumulative
Section 7.4. No Additional Waiver Implied by One Waiver
Section 7.5. Effect of Discontinuance of Proceedings
Section 7.6. Agreement to Pay Attorneys' Fees and Expenses
ARTICLE VIII
Options
Section 8.1. Options
Section 8.2. Conveyance and Reversion on Exercise of Option
Section 8.3. Option to Purchase or Invite Tenders of Bonds
Section 8.4. Termination of Agreement
ARTICLE IX
Miscellaneous
Section 9.1. Indenture; Amendment
Section 9.2. Force Majeure
Section 9.3. Assignment or Sublease
Section 9.4. Priority of Indenture
Section 9.5. Benefit of, Enforcement and Binding Effect of this
Agreement
Section 9.6. Amendments
Section 9.7. Notices
Section 9.8. Prior Agreements Superseded
Section 9.9. Severability
Section 9.10. Inspection of the Project Property
Section 9.11. Effective Date; Counterparts
Section 9.12. Binding Effect
Section 9.13. Net Lease
Section 9.14. Law Governing
Section 9.15. Investment of Funds
Section 9.16. Investment Tax Credit
Section 9.17. Waiver of Trial by Jury
Section 9.18. Non-Discrimination
Section 9.19. No Recourse under This Agreement or on Bonds
Section 9.20. This Agreement to Constitute an Amendment and Restatement
Section 9.21. Date of Agreement for Reference Purposes Only
APPENDICES
Description of Project
Description of Pre-Bond Issuance Project Costs
Description of Facility Realty
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AMENDED AND RESTATED LEASE AGREEMENT (PROJECT PROPERTY)
THIS AMENDED AND RESTATED LEASE AGREEMENT (PROJECT PROPERTY), made and
entered into as of May 1, 1996, by and between NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY, a corporate governmental agency constituting a body
corporate and politic and a public benefit corporation of the State of New York,
duly organized and existing under the laws of the State of New York (the
"Agency"), having its principal office at 110 William Street, New York, New
York, party of the first part, and THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES and EQUITABLE VARIABLE LIFE INSURANCE COMPANY, each being a
corporation organized and existing under and by virtue of the laws of the State
of New York ("Equitable" and "EVLICO", respectively, and collectively, the
"Lessees"), having their principal office at 787 Seventh Avenue, New York, New
York, parties of the second part (capitalized terms used but not defined in the
recitals to this Amended and Restated Lease Agreement (Project Property) shall
have the respective meanings assigned such terms in Section 1.1 hereof), which
amends and restates a certain Interim Sublease Agreement, dated as of December
29, 1995, between the Agency and the Lessees (the"Interim Sublease Agreement"):
WITNESSETH:
WHEREAS, the New York State Industrial Development Agency Act, constituting
Title 1 of Article 18-A of the General Municipal Law, Chapter 24 of the
Consolidated Laws of New York, as amended, authorizes and provides for the
creation of industrial development agencies in the several counties, cities,
villages and towns in the State of New York (the "State") and empowers such
agencies, among other things, to acquire, construct, reconstruct, lease,
improve, maintain, equip and furnish land, any building or other improvement,
and all real and personal properties, including but not limited to machinery and
equipment deemed necessary in connection therewith, whether or not now in
existence or under construction, which shall be suitable for manufacturing,
warehousing, research, commercial, industrial or civic purposes, to the end that
such agencies may be able to promote, develop, encourage, assist and advance the
job opportunities, health, general prosperity and economic welfare of the people
of the State and to improve their prosperity and standard of living; and
WHEREAS, pursuant to and in accordance with the provisions of the Act the
Agency was established for the benefit of The City of New York (the "City") and
the inhabitants thereof; and
WHEREAS, Equitable has advised each of the Agency and the appropriate
officials of the City as follows: that Equitable currently leases approximately
1,500,000 square feet of space at six locations throughout the City, which
leases begin to expire in late 1996; that Equitable desired to consolidate its
locations for a more efficient operation and to reduce its overall occupancy
costs; that Equitable had been analyzing alternative locations for its offices
outside of the City (in particular, in Westchester) and determined that
remaining in the City would cost Equitable approximately $63,500,000 more than
relocating and leasing space in Westchester; that in order to induce Equitable
to retain its offices within the City and to reduce the competitive cost
differential, the Agency and appropriate officials of the City entered into
negotiations with Equitable to secure satisfactory public financial incentives
and thereby induce Equitable to consolidate its existing operations within the
City; that financial assistance from the Agency in the form of sales and/or use
tax exemptions for the Project (as defined below) is a vital element in bridging
the cost differential between the New York City and Westchester locations and
retaining the operations in New York City and the sales tax benefits will help
lower Equitable's cost of doing business in New York City and obviate the need
to relocate to Westchester; and that based upon the public financial incentives
provided through the Agency, Equitable desires to proceed with the Project in
the City; and
WHEREAS, Equitable and representatives of the City and of the Agency
commenced discussions in order to induce Equitable, among other things, to
acquire a leasehold interest in that certain building known as 1290 Avenue of
the Americas, New York, New York (the "Project Building"), to induce the Lessees
to construct from time to time leasehold improvements and renovations to a
portion of those premises within the Project Building to be leased to Equitable,
and to acquire, lease, sublease, install, maintain, repair and replace
furniture, machinery, equipment, and certain other tangible personal property
for use at Approved Equitable City Locations (as defined herein), all for use by
Equitable as its corporate headquarters and for the providing of financial
services, insurance and related operations by the Lessees, and for the Permitted
Incidental Use, as defined herein (the "Project") within the City; and
WHEREAS, the appropriate officials of the Agency and the City entered into
negotiations with Equitable in order to induce Equitable to remain and expand
its operations within the City; and
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WHEREAS, to accomplish the purposes of the Act, and in furtherance of said
purposes, on June 13, 1995, as amended on December 12, 1995, the Agency adopted
a resolution authorizing, among other things, the leasing (and sub-subleasing)
and licensing (and sublicensing), as the case may be, of the Project Property
(as defined herein) to the Lessees, the construction from time to time of
leasehold improvements and renovations to the Facility Realty and the
acquisition (by purchase or lease) from time to time of furniture, machinery,
equipment and certain other tangible personal property for use at Approved
Equitable City Locations by the Lessees within the City, all for use in
conducting the Equitable Business, as defined herein, and undertaking to permit
the issuance from time to time of its industrial development revenue bonds to
finance the Project; and
WHEREAS, Agency financing assistance and related Agency benefits are
necessary to provide employment in, and beneficial for the economy of, the City
and are reasonably necessary to induce the Lessees to proceed with the Project;
and
WHEREAS, pursuant to the Prime Lease (as defined herein), the Prime
Landlord (also as defined herein) has leased the Facility Realty and other
premises within the Project Building to Equitable, and pursuant to the Company
Lease (as defined herein), Equitable has subleased the Facility Realty to the
Agency; and
WHEREAS, it is intended by the Agency and the Lessees that the Facility
Realty is to be sub-subleased, and the remainder of the Project Property is to
be leased, by the Agency to the Lessees pursuant to this Lease Agreement
(Project Property); and
WHEREAS, simultaneously with the execution of this Lease Agreement (Project
Property), the Agency and the Lessees have entered into a Project Agreement of
even date herewith pursuant to which the Lessees have undertaken certain
additional obligations, covenants and agreements with the Agency; and
WHEREAS, the Agency, in order to provide funds for a portion of the cost of
the Project and for incidental and related costs thereto, will issue and sell
from time to time in various Series its Industrial Development Revenue Bonds
(The Equitable Life Assurance Society of the United States Project) (the
"Bonds"), in the aggregate principal amount of up to One Hundred Fifty-Six
Million Dollars ($156,000,000) pursuant to the Act, a resolution of the Agency
adopted on March 12, 1996, Certificates of Determination (as hereinafter
defined) of the Agency, an Indenture of Trust of even date herewith by and
between the Agency and United States Trust Company of New York, as Trustee,
securing said Bonds, and a Bond Supplemental Indenture of Trust of even date
herewith between the Agency and the Trustee; and
WHEREAS, the Agency and the Lessees desire hereby to amend and restate in
its entirety the Interim Sublease Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
representations and agreements hereinafter contained, the parties hereto agree
as follows (provided that in the performance of the agreements of the Agency
herein contained, any obligation it may incur for the payment of money shall not
create a debt of the State of New York or of The City of New York, and neither
the State of New York nor The City of New York shall be liable on any obligation
so incurred, but any such obligation shall be payable solely out of the lease
rentals payable by the Lessees under this Amended and Restated Lease Agreement
(Project Property)):
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ARTICLE I
Definitions and Representations
Section 1.1. Definitions. Terms not otherwise defined herein shall have the
same meanings as used in the Indenture or in the Project Agreement herein below
defined. The following terms shall have the following meanings in this Lease
Agreement (Project Property):
Act shall mean, collectively, the New York State Industrial Development
Agency Act (constituting Title 1 of Article 18-A of the General Municipal Law,
Chapter 24 of the Consolidated Laws of New York), as amended, and Chapter 1082
of the 1974 Laws of New York, as amended.
An Affiliate of a Person shall mean a Person which directly or indirectly
through one or more intermediaries controls, or is under common control with, or
is controlled by, such Person. The term "control" (including the related terms
"controlled by" and "under common control with") means (i) the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, and (ii) the ownership, either directly or
indirectly, of at least 51% of the voting stock or other equity interest of such
Person.
Agency shall mean the New York City Industrial Development Agency, a
corporate governmental agency constituting a body corporate and politic and a
public benefit corporation of the State, duly organized and existing under the
laws of the State, and any body, board, authority, agency or other governmental
agency or instrumentality which shall hereafter succeed to the powers, duties,
obligations and functions thereof.
Agency's Reserved Rights shall mean, collectively,
(i) the right of the Agency in its own behalf to receive all Opinions of
Counsel, reports, financial statements, certificates, insurance policies,
binders or certificates, or other notices or communications required to be
delivered to the Agency under this Agreement;
(ii) the right of the Agency to grant or withhold any consents or approvals
required of the Agency under this Agreement;
(iii) the right of the Agency to enforce or otherwise exercise in its own
behalf all agreements of the Lessees with respect to ensuring that the Project
Property shall always constitute a qualified "project" as defined in and as
contemplated by the Act for the general purposes set forth in the recitals to
this Agreement;
(iv) the right of the Agency in its own behalf (or on behalf of the
appropriate taxing authorities) to enforce, receive amounts payable under or
otherwise exercise its rights under Sections 2.1, 2.2, 2.3, 2.4, 3.1, 3.2, 3.4,
3.5, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 5.1, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6(b),
6.8, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.17, 6.18, 6.19, 6.20, 6.21, 6.22,
7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 8.4, 9.2, 9.3, 9.10, 9.13, 9.17, 9.18 and 9.19 of
this Agreement;
(v)the right of the Agency to exercise on its own behalf its rights under
Section 2.4 hereof with respect to the proceeds of leasehold title insurance;
(vi) the right of the Agency, in its own absolute discretion, but only upon
the prior written request of the Lessees, to issue Bonds in an aggregate
principal amount in excess of $156,000,000; and
(vii) the right of the Agency in its own behalf to declare an Event of
Default under Section 7.1 of this Agreement with respect to any of the Agency's
Reserved Rights.
Agreement shall mean this Amended and Restated Lease Agreement (Project
Property) dated as of May 1, 1996 between the Agency and the Lessees, and shall
include any and all amendments hereof and supplements hereto hereafter made in
conformity herewith and with the Indenture.
Annual Bond Amount Period shall mean (i) that period commencing on the
Lease Commencement Date and ending on the day preceding the first anniversary of
the Lease Commencement Date, which shall be the First Annual Bond Amount Period,
and (ii) thereafter, each annual period commencing on the next anniversary date
of the Lease Commencement Date and ending on the day preceding the next
anniversary of such anniversary date (i.e., the Second Annual Bond Amount
Period, the Third Annual Bond Amount Period, etc.).
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Approved Equitable City Location shall mean any or all of the following
locations within the City (each for and only to the extent that such location
shall be occupied in whole or in part by Equitable (subject to the Permitted
Incidental Use) for the operation of the Equitable Business):
(i) 1290 Avenue of the Americas, Manhattan, New York;
(ii) 787 Seventh Avenue, Manhattan, New York;
(iii) 135 West 50th Street, Manhattan, New York;
(iv) 2 Penn Plaza, Manhattan, New York;
(v) 1755 Broadway, Manhattan, New York;
(vi) 21 Penn Plaza, Manhattan, New York; and
such other locations within the City as the Agency shall, upon written request
by an Authorized Representative of the Lessees, approve in accordance with the
requirements of the Act, such approval by the Agency to be evidenced by a
writing to such effect delivered by the Agency to the Lessees.
Authorized Representative shall mean, (i) in the case of the Agency, the
Chairman, Vice Chairman, Treasurer, Assistant Treasurer, Secretary, Assistant
Secretary, Executive Director or Deputy Executive Director of the Agency, or any
officer or employee of the Agency authorized to perform specific acts or to
discharge specific duties, and (ii) in the case of the Lessees, the Chairman,
any Vice Chairman, the President, the Chief Financial Officer, the Secretary,
any Executive Vice President, any Senior Vice President, the Treasurer, any
Assistant Treasurer or any Vice President of Equitable; provided, however, that
in each case for which a certification or other statement of fact or condition
is required to be submitted by an Authorized Representative to any Person
pursuant to the terms of this Agreement, such certificate or statement shall be
executed only by an Authorized Representative in a position to know or to obtain
knowledge of the facts or conditions that are the subject of such certificate or
statement.
Bond Resolution shall mean the resolution of the Agency adopted on March
12, 1996 authorizing, among other things, the issuance from time to time of the
Bonds.
Bonds shall mean the Agency's Industrial Development Revenue Bonds (The
Equitable Life Assurance Society of the United States Project) authorized to be
issued from time to time, in one or more Series, pursuant to Certificates of
Determination, the Bond Resolution, the Indenture and the Bond Supplemental
Indenture, in the aggregate principal amount of not to exceed One Hundred
Fifty-Six Million Dollars ($156,000,000).
Bond Supplemental Indenture shall mean the Bond Supplemental Indenture of
Trust of even date herewith between the Agency and the Trustee, and shall
include any and all amendments thereof and supplements thereto hereafter made in
conformity therewith and with the Indenture.
Business Day shall mean any day which shall not be a Saturday, Sunday,
legal holiday or a day on which banking institutions in the City are authorized
by law or executive order to close.
Certificate of Determination shall mean a Certificate of Determination of
the Chairman, Vice Chairman, Executive Director, Deputy Executive Director,
Secretary or Assistant Secretary of the Agency, substantially in the form set
forth in the Appendices attached to the Indenture as Form of Certificate of
Determination, with respect to and as a condition for the issuance of, a Series
of Bonds.
City shall mean The City of New York.
Code shall mean the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
Company Lease shall mean the Company Lease Agreement (Facility Realty) of
even date herewith between Equitable and the Agency relative to the Facility
Realty, and shall include any and all amendments thereof and supplements thereto
hereafter made in conformity therewith.
Defeasance Securities shall mean Government Securities; provided, however,
that, with respect to any particular Series of Bonds, "Defeasance Securities"
shall have the meaning ascribed to such term in the Certificate of Determination
pursuant to which such Series of Bonds is issued.
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Equitable shall mean The Equitable Life Assurance Society of the United
States, a corporation organized and existing under the laws of the State of New
York, and its permitted successors and assigns pursuant to Section 6.1 or 9.3
hereof (including any surviving, resulting or transferee corporation as provided
in Section 6.1 hereof).
Equitable Business shall mean the corporate headquarters of Equitable and
the providing of financial services, insurance and related operations by
Equitable and EVLICO.
Event of Default shall have the meaning specified in Section 7.1 hereof.
EVLICO shall mean Equitable Variable Life Insurance Company, a corporation
organized and existing under the laws of the State of New York, and its
permitted successors and assigns pursuant to Section 6.1 or 9.3 hereof
(including any surviving, resulting or transferee corporation as provided in
Section 6.1 hereof).
Excluded Property shall mean all machinery, equipment and other tangible
personal property as constitute the Lessees' Property.
Existing Project Property shall have the meaning specified in Section
4.2(a) hereof.
Facility Equipment shall mean the machinery, equipment, trade fixtures,
furniture, furnishings and other tangible personal property financed, paid or
reimbursed in whole or in part from the proceeds of the Bonds and the title to
which shall be acquired by or on behalf of the Agency for use or installation,
as the case may be, at an Approved Equitable City Location as part of the
Project pursuant to Section 2.1 hereof and described in the Project Property
Registry which is incorporated herein and made a part hereof (including, without
limitation, computers and peripherals, personal computers, telecommunications
equipment, business machines and software (which software is capitalized or
capable of being capitalized under generally accepted accounting principles)),
together with all repairs, replacements, improvements, substitutions and
renewals thereof or therefor, and all parts, additions and accessories
incorporated therein or affixed thereto. Facility Equipment shall, in accordance
with the provisions of Sections 4.2 and 5.1 hereof, include all property
substituted for or replacing items of Facility Equipment and exclude all items
of Facility Equipment so substituted for or replaced, and further exclude all
items of Facility Equipment removed (other than Temporary Removals) as provided
in Section 4.2 hereof. Facility Equipment shall not include rolling stock.
Facility Realty shall mean those certain premises within the Project
Building described in the Description of Facility Realty in the appendices
attached hereto and to the Company Lease, together with all fixtures (other than
trade fixtures) and improvements now or at any time made or situated thereon
(including the Tenant Improvements made pursuant to Section 2.1 hereof), and all
replacements, improvements, extensions, substitutions, restorations, repairs or
additions thereto, subject, however, to the provisions of Sections 5.1, 6.17,
6.18, 7.2 and 9.3 hereof providing for the addition and release of Facility
Realty. Facility Realty shall not include Excluded Property.
Federal Bankruptcy Code shall mean the Bankruptcy Reform Act of 1978, as
amended (constituting Title 11, United States Code, as amended).
Force Majeure shall have the meaning specified in Section 9.2 hereof.
Government Securities shall mean direct obligations of, or obligations
fully guaranteed as to payment of principal and interest by, the United States
of America.
Indenture shall mean the Indenture of Trust of even date herewith by and
between the Agency and the Trustee, as from time to time amended or supplemented
by Supplemental Indentures in accordance with Article XI of the Indenture.
Independent Accountant shall mean (y) any of the "Big Six" accounting
firms, or (z) an independent certified public accountant or firm of independent
certified public accountants selected by Equitable and approved in writing by
the Agency (such approval not to be unreasonably withheld, delayed or
conditioned).
Independent Engineer shall mean a Person (not an employee of either the
Agency, the Lessees or any Affiliate thereof) registered and qualified to
practice engineering or architecture under the laws of the State, selected by
the Lessees, and approved by the Trustee and the Agency (which approvals shall
not be unreasonably withheld, delayed or conditioned).
Initial Bonds shall mean the first Series of Bonds issued under the
Indenture.
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Interest Payment Date shall mean each date upon which interest, with
respect to a Series of Outstanding Bonds, shall be due and payable.
Issue Date shall mean, with respect to each fully registered Bond of a
Series, the date of the initial authentication and delivery of any of the Bonds
of such Series, as stated by the Trustee in the Trustee's Certificate of
Authentication appearing thereon to be the "Issue Date."
Lease Commencement Date shall mean the date of original issuance of the
Initial Bonds.
Leased Personalty shall mean one or more items of tangible or intangible
personal property, including, without limitation, mainframes (and peripherals),
personal computers, telecommunications equipment, equipment relating to the
operation of the three foregoing categories, and software, in which the Agency
shall acquire a leasehold or license interest under a Qualified Personalty Lease
in accordance with Section 2.1 hereof, and for which the Leased Personalty
Semi-Annual Capital Investment shall be financed in whole or in part from the
proceeds of the Bonds, to be used by any of the Lessees (subject to the
Permitted Incidental Use) at an Approved Equitable City Location as part of the
Project. Leased Personalty shall not include rolling stock.
Leased Personalty Semi-Annual Capital Investment shall mean that amount as
set forth in the certificate of an Authorized Representative of the Lessees
delivered to the Agency pursuant to Section 3.1 of the Project Agreement with
respect to each Qualified Personalty Lease in effect, as equal to the reasonably
estimated principal amortization relative to the property subject to such
Qualified Personalty Lease for the semi-annual period to which such certificate
relates, as representing the incremental acquisition of a capital interest in
such property; provided, however, that in calculating the Leased Personalty
Semi-Annual Capital Investment with respect to a Qualified Personalty Lease
qualifying as such only under clause (z) of the definition of such term, the
principal amortization for the relevant semi-annual period shall be calculated
as equal to (y) the aggregate rental paid under such Qualified Personalty Lease
during such semi-annual period, less (z) the deemed interest component of such
aggregate rentals calculated as being the same rate of interest as that Series
of Bonds issued immediately prior to the entering into of such Qualified
Personalty Lease.
Lease Rental Payment Date shall mean each date upon which principal,
interest, Redemption Price, if applicable, or other amounts shall be due under
the Bonds.
Lessees shall mean, collectively, Equitable and EVLICO.
Lessees' Property shall have the meaning specified in Section 4.1(c)
hereof.
Liens shall have the meaning specified in Section 6.6(a) hereof.
Loss Event shall have the meaning specified in Section 5.1(a) hereof.
Maintenance Contracts shall mean contracts for the maintenance, service or
repair of Facility Equipment or Leased Personalty used by any of the Lessees
(subject to Permitted Incidental Use) for the Equitable Business at an Approved
Equitable City Location, to the extent such contracts only encompass Qualified
Maintenance.
Moody's shall mean Moody's Investors Service, Inc., a corporation organized
and existing under the laws of the State of Delaware, its successors and their
assigns, and, if such corporation shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized securities rating agency
reasonably designated by the Agency, by notice to the Lessees and the Trustee.
Nationally Recognized Bond Counsel shall mean Hawkins, Delafield & Wood or
other counsel reasonably acceptable to the Agency and experienced in matters
relating to tax exemption of interest on bonds issued by states and their
political subdivisions.
Net Proceeds shall mean, when used with respect to any insurance proceeds
or condemnation award, compensation or damages, the gross amount from any such
proceeds, award, compensation or damages less all reasonable expenses (including
reasonable attorneys' fees, reasonable adjusters' fees and other reasonable
expenses of the Agency, other than fees or expense of in-house attorneys or
other in-house professionals) incurred in the collection thereof.
Non-Qualified User shall mean any Person other than the Lessees who shall
use or occupy any of the Facility Realty (whether by lease, or otherwise); but
subject, however, to Permitted Incidental Use.
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Opinion of Counsel shall mean a written opinion of counsel who may (except
as otherwise expressly provided in this Agreement or the Indenture) be counsel
for the Lessees or the Agency, as the case may be, and, if such counsel shall
not be an in-house counsel of the Lessees, who shall be reasonably acceptable to
the Person(s) to whom the opinion is to be addressed.
Outstanding, when used with reference to a Bond or Bonds of a particular
Series, as of any particular date, shall mean all Bonds of such Series which
have been issued, executed, authenticated and delivered under the Indenture,
except:
(i) Bonds of a Series cancelled by the Trustee because of payment or
redemption prior to maturity or surrendered to the Trustee under the Indenture
for cancellation;
(ii) Any Bond of such Series (or portion of a Bond of such Series) for the
payment or redemption of which, in accordance with Section 10.01 of the
Indenture, there has been separately set aside and held in a separate account of
the Bond Fund moneys and/or Defeasance Securities in an amount sufficient to
effect payment of the principal or applicable Redemption Price of such Bond,
together with accrued interest on such Bond to the payment or redemption date,
which interest on such Bond to the payment or redemption date shall be specified
in irrevocable instructions given to the Trustee to apply such moneys and/or
Defeasance Securities to such payment on the date so specified, provided, that,
if such Bond or portion thereof is to be redeemed, notice of such redemption
shall have been given as provided in the Indenture or provision satisfactory to
the Trustee shall have been made for the giving of such notice; and
(iii) Bonds in exchange for or in lieu of which other Bonds shall have been
authenticated and delivered under Article III of the Indenture.
Paying Agent shall mean any paying agent or co-paying agent for the Bonds
(and may include the Trustee) and its successor or successors and any other
corporation which may at any time be substituted in its place pursuant to the
Indenture.
Permanent Removals shall have the meaning set forth in Section 4.2(c)
hereof.
Permitted Encumbrances shall mean, as of any particular time,
(i) the Prime Lease, the Company Lease, this Agreement (including the
rights of the Lessees under Sections 4.2 and 8.1 hereof), the Indenture and any
other Security Document, and any mortgage, lien, security interest or other
encumbrance created thereby;
(ii) any mortgages now or hereafter granted by the Prime Landlord in the
Facility Realty;
(iii) liens for real estate taxes, assessments, levies and other
governmental charges, the payment of which is not in default;
(iv) any mechanic's, workmen's, repairmen's, materialmen's, contractors',
carriers', suppliers' or vendors' Lien or right in respect thereof if payment is
not yet due and payable, all if and to the extent permitted by Section 6.6
hereof;
(v) those exceptions to title to the Facility Realty enumerated in the
title insurance policies delivered pursuant to Section 2.4 hereof insuring the
Agency's leasehold interest in the Facility Realty, copies of which policies are
on file at the principal corporate trust office of the Trustee and at the office
of the Agency; and
(vi) any lien, security interest, encumbrance or charge, or any
conditional sale or other title retention agreement, which any vendor of
Facility Equipment or any lessor of Leased Personalty or any contractor under a
Maintenance Contract or any contractor hired to install Tenant Improvements may
place on or with respect to the Facility Realty, Facility Equipment, Leased
Personalty, a Maintenance Contract or Tenant Improvements.
Permitted Incidental Use shall mean incidental use of any of the Project
Property in the ordinary course of business by a direct or indirect parent
corporation of Equitable or by other legal entities which are direct or indirect
subsidiaries of Equitable.
Person shall mean any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or other entity.
<PAGE>
Pre-Bond Issuance Project Costs shall mean those items of Project Costs
paid or incurred by any of the Lessees after June 13, 1995 and which are
enumerated in the appendices hereto in "Description of Pre-Bond Issuance Project
Costs."
Pre-Bond Issuance Sales Tax Letter shall mean that certain Pre-Bond
Issuance Sales Tax Letter dated October 12, 1995, as amended and restated on
December 29, 1995 and on April 1, 1996, issued by the Agency to the Lessees with
respect to Pre-Bond Issuance Project Costs prior to the issuance of the Initial
Bonds and expiring on the Lease Commencement Date.
Prime Landlord shall mean 1290 Associates, a limited partnership organized
and existing under the laws of the State of New York, and its successors and
assigns under the Prime Lease.
Prime Lease shall mean the Agreement of Lease dated July 20, 1995, as
amended through the Lease Commencement Date, between the Prime Landlord and
Equitable relative to the Facility Realty, and shall include any and all
amendments thereof and supplements thereto hereafter made in conformity
therewith and herewith.
Principal Payment Date shall mean each date upon which principal with
respect to a Series of Outstanding Bonds shall be due and payable.
Prohibited Person shall mean:
(i) any Person (A) that is in material default or in material breach,
beyond any applicable grace period, of its obligations under any material
written agreement with the City or the Agency, or (B) that directly or
indirectly controls, is controlled by, or is under common control with, a Person
that is in material default or in material breach, beyond any applicable grace
period, of its obligations under any material written agreement with the City or
the Agency, unless such material default or material breach has been waived in
writing by the City or the Agency, respectively;
(ii) any Person (A) that has been convicted in a criminal proceeding for a
felony or any crime involving moral turpitude or that is an organized crime
figure or is reputed to have substantial business or other affiliations with an
organized crime figure, or (B) that directly or indirectly controls, is
controlled by, or is under common control with a Person that has been convicted
in a criminal proceeding for a felony or any crime involving moral turpitude or
that is an organized crime figure or is reputed to have substantial business or
other affiliations with an organized crime figure;
(iii) any government, or any Person that is directly or indirectly
controlled (rather than only regulated) by a government, that is finally
determined to be in violation of (including, but not limited to, any participant
in an international boycott in violation of) the Export Administration Act of
1979, or successor act, or the regulations issued pursuant thereto, or any
government that is, or any Person that, directly or indirectly, is controlled
(rather than only regulated) by a government that is subject to the regulations
or controls thereof; or
(iv) any government, or any Person that, directly or indirectly, is
controlled (rather than only regulated) by a government, the effects of the
activities of which are regulated or controlled pursuant to regulations of the
United States Treasury Department or executive orders of the President of the
United States of America issued pursuant to the Trading with the Enemy Act of
1917, as amended (including the Arms Export Control Act of 1979, as amended).
