- --------------------------------------------------------------------------------
BANKERS TRUST NEW YORK CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Pages 1-9 represent portions of the 1997 Annual Report to Stockholders which
are not required by the Form 10-K report and are not "filed" as part of the
Form 10-K.
The Form 10-K cover page and cross reference index are on pages 92 and 93,
respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
<PAGE>
Table 1 Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year
Net interest revenue $ 1,359 $ 1,057 $ 884 $ 1,216 $ 1,346
Noninterest revenue 4,891 4,117 3,129 3,013 3,945
Income before cumulative effects of accounting changes $ 866 $ 766 $ 311 $ 686 $ 1,159
Cumulative effects of accounting changes -- -- -- -- (75)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 866 $ 766 $ 311 $ 686 $ 1,084
===============================================================================================================================
Per Common Share
Basic Earnings Per Share(1)
Income before cumulative effects of accounting changes $ 8.15 $ 7.12 $ 2.62 $ 6.61 $ 11.12
Cumulative effects of accounting changes -- -- -- -- (.73)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 8.15 $ 7.12 $ 2.62 $ 6.61 $ 10.39
===============================================================================================================================
Diluted Earnings Per Share (1)
Income before cumulative effects of accounting changes $ 7.66 $ 6.76 $ 2.54 $ 6.34 $ 10.67
Cumulative effects of accounting changes -- -- -- -- (.70)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 7.66 $ 6.76 $ 2.54 $ 6.34 $ 9.97
===============================================================================================================================
Cash dividends declared $ 4.00 $ 4.00 $ 4.00 $ 3.70 $ 3.24
--as a percentage of net income (2) 52% 59% 157% 63% 34%
Book value, end of year 49.06 49.21 45.73 47.74 45.54
Market price
High 133 5/8 90 7/8 72 84 5/8 83 1/2
Low 74 61 49 3/4 54 3/4 65 3/4
End of year 112 7/16 86 1/4 66 1/2 55 3/8 79 1/8
Price/earnings ratio, end of year (2) 13.8X 12.1X 25.4X 8.4X 7.1X
Cash dividend yield, end of year 3.6% 4.6% 6.0% 7.2% 4.5%
At Year End
Total assets $140,102 $122,543 $106,199 $ 98,362 $ 93,365
Long-term debt not included in risk-based capital 11,275 8,732 7,127 4,317 3,296
Long-term debt included in risk-based capital 3,312 2,576 2,360 2,225 2,378
Mandatorily redeemable capital securities of subsidiary
trusts holding solely junior subordinated deferrable interest
debentures included in risk-based capital 1,472 730 -- -- --
Preferred stock of subsidiary -- 250 250 250 250
Preferred stock (Corporation) 658 810 865 395 250
Common stockholders' equity 5,050 5,068 4,608 4,682 4,630
Total stockholders' equity 5,708 5,878 5,473 5,077 4,880
Profitability Ratios
Return on average common stockholders' equity (2) 15.6% 14.5% 5.7% 14.0% 26.5%
Return on average total stockholders' equity (2) 14.6% 13.3% 5.9% 13.4% 25.3%
Return on average total assets (2) .63% .63% .28% .65% 1.34%
Capital Ratios
Common stockholders' equity to total assets, end of year 3.6% 4.1% 4.3% 4.8% 5.0%
Total stockholders' equity to total assets, end of year 4.1% 4.8% 5.2% 5.2% 5.2%
Average total stockholders' equity to average total assets 4.4% 4.7% 4.7% 4.8% 5.3%
Bankers Trust New York Corporation:
Risk-Based Capital Ratios
Tier 1 Capital 8.3% 9.3% 9.0% 9.5% 8.9%
Total Capital 14.1% 13.8% 14.0% 14.8% 14.5%
Leverage Ratio 4.4% 5.9% 5.4% 5.5% 6.6%
Bankers Trust Company:
Risk-Based Capital Ratios
Tier 1 Capital 9.0% 9.3% 9.5% 9.9% 9.4%
Total Capital 12.3% 12.9% 12.8% 12.9% 13.0%
Leverage Ratio 5.4% 5.3% 5.1% 5.9% 6.0%
Employees, at December 31
In domestic offices 10,585 11,055 10,137 10,545 10,454
In foreign offices 7,701 6,881 6,365 6,314 5,298
- -------------------------------------------------------------------------------------------------------------------------------
Total 18,286 17,936 16,502 16,859 15,752
===============================================================================================================================
</TABLE>
(1) Earnings Per Share for all periods prior to 1997 have been restated in
connection with the adoption of SFAS 128.
(2) The 1993 figures exclude the cumulative effects of accounting changes.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
Management's discussion and analysis of Bankers Trust New York Corporation's
results of operations and financial condition appears on pages 11 through 37.
The discussion and analysis should be read in conjunction with the financial
statements and supplemental financial data, which begin on page 40.
The Merger
On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was merged into a
wholly-owned subsidiary of Bankers Trust New York Corporation (the "Merger"). In
conjunction with the Merger, approximately 22 million shares of common stock
were issued in exchange for all the outstanding shares of Alex. Brown's common
stock (based on an exchange ratio of 0.83 shares of Bankers Trust New York
Corporation's common stock for each share of Alex. Brown's common stock). The
Merger was treated as a tax free exchange.
The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling-of-interests. The
pooling-of-interests method of accounting requires the restatement of all
periods presented as if Alex. Brown and Bankers Trust New York Corporation
together with its subsidiaries (the "Corporation" or the "Firm") had always been
combined. The consolidated statement of changes in stockholders' equity reflects
the accounts of the Corporation as if the additional common stock had been
issued during all the periods presented.
Results of Operations
Summary of 1997 Results
For the year 1997, the Corporation earned $866 million, or $7.66 diluted
earnings per share. For the year 1996, the Corporation earned $766 million, or
$6.76 diluted earnings per share.
For the year, total net revenue (net interest revenue after provision for
credit losses plus noninterest revenue) of $6.220 billion was up $1.051 billion,
or 20 percent, from 1996. Revenue for the year was at the Corporation's highest
level in history.
Total noninterest expenses for the year increased $943 million, or 23
percent, from 1996. This increase was primarily due to higher incentive
compensation and employee benefits related to the improved financial
performance. Also included in noninterest expenses for 1997 were restructuring
charges of $57 million associated with the Merger, such as severance, lease
terminations and direct costs of completing the Merger, and other integration
costs of $42 million.
At December 31, 1997, total cash basis loans amounted to $240 million,
down from $452 million at December 31, 1996.
Organizational Highlights
The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Private Client Services Group, and Global
Institutional Services. Three additional units are organized to deliver these
same types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America.
Organizational Unit business results are determined based on the
Corporation's internal management accounting process, which allocates revenue
and expenses among the organizational units. Because the Corporation's business
is diverse in nature and its operations are integrated, it is impractical to
segregate respective contributions of the organizational units with precision.
As a result, estimates and judgments have been made to apportion revenue and
expense items. In addition, certain revenue and expenses have been segregated
and reported in Corporate/Other because in the opinion of management, they could
not be reasonably allocated or because their contributions to a particular
organizational unit would be distortive. The internal management accounting
process, unlike financial accounting in accordance with generally accepted
accounting principles, is based on the way management views its business and is
not necessarily comparable with similar information disclosed by other financial
institutions. In order to provide comparability from one period to the next, the
Corporation will generally restate this analysis to conform with material
changes in the allocation process and/or significant changes in organizational
structure. The information presented below reflects the results by
Organizational Units (in millions):
Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1997 Revenue Expenses (Loss) (Loss)
- --------------------------------------------------------------------------------
Investment Banking $ 2,041 $ 1,184 $ 857 $ 599
Risk Management
Services 348 363 (15) (12)
Trading & Sales 588 316 272 190
Private Client
Services Group 666 551 115 80
Global Institutional
Services 1,015 849 166 117
Australia/New Zealand 559 412 147 103
Asia 43 116 (73) (52)
Latin America 650 495 155 107
Corporate/Other 310 695 (385) (266)
- --------------------------------------------------------------------------------
Total $ 6,220 $ 4,981 $ 1,239 $ 866
================================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1996* Revenue Expenses (Loss) (Loss)
- --------------------------------------------------------------------------------
Investment Banking $ 1,548 $ 885 $ 663 $ 449
Risk Management
Services 285 301 (16) (11)
Trading & Sales 420 265 155 105
Private Client
Services Group 610 509 101 68
Global Institutional
Services 839 740 99 67
Australia/New Zealand 512 319 193 131
Asia 133 104 29 20
Latin America 527 411 116 78
Corporate/Other 295 504 (209) (141)
- --------------------------------------------------------------------------------
Total $ 5,169 $ 4,038 $ 1,131 $ 766
================================================================================
Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1995* Revenue Expenses (Loss) (Loss)
- --------------------------------------------------------------------------------
Investment Banking $1,199 $ 599 $ 600 $ 409
Risk Management
Services 212 308 (96) (67)
Trading & Sales 334 224 110 76
Private Client
Services Group 505 455 50 30
Global Institutional
Services 777 647 130 91
Australia/New Zealand 445 295 150 106
Asia 77 101 (24) (17)
Latin America 268 439 (171) (120)
Corporate/Other 165 445 (280) (197)
- --------------------------------------------------------------------------------
Total $3,982 $3,513 $ 469 $ 311
================================================================================
* Prior year information has been restated to conform to the current year
presentation.
Investment Banking delivers the Firm's full range of financing, advisory
and research products and services to corporate, financial institution and
investor clients. Services include underwriting, distribution and trading of
public equity and debt (both investment grade and high-yield); private
placements and structured finance; and merger and acquisition advisory services.