Project shall mean the construction and installation from time to time of
Tenant Improvements to the Facility Realty, and the acquisition, leasing,
subleasing, licensing, sublicensing and maintenance of Facility Equipment,
Leased Personalty and Maintenance Contracts for location at an Approved
Equitable City Location, all for use by the Lessees (subject to Permitted
Incidental Use) in the Equitable Business, as more fully described in the
Description of Project in the appendices attached hereto and made a part hereof.
Project Agreement shall mean the Project Agreement of even date herewith
between the Lessees and the Agency, and shall include any and all modifications
thereof and amendments thereto hereafter made in accordance therewith.
Project Building shall mean that certain building known as 1290 Avenue of
the Americas, New York, New York, and any substitutions, additions, repairs or
improvements thereto.
(b) Costs shall mean ( the Pre-Bond Issuance Project Costs, and (b) all
costs paid or incurred by any of the Lessees:
<PAGE>
(i) for engineering and architectural services with respect to the Project,
including the cost of estimates, plans and specifications and for supervising
Tenant Improvements, equipping and installation, as well as for the performance
of all other duties required by or consequent upon the proper renovation,
alteration, improving, equipping and installation of the Project;
(ii) for the Leased Personalty Semi-Annual Capital Investment; (iii) for
labor, contract bonds, materials, services, supplies, machinery or equipment and
other expenses, and to contractors, suppliers, builders and materialmen in
connection with Tenant Improvements, including costs of contract bonds and of
insurance that may be required or necessary during periods of renovation of the
Facility Realty;
(iv) for the title insurance policy delivered by the Lessees pursuant to
Section 2.4 hereof;
(v) for the acquisition of computer software provided that such software is
treated or capable of being treated (whether or not so treated) in accordance
with generally accepted accounting principles as a capital expenditure;
(vi) for the payment of the initial fees and expenses of the Trustee, legal
and financial fees and expenses, printing and engraving costs, and all other
costs and expenses incurred by or for the account of the Agency in connection
with the preparation, authorization, sale, printing, rating and issuance of the
Bonds from time to time, and the preparation and execution of this Agreement,
the Indenture, the Project Agreement, the Company Lease and all other documents
to which the Agency shall be a party;
(vii) for which any of the Lessees shall be required to pay, under the
terms of any purchase order, contract or contracts, or lease or leases, for
Tenant Improvements, the acquisition of Facility Equipment and the Leased
Personalty Semi-Annual Capital Investment, including any amounts required to
reimburse any of the Lessees for advances made for any item otherwise
constituting a Project Cost or for any other costs incurred and for work done
which are properly chargeable to the capital account of the Project; and
(viii) for the payment of such other costs with respect to which any of the
Lessees is entitled to receive a sales and/or use tax exemption under the Sales
Tax Letter, as may hereafter be agreed upon by the Agency and the Lessees.
"Project Costs" shall not include (i) counsel fees of the Lessees or any
Affiliate of any of the Lessees, (ii) fees or commissions of real estate
brokers, (iii) moving expenses, (iv) operational costs, (v) the costs of
acquiring and installing any item of personalty unless such personalty is a
capital tangible asset with a useful life of one year or more, (vi) charges for
utilities services, (vii) working capital costs, (viii) management, development
or leasing fees or commissions, (ix) the costs of Maintenance Contracts or the
interest portion of rentals under Qualified Personalty Leases, (x) costs paid or
incurred prior to June 13, 1995, (xi) costs or expenses with respect to property
not constituting Project Property, (xii) expenses for work done by officers or
employees of any of the Lessees or any Affiliate thereof, (xiii) any costs of
landscaping (including but not limited to the costs of acquiring and planting
shrubs, trees, flowers, lawns and other plants, as well as the cost of landscape
design services, (xiv) the costs of acquiring or leasing rolling stock, (xv) the
cost of acquiring and installing fine art, objets d'art, or any other similar
decorative items, and (xvi) to the extent not included in the preceding,
operating and other working capital costs.
Project Documents shall mean, collectively, this Agreement, the Prime
Lease, the Company Lease, the Project Agreement, the Sales Tax Letter and the
Indenture.
Project Property shall mean, collectively, the Facility Realty, the Tenant
Improvements, the Facility Equipment, the Leased Personalty and the Maintenance
Contracts.
Project Property Registry shall mean the registry maintained by the Agency
at its office of all the Facility Equipment, the Leased Personalty, the
Maintenance Contracts and the Tenant Improvements, as such registry shall be
modified, amended or supplemented from time to time in accordance with Section
6.14 hereof.
<PAGE>
Qualified Investments shall mean, to the extent permitted by applicable
law, the following (except to the extent that any of the following are issued or
guaranteed by or otherwise a security or an obligation, directly or indirectly,
of any of the Lessees or any of their Affiliates):
(i) Government Securities.
(ii) Securities issued or guaranteed by any of the
following instrumentalities or agencies of the
United States of America:
(a) Federal Home Loan Bank System
(b) Export-Import Bank of the United States
(c) Federal Financing Bank
(d) Government National Mortgage Association
(e) Farmers Home Administration
(f) Federal Home Loan Mortgage Corporation
(g) Federal Housing Administration
(h) Private Export Funding Corporation
(i) Tennessee Valley Authority.
(iii) Commercial paper rated at least "P-1" or better by
Moody's or at least "A-1" or better by S&P, issued
by a corporation or banking institution organized
under the laws of the United States or any state
thereof.
(iv) Direct and general long-term obligations of any
state of the United States to which the full faith
and credit of the state is pledged and which are
rated in either of the two highest rating
categories by Moody's or S&P.
(v) Direct and general short-term obligations of any
state of the United States to which the full faith
and credit of the state is pledged and which are
rated in the highest rating category by Moody's
and S&P.
(vi) Interest bearing demand or time deposits with or
certificates of deposit issued by a national
banking association or a state bank or trust
company or a savings and loan association which
are (a) continuously insured by the Bank Insurance
Fund or the Savings Association Insurance Fund
under the auspices of the Federal Deposit
Insurance Corporation,or (b) with a bank which has
outstanding debt, or which is a subsidiary of a
bank holding company which has outstanding debt,
rated at least "P-1" by Moody's or "A-1" by S&P,
or (c) continuously secured by obligations of the
type described in (i) and (ii) above which have a
market value at all times at least equal to the
principal amount of the deposit and which are held
by the Trustee or its agent or, in the case of
uncertificated securities, are registered in the
name of the Trustee as pledgee.
<PAGE>
(vii) Repurchase agreements, the maturity of which are
less than thirty (30) days, entered into (a) with
a bank or trust company organized under the laws
of any state of the United States or with a
national banking association, insurance company,
or government bond dealer reporting to, trading
with, and recognized as a primary dealer by the
Federal Reserve Bank of New York and which is a
member of the Security Investors Protection
Corporation, or (b) with a dealer whose
obligations are rated, or the parent holding
company of which is rated, investment grade by
Moody's or S&P. The securities that are subject to
a repurchase agreement must be obligations of the
type described in (i) or (ii) above which have a
fair market value, exclusive of accrued interest,
at least equal to the amount invested in the
repurchase agreement and which are held by the
Trustee or its agent or, in the case of
uncertificated securities, are registered in the
name of the Trustee as pledgee.
(viii) Money market mutual funds with assets in excess of
$2,000,000,000 investing in Qualified Investments
of the type specified in (i) or (ii) above.
Qualified Maintenance shall mean, with respect to any item of Facility
Equipment or Leased Personalty having a useful life of one year or more, the
replacement of parts (other than parts that contain materials or substances that
are consumed in the operation of such property (e.g., a toner cartridge) where
such parts must be replaced whenever the substance is consumed) or the making of
repairs, but shall not include maintenance of the type as shall constitute
janitorial services.
Qualified Personalty Lease shall mean a lease or license of one or more
items of Leased Personalty to any of the Lessees on behalf of and as agent for
the Agency, (y) which lease or license would be characterized under the
Accounting Standards of the Financial Accounting Standards Board, and is so
recorded on the books and records of the Lessees, as a "capital lease" or
"capital license," or (z) pursuant to which an option to purchase the subject
property of such lease or license is granted thereunder by the lessor or
licensor.
Rating Category shall mean one of the generic rating categories of either
Moody's or S&P without regard to any refinement or gradation of such rating by a
numerical modifier or otherwise.
Redemption Price shall mean, with respect to any Bond, the principal amount
thereof to be redeemed in whole or in part, plus the applicable premium, if any,
payable upon redemption thereof pursuant to such Bond or the Indenture.
Retention Period shall have the meaning specified in Section 4.2(a) hereof.
Sales Tax Letter shall mean the Letter of Authorization for Sales Tax
Exemption which the Agency shall make available to the Lessees in accordance
with and substantially in the form set forth in the appendices to the Project
Agreement.
S&P shall mean Standard & Poor's Ratings Services, a division of the McGraw
Hill Companies, Inc., a corporation organized and existing under the laws of the
State, its successors and assigns, and, if such corporation shall be dissolved
or liquidated or shall no longer perform the functions of a securities rating
agency, "S&P" shall be deemed to refer to any other nationally recognized
securities rating agency reasonably designated by the Agency, by notice to the
Lessees and the Trustee.
Security Documents shall mean, collectively and severally, this Agreement,
the Indenture, the Bond Supplemental Indenture and any other document inuring to
the benefit of the Trustee and the Holders of Bonds.
Series shall mean all of the Bonds designated as being of the same Series
authenticated and delivered on original issuance in a simultaneous transaction,
and any Bonds of the same Series thereafter authenticated and delivered in lieu
thereof or in substitution therefor pursuant to the Indenture and a Certificate
of Determination.
<PAGE>
State shall mean the State of New York.
Supplemental Indenture shall mean any indenture supplemental to or
amendatory of the Indenture, executed and delivered by the Agency and the
Trustee in accordance with Article XI of the Indenture.
Temporary Removals shall have the meaning specified in Section 4.2(b)
hereof.
Tenant Improvements shall mean all improvements, additions, fixtures,
alterations or modifications (and all labor costs related thereto) to any of the
space comprising the Facility Realty for use by the Lessees and for Permitted
Incidental Use, and for which sales or use tax exemptions shall have been taken
pursuant to this Agreement, the Project Agreement and the Sales Tax Letter.
Trustee shall mean United States Trust Company of New York, New York, New
York, in its capacity as Trustee, and its successors in such capacity and their
assigns hereafter appointed in the manner provided in the Indenture.
Trust Estate shall mean all property, interests, revenues, funds,
contracts, rights and other security granted to the Trustee under the Security
Documents.
1.2.Construction. In this Agreement, unless the context otherwise requires:
(a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any
similar terms, as used in this Agreement, refer to this Agreement, and the term
"hereafter" shall mean after, and the term "heretofore" shall mean before, the
Lease Commencement Date.
(b) Words of the masculine gender shall mean and include correlative words
of the feminine and neuter genders and words importing the singular number shall
mean and include the plural number and vice versa.
(c) Words importing persons shall include firms, associations, partnerships
(including limited partnerships), trusts, corporations and other legal entities,
including public bodies, as well as natural persons.
(d) Any headings preceding the texts of the several Articles and Sections
of this Agreement, and any table of contents appended to copies hereof, shall be
solely for convenience of reference and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction or effect.
(e) Except as otherwise provided in the Indenture or this Agreement, all
approvals, consents and acceptances required to be given or made by any Person
or party hereunder shall be at the sole discretion of the Person or party whose
approval, consent or acceptance is required.
Section 1.3. Representations and Warranties by Agency. The Agency makes the
following representations and warranties:
(a) The Agency is a corporate governmental agency constituting a body
corporate and politic and a public benefit corporation duly organized and
existing under the laws of the State, and is authorized and empowered to enter
into and effectuate the transactions contemplated on its part by this Agreement
and has taken all requisite action to carry out its obligations hereunder. By
proper action of its members, the Agency has duly authorized the execution and
delivery of this Agreement.
(b) In order to finance all or a portion of the cost of the Project, the
Agency proposes to issue the Bonds, in the aggregate principal amount of not to
exceed One Hundred Fifty-Six Million Dollars ($156,000,000) (subject to the
Agency's Reserved Right, upon the prior written request of an Authorized
Representative of the Lessees, to issue Bonds in an aggregate principal amount
exceeding $156,000,000) from time to time, in various Series, pursuant to the
Indenture, the Bond Supplemental Indenture, the Bond Resolution and a
Certificate of Determination for each Series of Bonds. Each Series of Bonds will
mature, bear interest, be redeemable and have the other terms and provisions set
forth in the Indenture and the related Certificate of Determination.
(c) The execution, delivery and performance by the Agency of this Agreement
and each other Project Document and Security Document to which it is a party and
the consummation of the transactions herein and therein contemplated have been
duly authorized by all requisite corporate action on its part and will not
violate any provision of law, any order of any court or agency of government, or
its by-laws, or any material indenture, agreement or other instrument to which
it is a party or by which it is subject to or bound, or be in material conflict
with or result in a material breach of or constitute (with due notice and/or
lapse of time) a material default under any such material indenture, agreement
or other instrument.
<PAGE>
(d) Assuming due and proper execution hereof and thereof by all parties
other than the Agency, this Agreement and each other Project Document and
Security Document to which it is a party, constitutes the Agency's legal, valid
and binding obligation enforceable against it in accordance with its terms,
except as such validity, binding effect and enforceability may be limited by
(and subject to) bankruptcy, insolvency, reorganization, rehabilitation,
moratorium or other similar laws affecting the enforcement of creditors' rights
from time to time in effect and general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity).
(e) There is no action or proceeding pending or, to its best knowledge and
of its officers having reason to be familiar with any such action or proceeding,
threatened by or against it by or before any court or administrative agency that
might adversely affect its ability to perform its obligations under this
Agreement and each other Project Document and Security Document to which it is a
party, and all authorizations, consents and approvals of governmental bodies or
agencies required to be obtained by it as of the date hereof in connection with
the execution and delivery of this Agreement and each other Project Document and
Security Document to which it is a party or in connection with the performance
of its obligations hereunder and thereunder has been obtained.
Section 1.4. Findings by Agency. The Agency, based upon the representations
and warranties of the Lessees contained in this Agreement and the information
contained in the application and other materials heretofore submitted by or on
behalf of the Lessees to the Agency, hereby finds and determines that the
financing of all or a portion of the costs of the Project by the Agency and the
providing of certain benefits to the Lessees in connection therewith is
reasonably necessary to discourage the Lessees from removing their operations
from the City to a location outside the City and the State and to encourage the
Lessees to proceed with the Project, and is reasonably necessary to preserve the
competitive position of the Lessees in their industry.
Section 1.5.Representations and Warranties by Lessees. In order to induce
the Agency to issue the Bonds and to enter into those Project Documents and
Security Documents to which the Agency is a party, each of the Lessees makes the
following representations and warranties:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York, is not in violation of any
material provision of its certificate of incorporation or by-laws, and has the
corporate power and authority to own its property and assets, to carry on its
business as now being conducted by it, and to execute, deliver and perform this
Agreement and each Project Document and Security Document to which it is a
party. It is duly qualified to do business in every jurisdiction in which the
failure to so qualify would have a material adverse effect upon its properties,
business, affairs, assets or condition (financial or otherwise).
(b) The execution, delivery and performance by it of this Agreement and
each other Project Document and Security Document to which it is a party and the
consummation by the Lessees of the transactions herein and therein contemplated
have been duly authorized by all requisite corporate action on its part and will
not violate any provision of law, any order of any court or agency of
government, its certificate of incorporation or by-laws, or any material
indenture, agreement or other instrument to which it is a party or by which it
is bound or to which any of its property is subject, or be in material conflict
with or result in a material breach of or constitute (with due notice and/or
lapse of time) a material default under any such material indenture, agreement
or other instrument or result in the imposition of any lien, charge or
encumbrance of any nature whatsoever other than Permitted Encumbrances.
(c) Assuming due and proper execution hereof and thereof by all parties
other than the Lessees, this Agreement and each other Project Document and
Security Document to which it is a party, constitutes its legal, valid and
binding obligation enforceable against it in accordance with its terms, except
as such validity, binding effect and enforceability may be limited by
bankruptcy, insolvency, reorganization, rehabilitation, moratorium or other
similar laws affecting the enforcement of creditors' rights from time to time in
effect and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
(d) There is no action or proceeding pending or, to its best knowledge,
threatened by or against it by or before any court or administrative agency that
would be likely to adversely affect its ability to perform its obligations under
this Agreement and each other Project Document and Security Document to which it
is a party; and all authorizations, consents and approvals of governmental
bodies or agencies required to be obtained by it as of the date hereof in
connection with the execution and delivery of this Agreement and of each other
Project Document and Security Document to which it is a party or in connection
with the performance of its obligations hereunder and thereunder has been
obtained.
<PAGE>
(e) Except as provided in this Agreement, none of the Facility Equipment,
Leased Personalty, Maintenance Contracts or Tenant Improvements shall be located
or used at any location other than an Approved Equitable City Location (except
that Tenant Improvements shall be located or used only at the Facility Realty).
(f) It shall cause all Tenant Improvements, Leased Personalty (but only to
the extent of the Leased Personalty Semi-Annual Capital Investment), Facility
Equipment and Project Costs for which a sales or use tax exemption is taken
under the Pre-Bond Issuance Sales Tax Letter, the Sales Tax Letter, the Project
Agreement or this Agreement to be paid for in whole and/or reimbursed in whole
from the proceeds of the Bonds, except that Maintenance Contracts shall not be
funded with proceeds of the Bonds; provided, however, that although Bonds may
not be issued to fund the costs of Maintenance Contracts or the interest portion
of rentals under Qualified Personalty Leases, such costs, to the extent the same
shall constitute Qualified Maintenance or be with respect to a Qualified
Personalty Lease, shall be eligible under the Sales Tax Letter for Sales Tax
Savings.
(g) No Maintenance Contracts will be entered into for any property other
than for Qualified Maintenance for Facility Equipment or Leased Personalty (with
respect to which a Qualified Personalty Lease shall exist).
(h) The Project and related Agency Benefits (as defined in the Project
Agreement) are reasonably necessary to allow the Lessees to remain competitive
within their industry. The Lessees require the Project and such Agency Benefits
to induce Equitable to retain approximately 1,750 Eligible Employees (as defined
in the Project Agreement) and related operations within the City, in the absence
of which Project and Benefits, Equitable would relocate a substantial portion of
its operations and divisions outside of the City, and not thereby remain and
consolidate its operations within the City.
(i) Any costs incurred with respect to that part of the Project paid from
the proceeds of the sale of the Bonds shall be treated or capable of being
treated on the books of the Lessees as capital expenditures in conformity with
generally accepted accounting principles applied on a consistent basis.
(j) The Project will not result in the removal of an industrial,
manufacturing, warehousing or commercial plant or facility of any of the Lessees
from outside of the City (but within the State) to within the City, or in the
abandonment of one or more of such plants or facilities of any of the Lessees or
any Affiliate thereof outside of the City (but within the State).
(k) No part of the proceeds of the Bonds will be used to finance inventory
or rolling stock or will be used for working capital or to finance any other
cost not constituting a Project Cost.
(l) To the best knowledge of the Lessees, the Project is included within
the definition of "project" under the Act.
(m) Each representation or warranty made by Equitable in the application
and related materials submitted to the Agency for approval of the Project or its
financing, or by the Lessees in this Agreement and in each other Project
Document and Security Document to which any shall be a party, is true, correct
and complete in all material respects as of the date made. Each representation
or warranty made by it in any Letter of Representation and Indemnity Agreement
delivered to the Agency, the Trustee and the original purchasers of any Series
of Bonds, or in any report, certificate, financial statement or other instrument
furnished pursuant to this Agreement and any other Project Document or Security
Document, shall be true, correct and complete in all material respects as of the
date made.
(n) The aggregate amount of sales and use tax benefits received by the
Lessees pursuant to the Pre-Bond Issuance Sales Tax Letter is $169,873.39, which
amount does not exceed the Maximum Sales Tax Benefit (as defined in the Project
Agreement).
(o) No Person other than the Lessees is in occupancy or possession of any
portion of the Facility Realty (subject to Permitted Incidental Use).
(p) The Project will be designed, and the construction and operation of the
Project Property will be, in compliance with all applicable Federal, State and
local laws or ordinances (including rules and regulations) relating to safety
and environmental quality.
(q) The property included in the Project Property is either land or
property of the character subject to the allowance for depreciation under
Section 167 of the Code.
<PAGE>
(r) The Lessees intend to operate the Project Property or cause the Project
Property to be operated in accordance with this Agreement and as a qualified
"project" in accordance with and as defined under the Act.
(s) The Lessees shall cause all Project Costs with respect to which a sales
or use tax exemption shall be or have been claimed as agent for the Agency to be
paid for in whole and/or reimbursed in whole from the proceeds of the Bonds
(other than Maintenance Contracts, and, in the case of Leased Personalty, only
to the extent of the Leased Personalty Semi-Annual Capital Investment);
provided, however, that although Bonds may not be issued to fund the costs of
Maintenance Contracts or the interest portion of rentals under Qualified
Personalty Leases, such costs, to the extent the same shall constitute Qualified
Maintenance or be with respect to a Qualified Personalty Lease, shall be
eligible under the Sales Tax Letter for Sales Tax Savings.
(t) The Prime Lease is in full force and effect without material default
thereunder by Equitable or, to the best knowledge of Equitable, the Prime
Landlord, and the Facility Realty is subject to the Prime Lease and the Company
Lease.
(u) No part of the proceeds of the Bonds will be used to finance a project
(and no sales or use tax exemption has been or will be made available under the
Pre-Bond Issuance Sales Tax Letter or the Sales Tax Letter) where facilities or
property that are primarily used in making retail sales to customers who
personally visit such facilities constitute more than one third of the total
project cost. For purposes of this representation, retail sales shall mean: (i)
sales by a registered vendor under article twenty-eight of the New York Tax Law
primarily engaged in the retail sale of tangible personal property, as defined
in subparagraph (i) of paragraph four of subdivision (b) of section eleven
hundred one of the New York Tax Law; or (ii) sales of a service to such
customers.
(v) The Facility Realty constitutes a portion of the property demised to
Equitable under the Prime Lease, and all of the Facility Realty has been the
subject of the Phase I Environmental Report referred to in Section 6.2(c)
hereof.
(w) To the best knowledge of the Lessees, there is no existing violation
against the Facility Realty filed by any court or administrative agency that may
prohibit the use or operation of the Facility Realty for its intended purposes.
(x) No sales tax exemptions will be claimed by any of the Lessees under the
Sales Tax Letter for any leasehold improvements or renovations other than the
Tenant Improvements.
(y) The execution, delivery and performance of this Agreement and of the
Company Lease by the Lessees does not constitute a breach, default or violation
of the terms of the Prime Lease, nor does it require any consent of the Prime
Landlord (which consent has not been obtained prior to the date hereof).
(z) The Facility Realty consists of floors fourteen (14) through twenty-two
(22), inclusive, together with the concourse, of the Project Building,
comprising approximately 298,238 rentable square feet.
(aa) As of April 30, 1996, the number of Eligible Employees (as defined in
the Project Agreement) within the City was 1,850.
(bb) EVLICO is a wholly-owned subsidiary of Equitable.
(cc) Equitable has subleased the Facility Realty to the Agency pursuant to
the Company Lease for a nominal rental therefor, and the Agency has been thereby
vested with a valid leasehold estate therein, free and clear of all liens,
encumbrances, security interests and servitudes other than Permitted
Encumbrances.
<PAGE>
ARTICLE II
The Project
Section 2.1. The Project. (a) The Lessees will, on behalf of the Agency,
and from time to time and in the ordinary course of their business, continue
and/or proceed with the making of Tenant Improvements, the acquisition and
installation of the Facility Equipment, the leasing (or subleasing) or licensing
(or sublicensing) of Leased Personalty and the entering into of Maintenance
Contracts, all to be effected in accordance with this Agreement, the Indenture,
the Project Agreement and the Prime Lease. The Project Costs shall be paid or
reimbursed from the Project Fund established under the Indenture as provided in
this Section 2.1. All contractors, materialmen, vendors, suppliers and other
companies, firms or persons furnishing labor, machinery, equipment, services or
materials for or in connection with the Project shall be selected by the
Lessees.
(b) The Lessees shall be responsible for the payment of (i) all of the
costs and expenses in connection with the preparation of any instruments of
lease of the Facility Realty to the Agency, and the delivery of any such
instruments and documents and their filing and recording, if required, (ii) all
taxes and charges payable in connection with such leasing, or attributable to
periods prior to such leasing, to the Agency as set forth in Section 2.1(a)
hereof, and (iii) all shipping and delivery charges and all other expenses or
claims incurred by or on behalf of the Lessees in connection with the Project.
(c) The Agency and the Lessees acknowledge and agree that the Project
Property is to be acquired, leased (or subleased), licensed (or sublicensed),
equipped, installed, maintained, replaced and repaired for use at Approved
Equitable City Locations (except that Tenant Improvements shall be effected only
at the Facility Realty), and that the nature thereof, all as comprising the
Project, may change from time to time over the term of this Agreement to reflect
amendments, modifications, replacements, accessions to and supplements made to
the Project. Upon the acquisition, leasing, subleasing, licensing, sublicensing,
equipping, furnishing, installation, maintenance, repair or replacement of the
Project Property, such property shall become subject to the leasehold interest
of this Agreement.
At the request of the Agency to the Lessees, the Lessees shall provide such
reasonable additional information and clarifications concerning any portion of
the Project Property to be acquired, equipped, installed, leased, subleased,
maintained, replaced or repaired, as shall be reasonably requested by the
Agency.
All Facility Equipment and Tenant Improvements financed in whole or in part
from the proceeds of the Bonds, and all Leased Personalty and Maintenance
Contracts, shall be enumerated in sufficient detail for accurate identification
(as to date of acquisition, vendor, location, physical description, serial
number (if applicable and to the extent available), price and the amount of
sales and use tax exemptions afforded to any of the Lessees in connection with
such acquisition) in the Project Property Registry.
(d) The Lessees will obtain or cause to be obtained all necessary approvals
from any and all governmental agencies requisite to the effectuation by the
Lessees of the Project and the operation of the Project Property, all of which
will be done in compliance with all Federal, State and local laws, ordinances
and regulations applicable thereto, and with the conditions and requirements of
all policies of insurance required to be maintained hereunder with respect to
the Project Property and this Agreement. The Lessees will further obtain or
cause to be obtained all necessary permits, authorizations and licenses from
appropriate authorities, authorizing the operation and use of the Project
Property for the purposes contemplated by this Agreement and shall furnish
copies of same to the Agency immediately upon receipt thereof.
(e) Upon request, the Lessees will extend to the Agency, or the Agency will
extend to the Lessees, the benefit of all vendors' warranties received by the
other party (to the extent permitted under the terms of such warranties) in
connection with the Project Property, including any warranties given by
contractors, manufacturers or service organizations who perform work with
respect to the Project.
(f) The Lessees shall take such action and institute such proceedings as
shall be reasonably necessary to cause all contractors and material suppliers to
complete their contracts in accordance with the terms of said contracts. The
Agency will cooperate in any such action or proceeding, at the Lessees' sole
cost and expense, provided that the Agency shall not be required to take any
action it does not deem to be reasonable. Any amounts recovered by way of
damages, refunds, adjustments or otherwise in connection with the foregoing,
after deduction of expenses incurred in such recovery, shall be paid to the
Lessees.
<PAGE>
(g) Concurrently with the execution of this Agreement, the Lessees will
surrender the Pre-Bond Issuance Sales Tax Letter to the Agency for cancellation,
and the Agency shall make available to the Lessees the Sales Tax Letter.
(h) Title to, or a leasehold or license interest in, as appropriate, all
materials, equipment, machinery and other property intended to be incorporated
or installed as Tenant Improvements and thereby part of the Project Property
(excluding the Lessees' Property) shall vest in the Agency immediately upon
delivery to or installation or incorporation into the Facility Realty (or in the
case of the Facility Equipment, Leased Personalty or Maintenance Contracts, upon
the execution of a contract, lease, bill, invoice or purchase order therefor as
agent for the Agency) or payment therefor, whichever shall be so provided in the
related contract, invoice, bill or purchase order. The Lessees shall take all
action reasonably necessary to protect such title or leasehold interest of the
Agency against claims of any third parties.