The unit is also responsible for the Firm's private equity investments. The
Corporation's asset-based lending activities are included in Investment Banking.
In 1997, Investment Banking net income was $599 million, up $150 million from
1996. The increase from the prior year reflected higher revenue from corporate
finance activities in addition to higher revenue from private equity
investments. Investment Banking 1996 net income of $449 million, which was up
$40 million from 1995, reflected strong results from corporate finance
activities including loan syndication, private placements and underwritings.
Investment Banking net income in 1995 benefited from an after-tax gain of $144
million from the sale of a substantial portion of the Corporation's investment
in Northwest Airlines Corporation.
Risk Management Services assists clients in the management of their
financial and economic risk. Products and services include interest rate,
currency, equity, commodity and credit derivatives, as well as risk management
advisory services. This unit also manages the Corporation's risk associated with
client derivative transactions. The 1997 net loss of $12 million compared to a
net loss of $11 million in 1996. The 1997 results included less favorable
trading results including losses from equity derivatives and Asian activities as
compared to 1996 offset by improved revenue from new client derivative
transactions. The 1996 results included losses associated with the steep drop in
the price of copper early in the year. The 1996 net loss of $11 million compared
to a net loss of $67 million in 1995. Revenues from new client derivative
transactions increased during 1996 as compared to 1995.
Trading & Sales provides financial products and services to the
Corporation's clients and enters into securities, currency, commodity, and
derivatives transactions on a proprietary basis. The unit is also responsible
for the Corporation's worldwide funding as well as its capital and liquidity
management. Trading & Sales net income of $190 million increased $85 million, or
81 percent, from 1996 primarily due to higher revenue from foreign exchange and
arbitrage activities. Net income of $105 million for the year ended 1996
increased 38 percent from 1995 net income of $76 million. The increase was
attributable to arbitrage and foreign exchange trading activities.
Private Client Services Group provides investment management services in
the global securities markets, financial planning services and market research
and investment strategies for high net worth individuals. Private Client
Services Group net income of $80 million increased $12 million from 1996. The
current year included higher fees for brokerage services and improved revenues
from fiduciary and funds management. Net income of $68 million for 1996
increased $38 million from 1995.
Global Institutional Services provides asset management services,
corporate trust and agency services, cash management services and trade finance
services to financial institutions, corporations and governments and their
agencies around the world. Asset management services include: custody,
investment management, securities lending, brokerage, retirement administration,
performance and risk measurement. The unit also provides trustee, depository and
agency services for issuers of debt securities and depository receipts. Cash and
trade services include global payments and collections, cash concentration and
investments and trade finance products. Global Institutional Services net income
of $117 million increased $50 million from 1996 net income. The 1997 results
benefited from the acquisition of NationsBank's institutional trust business.
The 1997 results also included a $41 million after-tax gain on the sale of the
Corporation's defined contribution recordkeeping and participant services
business. Net income of $67 million for the year ended 1996 decreased from 1995
net income of $91 million.
Australia/New Zealand provides funds management, corporate finance, and
financial markets services to local and international clients, and trades for
its own account in related markets. Australia/New Zealand net income was $103
million, down from $131 million in 1996. The decline in net income from the
prior year was mainly attributable to an increase in personnel-related costs as
a result of higher staff levels offset partly by improved revenue from trading
activities and fiduciary and funds management. Australia/New Zealand 1996 net
income of $131 million was up from $106 million in 1995. The 1996 results
reflected strong investment management and trading results. As of December 31,
1997 assets under management in Australia/New Zealand's investment management
business were approximately $41 billion, compared to $37 billion and $28 billion
in 1996 and 1995, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
12
<PAGE>
Asia provides advisory and corporate finance services to financial
institutions, governments and both state-owned and private businesses. In
addition, it engages in arbitrage trading and equity investments. Asia net loss
in 1997 was $52 million compared to net income of $20 million in 1996. The
current year included mark-to-market losses on fixed income securities and swaps
with Asian counterparties resulting from the market turmoil and widening credit
spreads in Asia. In addition, the Corporation recognized a decline in value for
certain investments and took other credit-related charges in Southeast Asia. Net
income of $20 million in 1996 compared to a $17 million loss in 1995. The 1996
results reflected strong revenue from trading activities as compared to 1995.
Latin America engages in trading and distribution, origination and
underwriting of corporate finance securities, mergers and acquisitions services
and private equity investments. In addition, this organizational unit, through
the Corporation's fifty percent owned Chilean insurance subsidiary, underwrites
pension-related life and disability insurance and sells pension-related life
annuities. Latin America net income in 1997 was $107 million, up $29 million
from 1996 net income of $78 million which compared to a 1995 net loss of $120
million. The 1997 results included a $37 million after-tax gain on the sale of
fifty percent of the Corporation's stake in Consorcio, a Chilean insurance
company. The 1996 results included a $22 million after-tax gain on the sale of
Compensa, which was the smaller of the Corporation's two Chilean insurance
subsidiaries. The 1995 results included losses from derivative trading
activities.
Corporate/Other includes the unallocated costs of corporate staff together
with the notional interest income on the Corporation's capital accounts. In
addition, the provision for credit losses and various special charges and
reserves are reflected within Corporate/Other. Corporate/Other net loss for 1997
was $266 million compared with a 1996 net loss of $141 million and a net loss of
$197 million in 1995. The 1997 results included a $30 million provision for
credit losses, increased incentive compensation and employee benefits,
consulting expenses associated with several strategic and infrastructure
improvement projects, $57 million in pre-tax restructuring charges and $42
million in other integration costs. The 1997 results also included a pre-tax
gain of $76 million on the sale of 280 Park Avenue, a midtown Manhattan office
building. The most notable items in 1996 were $20 million of pre-tax reserves
related to the transaction processing business in addition to higher levels of
legal and professional fees. The 1996 results also included a gain on the sale
of Golden American Life Insurance Company, an indirect wholly-owned subsidiary
of the Corporation acquired in satisfaction of debt in 1992.
Financial Reporting Matters
At December 31, 1997, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings Per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). SFAS 128
replaces the presentation of primary EPS with basic EPS and fully diluted EPS
with diluted EPS. Basic EPS excludes dilution and is calculated by dividing
income applicable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS. All periods presented have been restated to conform with SFAS
128.
As used throughout this Annual Report, the term "International" signifies
information based on the domicile of the customer, whereas the term "Foreign
Office" refers to the location in which the transaction is recorded.
Statement of Income Analysis
Net Interest Revenue
Net interest revenue for 1997 was $1.359 billion, up $302 million, or 29 percent
from 1996. Net interest revenue for 1996 was $1.057 billion, up $173 million, or
20 percent, from 1995.
The Firm's trading and risk management businesses include significant
activities in interest rate instruments and related derivatives. These
activities can periodically shift revenue between trading and net interest,
depending on a variety of factors, including risk management strategies.
Therefore, the Corporation views trading revenue and trading-related net
interest revenue together, which is discussed in the trading revenue section
below.
The Firm's nontrading-related net interest revenue, generally a more
stable component of overall net interest revenue than trading-related net
interest revenue, was $818 million in 1997, compared to $780 million in 1996.
For the 1996 versus 1995 comparison, net interest revenue increased by
$173 million due to a $118 million, or 74 percent increase in trading-related
net interest revenue, which totaled $277 million for 1996. Total
nontrading-related net interest revenue was $780 million for 1996 compared to
$725 million in 1995.
In 1997, the interest rate spread was 1.09 percent compared to .74 percent
in 1996. Net interest margin increased to 1.33 percent from 1.13 percent. The
yield on interest-earning assets rose by 17 basis points. The cost of
interest-bearing liabilities declined by 18 basis points.
In 1996, the interest rate spread was .74 percent compared to .79 percent
in 1995. Net interest margin increased slightly to 1.13 percent from 1.11
percent. The yield on interest-earning assets declined by 38 basis points and
was mostly offset by a decline in the cost of interest-bearing liabilities of 33
basis points.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
13
<PAGE>
Table 2 Net Interest Revenue Analysis
The table below presents the Corporation's trend of net interest revenue,
average balances and rates. For further details on these statistics, see pages
83 through 85.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
($ in millions) Year Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue
Book basis $ 1,359 $ 1,057 $ 884
Tax equivalent adjustment* 26 16 41
- ---------------------------------------------------------------------------------------
Fully taxable basis $ 1,385 $ 1,073 $ 925
=======================================================================================
Average balances
Interest-earning assets $104,334 $ 95,326 $ 83,534
Interest-bearing liabilities 100,154 89,336 79,405
- ---------------------------------------------------------------------------------------
Earning assets financed by noninterest-bearing funds $ 4,180 $ 5,990 $ 4,129
=======================================================================================
Average rates (fully taxable basis)
Yield on interest-earning assets 7.01% 6.84% 7.22%
Cost of interest-bearing liabilities 5.92 6.10 6.43
- ---------------------------------------------------------------------------------------
Interest rate spread 1.09 .74 .79
Contribution of noninterest-bearing funds .24 .39 .32
- ---------------------------------------------------------------------------------------
Net interest margin 1.33% 1.13% 1.11%
=======================================================================================
</TABLE>
* The applicable combined federal, state and local incremental tax rate used
to determine the amounts of the tax equivalent adjustments (which
recognize the income tax savings on tax-exempt assets) was 41 percent for
1997 and 42 percent for 1996 and 1995.