(i) As and to the extent required by applicable law, the Lessees shall
annually file a statement with the New York State Department of Taxation and
Finance, on a form and in a manner as is prescribed by the Commissioner of the
New York State Department of Taxation and Finance, of the value of all sales and
use tax exemptions claimed by any of the Lessees or agents of any of the
Lessees, including, but not limited to, consultants or subcontractors of such
agents, under the authority granted pursuant to the Pre-Bond Issuance Sales Tax
Letter, the Sales Tax Letter, the Project Agreement and/or this Agreement.
Should any of the Lessees fail to comply with the foregoing requirement, the
Lessees shall immediately cease to be the agent for the Agency in connection
with the Project (such agency relationship being deemed to be immediately
revoked) without any further action of the parties. Nothing herein shall be
construed as a representation by the Agency that any property acquired as part
of the Project is, in fact, exempt from sales taxes or use taxes.
Section 2.2. Commitment to Project. The Lessees unconditionally covenant
and agree that they will, from time to time and in the ordinary course of their
business, proceed with the Tenant Improvements, with the acquisition and
installation of Facility Equipment, and with the leasing (or subleasing) or
licensing (or sublicensing) of Leased Personalty and the entering into of
Maintenance Contracts, all on behalf of and as agent for the Agency, and all in
accordance with this Agreement, the Prime Lease (with respect to Tenant
Improvements), the Project Agreement and the Indenture. In the event that moneys
in the Project Fund are not sufficient to pay Project Costs in full, the Lessees
shall, subject to the agreements set forth in Sections 2.1 and 2.3 hereof and in
the Project Agreement, pay that portion of such Project Costs as may be in
excess of the moneys therefor in the Project Fund and, subject to the provisions
below, shall not be entitled to any reimbursement therefor from the Agency, the
Trustee, the Holders of any of the Bonds or any other Person, nor shall the
Lessees be entitled to any diminution of the rents payable or other payments to
be made under this Agreement or any other Project Document or Security Document,
provided that Project Costs may be funded or reimbursed out of any funds which
thereafter may be in the Project Fund.
Section 2.3. Issuance of Bonds. (a) In order to finance all or a portion of
the Project Costs, the Agency proposes to issue the Bonds, in the aggregate
principal amount of up to One Hundred Fifty-Six Million Dollars ($156,000,000)
(subject to the Agency's Reserved Right to issue Bonds in an aggregate principal
amount exceeding One Hundred Fifty-Six Million Dollars ($156,000,000)) from time
to time upon request therefor by an Authorized Representative of the Lessees, in
various Series, pursuant to the Indenture, the Bond Supplemental Indenture, the
Bond Resolution and a Certificate of Determination for each Series of Bonds.
Each Series of Bonds will mature, bear interest, be redeemable and have the
other terms and provisions set forth in the Indenture and the related
Certificate of Determination.
<PAGE>
(b) Contemporaneously with the execution and delivery of this Agreement,
the Agency will sell and deliver the Initial Bonds under and pursuant to the
Bond Resolution, a Certificate of Determination, the Indenture and the Bond
Supplemental Indenture. The Lessees shall request the Agency to issue further
Series of Bonds from time to time during the term of this Agreement pursuant to
Section 2.03 of the Indenture, and the Lessees shall make such requests, deliver
such documents, agreements and certificates (all as more fully set forth in the
Indenture), and shall pay such costs and expenses as shall enable the Agency to
issue each such additional Series of Bonds. It is the intention of the parties
hereto to cause the issuance of multiple Series of Bonds beginning on the Lease
Commencement Date with the Initial Bonds and thereafter no less often than
semi-annually on each March 15 and September 15 commencing September 15, 1996
for the payment and/or reimbursement of Project Costs as provided in the Project
Agreement; provided, however, that no further Series of Bonds shall be required
to be issued after the later of (y) the receipt by the Lessees of the Maximum
Sales Tax Benefit (as defined in the Project Agreement), and (z) the issuance of
a final Series of Bonds necessary for the Lessees to comply with the provisions
of Section 3.1(d)(iii)(C) of the Project Agreement. The proceeds of sale of each
Series of Bonds shall be deposited in the Project Fund and applied to the
payment of Project Costs in accordance with the provisions of the Indenture.
Pending such application, amounts in the Project Fund may be invested as
provided in the Indenture. Nothing contained in this Section 2.3(b) shall be
deemed to be an obligation of the Agency to obtain a purchaser for any Series of
Bonds.
(c) The Lessees shall cause the Agency to issue in accordance with the
Indenture (i) on the Lease Commencement Date at least $320,000 in aggregate
principal amount of Bonds, (ii) at least $1,000,000 in aggregate principal
amount of Bonds by no later than two (2) years after the Lease Commencement
Date, (iii) at least $2,500,000 in aggregate principal amount of Bonds by no
later than four (4) years after the Lease Commencement Date, and (iv) at least
$4,000,000 in aggregate principal amount of Bonds by no later than five (5)
years after the Lease Commencement Date. Further, the Lessees shall cause the
aggregate principal amount of Bonds Outstanding during the term of this
Agreement to be not less than the following respective principal amounts for the
corresponding Annual Bond Amount Periods:
Annual Bond Minimum Outstanding
Amount Period Principal Amount
First $ 320,000
Second 1,000,000
Third 2,000,000
Fourth 2,500,000
Fifth and thereafter 4,000,000
(d) Subject to the terms of the related Series of Bonds, the Lessees shall
have the right to redeem the Bonds in whole or in part, provided, however, that,
(y) no such redemption shall cause the principal amount of Bonds remaining
Outstanding to violate the provisions of Section 2.3(c) above, and (z) no Series
of the Bonds shall be redeemable prior to six (6) months after the date of
issuance of such Series of Bonds, except in connection with a retirement of all
Bonds upon termination of this Agreement in accordance with Articles VII and
VIII hereof.
Section 2.4. Title Insurance. On the Lease Commencement Date, the Lessees
will obtain leasehold title insurance in an amount not less than $1,000,000
insuring the Agency's leasehold interest under the Company Lease in the Facility
Realty against loss as a result of defects in such leasehold interest of the
Agency. Any proceeds of such leasehold title insurance shall be paid to the
Trustee for deposit in a special account to be applied to remedy the defect in
title, or, if not so capable of being applied, or if amounts remain, shall be
paid over to the Lessees.
<PAGE>
ARTICLE III
Lease of Project Property and Rental Provisions
Section 3.1. Lease of the Project Property. The Agency hereby leases to the
Lessees and the Lessees hereby lease from the Agency the Project Property upon
and subject to the terms and conditions herein set forth. The Lessees shall,
subject to the provisions of Sections 5.1, 6.17, 6.18 and 9.2 of this Agreement,
at all times during the term of this Agreement use and operate the Project
Property as a qualified "project" for the operation of the Equitable Business in
accordance with the provisions of the Act and for the general purposes specified
in the recitals to this Agreement. The Lessees shall not use or operate the
Project Property or allow the Project Property or any part thereof to be used or
operated for any unlawful purpose or in a manner which constitutes a nuisance,
public or private, or may make void or voidable any insurance required hereunder
then in force with respect thereto.
Section 3.2. Duration of Term. The term of this Agreement shall commence on
the date of execution and delivery of this Agreement and shall expire on the
earlier of December 31, 2011 or such earlier date as this Agreement shall be
terminated as hereinafter provided. The Agency hereby delivers to the Lessees
and the Lessees hereby accept such possession of the Project Property as the
Agency has or may have therein.
Section 3.3. Rental Provisions; Pledge of Agreement and Rent. The Lessees
covenant on each Lease Rental Payment Date to make rental payments directly to
the Trustee for deposit in the Bond Fund. Such rental shall be paid during the
term of this Agreement in immediately available funds on or prior to each due
date for the payment of the principal of, interest and redemption premium, if
any, on each Series of the Bonds as set forth in the Indenture until the
principal of, redemption premium, if any, and interest on the Bonds shall have
been fully paid, or provision for the payment thereof shall have been made in
accordance with the provisions of Section 10.01 of the Indenture. The amount of
each such rental payment shall be an amount sufficient, together with any
amounts then available in the Bond Fund at the time of payment of such rental,
to enable the Trustee to make payment, on each date on which the payment of the
principal of, redemption premium, if any, and interest on the Bonds shall be
due, of an amount sufficient to pay the then due total amount of interest or
interest and principal (whether at maturity or by redemption or by acceleration
or otherwise as provided in the Indenture) and the then due redemption premium,
if any, on the Bonds. Notwithstanding anything in the foregoing to the contrary,
if the amount on deposit and available in the Bond Fund is not sufficient to pay
the principal of, redemption premium, if any, and interest on the Bonds when due
(whether at maturity or by redemption or by acceleration or otherwise as
provided in the Indenture), the Lessees shall forthwith pay the amount of such
deficiency in immediately available funds to the Trustee for deposit in the Bond
Fund and such payment shall constitute rental payments under this Section 3.3.
In the event the Lessees should fail to make or cause to be made any of the
payments required under the foregoing provisions of this Section, the item or
installment not so paid shall continue as an obligation of the Lessees until the
amount not so paid shall have been fully paid and the Lessees shall pay
immediately upon demand therefor by the Trustee the amount of any administrative
charge as set forth in the Indenture for such overdue payment. The Lessees shall
also pay any amounts stated under the Indenture to be paid by the Lessees.
Pursuant to the Indenture, the Agency shall pledge and assign
to the Trustee as security for the Bonds all of the Agency's right, title and
interest in this Agreement (except for the Agency's Reserved Rights), including
all rental payments under Sections 3.3 and 8.1 hereof, and in furtherance of
said pledge the Agency will unconditionally assign such rental payments to the
Trustee for deposit in the Bond Fund, in accordance with the Indenture. The
Lessees hereby consent to the above-described pledge and assignment.
The Lessees covenant and agree that they will comply with the provisions of
the Indenture with respect to the Lessees, and that the Trustee shall have the
power, authority, rights and protections provided in the Indenture. The Lessees
further covenant to use their best efforts to cause there to be obtained for the
Agency any documents or opinions required of the Agency under the Indenture.
The Lessees shall have the right to make advance rental payments under
Section 8.1 of this Agreement to the Trustee for deposit in the Bond Fund as and
to the extent provided in the Indenture for redemption of the Bonds, subject to
the provisions of Sections 2.3 and 8.1 hereof and the Project Agreement.
<PAGE>
Section 3.4. Obligation of Lessees Unconditional. The obligation of the
Lessees to pay the rent and all other payments provided for in this Agreement
and to maintain the Project Property in accordance with Section 4.1 of this
Agreement shall be absolute and unconditional, irrespective of any defense or
any rights of set-off, recoupment or counterclaim or deduction and without any
rights of suspension, deferment, diminution or reduction they or any of them
might otherwise have against the Agency, the Trustee, the Holder of any Bond or
any other Person whatsoever. For so long as any of the Bonds remain Outstanding,
the Lessees will not suspend or discontinue any such payment or terminate this
Agreement (other than such termination as is provided for hereunder) for any
cause whatsoever, and the Lessees irrevocably waive all rights now or hereafter
conferred by statute or otherwise to quit, terminate, cancel or surrender this
Agreement or any obligation of the Lessees under this Agreement except as
provided in this Agreement or to any abatement, suspension, deferment,
diminution or reduction in the rentals or other payments hereunder.
Section 3.5. Rent Relating to Leased Personalty and Maintenance Contracts.
The Lessees shall pay to the lessors and licensors of all Leased Personalty and
to the counterparties under all Maintenance Contracts (and not to the Trustee),
all payments to be made by the Agency, and perform all obligations required of
the Agency, under leases (or subleases) or licenses (or sublicenses) for Leased
Personalty and Maintenance Contracts, as and at the times and in the amounts the
same shall become payable, and as and at the times such obligations are required
to be performed, under such leases (or subleases) or licenses (or sublicenses)
and Maintenance Contracts.
<PAGE>
ARTICLE IV
Maintenance, Taxes Maintenance, Taxes and Insurance
Section 4.1. Maintenance, Alterations and Improvements. (a) During the term
of this Agreement, the Lessees will keep the Project Property in good and safe
operating order and condition, ordinary wear and tear (and damage from fire or
other casualty) excepted, will use and operate the Project Property in the
manner for which it was designed and intended and contemplated by this
Agreement, and will make all replacements and repairs thereto (whether ordinary
or extraordinary, foreseen or unforeseen) necessary to ensure the continuity of
the operations of the Lessees at Approved Equitable City Locations for the
purposes contemplated by this Agreement and the Project Agreement. All
replacements and repairs shall be performed in a good and workmanlike manner and
be made and installed in compliance with the requirements, if any, of all
governmental bodies. The Agency shall be under no obligation to replace,
service, test, adjust, erect, maintain or effect replacements, renewals or
repairs of the Project Property, to effect the replacement of any inadequate,
obsolete, worn-out or unsuitable parts of the Project Property, or to furnish
any utilities or services for the Project Property and the Lessees hereby agree
to assume full responsibility therefor.
(b) The Lessees shall have the right to make such alterations, replacements
or repairs of, or additions to, the Project Property or any part thereof from
time to time as they in their discretion may determine to be desirable for their
uses and purposes, provided that (i) such additions, alterations, replacements
or repairs are in compliance with all applicable Legal Requirements (as defined
in Section 4.6 hereof), (ii) such additions, alterations, replacements or
repairs are promptly and fully paid for by the Lessees in accordance with the
terms of the applicable contract(s) therefor, and in order that the Project
Property shall at all times be free of any mortgage, lien, charge, encumbrance,
security interest or claim other than Permitted Encumbrances, subject to any
good faith disputes as the Lessees may have and prosecute with respect thereto,
(iii) title thereto (in the case of Tenant Improvements and Facility Equipment)
or a license or leasehold (in the case of Leased Personalty) interest therein
shall be deemed to be vested in the Agency, (iv) such additions, alterations,
replacements or repairs do not change the nature of the Project Property so that
it would not constitute a commercial facility and a qualified "project" as
defined in the Act for use for the Equitable Business, and (v) the Lessees shall
have furnished to the Agency a labor and materials payment bond, or other
security, reasonably satisfactory to the Agency (as provided in Section 4.1(e)
hereof). All alterations of, substitutions for, replacements of and additions to
the Project Property shall be deemed to constitute a part of the Project
Property subject to this Agreement, and the Lessees shall deliver or cause to be
delivered to the Agency appropriate documents as may be reasonably necessary to
convey title to, or license or leasehold interest in, such property to the
Agency and to subject such property to this Agreement, free and clear of all
liens, charges, encumbrances, security interests or claims other than Permitted
Encumbrances.
(c) The Lessees shall have the right, subject to the Project Agreement, to
install, remove, repair, replace or finance or permit to be installed, removed,
repaired, replaced or financed, at the Facility Realty, machinery and equipment,
including, without limitation, telecommunications equipment, data processing
equipment and trade fixtures installed by the Lessees, and all furniture,
furnishings and other personal property (the "Lessees' Property"), not financed
from the proceeds of the Bonds and with respect to which no sales or use tax
exemption shall have been received pursuant to the Pre-Bond Issuance Sales Tax
Letter or the Sales Tax Letter or otherwise constituting Project Property
without conveying title to or any license or leasehold interest in such property
to the Agency nor subjecting such property to this Agreement. The Agency shall
not be responsible for any loss of or damage to the Lessees' Property. The
Lessees shall have the right to create or permit to be created any mortgage,
encumbrance, lien or charge on, or conditional sale or other title retention
agreement with respect to, the Lessees' Property.
(d) The Lessees shall not create, permit or suffer to exist any mortgage,
encumbrance, lien, security interest, claim or charge against the Project
Property or any part thereof, or the interest of the Lessees in the Project
Property or this Agreement, except for Permitted Encumbrances and except as
provided in Section 6.6 hereof.
<PAGE>
(e) If and to the extent required by the New York State Finance Law ss.137,
prior to executing any contract with any party for any improvement (as such term
is defined in the New York Lien Law) in connection with the Project or the
Project Property or the provision of any goods or services in connection
therewith, and prior to authorizing any party to undertake such improvement (or
the provision of such goods and services) without a contract, the Lessees shall
deliver to the Agency a copy of the proposed contract therefor along with a
bond, in compliance with State Finance Law ss.137, guaranteeing prompt payment
of monies due all persons furnishing labor or materials for the contractor or
his subcontractor in the prosecution of his work provided for in such contract.
The Agency shall have no liability or responsibility for the cost of such
bond(s).
Section 4.2. Removal of Project Property. (a) The Lessees acknowledge that
the Agency is providing financing assistance for the Project and certain related
sales and use tax exemptions and other benefits to the Lessees for the purpose
of inducing the Lessees to proceed with the Project and to comply with the
covenants contained in this Agreement and the Project Agreement. The
aforementioned benefits are being provided solely for the purpose of relocating
and upgrading, as the case may be, the operations of the Lessees (subject to the
Permitted Incidental Use) at Approved Equitable City Locations and not for the
purpose of assisting any other facility or any other Person. To this end, the
Lessees hereby represent, warrant and covenant to and with the Agency that none
of the systems, Tenant Improvements, machinery, equipment or other property
constituting part of the Project Property or as may be acquired by any of the
Lessees from time to time in the name of the Agency for installation or location
at Approved Equitable City Locations, but shall have not yet been delivered to
and installed at an Approved Equitable City Location (in each case, the
"Existing Project Property") will ever be acquired, leased or licensed for any
purpose other than for installation and use at or location in Approved Equitable
City Locations (except that Tenant Improvements shall be installed only at the
Facility Realty) by the Lessees (subject to the Permitted Incidental Use) for
use in the Equitable Business nor, except as permitted below in this Section
4.2, will any of the Existing Project Property ever be removed from Approved
Equitable City Locations (either on a temporary or permanent basis) prior to the
expiration of three (3) years after the installation or location of the
respective item of Existing Project Property at the Approved Equitable City
Locations (the "Retention Period"), unless (i) such removal is of Leased
Personalty and the Agency is no longer to be a party (through a Lessee acting as
agent on behalf of the Agency) to the related Qualified Personalty Lease after
such removal, (ii) in the case of Facility Equipment, simultaneously with such
removal either an amount equal to the sales tax that would have been payable at
the original time of such purchase with respect to the purchase of such item of
Facility Equipment (based upon its fair market value at the time of its
removal), but for the Pre-Bond Issuance Sales Tax Letter or the Sales Tax
Letter, shall be paid by the Lessees to the Agency with respect to the item or
items being removed; or (iii) there shall be delivered to the Agency, except to
the extent the provisions of Sections 4.2(b) or (c) below shall apply and have
been complied with, a certificate of an Authorized Representative of the Lessees
stating that such item of the Existing Project Property is obsolete or useless,
or that the Lessees have a good faith operational or business reason for such
removal, in relation to the conduct of the Equitable Business by the Lessees
(subject to the Permitted Incidental Use) at Approved Equitable City Locations
(in which event the provisions of Sections 4.2(b) and (c) below shall be
inapplicable). After the expiration of the Retention Period, the Lessees may
remove, transfer, sell or dispose of any item of Existing Project Property from
Approved Equitable City Locations, provided that such removal, transfer, sale or
disposition will not violate any other covenant or agreement of the Lessees
hereunder, under the Project Agreement or under any other Security Document or
Project Document. In no event, however, will the Lessees cause the removal,
transfer, sale or disposition of Existing Project Property from Approved
Equitable City Locations in the aggregate such that the original cost of the
remaining Existing Project Property shall be less than (w) $500,000 from the
Lease Commencement Date until the first anniversary thereof, (x) $1,000,000 from
the first anniversary of the Lease Commencement Date until the third anniversary
thereof, (y) $3,500,000 from the third anniversary of the Lease Commencement
Date until the fifth anniversary thereof, and (z) $5,000,000 thereafter.
(b) Prior to the expiration of the Retention Period as to any item of
Existing Project Property, the Lessees may remove such item from Approved
Equitable City Locations on a temporary basis ("Temporary Removals") provided,
that, no such Temporary Removal shall be effected if
(i) an Approved Equitable City Location ceases to be the "permanent
location" to which the item of Existing Project Property is to be returned after
its temporary off-location use or repair,
(ii) the Temporary Removal is not effected for a good faith business
purpose consistent with the Equitable Business conducted by the Lessees (subject
to the Permitted Incidental Use) at an Approved Equitable City Location, and
<PAGE>
(iii) the item of Existing Project Property is to be absent from an
Approved Equitable City Location for a period in excess of ninety (90) days,
subject, however, to any delays as a result of Force Majeure.
Notwithstanding the limitations set forth in paragraph (iii) above, upon the
occurrence of an unforeseen event or circumstance unrelated to the financial or
economic condition of any of the Lessees which, in the good faith business
judgment of the Lessees has precipitated an emergency condition necessitating
the extension of the 90-day Temporary Removal period referred to in clause (iii)
above, such Temporary Removal period may be extended for thirty (30) days
following the cessation of such emergency condition, provided that the Lessees
deliver written notice to the Agency of the event or circumstance precipitating
such emergency condition, and use good faith diligent efforts to effect the
return of the item of Existing Project Property to an Approved Equitable City
Location as expeditiously as possible under the circumstances.
(c) Prior to the expiration of the Retention Period as to any item of
Existing Project Property, the Lessees may remove, transfer, sell or otherwise
dispose of such item from Approved Equitable City Locations on a permanent basis
("Permanent Removals") and thereby acquire such item of Existing Project
Property from the Agency, provided, that,
(i) the Lessees shall acquire for installation at Approved Equitable City
Locations (from sources other than the proceeds of Bonds and not through any
sales or use tax exemption pursuant to the Sales Tax Letter) a substitute or
replacement item of property having equal or greater utility and capability (or
having a comparable lesser utility or capability if the Lessees' business needs
have diminished) as the item of Existing Project Property being permanently
removed from an Approved Equitable City Location, and convey title to such
substitute or replacement item of property to the Agency as part of the Project
Property and thereby subject such property to the leasehold estate of this
Agreement as if originally acquired as part of the Project Property; or
(ii) if the Lessees shall seek to effect a Permanent Removal of Existing
Project Property for reasons other than as permitted in Section 4.2(a)(iii) or
4.2(c)(i) above, and such Permanent Removal is occasioned by unforeseen
circumstances but in accordance with a good faith business purpose on the part
of the Lessees and not as part of any systematic or programmatic transfer of
Existing Project Property from Approved Equitable City Locations, the Lessees
may on an occasional and immaterial basis effect such Permanent Removal;
provided that the Lessees shall deliver to the Agency, with each certificate
delivered under Section 3.1(d)(v)(A) of the Project Agreement, (y) a certificate
of an Authorized Representative of the Lessees confirming that such Permanent
Removal is being effected in a manner and for a purpose consistent with the
conditions permitting such Permanent Removal as provided above in this Section
4.2(c)(ii) and not in violation of any other covenant, condition or agreement on
the part of the Lessees hereunder, and (z) an amount, certified as correct by an
Authorized Representative of the Lessees, of the sales tax that would have been
payable at the time of original purchase based upon the fair market value
thereof at the time of its removal.
(d) Notwithstanding the foregoing, the Lessees shall effect no Temporary
Removals or Permanent Removals of Existing Project Property from Approved
Equitable City Locations if any such removal would change the nature of the
Project Property as a commercial facility and a qualified "project" as defined
under the Act to be used for the Equitable Business.
(e) Upon the written request of an Authorized Representative of the
Lessees, the Agency shall deliver to the Lessees appropriate documents conveying
to the Lessees all of the Agency's right, title and interest in any of the
Existing Project Property removed from Approved Equitable City Locations
pursuant to this Section 4.2. The Lessees shall pay all reasonable costs and
expenses (including reasonable counsel fees) incurred in connection with such
removal and any substitution or replacement.
(f) The removal from Approved Equitable City Locations of any Existing
Project Property pursuant to the provisions of this Section 4.2 shall not
entitle any of the Lessees to any abatement or reduction in the rentals and
other amounts payable by any of the Lessees under this Agreement or any other
Project Document or Security Document.
<PAGE>
Section 4.3. Taxes, Assessments and Charges. The Lessees shall pay or cause
to be paid when the same shall become due all taxes and assessments, general and
specific, if any, levied and assessed upon or against the Project Property, this
Agreement, any estate or interest of the Agency or the Lessees in the Project
Property, or the rentals or other payments hereunder during the term of this
Agreement, and all water and sewer charges, special district charges,
assessments, Business Improvement District charges and other governmental
charges and impositions whatsoever, foreseen or unforeseen, ordinary or
extraordinary, under any present or future law, and charges for public or
private utilities or other charges incurred in the occupancy, use, operation,
maintenance or upkeep of the Project Property, all of which are herein called
"Impositions". The Lessees may pay any Imposition in installments if so payable
by law, whether or not interest accrues on the unpaid balance. The Lessees
acknowledge that the provisions of section 412-a of the New York Real Property
Tax Law and section 874 of the New York General Municipal Law do not entitle the
Agency to exemption from water and sewer charges, special assessments and
special ad valorem levies.
In the event the Facility Realty is exempt from Impositions (other than
Sales and Use Taxes, as defined in the Project Agreement) solely due to the
Agency's interest in the Facility Realty, the Lessees shall promptly pay all
such Impositions to the appropriate taxing authorities equivalent to the
Impositions which would have been imposed on the Facility Realty if the Agency
had no such interest in the Facility Realty.
The Lessees may at their sole cost and expense and in good faith commence
and prosecute proceedings to contest the amount or validity or application, in
whole or in part, of any such Imposition (upon prior written notice to the
Agency and the Trustee), provided, that, (i) if the Lessees withhold payment,
such proceeding shall suspend the execution or enforcement of any lien arising
from the non-payment of such Imposition against the Project Property or any part
thereof or any interest therein or in this Agreement of the Agency, the Lessees
or the Trustee or against any of the rentals or other amounts payable under this
Agreement or the Project Agreement, (ii) neither the Project Property nor any
portion thereof or interest therein would be in any reasonably imminent danger
of being sold, forfeited or lost, and (iii) neither any of the Lessees, the
Agency nor the Trustee would be in any reasonable danger of any civil or any
criminal liability for failure to pay such Imposition.
Section 4.4. Insurance
(a) At all times throughout the term of this Agreement, including without
limitation during any period of construction or reconstruction of the Facility
Realty or any other portion of the Project Property, the Lessees shall maintain
or cause to be maintained insurance with respect to the Project Property, with
insurance companies licensed to do business in the State, against such risks,
loss, damage and liability (including liability to third parties) and for such
amounts as are customarily insured against by other enterprises of like size and
type as that of the Lessees, including, without limitation:
(i) To the extent not covered by the public liability insurance referred to
below, Owners & Contractors Protective Liability Insurance for the benefit of
the Lessees and the Agency in a minimum amount of $25,000,000 (or such greater
amount as may then be required under the Prime Lease) aggregate coverage for
personal injury and property damage;
(ii) Builders' All Risk Insurance written on "100% builders' risk completed
value, non-reporting form" including coverage therein for "completion and/or
premises occupancy" during any period of construction or reconstruction of the
Project Property, and at all other times coverage for property damage insurance,
all of which insurance shall include coverage for removal of debris, insuring
the buildings, structures, improvements, systems, machinery, equipment,
facilities, fixtures and other property constituting a part of the Project
Property against loss or damage to the Project Property by fire, lightning,
vandalism, malicious mischief and other casualties, with standard extended
coverage endorsement covering perils of windstorm, hail, explosion, aircraft,
vehicles and smoke (except as limited in the standard form of extended coverage
endorsement at the time in use in the State) at all times in an amount such that
the proceeds of such insurance shall be sufficient to prevent the Lessees or the
Agency from becoming a co-insurer of any loss under the insurance policies but
in any event in amounts equal to not less than 80% of the actual replacement
value of the Project Property as determined by a qualified insurance appraiser
or insurer (selected by the Lessees and reasonably approved by the Agency) not
less often than once a year, at the expense of the Lessees; any such insurance
may provide that the insurer is not liable to the extent of the first $50,000
with the result that the Lessees are their own insurer to the extent of $50,000
of such risks;
<PAGE>
(iii) Public liability insurance in accordance with customary insurance
practices for similar operations with respect to the Project Property and the
business thereby conducted in a minimum amount of $25,000,000 (or such greater
amount as may then be required under the Prime Lease), which insurance (A) will
also provide coverage of the Lessees' obligations of indemnity under Section 6.2
hereof (other than under Section 6.2(c) hereof to the extent not available to
either of the Lessees or not otherwise maintained by either of the Lessees), (B)
may be effected under overall blanket or excess coverage policies of the
Lessees, provided, however, that at least $1,000,000 is effected by a
comprehensive liability insurance policy, and (C) shall not contain any
provisions for deductible amount in excess of $50,000;
(iv) Boiler and machine property damage insurance in respect of any steam
and pressure boilers and similar apparatus located on or about the Facility
Realty from risks normally insured against under boiler and machinery policies
and in amounts and with deductibles customarily obtained for business
enterprises similar to Equitable;
(v) Workers' compensation insurance, disability benefits insurance and such
other forms of insurance which any of the Lessees or the Agency is required by
law to provide covering loss resulting from injury, sickness, disability or
death of the employees of any of the Lessees or any Affiliate thereof, or any
contractor or subcontractor performing work with respect to the Project
Property; the Lessees shall require that all said contractors and subcontractors
shall maintain all forms or types of insurance with respect to their employees
required by laws; and
(vi) Such other customary and reasonable insurance in such reasonable
amounts and against such insurable hazards as the Agency from time to time may
reasonably require.