Provision for Credit Losses
The provision for credit losses amounted to $30 million for 1997, compared with
$5 million for 1996 and $31 million in 1995. A discussion of the Corporation's
summary of credit loss experience, including charge-off procedures and the
adequacy of the allowance for credit losses, appears on page 29.
Trading Revenue
Trading revenue is generated by both client-related activities and proprietary
activities. These activities encompass the Firm's dealer business of providing
risk management products for clients, including derivatives such as swaps,
options, forwards and other similar types of contracts. In addition, these
activities include the trading of U.S. government and agency securities, foreign
sovereign securities, foreign exchange and currency options and commodity
futures and options. The Firm also trades restructured loans, bonds, equities
and other instruments of Latin American and other emerging markets issuers.
Trading-related net interest revenue represents interest earned on cash
instruments held in the trading accounts less the cost to fund both cash and
derivatives positions.
The table below presents the Firm's trading revenue and trading-related
net interest revenue by major category of market risk. These categories are
based on management's view of the predominant underlying risk exposure of each
of the Firm's trading positions.
Trading-
Related
Net
Trading Interest
(in millions) Revenue Revenue Total
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
Interest rate risk $ 463 $ 603 $1,066
Foreign exchange risk 277 -- 277
Equity and commodity risk 345 (62) 283
- --------------------------------------------------------------------------------
Total $1,085 $ 541 $1,626
================================================================================
Year Ended December 31, 1996
Interest rate risk $ 474 $ 321 $ 795
Foreign exchange risk 178 -- 178
Equity and commodity risk 362 (44) 318
- --------------------------------------------------------------------------------
Total $1,014 $ 277 $1,291
================================================================================
Year Ended December 31, 1995
Interest rate risk $ 120 $ 222 $ 342
Foreign exchange risk 36 -- 36
Equity and commodity risk 325 (63) 262
- --------------------------------------------------------------------------------
Total $ 481 $ 159 $ 640
================================================================================
Interest Rate Risk
As indicated above, a significant portion of the Firm's trading and risk
management activities involve positions in interest rate instruments and related
derivatives. The revenue from these activities can periodically shift between
trading and trading-related net interest revenue, depending on a variety of
factors, including risk management activities. In 1997 trading and
trading-related net interest revenue was $1.066 billion, up $271 million, or 34
percent, compared to 1996. The increase was principally due to improved
performance in U.S., Asian, Russian and Latin American markets.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
During 1996 total trading revenue and trading-related net interest revenue
associated with interest rate positions rose by 132 percent to $795 million from
$342 million in 1995. This increase in 1996 was primarily due to a rebound in
the Firm's activities in Latin America. This rebound was attributable to a
return to normal volatility levels in the region. Conversely, 1995 was a year
marked, especially in the early months, by heightened volatility in Latin
American interest rates coupled with liquidity problems resulting from the
Mexican peso devaluation. Also affecting this category in 1996 was an increase
in the volume of London, New York, and Tokyo interest rate products, and
increased revenue from U.S. bonds attributable to increased capital inflows to
the market.
Foreign Exchange Risk
The Firm's trading and risk management strategies also involve positions in
foreign exchange and currency related derivatives such as swaps, options,
forwards and other similar types of contracts.
The trading revenue related to foreign exchange risk increased $99
million, or 56 percent in 1997, compared to 1996. The increase primarily related
to strong results from client trading activities as well as gains in Asian
foreign exchange markets.
Trading revenue related to foreign exchange risk was $178 million in 1996,
compared with $36 million in 1995. Improved performance in the Australian,
Asian, and Latin American foreign exchange markets was the primary reason for
the $142 million increase.
Equity and Commodity Risk
The Firm's trading and risk management activities also include positions in
equity securities and commodities and related derivatives.
Total trading and trading-related net interest revenue related to equity
and commodity risk decreased $35 million in 1997 compared to 1996. This decrease
resulted from losses from equity derivatives and activities in Asian markets,
partially offset by improved performance in the commodity derivative books, as
1996 included the effects of a drop in copper prices.
Total trading and trading-related net interest revenue related to equity
and commodity risk increased $56 million in 1996 compared to 1995. This increase
primarily related to strong results from equity arbitrage trading activities and
increases from OTC trading partially offset by losses incurred in the commodity
derivatives books when copper prices dropped sharply in 1996.
Noninterest Revenue (Excluding Trading)
The following table presents noninterest revenue (in millions):
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Fiduciary and funds management $1,059 $ 876 $ 764
Corporate finance fees 1,113 922 691
Other fees and commissions 606 534 479
Net revenue from equity
investment transactions 224 230 153
Securities available for sale gains 158 75 180
Insurance premiums 287 230 234
Other 359 236 147
- --------------------------------------------------------------------------------
Total $3,806 $3,103 $2,648
================================================================================
Fiduciary and funds management revenue was up $183 million, or 21 percent,
from 1996, which was up $112 million from 1995. Funds management, client
processing services and global private banking commissions contributed to the
increase in 1997. In 1996 as compared to 1995 all major activities within this
category contributed to the revenue growth, which resulted from higher
transaction volumes, as well as a higher level of assets under management.
Corporate finance fees were up $191 million, or 21 percent from 1996,
which were up $231 million from 1995. The increase in 1997 was primarily due to
higher fees for arranging bond and equity financings, higher merger and
acquisition fees and higher loan syndication fees. The increase in 1996 as
compared to 1995 was primarily due to a higher volume of securities
underwriting, financial advisory and private placement activities.
Net revenue from equity investment transactions was down $6 million, or 3
percent, from 1996, which was up $77 million from 1995. The 1995 results
included a $62 million gain on the sale of a portion of the Corporation's
merchant banking investment in Northwest Airlines Corporation.
Securities available for sale gains were up $83 million, or 111 percent,
from 1996, which were down $105 million from 1995. The increase in 1997 was
primarily due to increased gains on sales of equity securities. The 1995 results
included a $145 million gain on the sale of most of the Corporation's merchant
banking investment in Northwest Airlines Corporation.
Insurance premiums increased $57 million, or 25 percent, from 1996. The
increase in 1997 was due to increased annuity and traditional life insurance
activity. Insurance premiums in 1996 were $4 million lower than 1995. This
decrease was mainly due to the sale of Compensa, which was the smaller of the
Corporation's two Chilean insurance subsidiaries, in the second quarter of 1996,
partially offset by increased annuity and traditional life insurance activity at
Consorcio.
Other noninterest revenue increased $123 million, or 52 percent, from
1996. The current year included a pre-tax gain of $76 million on the sale of 280
Park Avenue, a midtown Manhattan office building that was previously the
headquarters of the Corporation, a pre-tax gain of $62 million on the sale of
the Corporation's defined contribution recordkeeping and participant services
business, as well as a gain on the sale of 50 percent of the Corporation's stake
in Consorcio, a Chilean insurance company. The Corporation recognized a decline
in value for certain Southeast Asian investments that partially offset these
gains. Other noninterest revenue in 1996 was
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
$89 million higher than 1995. The increase in 1996 compared to 1995 was
primarily due to a $31 million pre-tax gain on the sale of Compensa, as well as
a gain on the sale of Golden American Life Insurance Company, an indirect
wholly-owned subsidiary of the Corporation acquired in satisfaction of debt in
1992.
Noninterest Expenses
The following table presents noninterest expenses (in millions):
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Salaries and commissions $1,273 $1,154 $1,045
Incentive compensation and
employee benefits 1,726 1,216 832
Agency and other professional
service fees 391 321 327
Communication and data services 231 237 220
Occupancy, net 181 174 177
Furniture and equipment 224 186 177
Travel and entertainment 142 113 104
Provision for policyholder benefits 333 280 271
Other 423 357 310
Restructuring charges 57 -- 50
- --------------------------------------------------------------------------------
Total $4,981 $4,038 $3,513
================================================================================
Total noninterest expenses increased $943 million, or 23 percent, from
1996. Salaries and commissions expense increased $119 million, or 10 percent in
1997, due to an increase in the average number of employees and to annual pay
increases. Incentive compensation and employee benefits increased $510 million,
or 42 percent, due to higher profitability and an increase in the average number
of employees. The number of full time staff at December 31, 1997 was 18,286
compared to 17,936 at December 31, 1996.
All other noninterest expenses totaled $1.982 billion compared with $1.668
billion for 1996. Included in the 1997 amount were $57 million of restructuring
charges associated with the Merger such as severance, lease termination and
direct costs of completing the Merger, and other integration costs of $42
million.
Total noninterest expenses increased $525 million in 1996 from 1995.
Salaries and commissions expense increased $109 million, or 10 percent.
Incentive compensation and employee benefits expense increased $384 million, or
46 percent, reflecting an increase in incentive compensation awards in response
to increasingly competitive market conditions and improved financial
performance.
All other noninterest expenses totaled $1.668 billion for 1996, compared
with $1.636 billion for 1995. Included in the 1996 amount were reserves related
to the transaction processing business.
The Corporation has initiated a firm-wide program (the "Year 2000
Program") to prepare its computer systems, applications and infrastructure for
properly processing dates after December 31, 1999. The Year 2000 will require
modifications to certain of the Corporation's existing software or, in some
cases, conversions to new software.
The Corporation has initiated formal communications with all of its
significant obligors, counterparties, other credit clients and vendors to
determine the extent to which the Firm may be affected by those third parties'
failure to remediate their own Year 2000 issues. However, there can be no
guarantee that the systems of other companies or counterparties on which the
Corporation relies will be remediated on a timely basis, or that a failure to
remediate by another party, or a remediation or conversion that is incompatible
with the Corporation's systems, would not have a material adverse effect on the
Corporation.