(b) All insurance required by Section 4.4(a) above shall be procured and
maintained in financially sound and generally recognized responsible insurance
companies authorized to write such insurance in the State, either (i) having a
"XIII/-A" rating or better by A.M. Best & Co., or (ii) approved by the Agency
(such approval not to be unreasonably withheld, delayed or conditioned).
(c) Each of the policies or binders evidencing the insurance required above
to be obtained shall
(i) designate (except in the case of workers' compensation insurance) the
Lessees, the Agency and the Trustee as additional named insureds as their
respective interests may appear;
(ii) provide that all insurance proceeds with respect to loss or damage to
the Project Property be endorsed and made payable to the Lessees and shall name
the Lessees as a loss payee under the standard loss payee clause, which
insurance proceeds shall be paid over to the Lessees and applied as provided in
Section 5.1 hereof;
(iii) provide that there shall be no recourse against the Agency or the
Trustee for the payment of premiums or commissions or (if such policies or
binders provide for the payment thereof) additional premiums or assessments;
(iv) provide that in respect of the interest of the Agency or the Trustee
in such policies, the insurance shall not be invalidated by any action or
inaction of any of the Lessees or any other Person and shall insure the Agency
and the Trustee regardless of, and any losses shall be payable notwithstanding,
any act or negligence, including any breach of any condition, declaration or
warranty contained in any such policy of insurance by the Agency or the Trustee,
any of the Lessees or any other Person; the occupation, operation or use of the
Project Property for purposes more hazardous than permitted by the terms of the
policy; any foreclosure or other proceeding or notice of sale relating to the
Project Property; or any change in the title to or ownership of all or any
portion of the Project Property;
(v) provide that such insurance shall be primary insurance without any
right of contribution from any other insurance carried by the Agency or the
Trustee to the extent that such other insurance provides the Agency or the
Trustee with contingent and/or excess liability insurance with respect to its
interest in the Project Property;
(vi) provide that if the insurers cancel such insurance for any reason
whatsoever, including the insured's failure to pay any accrued premium, or the
same is allowed to lapse or expire, or there be any reduction in amount, or any
material change is made in the coverage, such cancellation, lapse, expiration,
reduction or change shall not be effective as to the Agency or the Trustee until
at least thirty (30) days after receipt by the Agency or the Trustee of written
notice by such insurers of such cancellation, lapse, expiration or change;
<PAGE>
(vii) waive any right of subrogation of the insurers thereunder against the
Agency and the Trustee, and waive any right of the insurers to any setoff or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Agency or the Trustee; and
(viii) contain such other terms and provisions as any owner or operator of
facilities similar to the Project Property would, in the prudent management of
properties, require to be contained in policies, binders or interim insurance
contracts with respect to facilities similar to the Project Property owned or
operated by Equitable or its Affiliates.
(d) The Net Proceeds of any insurance received with respect to any loss or
damage to the property of the Project Property shall be paid to the Lessees and
applied in accordance with Section 5.1 hereof.
(e) On the Lease Commencement Date, the Lessees shall deliver or cause to
be delivered to the Agency and the Trustee policies, binders or certificates of
insurance evidencing compliance with the insurance requirements of this Section
4.4. At least seven (7) Business Days prior to the expiration of any such
policy, the Lessees shall furnish the Agency and the Trustee with evidence that
such policy has been renewed or replaced or a certificate of an Authorized
Representative of the Lessees to the effect that such insurance is no longer
required by this Agreement.
(f) Upon each exercise by the Lessees in accordance with Section 6.18
hereof of its option to cause additional portions of the premises within the
Project Building to be made subject to the Prime Lease, the Company Lease and
this Agreement, the Lessees shall, on or prior to the addition of such premises,
cause such additional premises to be covered by the types of insurance required
under this Section 4.4 as part of the Project Property.
(g) The Lessees shall, at their own cost and expense, make all proofs of
loss and take all other steps necessary or reasonably requested by the Agency or
the Trustee to collect from insurers for any loss covered by any insurance
required to be obtained by this Section 4.4. The Lessees shall not do any act,
or suffer or permit any act to be done, whereby any insurance required by this
Section 4.4 would likely be suspended or impaired.
(h) THE AGENCY DOES NOT IN ANY WAY REPRESENT THAT THE INSURANCE SPECIFIED
HEREIN, WHETHER IN SCOPE OR COVERAGE OR LIMITS OF COVERAGE, IS ADEQUATE OR
SUFFICIENT TO PROTECT THE BUSINESS OR INTEREST OF ANY OF THE LESSEES OR ANY
AFFILIATE THEREOF.
Section 4.5. Advances by Agency.In the event any of the Lessees fails to
make any payment or fails to perform or observe any obligation required of it
under this Agreement, the Agency, after first delivering ten (10) days' prior
written notice to the Lessees of any such failure on its part (except in the
event of an emergency condition which, in the reasonable judgment of the Agency,
necessitates immediate action) may (but shall not be obligated to), and without
waiver of any of the rights of the Agency under this Agreement or any other
Project Document or Security Document, make such payment or otherwise cure any
failure by the Lessees to perform and observe their other obligations hereunder.
All amounts so advanced therefor by the Agency shall become an additional
obligation of the Lessees to the Agency, which amounts, together with interest
thereon at the rate of eighteen percent (18%) per annum from the date advanced,
shall be paid by the Lessees promptly upon demand therefor by the Agency. Any
remedy herein vested in the Agency for the collection of the rental payments or
other amounts due hereunder shall also be available to the Agency for the
collection of all such amounts so advanced.
<PAGE>
Section 4.6. Compliance with Law. The Lessees agree that they will,
throughout the term of this Agreement and at their sole cost and expense,
promptly observe and comply with all Federal, State and local statutes, codes,
laws, acts, ordinances, orders, judgments, decrees, rules, regulations and
authorizations, whether foreseen or unforeseen, ordinary or extraordinary, which
shall now or at any time hereafter be binding upon or applicable to any of the
Lessees, any owner, occupant, user or operator of the Project Property or any
portion thereof (including without limitation those relating to zoning, land
use, building codes, environmental protection, air, water and land pollution,
asbestos removal, toxic wastes, hazardous wastes, solid wastes, wetlands,
health, safety, equal opportunity, minimum wages, and employment practices) (the
"Legal Requirements"), and will observe and comply with all conditions,
requirements, and schedules necessary to preserve and extend all rights,
licenses, permits (including, without limitation, zoning variances, special
exception and non-conforming uses), privileges, franchises and concessions. The
Lessees and the Agency will not, without the prior written consent of each other
(which consents shall not be unreasonably withheld or delayed), initiate, join
in or consent to any private restrictive covenant, zoning ordinance, or other
public or private restrictions, limiting or defining the uses which may be made
of the Project Property or any part thereof. The Lessees shall indemnify and
hold harmless the Indemnified Parties (as defined in Section 6.2 hereof) from
and against all loss, cost, liability and expense (a) in any manner arising out
of or related to any violation of or failure by any of the Lessees (or any other
Person owning, occupying, operating or using the Project Property or any part
thereof) to comply with any Legal Requirement, or (b) imposed upon any of the
Lessees or any of the Indemnified Parties by any Legal Requirement; in case any
action or proceedings is brought against any of the Indemnified Parties in
respect to any Legal Requirement, the Lessees shall upon notice from any of the
Indemnified Parties defend such action or proceeding by counsel satisfactory to
the Indemnified Party.
The Lessees may contest in good faith the validity, existence or
applicability of any of the foregoing if (i) such contest shall not result in
the Project Property or any part thereof or interest therein being in any
reasonably imminent danger of being sold, forfeited or lost, and (ii) such
contest shall not result in any of the Lessees, the Agency or the Trustee being
in any reasonable danger of any civil or criminal liability for failure to
comply therewith.
Section 4.7. Enforcement of Rights Under Prime Lease Against Prime
Landlord. Equitable covenants and agrees that to the extent that the Prime
Landlord is obligated to Equitable under the Prime Lease to comply (or cause
their subtenants of the Facility Realty to comply) with all Federal, State and
local statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
rules, regulations and authorizations (including, without limitation, those
relating to zoning, land use, environmental protection, air, water and land
pollution, asbestos removal, toxic wastes, hazardous wastes, solid wastes,
health, safety, equal opportunity, minimum wages and employment practices),
whether foreseen or unforeseen, ordinary or extraordinary, that shall now or at
any time hereafter govern the ownership, improvement, maintenance and/or
operation of the Project Building (the foregoing covenants of the Prime Landlord
being the "Prime Landlord Covenants"), Equitable shall never amend, waive or
modify, or permit the amendment, waiver or modification of, any of the Prime
Landlord Covenants in a manner which would materially adversely affect the
Agency's interests, and, in the event that Equitable shall have knowledge that
the Prime Landlord shall be in material default of any Prime Landlord Covenant
such as may result in any reasonably imminent danger of causing harm to life or
property or might otherwise subject the Agency to risk of public condemnation,
then, upon the direction of the Agency, Equitable shall promptly exercise good
faith diligent efforts to enforce the Prime Landlord Covenants against the Prime
Landlord.
<PAGE>
ARTICLE V
Damage, Destruction and CondemnationDamage, Destruction and Condemnation
Section 5.1. Damage, Destruction and Condemnation.
(a) In the event that at any time during the term of this Agreement the
whole or any part of the Project Property shall be damaged or destroyed, or
taken or condemned by a competent authority for any public use or purpose, or by
agreement (at the request of or with the consent of the Prime Landlord) between
the Agency and those authorized to exercise such right, or if the temporary use
of the Project Property shall be so taken by condemnation or agreement (a "Loss
Event"):
(i) the Agency shall have no obligation to replace, repair or restore the
Project Property,
(ii) there shall be no abatement, postponement or reduction in the rent or
other amounts payable by the Lessees under this Agreement, the Project Agreement
or any other Project Document or Security Document, and
(iii) the Lessees will promptly give notice of such Loss Event to the
Agency and the Trustee, generally describing the nature and extent thereof.
(b) Upon the occurrence of a Loss Event, the Net Proceeds derived therefrom
with respect to the Project Property shall be paid to the Lessees, and the
Lessees (except to the extent provided in Section 5.1(e) hereof), shall at their
own cost and expense (except to the extent paid from the Net Proceeds)
(i) as to each item of damaged or destroyed Facility Equipment or Leased
Personalty, either (y) promptly and diligently replace such item to
substantially its condition immediately prior to the Loss Event, or to a
condition of at least equivalent utility, regardless of whether or not the Net
Proceeds derived from the Loss Event shall be sufficient to pay the cost
thereof, and the Lessees shall not by reason of payment of any such excess costs
be entitled to any reimbursement from the Agency, the Trustee, any Holder of any
of the Bonds or any other Person, nor shall the rent or other amounts payable by
any of the Lessees under this Agreement, the Project Agreement or any other
Project Document or Security Document be abated, postponed or reduced, or (z)
discard or otherwise dispose of such item for use other than by the Lessees or
any Affiliate thereof, and not replace, repair or restore the same; and
(ii) as to the Facility Realty, either (y) cause that portion of the
Facility Realty as shall be the subject of the Loss Event (or so much thereof
not to be rebuilt, replaced, repaired or restored as provided in clause (z)
below) to be released from the Company Lease and this Agreement, or (z) promptly
and diligently replace, repair or restore the Project Property to substantially
its condition immediately prior to the Loss Event, or to a condition of at least
equivalent utility, value, operating efficiency and function, regardless of
whether or not the Net Proceeds derived from the Loss Event shall be sufficient
to pay the cost thereof, and the Lessees shall not by reason of payment of any
such excess costs be entitled to any reimbursement from the Agency, the Trustee,
any Holder of any of the Bonds or any other Person, nor shall the rent or other
amounts payable by any of the Lessees under this Agreement, the Project
Agreement or any other Project Document or Security Document be abated,
postponed or reduced.
(c) Any rebuilding, replacement, repair or restoration of Project Property
shall
(i) automatically be deemed a part of the Project Property and owned by, or
leased or licensed to, the Agency and be subject to the Prime Lease, the Company
Lease and this Agreement,
(ii) not change the nature of the Project Property as a qualified "project"
as defined in and as contemplated by the Act or change the general purposes of
the Project Property from those specified in the recitals to this Agreement, and
(iii) be effected with due diligence in a good and workmanlike manner, in
compliance in all material respects with all applicable Legal Requirements (as
defined in Section 4.6 hereof) and be promptly and fully paid for by the Lessees
in accordance with the terms of the applicable contract(s) therefor.
<PAGE>
(d) The Agency, the Trustee and the Lessees shall cooperate and consult
with each other in all matters pertaining to the settlement, compromise,
arbitration or adjustment of any claim or demand on account of any Loss Event,
but the settlement, compromise, arbitration or adjustment of any such claim or
demand shall be decided by the Lessees. The Agency shall, at the sole cost and
expense of the Lessees, cooperate with the Lessees in the settlement,
compromise, arbitration or adjustment of any such claim or demand and shall
execute such documents as shall be reasonably necessary to accomplish the same.
(e) If all or substantially all of any portion of the Facility Realty shall
be damaged or destroyed or taken or condemned, or if the casualty, taking or
condemnation renders such portion of the Facility Realty unsuitable for use by
the Lessees as contemplated herein, the Lessees shall within one hundred twenty
(120) days after the Loss Event deliver written notice to the Agency and the
Trustee as to whether the Lessees intend to rebuild, replace, repair or restore
such portion of the Facility Realty and continue its occupancy and use or to
abandon such portion of the Facility Realty, in which latter event such portion
of the Facility Realty shall be released from the Company Lease and this
Agreement as provided in Section 6.17 hereof.
(f) The Lessees hereby waive the provisions of Section 227 of the New York
Real Property Law or any law of like import now or hereafter in effect.
<PAGE>
ARTICLE VI
Particular Covenants
Section 6.1. Dissolution or Merger of Lessees; Restrictions on Lessees.
Each of the Lessees covenants and agrees that at all times during the term of
this Agreement, it will (i) maintain its corporate existence, (ii) continue to
be subject to service of process in the State and either be organized under the
laws of the State of New York, or under the laws of any other state of the
United States and duly qualified to do business as a foreign corporation in the
State, (iii) not liquidate, wind-up or dissolve or otherwise dispose of all or
substantially all of its property, business or assets, and (iv) not consolidate
with or merge into another corporation or permit one or more corporations to
consolidate with or merge into it. Any Lessee may, however, without violating
the foregoing, but upon prior written notice to the Agency and the Trustee,
consolidate with or merge into another corporation, or permit one or more
corporations to consolidate with or merge into it, or sell or otherwise transfer
all or substantially all of its property, business or assets to another such
corporation (and thereafter liquidate, wind-up or dissolve or not, as such
Lessee may elect) if (I) such Lessee is the surviving, resulting or transferee
corporation, as the case may be (which shall include a merger of Equitable and
EVLICO), or (II) in the event that such Lessee is not the surviving, resulting
or transferee corporation, as the case may be, such corporation (A) is a solvent
corporation subject to service of process in the State and either organized
under the laws of the State of New York, or organized under the laws of any
other state of the United States and duly qualified to do business in the State,
(B) is not, nor is it an Affiliate of, a Prohibited Person, (C) is primarily
engaged at Approved Equitable City Locations in the Equitable Business, (D)
assumes in writing all of the obligations of such Lessee contained in this
Agreement and the other Project Documents and Security Documents to which such
Lessee shall be a party and, in the Opinion of Counsel delivered to the Agency
and the Trustee, (x) such corporation shall be bound by all of the terms
applicable to such Lessee of this Agreement and the other Project Documents and
Security Documents to which such Lessee shall be a party, and (y) such action
does not legally impair the security for the Holders of the Bonds afforded by
the Security Documents, and (E) in the opinion of an Independent Accountant
delivered to the Agency and the Trustee, has a net worth (as determined by the
Independent Accountant in accordance with generally accepted accounting
principles) after the merger, consolidation, sale or transfer at least equal to
the net worth of such Lessee immediately prior to such merger, consolidation,
sale or transfer.
Each of the Lessees further covenants and agrees as to itself that at all
times during the term of this Agreement, it is and will continue to be duly
qualified to do business in the State, and any corporation or other entity
succeeding to the rights of a Lessee under this Agreement shall be and continue
to be duly qualified to do business in the State.
Section 6.2. Indemnity.(a) The Lessees shall at all times protect and hold
the Agency, the Trustee, the Bond Registrar and the Paying Agents (collectively,
the "Indemnified Parties") harmless of, from and against any and all claims
(whether in tort, contract or otherwise), demands, costs, expenses (including,
without limitation, court costs and reasonable attorneys' fees) and liabilities
for losses, damage, injury and liability of every kind and nature and however
caused, and taxes (of any kind and by whomsoever imposed), other than, (y) with
respect to the Agency, if the claim, demand, cost, expense or liability shall
have arisen by reason of a separate "project" unrelated to the Project
undertaken by the Agency under the Act, and (z) with respect to any Indemnified
Party (including the Agency), losses arising from the gross negligence or
willful misconduct of such Indemnified Party (including the Agency), arising
during the term of this Agreement upon, about or in connection with the Project
Building or the Project Property or resulting from, arising out of, or in any
way connected with (i) the financing of the costs of the Project Property and
the marketing, remarketing, issuance and sale of the Agency's Bonds from time to
time for such purpose, (ii) the planning, design, acquisition, site preparation,
construction, renovation, equipping, installation, maintenance, repair or
replacement of the Project Building or the Project Property or any part of
either thereof or the effecting of any work done with respect to or in or about
the Project Building or the Project Property, (iii) any defects (whether latent
or patent) in the Project Building or the Project Property or any part of either
thereof, (iv) the maintenance, repair, replacement, restoration, rebuilding,
demolition, upkeep, use, occupancy, ownership, leasing, subletting, licensing,
sublicensing or operation of the Project Building or the Project Property or any
portion of either thereof, and (v) this Agreement, the Indenture, the Project
Agreement, the Sales Tax Letter, the Pre-Bond Issuance Sales Tax Letter, the
Prime Lease, the Company Lease, the Project Agreement, the Indenture, the Bond
<PAGE>
Supplemental Indenture or any other Project Document or Security Document, or
any other document or instrument delivered in connection herewith or therewith
or the enforcement of any of the terms or provisions hereof or thereof or the
transactions contemplated hereby or thereby. Such indemnification set forth
above shall be binding upon the Lessees for any and all claims, demands,
expenses, liabilities and taxes set forth herein and shall survive the
termination of this Agreement. No Indemnified Party shall be liable for any
damage or injury to the person or property of any of the Lessees or their
respective directors, officers, employees, agents or servants or persons under
the control or supervision of any such Person or any other Person who may be
involved with the Project Building or the Project Property due to any act or
negligence of any Person other than, with respect to any such Indemnified Party,
the gross negligence or willful misconduct of such Indemnified Party.
(b) The Lessees release each Indemnified Party from, and agree that no
Indemnified Party shall be liable for, and agrees to indemnify and hold each
Indemnified Party harmless against, any expense, loss, damage, injury or
liability incurred because of any lawsuit commenced as a result of action taken
by such Indemnified Party with respect to any of the matters set forth in
subdivisions (i) through (v) of Section 6.2(a) hereof or at the direction of any
of the Lessees; provided, however, that the indemnification provisions of this
Section 6.2 shall not apply to an Indemnified Party to the extent that such
expense, loss, damage, injury or liability shall have arisen from the gross
negligence or willful misconduct of such Indemnified Party. An Indemnified Party
shall promptly notify the Lessees in writing of any claim or action brought
against such Indemnified Party in which indemnity may be sought against the
Lessees pursuant to this Section 6.2; such notice shall be given in sufficient
time to allow the Lessees to defend or participate in such claim or action, but
the failure to give such notice in sufficient time shall not constitute a
defense hereunder nor in any way impair the obligations of the Lessees under
this Section 6.2.
(c) In addition to and without limitation of all other representations,
warranties and covenants made by the Lessees under this Agreement, the Lessees
further represent and warrant that none of the Lessees has used Hazardous
Materials (as defined hereinafter) on, from, or affecting the Project Property
or any portion thereof in any manner which violates Federal, state or local
laws, ordinances, rules, regulations, or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials, and that, except as set forth in a certain
Phase I Environmental Assessment dated as of June 22, 1995 prepared by Hillman
Environmental Company with respect to the Facility Realty, true and complete
copies of which the Lessees have delivered to the Agency (the "Phase I
Environmental Report"), to the best of the Lessees' actual knowledge, no prior
owner, user, or occupant of the Project Property or any portion thereof has used
Hazardous Materials on, from, or affecting the Project Property or any portion
thereof in any manner which violates Federal, state or local laws, ordinances,
rules, regulations or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials. The Lessees shall keep or cause the Project Property to be
kept free of Hazardous Materials (other than materials customarily used in the
conduct of the Equitable Business), except as provided in applicable Federal,
state and local laws, ordinances, rules, regulations and policies. Without
limiting the foregoing, the Lessees shall not cause or permit the Project
Property or any part thereof to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose, transfer, produce or process Hazardous
Materials, except in compliance with all applicable Federal, state and local
laws or regulations, nor shall the Lessees cause or permit, as a result of any
intentional or unintentional act or omission on the part of any of the Lessees
or any operator, user, or occupant of the Project Property, a release of
Hazardous Materials onto the Project Property or any portion thereof or onto any
other property. The Lessees shall comply with and use reasonable efforts to
ensure compliance by all other owners, users, tenants or subtenants of the
Project Property with all applicable Federal, state and local laws, ordinances,
rules and regulations relating to Hazardous Materials with respect to the
acquisition, leasing, subleasing, licensing, construction, renovation,
improving, equipping, furnishing, installation, operation, maintenance, repair
and replacement of the Project Property, whenever and by whomever triggered, and
shall obtain and comply with, and use reasonable efforts to ensure that all
owners, users, tenants or occupants of the Project Property obtain and comply
with, any and all approvals, registrations or permits required thereunder. The
Lessees shall (i) take all actions necessary to clean up and remediate all
Hazardous Materials, on, from, or affecting the Project Property, to the extent
that the Lessees have control thereof, (y) to the extent required in accordance
with all applicable Federal, state and local laws, ordinances, rules,
regulations, and policies, and (z) in accordance with the orders and directives
of all Federal, state and local governmental authorities, and (ii) defend,
indemnify, and hold harmless the Indemnified Parties from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs, or
<PAGE>
expenses of whatever kind or nature, known or unknown, contingent or otherwise,
arising out of, or in any way related to, (1) the presence, disposal, release,
or threatened release of any Hazardous Materials which are on, from, or
affecting the Project Property or any portion thereof; (2) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or related to such Hazardous Materials; (3) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous Materials,
and/or (4) any violation of laws, orders, regulations, requirements or demands
of government authorities, which are based upon or in any way related to such
Hazardous Materials including, without limitation, reasonable attorney and
consultant fees, investigation and laboratory fees, court costs, and litigation
expenses. For purposes of this paragraph, "Hazardous Materials" includes,
without limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, or related materials
defined or so treated in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C.
Sections 6901, et seq.), and in the regulations adopted and promulgated pursuant
thereto, or any other Federal, state or local environmental law, ordinance,
rule, or regulation. The provisions of this paragraph shall be in addition to
any and all other obligations and liabilities the Lessees may have to the
Indemnified Parties at common law or otherwise, and the indemnification
provisions hereof shall survive the termination of this Agreement.
The parties hereto agree that the reference in this Section 6.2(c) to the
Phase I Environmental Report is not intended, and should not be deemed to
intend, to modify, qualify, reduce or diminish the obligations of the Lessees to
carry out and perform all of the covenants stated in Section 4.6 hereof and
throughout this Section 6.2, including but not limited to, those covenants
wherein the Lessees are obligated to indemnify the Indemnified Parties and
comply with all laws, ordinances, rules and regulations pertaining to Hazardous
Materials.
(d) The indemnifications and protections set forth in this Section 6.2
shall be extended, with respect to each Indemnified Party, to its members,
directors, officers, employees, agents and servants and persons under such
Indemnified Party's control or supervision.
(e) To effectuate the purposes of this Section 6.2, the Lessees will
provide for and insure, in the public liability policies required in Section 4.4
hereof, not only their own liability in respect of the matters therein mentioned
but also the liability pursuant to this Section 6.2 (other than under Section
6.2(c) hereof to the extent not available to either of the Lessees or not
otherwise maintained by either of the Lessees). Anything to the contrary in this
Agreement notwithstanding, the indemnification covenants of the Lessees
contained in this Section 6.2 shall remain in full force and effect after the
termination of this Agreement until the later of (i) the expiration of the
period stated in the applicable statute of limitations during which a claim or
cause of action may be brought and (ii) payment in full or the satisfaction of
such claim or cause of action and of all expenses and charges incurred by any
Indemnified Party relating to the enforcement of the provisions herein
specified.
(f) For the purposes of this Section 6.2, neither of the Lessees nor any of
their respective subsidiaries or affiliates, nor any other Person (whether
related or unrelated to any Lessee) who has received "financial assistance" in
connection with any other "project" (as such terms are defined in the Act) under
the Act, shall be deemed an employee, agent or servant of the Agency or a person
under the Agency's control or supervision.
Section 6.3. Compensation and Expenses of Trustee, Bond Registrar, Paying
Agents and Agency. (a) The Agency Lessees shall, to the extent not paid out of
the proceeds of the Bonds as financing expenses, pay the following annual fees,
charges and expenses and other amounts (i) the initial and annual fees of the
Trustee for the ordinary services of the Trustee rendered and its ordinary
expenses incurred under the Indenture, including fees and expenses as Bond
Registrar and in connection with preparation of new Bonds upon exchanges or
transfers or making any investments in accordance with the Indenture, (ii) the
reasonable fees and charges of the Trustee, the Bond Registrar, the Bond
Registrar and any Paying Agents on the Bonds for acting as paying agents as
provided in the Indenture, including the reasonable fees of its counsel, (iii)
the reasonable fees and charges of the Trustee for extraordinary services
rendered by it and extraordinary expenses incurred by it under the Indenture,
including reasonable counsel fees, and (iv) the fees, costs and expenses
(including legal, accounting and other administrative expenses) of the Agency.
The Lessees shall further pay the reasonable costs and expenses of the Agency
together with any reasonable fees and disbursements incurred by the Agency's
Bond Counsel and General Counsel in performing services for the Agency in
connection with this Agreement, the Project Agreement, the Sales Tax Letter, the
Indenture or any other Project Document or Security Document.
<PAGE>
(b) The Lessees further agree to pay to the Agency a financing fee of
$805,000 payable in two installments consisting of $600,000 payable on the Lease
Commencement Date (less $15,000 paid by the Lessees as an application fee to the
Agency prior to the Lease Commencement Date) and $205,000 payable by the Lessees
on the first anniversary of the Lease Commencement Date. In addition, the
Lessees agrees to pay an annual administrative fee of $15,000 to the Agency,
payable initially on the Lease Commencement Date and on every anniversary
thereof until the termination of this Agreement.
Section 6.4. Retention of Interest in Project Property. The Agency shall
not sell, assign, encumber (other than Permitted Encumbrances), convey or
otherwise dispose of its interest in the Project Property or any part thereof or
interest therein during the term of this Agreement, except as set forth in
Sections 2.3, 4.2, 5.1, 6.17, 6.18, 7.2, 8.2 and 9.3 hereof, without the prior
written consent of the Lessees and the Trustee and any purported disposition
without such consent shall be void.
Section 6.5. Financial Statements; Annual Certificates. (a) The Lessees
shall furnish or cause to be furnished to the Agency and to the Trustee, as soon
as available and in any event within one hundred twenty (120) days after the
close of each fiscal year of Equitable, a copy of the most recently filed "Equal
Employment Opportunity, Employer Information Report EEO-1" and "New York State
Department of Labor Form IA-5" or other equivalent or successor report as may be
required of the Lessees to be filed with appropriate government authorities.
(b) The Lessees shall deliver to the Agency and the Trustee with each
delivery of annual financial statements required by Section 6.1 of the Project
Agreement, a certificate of an Authorized Representative of the Lessees (i) as
to whether or not, as of the close of such preceding fiscal year of the Lessees,
and at all times during such fiscal year, and to the best knowledge of such
Authorized Representative, the Lessees were in compliance in all material
respects with all the provisions which relate to the Lessees in this Agreement
and the Project Documents and Security Documents to which any of the Lessees is
a party, and if such Authorized Representative shall have obtained knowledge of
any default in such compliance or notice of such default, he shall disclose in
such certificate such default or defaults or notice thereof and the nature
thereof, whether or not the same shall constitute an Event of default hereunder,
and any action proposed to be taken by the Lessees with respect thereto, (ii) as
to whether or not an "event of default" exists under the Prime Lease or written
notice of an uncured default has been received by Equitable under the Prime
Lease, (iii) that the insurance the Lessees maintain complies with the
provisions of Section 4.4 of this Agreement, that such insurance has been in
full force and effect at all times during the preceding fiscal year of the
Lessees, and that duplicate copies of all policies or certificates thereof have
been filed with the Agency and are in full force and effect, (iv) that the
Agency has been vested with valid title to all items of Facility Equipment and
has a valid leasehold or licensee interest in all other Project Property and
that all property constituting the Project Property is subject to the leasehold
interest of this Agreement, (v) that none of the Lessees has availed itself of
the benefits of the Pre-Bond Issuance Sales Tax Letter or the Sales Tax Letter
except in conformance with the requirements of Section 3.1 of the Project
Agreement, the Pre-Bond Issuance Sales Tax Letter and the Sales Tax Letter, (vi)
as to the percentage of rentable square feet of each floor comprising the
Facility Realty, and of the Facility Realty in the aggregate, as shall be used
or occupied by Non-Qualified Users, and (vii) that no item of Existing Project
Property has been removed from Approved Equitable City Locations except in
accordance with Sections 4.2 or 5.1 hereof. In addition, upon twenty (20) days'
prior request by the Agency, the Lessees will execute, acknowledge and deliver
to the Agency and the Trustee a certificate of an Authorized Representative of
the Lessees as to whether any default shall exist on the part of either of the
Lessees in those provisions of this Agreement as shall be the subject of the
request (which request must be specific in nature), and if so, the details
thereof and the action proposed to be taken by the Lessees to cure the same.
(c) The Lessees shall promptly notify the Agency and the Trustee of the
occurrence and continuance of any Event of Default or any event which with
notice and/or lapse of time would constitute an "event of default" under the
Prime Lease, or an Event of Default under this Agreement or any other Project
Document or Security Document of which any Lessee has knowledge. Any notice
required to be given pursuant to this subsection shall be signed by an
Authorized Representative of the Lessees and set forth a description of the
default and the steps, if any, being taken to cure said default. If no steps
have been taken, the Lessees shall state this fact in the notice.
<PAGE>
Section 6.6 Discharge of Liens. (a) If any lien, encumbrance or charge is
filed or asserted, or any judgment, decree, order, levy or process of any court
or governmental body is entered and attached against any of the Project
Property, made or issued or any claim (such liens, encumbrances, charges,
judgments, decrees, orders, levies, processes and claims being herein
collectively called "Liens"), whether or not valid, is made against the Project
Property or any part thereof or the interest therein of the Agency, any of the
Lessees or the Trustee or against any of the rentals or other amounts payable
under this Agreement or the Project Agreement or the interest of any of the
Lessees under this Agreement or under any other Security Document or Project
Document other than Liens for Impositions (as defined in Section 4.3 hereof) not
yet payable, Permitted Encumbrances, or Liens being contested as permitted by
Section 6.6(b) hereof, the Lessees forthwith upon receipt of notice of the
filing, assertion, entry or issuance of such Lien (regardless of the source of
such notice) shall give written notice thereof to the Agency and the Trustee and
take all action (including the payment of money and/or the securing of a bond)
at their own cost and expense as may be necessary or appropriate to obtain the
discharge in full thereof and to remove or nullify the basis therefor. Nothing
contained in this Agreement shall be construed as constituting the express or
implied consent to or permission of the Agency for the performance of any labor
or services or the furnishing of any materials that would give rise to any Lien
against the Agency's interest in the Project Property or the rentals or other
amounts payable under this Agreement or any other Project Document or Security
Document.
(b) The Lessees may at their sole cost and expense contest (on written
notice to the Agency and the Trustee), by appropriate action conducted in good
faith and with due diligence, the amount or validity or application, in whole or
in part, of any Lien, if (1) such proceeding shall suspend the execution or
enforcement of such Lien against the Project Property or any portion thereof or
interest therein or against the Agency, any of the Lessees or the Trustee or
against any of the rentals or other amounts payable under this Agreement or any
other Project Document or Security Document, (2) neither the Project Property
nor any portion thereof or interest therein would be in any reasonably imminent
danger of being sold, forfeited or lost, and (3) neither any of the Lessees, the
Agency nor the Trustee would be in any reasonable danger of any criminal or
civil liability for failure to comply therewith.
Section 6.7. Agency's Authority; Covenant of Quiet Enjoyment. The Agency
covenants and agrees that it has full right and lawful authority to enter into
this Agreement for the full term hereof, and that, subject to the terms and
provisions of the Indenture and other Permitted Encumbrances (and any other
title defects not disclosed in the title insurance policies delivered pursuant
to Section 2.4 hereof), so long as an Event of Default shall not exist
hereunder, the Lessees shall have, hold and enjoy, during the term hereof,
peaceful, quiet and undisputed possession of the Project Property without
molestation or disturbance by or from the Agency or any Person claiming through
the Agency, subject to Permitted Encumbrances.
Section 6.8. No Warranty of Condition or Suitability. THE AGENCY HAS MADE
AND MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER, EITHER EXPRESS OR IMPLIED,
WITH RESPECT TO THE MERCHANTABILITY, CONDITION, FITNESS, DESIGN, OPERATION OR
WORKMANSHIP OF ANY PART OF THE PROJECT PROPERTY, ITS FITNESS FOR ANY PARTICULAR
PURPOSE, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE PROJECT PROPERTY, OR
THE SUITABILITY OF THE PROJECT PROPERTY FOR THE PURPOSES OR NEEDS OF ANY OF THE
LESSEES OR ANY OTHER PERSON OR THE EXTENT TO WHICH PROCEEDS DERIVED FROM THE
SALE OF THE BONDS WILL BE SUFFICIENT TO PAY PROJECT COSTS. THE LESSEES
ACKNOWLEDGE THAT THE AGENCY IS NOT THE MANUFACTURER OF THE FACILITY EQUIPMENT OR
THE OTHER PROJECT PROPERTY NOR THE MANUFACTURER'S AGENT NOR A DEALER THEREIN.
NEITHER THE LESSEES (NOR ANY PERSON OR AFFILIATE UNDER THE CONTROL OF EITHER OF
THE LESSEES) SHALL ASSERT A CLAIM AGAINST THE AGENCY ON THE BASIS THAT THE
PROJECT PROPERTY IS NOT SUITABLE OR FIT FOR ITS PURPOSES. THE AGENCY SHALL NOT
BE LIABLE IN ANY MANNER WHATSOEVER TO ANY OF THE LESSEES OR ANY AFFILIATE
THEREOF OR OTHER PERSON OR AFFILIATE UNDER THE CONTROL OF EITHER OF THE LESSEES
FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE CAUSED, DIRECTLY OR
INDIRECTLY, BY THE PROJECT PROPERTY OR THE USE OR MAINTENANCE OF ANY THEREOF OR
THE FAILURE OF OPERATION OF ANY THEREOF, OR THE REPAIR, SERVICE OR ADJUSTMENT OF
ANY THEREOF, OR BY ANY DELAY OR FAILURE TO PROVIDE ANY SUCH MAINTENANCE,
REPAIRS, SERVICE OR ADJUSTMENT, OR BY ANY INTERRUPTION OF SERVICE OR LOSS OF USE
OF ANY THEREOF OR FOR ANY LOSS OF BUSINESS HOWSOEVER CAUSED.
Section 6.9. Amounts Remaining in Funds. Any amounts remaining in any of
the Funds and Accounts held by the Trustee under the Indenture upon the
expiration or termination of the term of this Agreement, after payment in full
of the Bonds (or provisions for such payment in full in accordance with Section
10.01 of the Indenture), the fees, charges and expenses of the Trustee, the Bond
Registrar, the Paying Agents and the Agency in accordance with the Indenture and
after all rents and all other amounts due and payable hereunder and under each
other Security Document and Project Document shall have been paid in full (or
provision for such payment in full is made in accordance with Section 10.01 of
the Indenture) shall belong to and be paid promptly to the Lessees by the
Trustee as overpayment of rents.
<PAGE>
Section 6.10.Obligations under and Covenants with Respect to the Prime
Lease. (a) Equitable covenants and agrees that it shall not enter into, consent,
permit or approve an amendment, waiver, supplement or modification to the Prime
Lease which would materially and adversely affect the interests of the Agency
(or otherwise amend, supplement, modify or waive any of the Prime Landlord
Covenants, as defined in Section 4.7 hereof). Equitable shall deliver a
certified copy of any such amendment, waiver, supplement or modification to the
Agency and the Trustee promptly following the execution thereof.
(b) Equitable agrees to promptly transmit to the Agency and the Trustee
copies of any termination or default notice it shall receive from, or deliver
to, the Prime Landlord under the Prime Lease.
Section 6.11.[Reserved].
Section 6.12.Redemption Under Certain Circumstances. (a) Upon the
determination by resolution of the members of the Agency that any of the Lessees
is operating the Project Property or any portion thereof in material violation
of applicable material law or not as a qualified "project" as defined in and in
accordance with the Act and the failure of the Lessees within sixty (60) days
(or such longer period as may be established pursuant to the proviso to this
sentence) of the receipt by the Lessees of written notice of such noncompliance
from the Agency to cure such noncompliance together with a copy of such
resolution (a copy of which notice shall be sent to the Trustee), the Lessees
covenant and agree that they shall, on the immediately succeeding Interest
Payment Date following the termination of such sixty (60) day (or longer)
period, pay to the Trustee advance rentals in immediately available funds in an
amount sufficient to redeem the Bonds Outstanding in whole at the Redemption
Price of 100% of the aggregate principal amount of the Outstanding Bonds
together with interest accrued thereon to such interest payment date, provided,
however, that if such noncompliance cannot be cured within such period of sixty
(60) days with diligence (and is capable of being cured) and the Lessees
promptly commence the curing of such non-compliance and thereafter prosecute the
curing thereof with diligence and to the Agency's reasonable satisfaction, such
period of time within which the Lessees may cure such failure shall be extended
for such additional period of time as may be necessary to cure the same with
diligence and the Agency shall notify the Trustee of any such extension. The
Agency shall give prior written notice of the meeting at which the members of
the Agency are to consider such resolution to the Lessees and the Trustee, which
notice shall be no less than sixty (60) days prior to such meeting.
(b) Upon (i) the occurrence of an Event of Default under this Agreement
(with respect to any of the Agency's Reserved Rights hereunder) or the Project
Agreement, which has not been cured within the applicable grace period set forth
therein, (ii) no Bonds being Outstanding under the Indenture, or Bonds not being
issued and Outstanding under the Indenture in the minimum principal amounts
required under Section 2.3(c) hereof, or (iii) the Agency ceasing to have any
title, leasehold or license interest in any of the property constituting the
Project Property, the Agency shall have the right, on thirty (30) days' prior
written notice to the Lessees and the Trustee, to require that the Lessees pay
to the Trustee on the thirtieth (30th) day following the date of such notice,
advance rentals in immediately available funds in an amount sufficient to redeem
the Bonds Outstanding in whole at the Redemption Price of 100% of the principal
amount of the Outstanding Bonds, together with interest accrued thereon to the
date of redemption.
Section 6.13. Further Assurances. The Lessees covenant and agree that each
will do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered such further reasonable acts, instruments,
conveyances, transfers and assurances, at the sole cost and expense of the
Lessees (it being agreed, however, that the Lessees shall have no obligation to
pay any expenses attributable to any in-house professionals of the Agency), as
the Agency or the Trustee reasonably deem necessary or advisable for the
implementation, effectuation, correction, confirmation or perfection of this
Agreement and any rights of the Agency or the Trustee hereunder or under the
Indenture, under any other Security Document or under any other Project
Document.
Section 6.14. Project Property Registry. The Agency shall maintain the
Project Property Registry, which shall be available for inspection in the City
during Agency regular business hours upon reasonable request therefor by the
Lessees. On each March 5 and September 5 during the term of this Agreement
commencing September 15, 1996, the Lessees shall deliver to the Agency, together
with the certificates required under Section 3.1 of the Project Agreement, a
certificate of an Authorized Representative of the Lessees certifying the
deletions and other updates that should be made to the Project Property Registry
so that such Registry shall constitute (taking into consideration such additions
and deletions and all previously certified additions and deletions) an accurate
and complete description of the property comprising the Facility Equipment, the
Tenant Improvements, the Leased Personalty and the Maintenance Contracts.
<PAGE>
Section 6.15. Recording and Filing. A memorandum of this Agreement as
originally executed shall be recorded by the Lessees subsequent to the
recordation of the Indenture, in the appropriate office of the Register of The
City of New York, or in such other office as may at the time be provided by law
as the proper place for the recordation thereof. The security interest of the
Agency granted to the Trustee under the Indenture in this Agreement and the
rentals payable hereunder shall be perfected by the filing of financing
statements by the Agency which fully comply with the New York State Uniform
Commercial Code - Secured Transactions in the office of the Secretary of State
of the State, in the City of Albany, New York and in the appropriate office of
the Register of the City of New York. The Lessees agree to furnish the Agency
and the Trustee with the Opinion of Counsel addressed to the Agency and the
Trustee referred to in Section 7.08 of the Indenture and shall perform all other
acts (including the payment of all costs) necessary in order to enable the
Agency to comply with Section 7.08 of the Indenture.
Section 6.16. Right to Cure Agency Defaults. The Agency hereby grants the
Lessees full authority for the account of the Agency to perform any covenant or
obligation the non-performance of which is alleged to constitute a default, in
the name and stead of the Agency, with full power of substitution.
Section 6.17. Release of Portions of the Facility Realty. (a) Upon receipt
by the Agency of written notice from an Authorized Representative of the Lessees
(a copy of which shall be delivered by the Lessees to the Trustee), describing
any floor or partial floor of the Facility Realty and the date, which shall be a
Business Day not sooner than thirty (30) days from the receipt by the Agency of
such notice, upon which such floor or partial floor of the Facility Realty is to
be released from the leasehold estates of the Company Lease and of this
Agreement, then, to the extent then permitted under applicable law, the Agency
shall on the date indicated in such notice and at the sole cost and expense of
the Lessees, enter into such amendments to the Company Lease and to this
Agreement, and shall take such further action to effectuate such amendments as
the Lessees may reasonably request, to effect or facilitate such release of the
floor or partial floor.
(b) In the event that more than the greater of (y) fifteen percent (15%) of
the aggregate rentable square feet of the Facility Realty, or (z) one full floor
of the Facility Realty (the greater of clauses (y) and (z) being referred to as
the "Maximum Sublet Space"), shall at any one time be used or occupied by
Persons constituting Non-Qualified Users (whether by sublease or otherwise), the
Lessees shall promptly deliver written notice to such effect to the Agency, and
this Agreement and the Company Lease shall be deemed terminated (unless the
Lessees shall, within thirty (30) days of the delivery of such notice or the
date upon which such notice should have been delivered hereunder, whichever is
earlier, have cured such condition) with respect to all of the Facility Realty
so used or occupied (including the portion of the Facility Realty as shall be
within such one floor or such fifteen percent (15%) parameter) as if the term of
this Agreement and of the Company Lease with respect to such portion of the
Facility Realty had expired with respect thereto, and the Lessees shall, at
their sole cost and expense, take such reasonable action to effectuate such
termination as the Agency may reasonably request, including, without limitation,
the entering into of such amendments to this Agreement and the Company Lease as
the Agency may reasonably require to effect such termination.
(c) Notwithstanding the foregoing, in the event the use or possession of
any portion of the Facility Realty shall at any time be for a purpose or by a
Person which is not a qualified "project" as defined in the Act, the Lessees
shall promptly deliver written notice to such effect to the Agency, and the
Lessees shall, upon receipt of written notice from the Agency to such effect,
proceed with diligent good faith efforts to cause such use or possession to be
for a purpose and by a Person within the definition of qualified "project" as
defined in the Act, or failing that, to cause such portion of the Facility
Realty so used or possessed to no longer be included in the leasehold estates of
the Company Lease and of this Agreement. The Agency shall cooperate with the
Lessees and execute such documents or other such instruments, at the sole cost
and expense of the Lessees, as the Lessees shall reasonably request, to effect
such release.
Section 6.18. Additions to the Facility Realty. The Lessees shall have the
right, from time to time, to cause additional portions of the premises within
the Project Building ("Additional Leased Premises") to be made subject to the
Prime Lease, the Company Lease and this Agreement, on the condition, however,
that:
<PAGE>
(a) at least fifteen (15) days prior to the proposed addition, the Lessees
shall have delivered to the Agency a certificate of an Authorized Representative
of the Lessees stating the intention of the Lessees to effect such addition, and
certifying (i) as to the Additional Leased Premises to be added and the proposed
date of such addition which date shall be a Business Day (the "Additional Leased
Premises Closing Date"), (ii) as to the aggregate rentable square feet of each
floor (or partial floor) of such Additional Leased Premises, (iii) as to the
aggregate rentable square feet of Facility Realty in which the Agency would have
a leasehold interest after such addition, (iv) as to a description of any
Non-Qualified User as shall be occupying or using any portion of such Additional
Leased Premises (accompanied by a true and complete copy of the lease or other
use or occupancy agreement with such Non-Qualified User), the use by such
Non-Qualified User of such space, that the aggregate amount of the rentable
square feet of each floor comprising such Additional Leased Premises used or
occupied by a Non-Qualified User is not in excess, together with all other
rentable square feet comprising the Facility Realty which shall be used or
occupied by Non-Qualified Users, of the greater of (y) one full floor, and (z)
fifteen percent (15%) of the total rentable square feet of the Facility Realty,
that the Agency is not a landlord to such Non-Qualified User whether as a matter
of agreement with such Non-Qualified User or by law, and the Agency has and
shall have no landlord obligations or liabilities owing to such Non-Qualified
User, that no such use is for a retail purpose, the rentable square feet
occupied by each such Non-Qualified User, the aggregate amount of rentable
square feet of the Facility Realty after the addition of the Additional Leased
Premises to the Agency as would be occupied by each Non-Qualified User, and the
percentage of aggregate rentable square feet as would comprise the Facility
Realty after such conveyance which would be used or occupied by all
Non-Qualified Users, (v) that other than that portion of the Additional Leased
Premises stated to be used or occupied by a Non-Qualified User(s), the space
comprising the Additional Leased Premises will either remain vacant or be
occupied and used by the Lessees (subject to Permitted Incidental Use) in the
Equitable Business, (vi) that no portion of the Additional Leased Premises are
or shall be used by a Person or for a purpose as shall not constitute a
qualified "project" under the Act, (vii) that the Additional Leased Premises are
subject to the Prime Lease, (viii) that the Maximum Sales Tax Benefit (as
defined in the Project Agreement) has not yet been attained, and (ix) that no
"event of default" exists under the Prime Lease and no Event of Default exists
under this Agreement or the Project Agreement, nor an event which upon notice or
lapse of time or both would constitute such an Event of Default;
(b) on the Additional Leased Premises Closing Date, the Agency shall
receive:
(i) if the Additional Leased Premises Closing Date is after November 30,
1996, a "Phase I Environmental Audit" and an executed Form ACP-5 with respect to
the Additional Leased Premises, reasonably satisfactory to the Agency, by an
environmental engineer who is reasonably acceptable to the Agency;
(ii) an endorsement to the public liability and other insurance referred to
in Section 4.4 hereof including such Additional Leased Premises within the
property covered by such insurance;
(iii) an endorsement to the existing leasehold title insurance policy
described in Section 2.4 hereof (or an additional title insurance policy of form
and tenor reasonably acceptable to the Agency) including the Additional Leased
Premises within such policy; provided, however, that such endorsement or
separate title insurance policy shall not indicate any exceptions to title which
would subject the Agency to liability and for which the Agency does not receive
an indemnity reasonably satisfactory to the Agency; and
(iv) a certificate of an Authorized Representative of the Lessees
certifying, as of the Additional Leased Premises Closing Date, as true and
correct the matters set forth in Section 6.18(a) above;
then, on the Additional Leased Premises Closing Date, if no "event of default"
shall exist under the Prime Lease and no Event of Default shall exist under this
Agreement or the Project Agreement, or an event which upon notice or lapse of
time or both would become such an Event of Default, and if no portion of the
space comprising the Additional Leased Premises shall be used for a retail
purpose, the Agency shall accept a leasehold interest in the Additional Leased
Premises, and shall enter into an amendment to this Agreement and to the Company
Lease to reflect the inclusion of the Additional Leased Premises in the Facility
Realty leased under this Agreement, the Prime Lease and the Company Lease, and
the Lessees shall be entitled to Benefits (as defined in the Project Agreement)
for Tenant Improvements thereafter effected at the Additional Leased Premises.
<PAGE>
Section 6.19.Equitable to Remain Tenant Under Prime Lease. Equitable
covenants and agrees not to assign the Prime Lease to any Person. In the event
Equitable shall at any time or for any reason assign its interest in the Prime
Lease to any Person then:
(a) the Lessees shall deliver immediate written notice thereof to the
Agency and the Trustee,
(b) the Lessees shall promptly cause all of the Bonds to be redeemed as
provided in Section 6.12(b) hereof,
(c) the Lessees shall promptly pay all other amounts due under this
Agreement and the Project Agreement,
(d) this Agreement and the Company Lease shall terminate with respect to
the Facility Realty, subject to the survival of the obligations of the Lessees
hereunder pursuant to Sections 6.1, 6.2 and 9.17 hereof, and
(e) the Lessees shall promptly surrender the Sales Tax Letter to the Agency
for cancellation.
Section 6.20. Joint and Several Liability of the Lessees. All obligations,
covenants, agreements, promises and liabilities of the Lessees hereunder shall
be joint and several obligations of the Lessees in all respects.
Section 6.21. Eligibility of EVLICO as Lessee. In the event that EVLICO
shall cease to be a wholly-owned subsidiary of Equitable engaged in the
Equitable Business, (i) Equitable shall deliver immediate written notice thereof
to the Agency, (ii) EVLICO shall be released from this Agreement and the Project
Agreement (subject to the survival of all obligations as shall have accrued
prior to the date of such release or which are stated in this Agreement and/or
the Project Agreement to survive the termination of this Agreement and/or the
Project Agreement), and (iii) EVLICO shall promptly surrender the Sales Tax
Letter to the Agency, and the Agency shall thereupon deliver to Equitable an
amended Sales Tax Letter removing EVLICO as an agent of the Agency thereunder
(it being agreed that Equitable shall remain entitled to continue to avail
itself of Sales Tax Savings, as defined in the Project Agreement, until the
Agency shall deliver to Equitable the amended Sales Tax Letter, and thereafter
Equitable may continue to utilize the Sales Tax Letter in accordance with the
terms thereof).
Section 6.22. Equitable to Act as Agent of Lessees. Each Lessee agrees that
Equitable shall act as, and is hereby appointed, agent of the Lessees to receive
and/or send all notices, directions and documents to be received and/or sent by
the Lessees pursuant to this Agreement. The Agency may conclusively rely on the
authority of Equitable to act as agent of the Lessees with respect to all
matters under this Agreement and any other Project Document.
<PAGE>
ARTICLE VII
Events of Default; Remedies
Section 7.1. Events of Default. Any one or more of the following events
shall constitute an "Event of Default" hereunder:
(a) Failure of either of the Lessees to pay any rent under Section 3.3 of
this Agreement that has become due and payable by the terms hereof and which
results in an Event of Default under the Indenture or the respective Bonds;
(b) Failure of either of the Lessees to pay any amount (except the
obligation to pay rent under Section 3.3 of this Agreement) that has become due
and payable under Section 4.2, 4.6, 4.7, 5.1, 6.1, 6.10, 6.14, 6.21, 6.22 or 8.4
hereof, or to observe and perform any covenant, condition or agreement on its
part to be performed under Section 2.3, 3.3, 3.5, 4.3, 4.4, 4.5, 6.2, 6.3, 6.12,
6.17, 6.19, 6.20, 7.2, 7.6 or 9.3 hereof, and continuance of such failure for a
period of thirty (30) days after receipt by the Lessees of notice specifying the
nature of such default from the Agency or the Trustee or the Holders of more
than twenty-five per centum (25%) in aggregate principal amount of the Bonds
Outstanding;
(c) Failure of either of the Lessees to observe and perform any covenant,
condition or agreement on its part to be performed under Section 4.2, 4.6, 4.7,
5.1, 6.10, 6.14, 6.18, 6.21 or 8.4 hereof, and continuance of such failure for a
period of thirty (30) days after receipt by the Lessees of notice specifying the
nature of such default from the Agency or the Trustee or Holders of more than
twenty-five per centum (25%) in aggregate principal amount of the Bonds
Outstanding, and, if by reason of the nature of such default the same can not be
remedied within the said (30) days but can be remedied within ninety (90) days,
the Lessees fail to remedy such default at the end of such ninety (90) day
period after proceeding with due diligence to cure such default;
(d) Failure of either of the Lessees to observe and perform any covenant,
condition or agreement on its part to be performed under Section 6.1 or 6.22
hereof, and the continuance of such failure for a period of thirty (30) days
after receipt by the Lessees of notice specifying the nature of such default
from the Agency or the Trustee or Holders of more than twenty-five per centum
(25%) in aggregate principal amounts of the Bonds Outstanding, but which default
is capable of being remedied, and the Lessees shall fail to proceed and continue
with due diligence their efforts to cure such default;
(e) If no Bonds shall be Outstanding under the Indenture, or if Bonds shall
not be issued and Outstanding under the Indenture in the minimum principal
amounts by the respective years specified in Section 2.3(c) hereof;
(f) Failure of either of the Lessees to pay any amount or to observe and
perform any covenant, condition or agreement hereunder on its part to be
performed (except as set forth in Section 7.1(a), (b), (c) or (d) above) and (1)
continuance of such failure for a period of thirty (30) days after receipt by
the Lessees of notice specifying the nature of such default from the Agency or
the Trustee or the Holders of more than twenty-five per centum (25%) in
aggregate principal amount of the Bonds Outstanding, or (2) if by reason of the
nature of such default the same can be remedied, but not within the said thirty
(30) days, the Lessees fail to proceed with reasonable diligence after receipt
of said notice to cure the same or fail to continue with reasonable diligence
their efforts to cure the same;
(g) Equitable shall (i) apply for or consent to the appointment of or the
taking of possession by a receiver, liquidator, custodian or trustee of itself
or of all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as such debts generally
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) file a petition seeking to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, rehabilitation,
winding-up, or composition or adjustment of debts, (vi) fail to controvert in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against itself in an involuntary case under such Bankruptcy Code (or under any
other laws referenced in clause (v) above, (vii) take any action for the purpose
of effecting any of the foregoing, or (viii) be adjudicated a bankrupt or
insolvent by any court of competent jurisdiction, provided, that, in the case of
any of the actions specified in clauses (i) through (viii) above, the same shall
not be dismissed within one hundred sixty (160) days after the initiation
thereof;
<PAGE>
(h) A proceeding or case shall be commenced, without the application or
consent of Equitable, in any court of competent jurisdiction, seeking, (i)
liquidation, reorganization, dissolution, winding-up or composition or
adjustment of debts, (ii) the appointment of a trustee, receiver, liquidator,
custodian or the like of Equitable or of all or any substantial part of its
assets, or (iii) similar relief under any law relating to bankruptcy,
insolvency, rehabilitation, reorganization, winding-up or composition or
adjustment of debts, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of one hundred twenty
(120) days; or Equitable shall acquiesce in writing to any of the foregoing; or
any order for relief against Equitable shall be entered in an involuntary case
under the Federal Bankruptcy Code; the terms "dissolution" or "liquidation" of
Equitable as used above shall not be construed to prohibit any action otherwise
permitted by Section 6.1 hereof;
(i) Any material representation or warranty made (i) by Equitable in the
application and related materials submitted to the Agency for approval of the
Project or its financing, or (ii) by any of the Lessees herein, or (iii) in any
Letter of Representation and Indemnity Agreement delivered to the Agency, the
Trustee and the original purchaser(s) of any Series of Bonds, or (iv) in any
report, certificate, financial statement or other instrument furnished pursuant
hereto or any of the foregoing shall have been relied on by the Agency and prove
to be knowingly false, misleading or incorrect in any material respect as of the
date made; or
(j) An "Event of Default" under the Indenture, the Project Agreement or any
other Project Document or Security Agreement shall occur and be continuing.