The Corporation expects to incur internal staff costs as well as
consulting and other outside expenses related to infrastructure and facilities
enhancements necessary to prepare systems for the Year 2000. The Corporation
plans to complete the Year 2000 modifications for its major operating systems by
December 31, 1998 or earlier. Testing and conversion of system applications is
expected to cost approximately $180 million to $230 million over the next three
years. A significant portion of these costs are not likely to be incremental
costs to the Firm, but rather will represent the redeployment of existing
information technology resources. To date, the Corporation has incurred and
expensed approximately $20 million related to the assessment of, and preliminary
efforts in connection with, its Year 2000 Program and the development of a
remediation plan.
The costs of the Year 2000 Program and the date on which the Corporation
plans to complete the Year 2000 modifications are based on management's best
current estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
The Corporation is also engaged in a global effort to manage potential
operational and other business issues from the introduction of the European
Monetary Unit ("EMU"), a new unified currency for many of the countries in the
European Community scheduled to go into effect on January 1, 1999. An EMU
program has been set up to manage, track and report on the Firm's worldwide
effort with the goal of ensuring a smooth transition across the full range of
products and services offered by the Firm.
Income Taxes
Income tax expense for 1997 amounted to $373 million, compared with $365 million
for 1996 and $158 million in 1995. The effective tax rate for 1997 was 30
percent, while the 1996 and 1995 effective tax rates were 32 percent and 34
percent, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
16
<PAGE>
International Operations
International operations have made a significant contribution to consolidated
results, consistent with the emphasis the Corporation has placed on foreign
markets. The Corporation's assets and results of operations for 1997, 1996 and
1995 have been allocated between domestic and international operations in Note
22 of Notes to Financial Statements. This analysis, which is based on the
domicile of the customer, incorporates numerous subjective assumptions and, as a
result, is different from the legal entity and organizational basis results
shown elsewhere in this report. Management views the operation of the
Corporation on an organizational unit basis, as disclosed on page 11.
International net income totaled $228 million for 1997, compared with $297
million for 1996. This represented a contribution of 26 percent and 39 percent
to the Corporation's overall net income in 1997 and 1996, respectively.
The overall decrease in net income from international operations is
primarily due to Asia and Australia/New Zealand, partially offset by an increase
in net income from the United Kingdom. During 1997, the Asian region suffered a
loss of $44 million as compared to a gain of $71 million during 1996. The loss
was primarily caused by trading losses on Asian securities and write downs and
additional reserves related to the Asian market crisis. Net income for
Australia/New Zealand decreased from $144 million in 1996 to $83 million in
1997. This decrease was primarily due to personnel costs associated with the
expansion of Australian investment banking. These overall decreases were
partially offset by an increase in income for the United Kingdom. During 1997,
the United Kingdom earned $79 million as compared to nil during 1996. This
increase was primarily due to positive trading results on United Kingdom
securities and increases in fee income.
Domestic income increased from $469 million to $638 million. This increase
is primarily due to an increase in net interest margins and gains on sales of
domestic assets.
International total assets were $72.7 billion at December 31, 1997
compared to $62.5 billion at December 31, 1996, which represented 52 percent and
51 percent of total consolidated assets, respectively. The $10.2 billion
increase was primarily due to increases of $8.6 billion for Asia and $3.9
billion in the United Kingdom. This increase was partially offset by a $5.5
billion increase in the intersegment elimination which is the balance of
domestic assets due from foreign affiliates. The increase in Asian assets is
comprised of increases in interest bearing balances with banks and trading
assets. The increase in the United Kingdom assets was primarily due to increases
in trading assets. Domestic total assets increased by $7.4 billion to $67.4
billion driven by increases in loans and accounts receivable.
International net income totaled $297 million for 1996, compared with $106
million for 1995. This represented a contribution of 39 percent and 34 percent
to the Corporation's overall net income in 1996 and 1995, respectively.
Australia/New Zealand and the United Kingdom had the greatest change in
net income in 1996 as compared to 1995. Australia/New Zealand's net income
(after corporate expense allocations) increased from $101 million to $144
million due to increases in foreign exchange trading, fiduciary and funds
management revenue, and other fees and commissions. The United Kingdom net
income was nil (after corporate expense allocations) compared to the prior
year's net loss of $144 million. This improvement was driven primarily by
positive trading revenue.
These increases in international results were partially offset by a
reduction in net income for Europe which decreased from $37 million to $18
million.
During 1996, domestic net income increased by $264 million to $469 million
due to increased trading revenue, and other fees and commission income.