Section 7.2. Remedies on Default. Whenever any Event of Default referred to
in Section 7.1 hereof shall have occurred and be continuing, the Agency, or the
Trustee where so provided, may, take any one or more of the following remedial
steps:
(a) The Trustee (at the direction of the Holders of at least a majority in
aggregate principal amount of the Bonds Outstanding except if the Trustee shall
be enforcing defaults for its own benefit under Sections 6.2 or 6.3 hereof or
any other provision of this Agreement the uncured default under which exposes
the Trustee to any imminent civil or criminal liability), (y) as and to the
extent provided in Article VIII of the Indenture, may take any action permitted
under the Indenture with respect to an Event of Default thereunder including
causing all principal installments of rent payable under Section 3.3 hereof for
the remainder of the term of this Agreement to be immediately due and payable,
whereupon the same, together with the accrued interest thereon, shall become
immediately due and payable; provided, however, that upon the occurrence of an
Event of Default under Section 7.1(f) or (g) hereof, all principal installments
of rent payable under Section 3.3 hereof for the remainder of the term of this
Agreement, together with the accrued interest thereon, shall immediately become
due and payable without any declaration, notice or other action of the Agency,
the Trustee, the Holders of the Bonds or any other Person being a condition to
such acceleration; or (z) may take whatever action at law or in equity as may
appear necessary or desirable to collect the rent then due and thereafter to
become due, or to enforce performance or observance of any obligations,
agreements or covenants of the Lessees under this Agreement;
(b) The Agency, with the prior written consent of the Trustee (except as
provided in Section 7.2(c) below), or the Trustee, may terminate this Agreement,
in which case this Agreement and all of the right, title and interest herein
granted or vested in the Lessees shall cease and terminate (except for the
Lessees' rights under Section 8.1 hereof) unless prior to such termination all
accrued and unpaid rent (exclusive of any such rent accrued solely by virtue of
the acceleration of the due date of the Bonds as provided in Section 8.01 of the
Indenture), shall have been paid and all such defaults shall have been fully
cured. No such termination of this Agreement shall relieve the Lessees of their
liabilities and obligations hereunder and such liability and obligations shall
survive any such termination; and
<PAGE>
(c) Upon the occurrence of an Event of Default under the Project Agreement
or with respect to any of the Agency's Reserved Rights, the Agency, without the
consent of the Trustee, any Holder of Bonds or any other Person, may proceed to
enforce the Agency's Reserved Rights by (i) (A) terminating this Agreement (with
the effect (y) as set forth in Section 7.2(b) hereof and without relieving the
Lessees of their liabilities and obligations under this Agreement, which
liabilities and obligations shall survive such termination, and (z) that the
term of this Agreement shall be deemed to have expired on such date of
termination as if such date were the original expiration date of the term of
this Agreement), and/or (B) conveying all of the Agency's right, title and
interest in the Project Property to the Lessees in accordance with Section 8.2
hereof, suspending or terminating the Sales Tax Letter or not re-confirming the
Sales Tax Letter on any annual confirmation date and/or requiring the Lessees to
surrender the Sales Tax Letter to the Agency for cancellation, and requiring the
Lessees to redeem the Bonds in whole, and/or (ii) bringing an action for
damages, injunction or specific performance, and/or (iii) taking whatever action
at law or in equity as may appear necessary or desirable to collect payment of
amounts due under this Agreement, or to enforce performance or observance of any
obligations, agreements or covenants of the Lessees under this Agreement.
In the event that the Lessees fail to make any rental payment required in
Section 3.3 hereof, the installment so in default shall continue as an
obligation of the Lessees until the amount in default shall have been fully
paid.
No action taken pursuant to this Section 7.2 (including termination of this
Agreement pursuant to this Section 7.2 or by operation of law or otherwise)
shall, except as expressly provided herein, relieve the Lessees from their
obligations hereunder, all of which shall survive any such action.
Section 7.3. Remedies Cumulative. Except as specifically provided in this
Agreement, the rights and remedies of the Agency or the Trustee under this
Agreement shall be cumulative and shall not exclude any other rights and
remedies of the Agency or the Trustee allowed by law with respect to any default
under this Agreement. Failure by the Agency or the Trustee to insist upon the
strict performance of any of the covenants and agreements herein set forth or to
exercise any rights or remedies upon default by any of the Lessees hereunder
shall not be considered or taken as a waiver or relinquishment for the future of
the right to insist upon and to enforce by mandatory injunction, specific
performance or other appropriate legal remedy a strict compliance by the Lessees
with all of the covenants and conditions hereof, or of the rights to exercise
any such rights or remedies, if such default by the Lessees be continued or
repeated.
Section 7.4. No Additional Waiver Implied by One Waiver. In the event any
covenant or agreement contained in this Agreement should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder. No waiver shall be binding unless it is in writing and signed
by the party making such waiver. No course of dealing between the Agency and/or
the Trustee and the Lessees or any delay or omission on the part of the Agency
and/or the Trustee in exercising any rights hereunder, under the Indenture or
under any other Project Document or Security Document shall operate as a waiver.
Section 7.5. Effect of Discontinuance of Proceedings. In case any
proceeding taken by the Trustee or the Agency under the Indenture, this
Agreement, or any other Project Document or Security Document on account of any
Event of Default hereunder or under the Indenture or any other Project Document
or Security Document shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Trustee, then, and in every such
case, the Agency, the Trustee and the Holders of the Bonds shall be restored,
respectively, to their former positions and rights hereunder and thereunder, and
all rights, remedies, powers and duties of the Agency and the Trustee shall
continue as in effect prior to the commencement of such proceedings.
Section 7.6. Agreement to Pay Attorneys' Fees and Expenses. In the event
any of the Lessees should default under any of the provisions of this Agreement
after notice and the expiration of any applicable grace period, and the Agency
or the Trustee should employ outside attorneys or incur other out-of-pocket
expenses for the collection of rentals or other amounts payable hereunder or the
enforcement of performance or observance of any obligation or agreement on the
part of the Lessees herein contained, the Lessees will on demand therefor pay to
the Agency or the Trustee the reasonable fees and disbursements of such outside
attorneys and such other reasonable out-of-pocket expenses so incurred.
<PAGE>
ARTICLE VIII
Options
Section 8.1. Options. (a) Subject to the provisions of Section 2.3 hereof,
the Lessees have the option to make advance rental payments for deposit in the
Bond Fund to effect the retirement of the Bonds in whole or the redemption in
whole or in part of the Bonds of any Series, all in accordance with the terms of
the Indenture and the related Certificate of Determination of the Series of
Bonds to be redeemed (except that no partial retirement or partial redemption of
Bonds shall be effected if less than the applicable minimum principal amount of
Bonds as set forth in Section 2.3(c) hereof shall remain Outstanding by reason
thereof). The Lessees shall further have the option of causing money and/or
Defeasance Securities to be deposited in the Bond Fund so long as such deposit
shall not cause less than the applicable minimum principal amount of Bonds as
set forth in Section 2.3(c) hereof to cease to be Outstanding. The Lessees shall
exercise their option to make such advance rental payments by delivering a
notice of an Authorized Representative of the Lessees to the Trustee in
accordance with the Indenture, with a copy to the Agency, setting forth (i) the
amount of the advance rental payment, (ii) the Series of the Bonds to be
redeemed, (iii) the principal amount of Bonds Outstanding of such Series
requested to be redeemed with such advance rental payment (which principal
amount shall be in such minimum amount or integral multiple of such amount as
shall be permitted in the Indenture), and (iv) the date on which such principal
amount of Bonds of such Series is to be redeemed. Such date of redemption may be
any date during the term of this Agreement (subject to the terms of Section 2.3
hereof), and shall be a date sufficient to enable the Trustee to deliver such
notice of redemption in the time period required for the respective Series of
Bonds being redeemed. Such advance rental payment shall be paid to the Trustee
in legal tender on or before the redemption date and shall be an amount which,
when added to the amount on deposit in the Bond Fund and available therefor,
will be sufficient to pay the Redemption Price of the Bonds of such Series to be
redeemed, together with interest to accrue to the date of redemption and all
reasonable expenses of the Agency, the Trustee, the Bond Registrar and the
Paying Agents in connection with such redemption. In the event all Bonds are to
be redeemed in whole or otherwise retired, the Lessees shall further pay or
cause to be paid on or before such redemption date, in legal tender, to the
Agency, the Trustee, the Bond Registrar and the Paying Agents, as the case may
be, all fees and expenses owed such party or any other party entitled thereto
under this Agreement, the Project Agreement and the Indenture, together with all
other amounts due and payable under this Agreement, the Project Agreement and
the Indenture.
(b) The Lessees, in exercising their option to redeem all Bonds in whole
(subject to the provisions of Section 2.3 hereof), shall pay to the Trustee in
legal tender, advance rental payments for deposit in the Bond Fund equal to the
sum of the following:
(i) an amount which, when added to the amount on deposit in the Bond Fund
and available therefor, will be sufficient to pay, retire and redeem the
Outstanding Bonds in accordance with the provisions of the Indenture (including
the provisions of Section 10.01 thereof), including, without limitation, the
principal of or the Redemption Price (as the case may be) of, together with
interest to maturity or redemption date (as the case may be) on, the Outstanding
Bonds;
(ii) the expenses of redemption and expenses of the Agency, the Trustee,
the Bond Registrar and the Paying Agents and all other amounts due and payable
under this Agreement, the Indenture, and each other Security Document and
Project Document (other than the Prime Lease); and
(iii) one dollar.
(c) Upon the payment in full of the principal of and interest on the
Outstanding Bonds (whether at maturity or earlier redemption), the Lessees shall
have the option to terminate this Agreement and acquire the Agency's interest in
the Tenant Improvements, the Leased Personalty, the Maintenance Contracts and
the Facility Equipment and shall exercise such option by (1) delivering to the
Agency prior written notice of an Authorized Representative of the Lessees no
more than thirty (30) days after the payment in full of the Bonds of the
exercise of such option, which notice shall set forth a requested closing date
for such purchase which shall be not later than ten (10) days after the payment
in full of the Bonds, and (2) paying on such closing date an aggregate sum of
one dollar, the expenses of the Agency, the Trustee, the Bond Registrar and the
Paying Agents and all other amounts due and payable under this Agreement, the
Project Agreement, the Indenture or any other Security Documents or Project
Documents (other than the Prime Lease). Upon the written request of the Lessees,
the Agency may approve the extension or waiver of any of the time periods set
forth in this paragraph.
<PAGE>
(d) None of the Lessees shall, at any time, assign or transfer its option
to acquire the Agency's interest in the Tenant Improvements, the Leased
Personalty, the Maintenance Contracts and the Facility Equipment, as contained
in this Section 8.1, except upon an assignment of this Agreement effected in
accordance with Section 9.3 hereof.
Section 8.2. Conveyance and Reversion on Exercise of Option. Upon the
termination of this Agreement, the Agency will deliver or cause to be delivered
to the Lessees, at the sole cost and expense of the Lessees, (a) documents (the
form of which may be provided by the Lessees so long as the Agency shall make no
covenants nor warranties thereunder nor have any liability by reason of such
documents) conveying to the Lessees for a one dollar consideration all of the
Agency's right, title and interest in the Project Property, and (b) documents
releasing and conveying to the Lessees all of the Agency's rights and interests
in and to any rights of action (other than the Agency's Reserved Rights), or any
insurance proceeds (other than liability insurance proceeds for the benefit of
the Agency) or condemnation award, with respect to the Project Property.
Concurrently with the delivery of such documents, there shall be delivered by
the Agency to the Trustee any instructions or other instruments required by
Section 10.01 of the Indenture to defease and pay the Bonds.
Upon conveyance of the Agency's interest in the Project Property pursuant
to this Section 8.2, this Agreement and all obligations of the Lessees hereunder
shall be terminated except the obligations of the Lessees under Sections 6.1,
6.2 and 9.17 hereof shall survive such termination.
Section 8.3. Option to Purchase or Invite Tenders of Bonds. In the event
any of the Lessees shall purchase Bonds for its own account, whether by direct
negotiation, through a broker or dealer, or by making a tender offer to the
Holders of the Bonds, the Bonds so purchased by any of the Lessees shall be
delivered to the Trustee for cancellation within fifteen (15) days of the date
of purchase.
Section 8.4. Termination of Agreement. After full payment of the Bonds
shall have been made in accordance with Section 10.01 of the Indenture, the
Lessees shall terminate this Agreement by paying all amounts due and payable
under this Agreement, the Project Agreement, and the other Security Documents
and Project Documents (other than the Prime Lease) to which the Lessees are a
party, and by giving the Agency notice in writing of such termination and
thereupon such termination shall forthwith become effective, subject, however,
to the survival of the obligations of the Lessees under Sections 6.1, 6.2 and
9.17 hereof. In the event that the Lessees, within ten (10) days after full
payment of the Bonds having been made in accordance with Section 10.01 of the
Indenture, shall not have terminated this Agreement, the Agency shall have the
right to terminate this Agreement (subject to the survival of those provisions
of this Agreement stated to survive in the last clause of the preceding
sentence) and to require the Lessees to make the payments referred to in the
preceding sentence.
Upon termination of this Agreement, the Agency, upon the written request
and at the sole cost and expense of the Lessees, shall execute such instruments
as the Lessees may reasonably request to discharge this Agreement as a document
of record with respect to the Facility Realty.
<PAGE>
ARTICLE IX
Miscellaneous
Section 9.1. Indenture; Amendment. The Lessees shall have and may exercise
all the rights, powers and authority stated to be in the Lessees in the
Indenture and in the Bonds, and the Indenture and the Bonds shall not be
modified, altered or amended in any manner without the consent of the Lessees.
Section 9.2. Force Majeure. In case by reason of force majeure either party
hereto shall be rendered unable wholly or in part to carry out its obligations
under this Agreement, then except as otherwise expressly provided in this
Agreement, if such party shall give notice and full particulars of such force
majeure to the other party within a reasonable time after occurrence of the
event or cause relied on, the obligations of the party giving such notice (other
than the obligations of the Lessees to make the rental payments or other
payments required under the terms hereof, or to comply with Sections 2.3, 4.2,
4.3, 4.4, 4.6, 6.1, 6.2, 6.3, 6.10, 6.12, 6.17, 6.18, 6.19, 6.20, 6.21, 6.22 or
9.3 hereof), so far as they are affected by such force majeure, shall be
suspended during the continuance of the inability then claimed which shall
include a reasonable time for the removal of the effect thereof, but for no
longer period, and such party shall endeavor to remove or overcome such
inability with all reasonable dispatch. The term "force majeure", as employed
herein, shall mean acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy, orders of any kind of the Government of
the United States or of the State or any civil or military authority,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
hurricanes, storms, floods, washouts, droughts, arrest, restraining of
government and people, civil disturbances, explosions, partial or entire failure
of utilities, shortages of labor, material, supplies or transportation, or any
other similar or different cause not reasonably within the control of the party
claiming such inability. The settlement of existing or impending strikes,
lockouts or other industrial disturbances shall be entirely within the
discretion of the party having the difficulty and the above requirements that
any force majeure shall be reasonably beyond the control of the party and shall
be remedied with all reasonable dispatch shall be deemed to be fulfilled even
though such existing or impending strikes, lockouts and other industrial
disturbances may not be settled but could have been settled by acceding to the
demands of the opposing person or persons.
The Lessees shall promptly notify the Agency upon the occurrence of each
Force Majeure, describing such Force Majeure and its effects in reasonable
detail. The Lessees shall also promptly notify the Agency upon the termination
of each such Force Majeure occurrence. The information set forth in any such
notice shall not be binding upon the Agency, and the Agency shall be entitled to
dispute the existence of any Force Majeure and any of the contentions contained
in any such notice received from the Lessees.
Section 9.3. Assignment or Sublease. (a) Except as otherwise expressly
permitted herein, none of the Lessees shall at any time assign or transfer this
Agreement, or sublet all or substantially all of the Facility Realty without in
each case the prior written consent of the Agency (which consent may be
unreasonably withheld); provided, that, in the event the Agency shall provide
such consent, (i) the Lessees shall nevertheless remain liable to the Agency for
the payment of all rent and for the full performance of all of the terms,
covenants and conditions of this Agreement and of any other Security Document or
Project Document to which they shall be a party, (ii) any assignee or transferee
of any of the Lessees, or sublessee of all or substantially all of the Facility
Realty, shall have executed and delivered to the Agency and the Trustee an
instrument, in form for recording, in and by which the assignee, transferee or
sublessee shall have assumed in writing and have agreed to keep and perform all
of the terms of this Agreement (and of each other Project Document or Security
Document to which the Lessees shall be a party) on the part of the Lessees to be
kept and performed, shall be jointly and severally liable with the Lessees for
the performance thereof, shall be subject to service of process in the State,
and, if a corporation, shall be qualified to do business in the State, (iii) in
the Opinion of Counsel, such assignment or transfer shall not cause the
obligations of the Lessees for the payment of all rents nor for the full
performance of all of the terms, covenants and conditions of this Agreement, or
of any other Security Document or Project Document to which the Lessees shall be
a party, to cease to be legal, valid and binding on and enforceable against the
Lessees, (iv) any assignee, transferee or sublessee shall utilize the Facility
Realty as a qualified "project" as defined in the Act and for the general
purposes specified in the recitals to this Agreement, (v) such assignment or
transfer shall not violate any provision of this Agreement, the Indenture or any
other Security Document or Project Document, (vi) such assignment or transfer
<PAGE>
shall in no way diminish or impair the Lessees' obligation to carry the
insurance required under Section 4.4 of this Agreement and the Lessees shall
furnish written evidence satisfactory to the Agency that such insurance coverage
shall in no manner be limited by reason of such assignment or transfer, and
(vii) each such assignment, transfer or sublease contains such other provisions
as the Agency or the Trustee may reasonably require (notice of which the Agency
or the Trustee shall provide to the Lessees within twenty (20) days following
the request for their consent). The Lessees shall furnish or cause to be
furnished to the Agency and the Trustee a copy of any such assignment, transfer
or sublease in substantially final form at least fifteen (15) days prior to the
date of execution thereof.
(b) The Lessees shall have the right to sublet (subject to the provisions
of Section 6.17 hereof) portions of the Facility Realty to one or more
Non-Qualified Users not in excess of the Maximum Sublet Space (as defined in
Section 6.17(b) hereof) of the Facility Realty, provided in each case that (i)
no such sublessee is a Prohibited Person, (ii) the Lessees shall remain liable
to the Agency for the payment of all rent and for the full performance of all of
the terms, covenants and conditions of this Agreement and of any other Security
Document or Project Document to which they shall be a party, (iii) any sublessee
shall utilize the Facility Realty as a qualified "project" as defined under the
Act, and (iv) prior to the entering into of such sublease, the Lessees shall
have delivered to the Agency:
(A) a copy of the proposed sublease indicating the proposed term (which
shall not be later than December 31, 2011), all renewal options, and the amount
of rentable square feet to be sublet,
(B) the identity of the proposed subtenant and the identity of its
principal officers, and, if not a publicly traded corporation, the identity of
its principal stockholders, and the proposed use of the space to be sublet,
(C) evidence reasonably satisfactory to the Agency that such sublease will
not diminish or impair the obligation of the Lessees to carry the insurance
required under Section 4.4 hereof, and that such insurance coverage shall in no
manner be limited by such sublease, and
(D) evidence reasonably satisfactory to the Agency that the subtenant is
not a Prohibited Person.
In the event the Agency shall reasonably request additional information with
respect to the proposed sublease or subtenant, the Lessees shall deliver such
information to the Agency promptly after such request. In the event the Agency
shall not consent to the proposed sublease, the Lessees may effect the release
of the proposed sublet space as provided in Section 6.17.
(c) The Lessees shall not have the right to sublet all or any part of the
Tenant Improvements, Facility Equipment, Maintenance Contracts or Leased
Personalty to any Person without the prior written consent of the Agency.
(d) Any consent by the Agency or the Trustee to any act of assignment or
transfer of this Agreement, or sublease in whole or in part of the Facility
Realty or the Project Property, shall be held to apply only to the specific
transaction thereby authorized. Such consent shall not be construed as a waiver
of the duty of the Lessees, or the successors or assigns of any of the Lessees,
to obtain from the Agency and the Trustee consent to any other or subsequent
assignment or transfer of this Agreement, or sublease in whole or in part of the
Facility Realty or the Project Property, or as modifying or limiting the rights
of the Agency or the Trustee or the obligations of the Lessees under this
Section 9.3.
Section 9.4. Priority of Indenture. Pursuant to the Indenture, the Agency
will pledge and assign the rentals and certain other moneys receivable under
this Agreement to the Trustee as security for payment of the principal or
Redemption Price, if applicable, of and interest on the Bonds. This Agreement
shall be subject and subordinate to the Indenture, and the pledge and assignment
under the Indenture.
Section 9.5. Benefit of, Enforcement and Binding Effect of this Agreement.
This Agreement is executed in part to induce the purchase by others of the Bonds
and for the further securing of the Bonds, and accordingly all covenants and
agreements on the part of the Agency and the Lessees as set forth in this
Agreement are hereby declared to be for the benefit of the Agency, the Lessees,
the Trustee and the Holders from time to time of the Bonds (and may be enforced
as provided in Article VIII of the Indenture on behalf of the Holders of the
Bonds by the Trustee) and for no other Person whatsoever.
Section 9.6. Amendments. This Agreement may be amended only with the
consent of the Trustee given in accordance with the provisions of the Indenture
and only if such amendment shall be in writing and signed by both the Lessees
and the Agency.
<PAGE>
Section 9.7. Notices. All notices, certificates, requests, approvals,
consents or other communications hereunder shall be in writing and shall be sent
by registered or certified United States mail, postage prepaid, or by hand
delivery (receipt acknowledged), telefacsimile (receipt acknowledged) (or other
medium of electronic communication), Federal Express or other nationally
recognized overnight courier service, addressed:
(a) if to the Agency, to the Chairman, New York City Industrial Development
Agency, 110 William Street, New York, New York 10038, with a copy to the
Executive Director of the Agency at the same address;
(b) if to the Lessees, c/o The Equitable Life Assurance Society of the
United States, 787 Seventh Avenue, New York, New York 10019, Attention: Mr.
Timothy J. Welch and Adam R. Spilka, Esq., with a copy to Stroock & Stroock &
Lavan, 7 Hanover Square, New York, New York 10004, Attention: Jacob Bart, Esq.;
and
(c) if to the Trustee, to United States Trust Company of New York, 114 West
47th Street, New York, New York 10036, Attention: Corporate Trust and Agency
Division.
The Agency, the Lessees and the Trustee may, by like notice, designate any
further or different persons or addresses to which subsequent notices,
certificates, requests, approvals, consents or other communications shall be
sent. Any notice, certificate, requests, approvals, consents or other
communication hereunder shall, except as may expressly be provided herein, (i)
if delivered by hand or by Federal Express (or other nationally recognized
overnight courier servicer) shall be deemed to have been delivered or given as
of the date received or delivery rejected as indicated on the return receipt, or
(ii) if delivered by mail, shall be deemed to have been received on the third
day after mailing.
Section 9.8. Prior Agreements Superseded. This Agreement shall completely
and fully supersede all other prior understandings or agreements, both written
and oral, between the Agency and the Lessees relating to the Project Property
with respect to the subject matter hereof, other than (y) any Project Document
or Security Document or other document being executed contemporaneously
herewith, or (z) the Pre-Bond Issuance Sales Tax Letter (including the Sales Tax
Savings received thereunder) and related Indemnification Agreement.
Section 9.9. Severability. If any clause, provision or section of this
Agreement be ruled invalid by any court of competent jurisdiction, the
invalidity of such clause, provision or section shall not affect any of the
remaining provisions hereof.
Section 9.10.Inspection of the Project Property. The Lessees will permit
the Trustee, or its duly authorized agents, at all reasonable times upon
reasonable notice to enter upon the Facility Realty and to examine and inspect
the Project Property and exercise its rights hereunder and under the other
Project Documents and the other Security Documents with respect to the Project
Property, and (ii) the Lessees will further permit the Agency, or its duly
authorized agents, at all reasonable times upon reasonable notice to enter upon
any Approved Equitable City Location but solely for the purpose of assuring that
(x) the Lessees are operating the Project Property, or are causing the Project
Property to be operated, as a qualified "project" under the Act consistent with
the purposes set forth in the recitals to this Agreement and with the public
purposes of the Agency, (y) ascertaining whether or not a Relocation Reduction
(as defined in the Project Agreement), a Non-Relocation Reduction (also as
defined in the Project Agreement) or a headquarters relocation has occurred, or
(z) determining whether the Project Property and/or the use thereof is in
violation of any environmental law; but not for any purpose of assuring the
proper maintenance or repair of the Project Property as such latter obligation
is and shall remain solely the obligation of the Lessees.
Section 9.11. Effective Date; Counterparts. This Agreement shall become
effective upon its delivery. It may be executed in counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
Section 9.12.Binding Effect. This Agreement shall be binding upon the
Agency and the Lessees and their respective successors and assigns, and inure to
the benefit of the Agency, the Trustee and the Holders of the Bonds, and to no
other Person.
Section 9.13. Net Lease. It is the intention of the parties hereto that
this Agreement be a "net lease" and that all of the rent be available for debt
service on the Bonds, and this Agreement shall be construed to effect such
intent.
<PAGE>
Section 9.14. Law Governing. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State, without regard to
conflict of law principles.
Section 9.15. Investment of Funds. Any moneys held as part of the Project
Fund or the Bond Fund or in any special fund provided for in this Agreement or
in the Indenture to be invested in the same manner as in any said Fund shall, at
the request of an Authorized Representative of the Lessees, be invested and
reinvested by the Trustee as provided in the Indenture. Neither the Agency nor
any of its members, directors, officers, agents, servants or employees shall be
liable for any depreciation in the value of any such investments or for any loss
arising therefrom.
Interest and profit derived from such investments shall be credited and
applied as provided in the Indenture, and any loss resulting from such
investments shall be similarly charged.
Section 9.16.Investment Tax Credit. It is the intention of the parties that
any investment tax credit or comparable credit which may ever be available
accrue to the benefit of the Lessees and the Lessees shall, and the Agency upon
advice of counsel may, make any election and take other action in accordance
with the Internal Revenue Code of 1986, as amended, and the Treasury Regulations
applicable thereunder, as may be necessary to entitle the Lessees to have such
benefit.
Section 9.17.Waiver of Trial by Jury. The parties do hereby expressly waive
all rights to trial by jury on any cause of action directly or indirectly
involving the terms, covenants or conditions of this Agreement or the Project
Property or any matters whatsoever arising out of or in any way connected with
this Agreement.
The provision of this Agreement relating to waiver of a jury trial shall
survive the termination or expiration of this Agreement.
Section 9.18.Non-Discrimination. (a) At all times during the term of this
Agreement, the Lessees shall comply with all federal, state and local laws
relating to non-discrimination, and the Lessees shall not discriminate against
any employee or applicant for employment because of race, color, creed, age, sex
or national origin. The Lessees shall use their best efforts to ensure that
employees and applicants for employment with the Lessees at the Facility Realty
are treated without regard to their race, color, creed, age, sex or national
origin. As used herein, the term "treated" shall mean and include, without
limitation, the following: recruited, whether by advertising or other means;
compensated, whether in the form of rates of pay or other forms of compensation;
selected for training, including apprenticeship; promoted; upgraded; downgraded;
demoted; transferred; laid off; and terminated.
(b) Each of the Lessees shall, in all solicitations or advertisements for
employees placed by or on behalf of the Lessees, state that all qualified
applicants will be considered for employment without regard to race, color,
creed or national origin, age or sex, and state that such Lessee is an equal
opportunity employer.
(c) The Lessees shall furnish to the Agency all information reasonably
required by the Agency pursuant to this Section and will cooperate with the
Agency for the purposes of investigation to ascertain compliance with this
Section.
(d) The Agency and the Lessees shall, from time to time, mutually agree
upon goals for the employment, training, or employment and training of members
of minority groups in connection with performing work with respect to Approved
Equitable City Locations.
Section 9.19.No Recourse under This Agreement or on Bonds. All covenants,
stipulations, promises, agreements and obligations of the Agency contained in
this Agreement shall be deemed to be the covenants, stipulations, promises,
agreements and obligations of the Agency, and not of any member, director,
officer, employee or agent of the Agency in his individual capacity, and no
recourse shall be had for the payment of the principal of, redemption premium,
if any, or interest on the Bonds or for any claim based thereon or hereunder
against any member, director, officer, employee or agent of the Agency or any
natural person executing the Bonds.
All covenants, stipulations, promises, agreements and obligations of the
Lessees contained in this Agreement shall be deemed to be the covenants,
stipulations, promises, agreements and obligations of the Lessees, and not of
any director, officer, employee or agent of any of the Lessees in his individual
capacity, and no recourse shall be had for the payment of the principal of,
redemption premium, if any, or interest on the Bonds or for any claim based
thereon or hereunder against any director, officer, employee or agent of any of
the Lessees.
<PAGE>
Section 9.20. This Agreement to Constitute an Amendment and Restatement.
This Agreement shall constitute an amendment and restatement of a certain
Interim Sublease Agreement dated as of December 29, 1995 between the Agency and
the Lessees.
Section 9.21. Date of Agreement for Reference Purposes Only. The date of
this Agreement shall be for reference purposes only and shall not be construed
to imply that this Agreement was executed on the date first above written. This
Agreement was executed and delivered on the Lease Commencement Date.
<PAGE>
IN WITNESS WHEREOF, the Agency has caused its corporate name to be hereunto
subscribed by its duly authorized Deputy Executive Director and attested under
the seal of the Agency by an Assistant Secretary and each of the Lessees has
caused its corporate name to be subscribed hereto by an authorized officer and
attested under its corporate seal by its Secretary or an Assistant Secretary
pursuant to a resolution duly adopted by its Board of Directors, all being done
as of the year and day first above written.
(SEAL) NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY
Attest:
By /s/Julia Binkerd
-------------------------
______________________ Julia Binkerd,
Assistant Secretary Deputy Executive Director
(SEAL) THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES,
as Lessee
Attest:
/s/Linda Galasso By /s/Leon Billis
- ---------------------- ----------------------
Name: Linda Galasso Leon Billis
Title: Vice Presidnet & Assistant Secretary Senior Vice President
(SEAL) EQUITABLE VARIABLE LIFE
INSURANCE COMPANY,
as Lessee
Attest:
/s/Linda Galasso By /s/Leon Billis
- ---------------------- ----------------------
Name: Linda Galasso Leon Billis
Title: Vice Presidnet & Assistant Secretary Senior Vice President
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of May, in the year one thousand nine hundred and
ninety-six, before me personally came Julia Binkerd, to me known, who being by
me duly sworn, did depose and say that she resides at 145 West 71st Street, New
York, New York; that she is the Deputy Executive Director of New York City
Industrial Development Agency, the Agency described in and which executed the
above instrument; that she knows the seal of said Agency; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by authority
of the board of directors of said Agency, and that she signed her name thereto
by like authority.
/s/Laurie A. Edmondson
----------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8 th day of May, in the year one thousand nine hundred and
ninety-six, before me personally came Leon Billis, to me known, who being by me
duly sworn, did depose and say that he resides at 17 The Chase, St. James, N.Y.
11780; that he is a Senior Vice President of The Equitable Life Assurance
Society of the United States, a Lessee described in and which executed the above
instrument; that he knows the seal of such Lessee; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of such Lessee; and that he signed his name thereto by like
authority.
/s/Elizabeth M. Coppolo
-----------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of May, in the year one thousand nine hundred and
ninety-six, before me personally came Leon Billis, to me known, who being by me
duly sworn, did depose and say that he resides at 17 The Chase, St. James, N.Y.
11780; that he is a Vice President of Equitable Variable Life Insurance Company,
a Lessee described in and which executed the above instrument; that he knows the
seal of such Lessee; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of such
Lessee; and that he signed his name thereto by like authority.
/s/Elizabeth M. Coppolo
-----------------------
Notary Public
<PAGE>
APPENDICES
<PAGE>
DESCRIPTION OF PROJECT
The construction from time to time of leasehold improvements and
renovations to the Facility Realty and the acquisition (by purchase, lease or
license) from time to time of machinery, equipment and certain other personal
property including computer software for use at Approved Equitable City
Locations by the Lessees within the City in conducting the Equitable Business.
<PAGE>
DESCRIPTION OF PRE-BOND ISSUANCE PROJECT COSTS
<TABLE>
<CAPTION>
Amount Bond Bond
Category Purchased Adjustment Issue
- -------- ----------------- --------------- ----------------
<S> <C> <C> <C>
EDP Equipment................. $ 734,615.06 $ - $ 734,615.06
Leasehold Improvements........ 1,121,495.62 - 1,121,495.62
Furniture and Equipment....... 4,864.88 - 4,864.88
Computer Accessories.......... 65,252.10 - 65,252.10
Equipment Rental.............. 76,770.13 (5,107.00) 71,663.13
Maintenance Agreements........ 698.59 (698.59) 0
Software...................... 55,374.98 - 55,374.98
----------------- --------------- ----------------
Total......................... $ 2,059,071.36 $ (5,805.59) $ 2,053,265.77
================= =============== ================
</TABLE>
<PAGE>
DESCRIPTION OF FACILITY REALTY
Floors fourteen (14) through twenty-two (22), inclusive, together with the
concourse of that certain building located at 1290 Avenue of the Americas, New
York, New York.
All that certain plot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side of
West 51st Street with the easterly side of Avenue of the Americas (formerly
Sixth Avenue);
RUNNING THENCE easterly along the northerly side of West 51st Street, 448
feet to a point distant 472 feet westerly from the corner formed by the
intersection of the northerly side of West 51st Street with the westerly side of
Fifth Avenue;
THENCE northerly parallel with Fifth Avenue and part of the distance
through a party wall, 100 feet 5 inches to the center line of the block between
West 51st Street and West 52nd Street;
THENCE westerly along the center line of the block 2.0 feet to a point;
THENCE northerly parallel with Fifth Avenue and part of the distance
through a party wall, 100 feet 5 inches to the southerly side of West 52nd
Street, at a point therein distant 474 feet westerly from the southwest corner
of West 52nd Street and Fifth Avenue;
THENCE westerly along the southerly side of West 52nd Street, 446 feet to
the easterly side of Avenue of the Americas;
THENCE southerly along the easterly side of Avenue of the Americas, 200
feet 10 inches to the northerly side of West 51st Street at the point or place
of BEGINNING.
AMENDED AND RESTATED COMPANY LEASE AGREEMENT (FACILITY REALTY)
THIS AMENDED AND RESTATED COMPANY LEASE AGREEMENT (FACILITY REALTY), made
as of the first day of May, 1996 (this "Company Lease"), by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a corporation organized
and existing under and by virtue of the laws of the State of New York, having an
office at 787 Seventh Avenue, New York, New York 10019, party of the first part
(the "Company"), and NEW YORK CITY INDUSTRIAL DEVELOPMENT AGENCY, a corporate
governmental agency constituting a body corporate and politic and a public
benefit corporation of the State of New York, duly organized and existing under
the laws of the State of New York, having its principal office at 110 William
Street, New York, New York 10038, party of the second part (the "Agency")
(capitalized terms used in this Company Lease and not defined herein shall have
the respective meanings assigned to such terms in the Lease Agreement or the
Indenture referred to below), which amends and restates a certain Interim Lease
Agreement, dated as of December 29, 1995, between the Company and the Agency
(the "Interim Lease Agreement"):
WITNESSETH:
WHEREAS, the Company has advised each of the Agency and the appropriate
officials of The City of New York (the "City") as follows: that the Company
currently leases approximately 1,500,000 square feet of space at six locations
throughout the City, which leases begin to expire in late 1996; that the Company
desired to consolidate its locations for a more efficient operation and to
reduce its overall occupancy costs; that the Company had been analyzing
alternative locations for its offices outside of the City (in particular, in
Westchester) and determined that remaining in the City would cost the Company
approximately $63,500,000 more than relocating and leasing space in Westchester;
that in order to induce the Company to retain its offices within the City and to
reduce the competitive cost differential, the Agency and appropriate officials
of the City entered into negotiations with the Company to secure satisfactory
public financial incentives and thereby induce the Company to consolidate its
existing operations within the City; that financial assistance from the Agency
in the form of sales and/or use tax exemptions for the Project (as defined
below) is a vital element in bridging the cost differential between the New York
City and Westchester locations and retaining the operations in New York City and
the sales tax benefits will help lower the Company's cost of doing business in
New York City and obviate the need to relocate to Westchester; and that based
upon the public financial incentives provided through the Agency, the Company
desires to proceed with the Project in the City; and
WHEREAS, the Company and representatives of the City and of the Agency
commenced discussions in order to induce the Company, among other things, to
acquire a leasehold interest in that certain building known as 1290 Avenue of
the Americas, New York, New York (the "Project Building"), to induce the Company
to construct from time to time leasehold improvements and renovations to a
portion of those premises within the Project Building to be leased to the
Company, and to acquire, lease, sublease, license, sublicense, install,
maintain, repair and replace furniture, machinery, equipment, and certain other
tangible personal property for use at Approved Equitable City Locations, all for
use by the Company as its corporate headquarters and for the providing of
financial services, insurance and related operations by the Company and by
Equitable Variable Life Insurance Company, a New York corporation ("EVLICO") and
an affiliate of the Company (the "Project") within the City; and
WHEREAS, to accomplish its corporate purposes, the Agency entered into
negotiations with the Company to induce the Company and EVLICO to proceed with
the Project; and
WHEREAS, 1290 Associates (the "Prime Landlord"), the owner of the Project
Building, pursuant to an Agreement of Lease dated July 20, 1995 between the
Prime Landlord and the Company (as the same has been and may hereafter be
amended, the "Prime Lease"), has leased certain premises within the Project
Building to the Company (the "Leased Premises"); and
WHEREAS, the Company now wishes to sublease a portion of the Leased
Premises (such portion being referred to as the "Facility Realty") to the Agency
on the terms and conditions set forth in this Company Lease; and
Page 1
<PAGE>
WHEREAS, pursuant to an Amended and Restated Lease Agreement (Project
Property) of even date herewith (the "Lease Agreement"), the Facility Realty is
to be sub-subleased, and the remainder of the Project Property is to be leased,
by the Agency to the Company and EVLICO for use by the Company and by EVLICO and
for incidental use thereof in the ordinary course of business by a direct or
indirect parent corporation of the Company or by other entities which are direct
or indirect subsidiaries of the Company; and
WHEREAS, the Agency, in order to provide funds for a portion of the cost of
the Project, will issue and sell from time to time, in one or more Series, its
Industrial Development Revenue Bonds (The Equitable Life Assurance Society of
the United States Project) (the "Bonds") in an aggregate principal amount of up
to $156,000,000 pursuant to the Act, a resolution of the Agency adopted on March
12, 1996, Certificates of Determination of the Agency, an Indenture of Trust of
even date herewith (the "Indenture") between the Agency and United States Trust
Company of New York, as trustee (the "Trustee"), and a Bond Supplemental
Indenture of Trust of even date herewith between the Agency and the Trustee; and
WHEREAS, the Company and the Agency desire hereby to amend and restate in
its entirety the Interim Lease Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and representations hereinafter contained, the Company and the Agency
hereby agree as follows (provided that in the performance of the agreements of
the Agency herein contained, any obligation it may incur for the payment of
money shall not subject the Agency to any pecuniary or other liability nor
create a debt of the State or of the City, and neither the State nor the City
shall be liable on any obligation so incurred, but any such obligation shall be
payable by the Agency solely out of the lease rentals, revenues and receipts
payable by the Company under the Lease Agreement):
ARTICLE I
The Company does hereby lease to the Agency and the Agency hereby leases
from the Company the Facility Realty for the term herein provided and for use as
provided in the Lease Agreement.
The Company and the Agency agree that in the event that any portion of the
Project Building shall be added to the Facility Realty pursuant to Section 6.18
of the Lease Agreement, such portion shall thereupon be made subject to the
terms of this Company Lease.
The Company and the Agency further agree that in the event that any portion
of the Facility Realty shall be released from the leasehold estate of this
Company Lease and of the Lease Agreement as contemplated in Sections 5.1, 6.17,
7.2 and 9.3 of the Lease Agreement, that portion of the Facility Realty shall
cease from such time to be a part of the Facility Realty subject to the terms of
this Company Lease. In the event of any such release, the Company and the Agency
each agree at the request of the other to execute an amendment to this Company
Lease confirming that portion of the Facility Realty is no longer subject to the
provisions of this Company Lease, but the failure of either party to execute or
deliver such amendment shall not affect the release and the fact that such
portion of the Facility Realty is no longer subject to the provisions of this
Company Lease.
ARTICLE II
The term of this Company Lease shall commence on May 13, 1996 and expire on
the earliest of (i) December 31, 2011, (ii) the expiration or earlier
termination of the Prime Lease or the Lease Agreement, (iii) the assignment by
the Company of all or substantially all of its interest in the Prime Lease, or
(iv) the payment in full of the Bonds (whether at maturity or earlier redemption
or upon defeasance or discharge of the lien of the Indenture as provided in
Section 10.01 thereof) so that the Bonds shall cease to be Outstanding under the
Indenture.
ARTICLE III
The sole rental hereunder shall be the single sum of ten dollars ($10),
receipt of which is hereby acknowledged by the Company.
Page 2
<PAGE>
ARTICLE IV
The Company hereby delivers possession to the Agency of the Facility
Realty.
ARTICLE V
The Company represents and warrants that it has full right and lawful
authority to enter into this Company Lease for the full term hereof, that the
execution and delivery by the Company of this Company Lease and the performance
by the Company of its obligations under this Company Lease have been duly
authorized by all requisite corporate action on the part of the Company and will
not violate (i) any provision of law, or any order of any court or agency of
government having jurisdiction thereover, (ii) the certificate of incorporation
or by-laws of the Company, or (iii) any material indenture, agreement or other
instrument to which the Company is a party (including the Prime Lease) or by
which it is subject or to which any of its property is bound and which is
material to the business or financial condition of the Company, or be in
material conflict with or result in a material breach of or constitute (with due
notice and/or lapse of time) a material default under any such material
indenture, agreement or other instrument, or would result in the imposition of
any lien, charge or encumbrance of any nature whatsoever on the Facility Realty
other than Permitted Encumbrances. The Company covenants and agrees that, so
long as the Lease Agreement shall be in full force and effect, and the Facility
Realty shall be part of the Project Property demised thereunder, the Agency
shall have, hold and enjoy a valid leasehold estate in the Facility Realty
during the term hereof, and the Company shall from time to time take all
necessary action to that end. The Agency represents and warrants that it has
full right and lawful authority to enter into this Company Lease for the full
term hereof.
ARTICLE VI
Neither the Agency nor the Company shall assign or transfer this Company
Lease, nor sublease the whole or any part of the Facility Realty, nor subject
this Company Lease to any lien, claim, mortgage or encumbrance (other than
Permitted Encumbrances), in any manner, nor sell, assign, convey or otherwise
dispose of the Facility Realty or any part thereof, during the term of this
Company Lease, in any manner, to any Person, except that the Agency may
sub-sublease the Facility Realty to the Company and to EVLICO pursuant to the
Lease Agreement for a term not greater than the term herein provided and except
as otherwise permitted under Sections 5.1, 6.17, 7.2 and 9.3 of the Lease
Agreement.
ARTICLE VII
This Company Lease contains the entire agreement between the parties hereto
with respect to the subject matter hereof (other than any other Security
Document or Project Document) and all prior negotiations and agreements are
merged in this Company Lease. This Company Lease may not be changed, modified or
discharged in whole or in part and no oral or executory agreement shall be
effective to change, modify or discharge in whole or in part this Company Lease
or any obligations under this Company Lease, unless such agreement is set forth
in a written instrument executed by the Company and the Agency. No consent or
approval of the Company shall be deemed to have been given or to be effective
for any purposes unless such consent or approval is set forth in a written
instrument executed by the Company. No consent or approval of the Agency shall
be deemed to have been given or to be effective for any purposes unless such
consent or approval is set forth in a written instrument executed by the Agency.
Page 3
<PAGE>
ARTICLE VIII
All notices required to be given or authorized to be given by any party
pursuant to this Company Lease shall be in writing and shall be sent by
registered or certified United States mail, postage prepaid, or by hand delivery
(receipt acknowledged), telefacsimile (receipt acknowledged) (or other medium of
electronic communication), Federal Express or other nationally recognized
overnight courier service, addressed:
(a) if to the Agency, to the Chairman, New York City Industrial Development
Agency, 110 William Street, New York, New York 10038, with a copy to the
Executive Director of the Agency at the same address; and
(b) if to the Company, to The Equitable Life Assurance Society of the
United States, 787 Seventh Avenue, New York, New York 10019, Attention: Mr.
Timothy J. Welch and Adam R. Spilka, Esq., with a copy to Stroock & Stroock &
Lavan, 7 Hanover Square, New York, New York 10004, Attention: Jacob Bart, Esq.
The Agency and the Company may, by like notice, designate any further or
different persons or addresses to which subsequent notices or other
communications shall be sent. Any notice or other communication hereunder shall,
except as may expressly be provided herein, (i) if delivered by hand or by
Federal Express (or other nationally recognized overnight courier servicer)
shall be deemed to have been delivered or given as of the date received or
delivery rejected as indicated on the return receipt, or (ii) if delivered by
mail, shall be deemed to have been received on the third day after mailing. A
copy of any notice given to the Agency or the Company under this Company Lease
shall also be given to the Trustee at the address of the Trustee indicated in
the Indenture. Any notice by the Agency or the Company may be given on behalf of
such party by their attorney.
ARTICLE IX
This Company Lease shall be governed by, and construed in accordance with,
the laws of the State of New York.
The terms of this Company Lease are and shall be binding upon and inure to
the benefit of the Agency and the Company and their respective successors and
assigns.
If any one or more of the provisions of this Company Lease shall be ruled
invalid by any court of competent jurisdiction, the invalidity of such
provision(s) shall not affect any of the remaining provisions hereof, but this
Company Lease shall be construed and enforced as if such illegal or invalid
provision had not been contained herein.
ARTICLE X
This Company Lease shall become effective upon the original issuance of the
Initial Bonds. It may be simultaneously executed in several counterparts, each
of which shall be an original and all of which shall constitute but one and the
same instrument.
Page 4
<PAGE>
ARTICLE XI
All covenants, stipulations, promises, agreements and obligations of the
Agency contained in this Company Lease shall be deemed to be the covenants,
stipulations, promises, agreements and obligations of the Agency, and not of any
member, director, officer, employee or agent of the Agency in his individual
capacity, and no recourse shall be had for the payment of any amounts hereunder
against any member, director, officer, employee or agent of the Agency. In
addition, in the performance of the agreements of the Agency herein contained,
any obligation it may incur for the payment of money shall not create a debt of
the State or of the City, and neither the State nor the City shall be liable on
any obligation so incurred, but any such obligation shall be payable solely out
of the lease rentals, revenues and receipts payable to the Agency under the
Lease Agreement.
All covenants, stipulations, promises, agreements and obligations of the
Company contained in this Company Lease shall be deemed to be the covenants,
stipulations, promises, agreements and obligations of the Company, and not of
any director, officer, employee or agent of the Company. in his individual
capacity, and no recourse shall be had for the payment of any amounts hereunder
against any director, officer, employee or agent of the Company.
ARTICLE XII
The Agency and the Company agree that this Company Lease or a memorandum
hereof shall be recorded by the Agency in the appropriate office of the Register
of The City of New York.
ARTICLE XIII
The use of the Facility Realty, and all other rights, duties, liabilities
and obligations of the Company and the Agency with respect thereto and
including, without limitation, the renovation, improving and equipping of the
Facility Realty, and the use, operation, leasing and financing of the Facility
Realty, not fixed in this Company Lease, shall be as set forth in the Lease
Agreement.
ARTICLE XIV
This Company Lease shall constitute an amendment and restatement of the
Interim Lease Agreement.
Page 5
<PAGE>
IN WITNESS WHEREOF, the Company has caused its corporate name to be
subscribed hereto and its corporate seal to be imprinted hereon by its
authorized officer and attested under the seal of the Company by its Secretary
or an Assistant Secretary pursuant to a resolution duly adopted by its Board of
Directors, and the Agency has caused its corporate name to be hereunto
subscribed by its duly authorized Chairman, Vice Chairman, Executive Director or
Deputy Executive Director, and attested under the seal of the Agency by its
Deputy Executive Director or an Assistant Secretary, all being done as of the
year and day first above written.
(SEAL) THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
ATTEST:
/s/Linda Galasso By /s/Leon Billis
- ---------------------- ----------------------
Name: Linda Galasso Leon Billis
Title: Vice Presidnet & Assistant Secretary Senior Vice President
NEW YORK CITY INDUSTRIAL
(SEAL) DEVELOPMENT AGENCY
ATTEST:
By /s/Julia Binkerd
-------------------------
Julia Binkerd,
______________________ Deputy Executive Director
Assistant Secretary
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of May, in the year one thousand nine hundred and
ninety-six, before me personally came Julia Binkerd, to me known, who being by
me duly sworn, did depose and say that she resides at 145 West 71st Street, New
York, New York; that she is the Deputy Executive Director of the New York City
Industrial Development Agency, the Agency described in and which executed the
above instrument; that she knows the seal of said Agency; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by authority
of the board of directors of said Agency, and that she signed her name thereto
by like authority.
/s/Laurie A. Edmondson
----------------------
Notary Public
Page 6
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of May, in the year one thousand nine hundred and
ninety-six, before me personally came Leon Billis, to me known, who being by me
duly sworn, did depose and say that he resides at 17 The Chase, St. James, N.Y.
11780; that he is a Senior Vice President of The Equitable Life Assurance
Society of the United States, the party of the first part described in and which
executed the above instrument; that he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation; and that he
signed his name thereto by like authority.
/s/Elizabeth M. Coppolo
-----------------------
Notary Public
Page 7
<PAGE>
DESCRIPTION OF FACILITY REALTY
Floors fourteen (14) through twenty-two (22), inclusive, together with the
concourse of that certain building located at 1290 Avenue of the Americas, New
York, New York.
All that certain plot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side of
West 51st Street with the easterly side of Avenue of the Americas (formerly
Sixth Avenue);
RUNNING THENCE easterly along the northerly side of West 51st Street, 448
feet to a point distant 472 feet westerly from the corner formed by the
intersection of the northerly side of West 51st Street with the westerly side of
Fifth Avenue;
THENCE northerly parallel with Fifth Avenue and part of the distance
through a party wall, 100 feet 5 inches to the center line of the block between
West 51st Street and West 52nd Street;
THENCE westerly along the center line of the block 2.0 feet to a point;
THENCE northerly parallel with Fifth Avenue and part of the distance
through a party wall, 100 feet 5 inches to the southerly side of West 52nd
Street, at a point therein distant 474 feet westerly from the southwest corner
of West 52nd Street and Fifth Avenue;
THENCE westerly along the southerly side of West 52nd Street, 446 feet to
the easterly side of Avenue of the Americas;
THENCE southerly along the easterly side of Avenue of the Americas, 200
feet 10 inches to the northerly side of West 51st Street at the point or place
of BEGINNING.
Page 8
February 10, 1997
To the Board of Directors of
The Equitable Companies Incorporated
We have audited the consolidated financial statements of The Equitable Companies
Incorporated ("The Equitable") included in its Annual Report on Form 10-K for
the year ended December 31, 1996 and issued our report thereon dated February
10, 1997. Note 2 to the consolidated financial statements describes a change in
The Equitable's method of accounting for long-duration participating life
insurance contracts. It should be understood that alternative methods of
accounting for such life insurance contracts are permitted in the authoritative
literature and in arriving at our opinion expressed below, we have relied on
management's business planning and judgment. Based upon our discussions with
management and the stated reasons for the change, we believe that such change
represents, in your circumstances, the adoption of a preferable alternative
accounting principle for long-duration participating life insurance contracts in
conformity with Accounting Principles Board Opinion No.20.
Yours very truly,
/s/Price Waterhouse LLP
- -----------------------
SUBSIDIARY ORGANIZATION CHART 1996 EDITION
<TABLE>
<CAPTION>
State of State of Number of Parent's
Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
---------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED*** DE NY 13-3623351
Donaldson, Lufkin & Jenrette, Inc. (1) DE NY 13-1898818 23,404,230 43.91%
See Attached Listing F
The Equitable Life Assurance Society of the U.S.* NY NY 13-5570651 2,000,000 100.00%
Equitable Variable Life Insurance Company* NY NY 13-2729441 1,500,000 100.00%
Franconom, Inc. PA PA 23-2352488 50 100.00%
EVLICO, Inc. DE GA 58-2203762 100 100.00%
EVLICO East Ridge, Inc. CA GA 58-2206831 100 100.00%
Equitable Structured Settlement Corp. DE NJ Pending 100 100.00%
The Equitable of Colorado, Inc.* CO CO 13-3198083 1,000,000 100.00%
Frontier Trust Company ND ND 45-0373941 1,000 100.00%
Equitable Deal Flow Fund, L.P. DE NY 13-3385076 - -
Equitable Managed Assets, L.P. DE NY 13-3385080 - -
Real Estate Partnership Equities (various) ** - - -
Equitable Holding Corp. DE NJ 22-2766036 1,000 100.00%
See Attached Listing A
EREIM LP Associates (L.P.) NY NY - -
EML Associates, L.P. NY NY 58-1739531 - -
ACMC, Inc. DE NY 13-2677213 5,000,000 100.00%
Wil-Gro, Inc PA PA 23-2702404 1,000 100.00%
Prime Property Funding, Inc. DE NY 13-3719324 1,000 100.00%
Equitable Underwriting & Sales Agency (Bahamas) Ltd. Bahamas Bahamas - 5,000 100.00%
STCS, Inc. DE NY 13-3761592 1,000 100.00%
Fox Run, Inc. MA NY 23-2762596 1,000 100.00%
FTM Corp. MD MD 13-3778225 1,000 100.00%
CCMI Corp. MD MD 13-3778224 1,000 100.00%
HVM Corp. MD MD 13-3778222 1,000 100.00%
EVSA, Inc. DE PA 23-2671508 50 100.00%
Equitable BJVS, Inc. CA CA 33-0540198 1,000 100.00%
Equitable Rowes Wharf, Inc. MA MA 04-3272826 1,000 100.00%
Camelback JVS, Inc. AZ AZ 86-0794576 1,000 100.00%
GP/EQ Southwest, Inc. TX TX 75-2624983 94 94.00%
ELAS Realty, Inc. DE GA 58-2271596 1,000 100.00%
Equitable Realty Assets Corporation DE GA 58-1538468 10,000 100.00%
<FN>
* Affiliated Insurer
** Information relating to Equitable's Real Estate Partnership Equities is
disclosed in Schedule BA, Part 1 of Equitable Life's Annual Statement
which has been filed with the N.Y.S. Insurance Department.
*** All subsidiaries are corporations, except as otherwise noted.
(1) In addition, Equitable Holding Corp. owns
19,230,770 shares (36.08%). In the aggregate,
EQ owns 42,635,000 shares (79.99%)
of Donaldson, Lufkin & Jenrette, Inc.
1996 Additions/Deletions:
- -------------------------
- FHJV Holdings
+ Equitable Realty Assets Corp. - transferred from EHC
+ ELAS Realty, Inc.
+ Equitable Structured Settlement Corp.
</FN>
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
LISTING A:
EQUITABLE HOLDING CORP. State of State of Number of Parent's
----------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation (1)
ELAS Securities Acquisition Corporation DE 13-3049038 500 100.00%
100 Federal Street Realty Corporation MA MA 04-2847619 100 100.00%
100 Federal Street Funding Corporation MA MA 04-2934600 100 100.00%
EQ Financial Consultants, Inc.
formerly, Equico Securities, Inc. DE NY 13-2693569 20,000 100.00%
Equitable Casualty Insurance Company* VT VT 06-1166226 1,000 100.00%
EquiSource of New York, Inc. NY PA 13-3389662 1,000 100.00%
See Attached Listing B
EREIM LP Corporation DE NY 58-1739521 100 100.00%
EREIM LP Associates (L.P.) NY NY - -
EML Associates, L.P. NY NY 58-1739531 - -
Equitable Investment Corporation NY NY 13-2694412 1,000 100.00%
See Attached Listing C
Equitable JVS, Inc. DE GA 58-1812697 1,000 100.00%
Astor/Broadway Acquisition Corp. NY NY 13-3593692 100 100.00%
Astor Times Square Corp. NY NY 13-3593699 100 100.00%
PC Landmark, Inc. TX TX 75-2338215 1,000 100.00%
Equitable JVS II, Inc. MD MD 52-1877232 1,000 100.00%
EJSVS, Inc. DE NJ 58-2169594 1,000 100.00%
Six-Pac G.P., Inc. GA GA 58-1928595 100 100.00%
Equitable Distributors, Inc.
formerly, Equitable Capital Securities Corporation DE NY 13-3550365 1,000 100.00%
J.M.R. Realty Services, Inc. DE NY 13-3813232 1,000 100.00%
<FN>
*Affiliated Insurer
(1) Owns 36.1 % of Donaldson, Lufkin & Jenrette, Inc.
</FN>
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
LISTING B:
EQUISOURCE OF NEW YORK, INC. State of State of Number of Parent's
---------------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation
EquiSource of New York, Inc.
EquiSource of Alabama, Inc. AL AL 13-3386851 1,000 100.00%
EquiSource of Arizona, Inc. AZ AZ 13-3389071 1,000 100.00%
EquiSource of Arkansas, Inc. AR AR 13-3404676 1,000 100.00%
EquiSource Insurance Agency of California CA CA 13-3404686 1,000 100.00%
EquiSource of Colorado, Inc. CO CO 13-3404680 1,000 100.00%
EquiSource of Delaware, Inc. DE DE 13-3386036 1,000 100.00%
EquiSource of Hawaii, Inc. HI HI 13-3425232 1,000 100.00%
EquiSource of Maine, Inc. ME ME 13-3404681 1,000 100.00%
EquiSource Insurance Agency of Massachusetts, Inc. MA MA 22-2891027 1,000 100.00%
EquiSource of Montana, Inc. MT MT 13-3389063 1,000 100.00%
EquiSource of Nevada, Inc. NV NV 13-3389068 1,000 100.00%
EquiSource of New Mexico, Inc. NM NM 13-3404674 1,000 100.00%
EquiSource of Pennsylvania, Inc. PA PA 13-3389070 1,000 100.00%
EquiSource Business Agency of Utah, Inc. UT UT 13-3404679 1,000 100.00%
EquiSource of Washington, Inc. WA WA 13-3437226 1,000 100.00%
EquiSource of Wyoming, Inc. WY WY 13-3389072 1,000 100.00%
<FN>
Note:
Traditional Equinet Business Corp. of N.Y. changed
its name to EquiSource of New York, Inc.
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
LISTING C:
EQUITABLE INVESTMENT CORPORATION State of State of Number of Parent's
-------------------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation
Equitable Investment Corporation
Equitable Capital Management Corporation DE NY 13-3266813 1,000 100.00%
Equitable Capital Private Income & Equity
Partnership II, L.P. DE NY 13-3544879 - -
Equitable Real Estate Investment Management, Inc. DE GA 58-1571819 123 100.00%
See Attached Listing D
Alliance Capital Management Corporation DE NY 13-3633538 100 100.00%
See Attached Listing E
Equitable JV Holding Corp. DE NY 13-3555850 1,000 100.00%
EQ Services, Inc. DE GA 58-1985395 1,000 100.00%
Equitable Agri-Business, Inc. DE GA 58-1571529 260 100.00%
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
LISTING D:
EQUITABLE REAL ESTATE INVESTMENT MGMT., INC. State of State of Number of Parent's
-------------------------------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation
Equitable Investment Corporation
Equitable Real Estate Investment Management, Inc.
Compass Management & Leasing, Co. CO CO 58-1973954 800 80.00%
Equitable Real Estate Capital Markets, Inc. DE NY 58-1754188 100 100.00%
Equitable Pacific Partners Corp. DE GA 58-1754193 100 100.00%
EPPNLP Corporation DE GA 58-1754189 100 100.00%
EREIM Managers Corporation DE GA 58-1739529 100 100.00%
ML/EQ Real Estate Portfolio, L.P. DE NY 58-1739523 - -
EML Associates, L.P. NY NY 58-1739531 - -
Equitable Realty Portfolio Management, Inc. DE GA 13-3321570 1,000 100.00%
Compass Retail, Inc. DE GA 58-1893213 100 100.00%
Compass/RPS Airport Services, LLC GA GA 64.00%
Compass Management & Leasing, Inc. DE GA 58-1975365 1,000 100.00%
CJVS, Inc. CA CA 33-0629835 1,000 100.00%
Compass Management & Leasing, Ltd. UK UK - 100.00%
Compass Cayman Cayman Isl. Brazil - 100.00%
Column Financial, Inc. DE GA 58-2061106 500 50.00%
Equitable Real Estate Hyperion Capital Advisors L.L.C. DE
Community Funding, Inc. DE
Buckhead Strategic Corp. DE GA 58-2143988 1,000 100.00%
Buckhead Strategic Corp. II DE GA 58-2204352 1,000 100.00%
Buckhead Strategic Fund L.P., II
Buckhead Co. II L.P.
Oxhead Property Co., L.L.C.
Oxhead Holding Corp.
Oxhead Operating Co., L.L.C.
Buckhead Co. III, L.P.
HYDOC, L.L.C.
Headwind Property Co., L.L.C.
Headwind Holding Corp.
Headwind Operating Co., L.L.C.
Tricon Corp.
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
LISTING E:
ALLIANCE CAPITAL MANAGEMENT CORP. State of State of Number of Parent's
--------------------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation
Equitable Investment Corporation
Alliance Capital Management Corporation
Alliance Capital Management L.P. DE NY 13-3434400
Albion Alliance L.L.C. 40.00%
Cursitor Alliance L.L.C. DE MA 92.55%
Cursitor Holdings Ltd. U.K. U.K. - 100.00%
Draycott Partners. Ltd. MA U.K. - 100.00%
The London Partnership Ltd. U.K. U.K. - 100.00%
Cursitor Management Co. SA Lux. Lux. - 100.00%
Cursitor Management Ltd. U.K. U.K. - 100.00%
Cursitor-Eaton Asset Management Co. NY MA - 50.00%
Cursitor Cecogest SA France France - 75.00%
Cursitor Courtage SARL France France - 100.00%
Cursitor Gestion SA France France - 100.00%
Alliance Capital Management (Asia) Ltd. DE Asia 13-3752293 100.00%
Alliance Capital Management (Turkey) Ltd. Turkey Turkey - 100.00%
Alliance Capital Management (Japan), Inc. DE Japan 13-3009358 100 100.00%
Cursitor Alliance Management Limited U.K. U.K. - 250,000 100.00%
Dimentional Asset Management Ltd. U.K. U.K. - 1,000 100.00%
Dimentional Trust Management Ltd. U.K. U.K. - 50,000 100.00%
Alliance Capital Management Corp. of Delaware DE 13-2778645 10 100.00%
Alliance Fund Services, Inc. DE 13-3211780 100 100.00%
Alliance Fund Distributors, Inc. DE 13-3191825 100 100.00%
Alliance Capital Oceanic Corp. DE 13-3441277 1,000 100.00%
Alliance Capital Management (Brazil) Ltda. Brazil Brazil - 99.00%
Alliance Capital Management Australia Limited Aust. Aust. - 12 100.00%
Meiji - Alliance Capital Corp. DE NY 13-3613617 50,000 50.00%
Alliance Capital (Luxembourg) S.A. Lux. Lux. - 3,999 99.98%
Alliance Barra Research Institute, Inc. DE NY 13-3548918 1,000 50.00%
Alliance Capital Management Canada, Inc. Canada Canada - 18,750 100.00%
Alliance Capital Global Derivatives Corp. DE NY 13-3626546 1,000 100.00%
Alliance International Fund Services, S.A. Lux. Lux. - 99.00%
Alliance Capital Management (India) Ltd. DE India 13-3751338 100.00%
</TABLE>
Page 7
<PAGE>
<TABLE>
<CAPTION>
LISTING E:
ALLIANCE CAPITAL MANAGEMENT CORP. State of State of Number of Parent's
--------------------------------- Incorp. or Principal Federal Shares Percent of
Domicile Operation Tax ID # Owned Ownership
-------- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
THE EQUITABLE COMPANIES INCORPORATED
The Equitable Life Assurance Society of the U.S.*
Equitable Holding Corporation
Equitable Investment Corporation
Alliance Capital Management Corporation
Alliance Capital Management L.P.
Alliance Capital Management Corp. of Delaware (Cont'd) 10 100.00%
Alliance Capital (Mauritius) Ltd. Mauritius Mauritius - 100.00%
Alliance Capital Asset Management (India) India India - 75.00%
Private Ltd.
ACSYS Software India Private Ltd. India India - 51.00%
Alliance Eastern Europe, Inc. DE 100.00%
Alliance Corporate Finance Group Inc. DE - 52-1671668 1,000 100.00%
Equitable Capital Diversified Holdings, L.P. I DE NY 13-3520268 - -
EC Diversified Holdings Corp. I DE NY 13-3521917 100 100.00%
Equitable Capital Diversified Holdings, L.P. II DE NY 13-3546007 - -
EC Diversified Holdings Corp. II DE NY 13-3551472 100 100.00%
ECM Fund L.P. I DE NY 13-3674518 - -
ECM Corporation I DE NY 13-3674512 100 100.00%
Equitable Capital Partners, L.P. DE NY 13-3486115 - -
Equitable Capital Partners (Retirement
Fund), L.P. DE NY 13-3486106 - -
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
LISTING F:
Donaldson, Lufkin And Jenrette, Inc. Subsidiary List
PERCENT SHARES HELD JURISDICTION OF
SUBSIDIARY EMPLOYER ID OWNER AFFILIATE OWNERSHIP BY OWNER INCORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1974 Multifamily, Inc. 13-2785141 DLJ Real Estate, Inc. 100% 100 Delaware
21' Funding, Inc. 13-3823483 DLJ Bridge Finance, Inc. 100% 1,000 Delaware
AML Futures International, Inc. 13-3244797 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
AML Futures, Inc. 13-2671027 AML Futures International, Inc. 100% 1,000 Delaware
AML Futures, S.A. (In Dissolution) None AML Holdings, Inc. 100% 1,000 Switzerland
AML Holdings (London) Ltd. None AML Holdings, Inc. 100% 2,500,000 United Kingdom
AML Holdings, Inc. (Formerly DLJ 13-2671028 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Commodities, Incorporated.) Inc.
Autranet International Limited (In None Autranet, Inc. 100% 200 United Kingdom
Dissolution)
Autranet, Inc. 13-2961507 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Bond Investment Partners, LLC 13-7070202 DLJ Capital Corporation 99% Delaware
Bond Investment Partners, LLC 13-7070202 DLJ Investment, Inc. 1% Delaware
Brewster Property Holding Corp. 13-3745194 DLJ Real Estate, Inc. 100% 200 New York
BSI Acquisitions Corp. 13-3189297 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Cadogan Nominees Limited None Pershing Limited 100% 150 United Kingdom
Calmco Trustee Services, Inc. 74-2777085 Calmco, Inc. 100% 10,000 Delaware
Calmco, Inc. 13-3860801 DLJ Mortgage Capital, Inc. 100% 1,000 Delaware
</TABLE>
Page 9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CBJC, Inc. 13-3906717 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
CEC Energy Co., Inc. 13-3351987 Donaldson, Lufkin & Jenrette 100% 1,000 Delaware
Securities Corporation
CF Realty, Inc. 13-3873229 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
CG Funding, Inc. 13-3873232 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
Coram Funding, Inc. 13-3819014 DLJ Bridge Finance, Inc. 100% 1,000 Delaware
Demsworth, Inc. 13-3869262 DLJ Real Estate, Inc. 100% 1,000 Delaware
DLJ Acceptance Corporation 13-3438856 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Acquisition Corp. - I 13-3801491 DLJ/Conn. Acquisition Corp. 100% 2,000 Delaware
DLJ Africa, Inc. 13-3857310 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Asset Management, Inc. 13-3859805 Donaldson, Lufkin & Jenrette 100% 1,000 Delaware
Securities Corporation
DLJ Bermuda Partners, Inc. 13-3799776 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Bridge Finance, Inc. 13-3433876 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Capital Associates (VI), Inc. 13-3519751 DLJ Capital Corporation 100% 1,000 Delaware
DLJ Capital Associates VII, Inc. 13-3810628 DLJ Capital Corporation 100% 100 Delaware
</TABLE>
Page 10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DLJ Capital Corporation 13-2656882 Donaldson, Lufkin & Jenrette, 100% 100 Delaware
Inc.
DLJ Capital Funding, Inc. 13-3901308 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Capital Investors, Inc. 13-3805378 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Capital Management Corporation 13-3603831 DLJ Capital Corporation 100% 1,000 Delaware
DLJ Capital Trust I 13-7093229 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Cayman Acquisition Limited None Donaldson, Lufkin & Jenrette, 100% 1 Cayman Islands
Inc.
DLJ Cayman Islands LDC None DLJ Capital Corporation 20% 999 Cayman Islands
DLJ Cayman Islands LDC None Donaldson, Lufkin & Jenrette, 80% 3,996 Cayman Islands
Inc.
DLJ Century, Inc. 13-3717365 DLJ Mortgage Capital, Inc. 100% 1,000 Delaware
DLJ City Line, Inc. 13-3319171 DLJ Realty Services, Inc. 100% 100 New York
DLJ Clearing Corporation 13-3731408 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Diversified Partners, Inc. 13-3907706 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Emerging Markets LDC None DLJ Capital Corporation 20% 2,000 Cayman Islands
DLJ Emerging Markets LDC None Donaldson, Lufkin & Jenrette, 80% 8,000 Cayman Islands
Inc.
DLJ Europe, Inc. 13-3860782 Donaldson, Lufkin & Jenrette 100% 1,000 Delaware
Securities Corporation
DLJ First ESC, LLC 13-3790645 DLJ Employees N/A N/A Delaware
DLJ Growth Associates (II), Inc. 13-3695982 DLJ Capital Corporation 100% 1,000 Delaware
DLJ Harbor (Boston) Corp. 13-3160683 DLJ Real Estate, Inc. 100% 1,000 Massachusetts
</TABLE>
Page 11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DLJ Hoffman, Inc. 13-3153908 DLJ Real Estate, Inc. 100% 100 Delaware
DLJ Holdings, Inc. 13-3861189 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ International, Inc. 13-3860788 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Investment Funding, Inc. 13-3887953 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Investment Management Corp. 13-3859861 Donaldson, Lufkin & Jenrette 100% 1,000 Delaware
Securities Corporation
DLJ Investment Partners, Inc. 13-3854261 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Investment, Inc. 13-3419317 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Kansas City Capital, Inc. 13-3697211 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ LBO Plans Management Corporation 13-3743225 DLJ Capital Investors, Inc. 100% 100 Delaware
DLJ Leasing Company, Inc. 13-3542594 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ MB Funding II, Inc. 13-3919500 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Merchant Banking Funding, Inc. 13-3709041 DLJ Capital Investors, Inc. 100% 1,000 Delaware
</TABLE>
Page 12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DLJ Merchant Banking II, Inc. 13-3906244 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Merchant Banking, Inc. 13-3644198 DLJ Capital Investors, Inc. 100% 100 Delaware
DLJ Mortgage Acceptance Corp. 13-3460894 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Mortgage Capital, Inc. 13-3460798 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ Offshore Management N.V. None DLJ Capital Investors, Inc. 100% 6,000 Netherlands
Antilles
DLJ Puerto Rico Realty Corp. Not Available as of Puerto Rico Hotel OPCO, L.P. 100% 1,000 Delaware
Today
DLJ Real Estate Capital Funding, Inc. 13-3811304 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Real Estate Capital Partners, Inc. 13-3805375 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Real Estate Capital, Inc. 13-3811303 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Real Estate Mezzanine Capital, Inc. 13-3910356 DLJ Capital Investors, Inc. 100% 1,000 Delaware
DLJ Real Estate, Inc. 13-2658821 Donaldson, Lufkin & Jenrette, 100% 3,000 Delaware
Inc.
DLJ Realty Services, Inc. 13-2791329 DLJ Real Estate, Inc. 100% 0 Delaware
DLJ Secureco Holdings, Inc. 13-3714258 DLJ Mortgage Capital, Inc. 100% 1,000 Delaware
DLJ Senior Debt Finance, Inc. 13-3891131 Donaldson, Lufkin & Jenrette, 100% 100 Delaware
Inc.
DLJ Senior Officers Investment 13-3220934 Donaldson, Lufkin & Jenrette, 100% 100 Delaware
Corporation Inc.
DLJ Services, Inc. 13-3817414 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
DLJ/Conn Acquisition Corp. 13-3781382 Donaldson, Lufkin & Jenrette, 100% 100 Delaware
Inc.
</TABLE>
Page 13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Donaldson Funding Corporation 13-3810631 DLJ Bridge Finance, Inc. 100% 1,000 Delaware
Donaldson Leasing Corp. 13-3692113 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Donaldson Lufkin & Jenrette Asia Limited None Donaldson, Lufkin & Jenrette, 99% 299 Hong Kong
Inc.
Donaldson Lufkin & Jenrette Asia Limited None Vincent DeGiaimo 1% 1 Hong Kong
Donaldson, Lufkin & Jenrette (Brasil) None DLJ Capital Corporation 20% 100,000 Brazil
Ltda.
Donaldson, Lufkin & Jenrette (Brasil) None Donaldson, Lufkin & Jenrette, 80% 400,000 Brazil
Ltda. Inc.
Donaldson, Lufkin & Jenrette None DLJ Europe, Inc. 6% 1,915 Non-Voting United
International Limited Class B Shares Kingdom
Donaldson, Lufkin & Jenrette None DLJ International, Inc. 100% 35,800,101 Voting United
International Limited Class A Shares Kingdom
Donaldson, Lufkin & Jenrette Securities 13-2741729 Donaldson, Lufkin & Jenrette, 100% 3,000 Delaware
Corporation Inc.
Equine Technology and Analysis, Inc. 13-3246841 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Gateway Management, Inc. 13-3732486 DLJ Secureco Holdings, Inc. 100% 1,000 Delaware
Global Retail Partners Funding, Inc. 13-3877298 DLJ Capital Investors, Inc. 100% 1,000 Delaware
Global Retail Partners, Inc. 13-3846674 DLJ Capital Investors, Inc. 100% 1,000 Delaware
Headway GP, Inc. 13-3888736 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
Headway RECP, Inc. 13-3888738 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
</TABLE>
Page 14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Headway SBS, Inc. 13-3888737 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
Hoboken RECP, Inc. 13-3901762 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, Inc.
Hoboken SBS, Inc. 13-3901763 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
July Acquisitions, Inc. 13-3902416 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
MIH Funding, Inc. Not Available as of DLJ Bridge Finance, Inc. 100% 1,000 Delaware
Today
NeTpower Funding, Inc. Not Available as of DLJ Bridge Finance, Inc. 100% 1,000 Delaware
Today
Orlando GP, Inc. 13-3901271 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
Orlando RECP, Inc. 13-3901270 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
Orlando SBS, Inc. 13-3892543 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
PC Financial Network Holdings, Inc. 13-3902239 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
PC Financial Network, Inc. 13-3902248 PC Financial Network Holdings, 100% 1,000 Delaware
Inc.
PCFN Technologies, Inc. 13-3902260 PC Financial Network Holdings, 100% 1,000 Delaware
Inc.
Pershing & Co., Inc. 13-3117481 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Pershing ICS Nominees Limited None Pershing Limited 100% 2 United
Kingdom
Pershing Keen Nominees Ltd. None Pershing Limited 100% 2 United
Kingdom
</TABLE>
Page 15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Pershing Limited None Donaldson, Lufkin & Jenrette 100% 3,281,500 United
Securities Corporation Kingdom
Pershing Nominees Ltd. None Pershing Limited 100% 2 United
Kingdom
Pershing Securities Limited None Pershing Limited 100% 1,125,000 United
Kingdom
Pershing Trading Company, L.P. 13-3769702 DLJ Clearing Corporation 1% General Partner Delaware
Pershing Trading Company, L.P. 13-3769702 Donaldson, Lufkin & Jenrette 99% Limited Partner Delaware
Securities Corporation
Property Group, Inc. 13-2783990 DLJ Real Estate, Inc. 100% 100 Delaware
PSP Capital Funding, Inc. 13-3920284 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
PSP Realty, Inc. 13-3920282 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, L.P.
Puerto Rico Hotel HOLDCO Corp. 13-3923272 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, LP
Puerto Rico Hotel OPCO Corp.
13-3923269 DLJ Real Estate Capital 100% 1,000 Delaware
Partners, LP
Puerto Rico Hotel SBS Corp. 13-3923271 DLJ Real Estate Capital Funding, 100% 1,000 Delaware
Inc.
RC Funding, Inc. 13-3906715 DLJ Bridge Finance, Inc. 100% 1,000 Delaware
REFG Investor Eight, Inc. 13-3904767 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Eleven, Inc. 13-3904776 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Fifteen, Inc. 13-3904783 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Five, Inc. 13-3904760 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
</TABLE>
Page 16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
REFG Investor Four, Inc. 13-3847759 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Fourteen, Inc. 13-3904781 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Nine, Inc. 13-3904768 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor One, Inc. 13-3810633 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Seven, Inc. 13-3904766 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Six, Inc. 13-3904764 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Ten, Inc. 13-3904769 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Thirteen, Inc. 13-3904779 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Trust Not available as of REFG Investors One, Inc. 50% Delaware
today
REFG Investor Trust Not available as of REFG Investors Two, Inc. 50% Delaware
today
REFG Investor Twelve, Inc. 13-3904778 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investor Two, Inc. 13-3810632 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REFG Investors Three, Inc. 13-3844068 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
REOltor Services, Inc. 74-2769097 Calmco, Inc. 100% 10,000 Texas
Seaport General Corporation 13-3194809 DLJ Realty Services, Inc. 100% 100 New York
Secureco Chateau, Inc. 13-3720564 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Deerfield, Inc. 13-3719130 DLJ Secureco Holdings, Inc. 100% 500 Delaware
</TABLE>
Page 18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Secureco Grand Park, Inc. 13-3714735 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Greenbriar, Inc. 13-3869249 DLJ Secureco Holdings, Inc. 100% 1,000 Delaware
Secureco Lodge, Inc. 13-3715328 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Marina, Inc. 13-3715403 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Candlewick, Inc. 13-3720556 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund I, Inc. 13-3720558 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund II, Inc. 13-3720566 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund III, Inc. 13-3720551 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund IV, Inc. 13-3720561 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund IX, Inc. 13-3720555 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund V, Inc. 13-2720559 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund VI, Inc. 13-3720565 DLJ Secureco Holdings, Inc. 100% 500 Delaware
</TABLE>
Page 19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Secureco Merit Fund VII, Inc. 13-3720552 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Fund VIII, Inc. 13-3720554 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Merit Washington Manor, Inc. 13-3720550 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Riverside, Inc. 13-3715362 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Rolling Hills, Inc. 13-3732849 DLJ Secureco Holdings, Inc. 100% 1,000 Delaware
Secureco Tan Crest, Inc. 13-3720553 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Westchester Square, Inc. 13-3720557 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Secureco Worthington, Inc. 13-3719132 DLJ Secureco Holdings, Inc. 100% 500 Delaware
Snoga, Inc. 13-3036391 Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Inc.
Trinity Group Hearthstone, Inc. 36-3951675 Trinity Holding, Inc. 100% 100 Illinois
Trinity Holding, Inc. 13-3810632 DLJ Mortgage Capital, Inc. 100% 100 Delaware
TVO Bellaire H., Inc. 13-3798894 DLJ Secureco Holdings, Inc. 100% 1,000 Texas
TVO ELLA AV, Inc. 13-3798892 DLJ Secureco Holdings, Inc. 100% 1,000 Texas
</TABLE>
Page 20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
TVO SYNOTT HP, Inc. 13-3798891 DLJ Secureco Holdings, Inc. 100% 1,000 Texas
TVO Whittington G, Inc. 13-3798895 DLJ Secureco Holdings, Inc. 100% 1,000 Texas
UK Investment Plan 1997, Inc. Not Available as of Donaldson, Lufkin & Jenrette, 100% 1,000 Delaware
Today Inc.
Winthrop Trust Company 13-3818656 Wood, Struthers & Winthrop 100% 100 New York
Management Corp.
Wood, Struthers & Winthrop Management 13-2774791 Donaldson, Lufkin & Jenrette 100% 1,000 Delaware
Corp. Securities Corporation
WSW Capital, Inc. 13-3749620 Wood, Struthers & Winthrop 100% 1,000 Delaware
Management Corp.
</TABLE>
Page 21
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of The Equitable
Life Assurance Society of the United States, a New York corporation (the
"Company"), hereby constitutes and appoints each of Robert E. Garber, Pauline
Sherman, Stuart L. Faust, Richard V. Silver, Henry Q. Conley and Adam R. Spilka
as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Company's Annual Report on Form 10-K and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute may lawfully do or cause to be
done by virtue hereof.
/s/Claude Bebear /s/John H. F. Haskell, Jr.
- ----------------------------------- ----------------------------------
/s/Christopher J. Brocksom /s/Mary R. (Nina) Henderson
- ----------------------------------- ----------------------------------
/s/Francoise Colloc'h /s/W. Edwin Jarmain
- ----------------------------------- ----------------------------------
/s/Henri de Castries /s/G. Donald Johnston, Jr.
- ----------------------------------- ----------------------------------
/s/Joseph L. Dionne /s/Winthrop Knowlton
- ----------------------------------- ----------------------------------
/s/William T. Esrey /s/Arthur L. Liman
- ----------------------------------- ----------------------------------
/s/Jean-Rene Fourtou /s/George T. Lowy
- ----------------------------------- ----------------------------------
/s/Norman C. Francis /s/William T. McCaffrey
- ----------------------------------- ----------------------------------
/s/Donald J. Greene /s/Didier Pineau-Valencienne
- ----------------------------------- ----------------------------------
/s/John T. Hartley /s/George J. Sella, Jr.
- ----------------------------------- ----------------------------------
/s/Dave H. Williams
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 18,556,200
<DEBT-CARRYING-VALUE> 178,500
<DEBT-MARKET-VALUE> 195,100
<EQUITIES> 809,100
<MORTGAGE> 3,133,000
<REAL-ESTATE> 3,298,400
<TOTAL-INVEST> 64,789,300
<CASH> 755,300
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,106,500
<TOTAL-ASSETS> 128,811,200
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,416,600
<POLICY-HOLDER-FUNDS> 21,863,800
<NOTES-PAYABLE> 5,379,600
0
404,600
<COMMON> 1,900
<OTHER-SE> 3,581,500
<TOTAL-LIABILITY-AND-EQUITY> 128,811,200
1,471,600
<INVESTMENT-INCOME> 3,308,600
<INVESTMENT-GAINS> 599,200
<OTHER-INCOME> 2,925,500
<BENEFITS> 1,317,700
<UNDERWRITING-AMORTIZATION> 406,000
<UNDERWRITING-OTHER> 4,794,300
<INCOME-PRETAX> 515,800
<INCOME-TAX> 137,400
<INCOME-CONTINUING> 206,000
<DISCONTINUED> (83,800)
<EXTRAORDINARY> 0
<CHANGES> (23,100)
<NET-INCOME> 99,100
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