International total assets were $62.5 billion at December 31, 1996
compared to $51.5 billion at December 31, 1995 which represented 51 percent and
48 percent of total consolidated assets, respectively. The $11 billion increase
in assets was primarily due to increases of $2.8 billion for Australia/New
Zealand operations, $4.4 billion for the Western Hemisphere, and $6.4 billion
for Europe. These increases were offset by a decline of $3.4 billion in the
United Kingdom. Australia/New Zealand operations' assets rose due to increases
in loans, securities available for sale and trading assets. Assets for Europe
and the Western Hemisphere rose as trading assets increased. United Kingdom
operations' assets decreased due to a decline in trading assets at year end.
Domestic total assets increased $5.4 billion to $60.0 billion driven by
increases in trading assets.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Changes in Financial Condition
Balance Sheet Analysis
Table 3 below highlights the trends in the balance sheet over the past two
years. Because annual averages may tend to conceal trends and year-end balances
can be distorted by one-day fluctuations, fourth quarter averages for each year
are provided to give a better indication of trends in the balance sheet.
Table 3 Condensed Balance Sheets--Fourth Quarter Averages
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(in millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-earning
Interest-bearing deposits with banks $ 6,211 $ 3,546 $ 3,624
Federal funds sold 4,950 2,018 2,387
Securities purchased under resale agreements 23,074 22,401 15,184
Securities borrowed 16,588 15,850 14,174
Trading assets 30,447 31,569 32,042
Securities available for sale
Taxable 6,876 6,777 5,206
Exempt from federal income taxes 1,237 1,077 1,365
- ------------------------------------------------------------------------------------------------------------
Total securities available for sale 8,113 7,854 6,571
Loans
Domestic offices 10,800 8,226 7,247
Foreign offices 9,580 7,032 5,624
- ------------------------------------------------------------------------------------------------------------
Total loans 20,380 15,258 12,871
Customer receivables 1,612 1,517 1,284
- ------------------------------------------------------------------------------------------------------------
Total interest-earning assets 111,375 100,013 88,137
Noninterest-earning
Cash and due from banks 1,476 1,394 2,008
Noninterest-earning trading assets 25,356 17,743 17,872
All other assets 10,694 8,671 9,870
Allowance for credit losses (979) (988) (1,028)
- ------------------------------------------------------------------------------------------------------------
Total $ 147,922 $ 126,833 $ 116,859
============================================================================================================
Liabilities
Interest-bearing
Interest-bearing deposits
Domestic offices $ 21,881 $ 8,738 $ 5,788
Foreign offices 20,966 18,812 18,404
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 42,847 27,550 24,192
Trading liabilities 5,587 9,716 12,636
Securities loaned and securities sold under repurchase agreements 24,200 26,173 23,100
Other short-term borrowings 20,078 18,950 16,037
Long-term debt 13,050 11,372 9,098
Mandatorily redeemable capital securities of subsidiary trusts
holding solely junior subordinated deferrable interest debentures 1,472 165 --
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 107,234 93,926 85,063
Noninterest-bearing
Noninterest-bearing deposits 3,366 3,518 3,606
Noninterest-bearing trading liabilities 20,803 15,755 15,392
All other liabilities 10,591 7,428 7,045
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 141,994 120,627 111,106
Preferred Stock of Subsidiary -- 250 250
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 688 815 865
Common stockholders' equity 5,240 5,141 4,638
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 5,928 5,956 5,503
- ------------------------------------------------------------------------------------------------------------
Total $ 147,922 $ 126,833 $ 116,859
============================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Management believes that the Corporation has sufficient resources to meet the
needs of its business operations for liquidity and capital resources.
Liquidity
Liquidity is the ability to have funds available at all times to meet the
commitments of the Corporation. The Corporation has a formal process for
managing global liquidity for the Firm as a whole and for each of its
significant subsidiaries. Management's policy is to maintain conservative levels
of liquidity designed to ensure that the Firm has the ability to meet its
obligations under reasonably foreseeable circumstances. The fundamental
objective is to ensure that, even in the event of a complete loss of market
access, the Corporation will be able to fund those assets that cannot be
liquidated on a timely basis. While the Corporation manages its liquidity
position on a day-to-day basis to meet its ongoing funding needs at the lowest
possible cost, the Firm's planning and management process also encompasses
contingency planning to address even the most severe liquidity events.
The Corporation has a strong global funding presence, managing liquidity
through a hybrid centralized/local approach. This captures the best of both
central coordination and decentralized market responsiveness. The benefits of a
local approach are proximity to the local markets, diversity of customers and
market segments, and the flexibility to respond quickly to market opportunities.
This is counterbalanced by the central coordination and control of pricing and
global information and strategy.
The Corporation assesses its liquidity profile on a continuous basis.
Factors such as asset and liability maturity characteristics, investor
concentration and available liquid assets are monitored on a daily basis. Daily
liquidity management involves the ability to minimize the cost of meeting daily
funding needs. These same factors are monitored under various stress scenarios
by virtue of a well developed contingency funding plan process. Management
believes that the Corporation has the ability to withstand severe and prolonged
liquidity shocks, both systemic and institution-specific.
One of the Corporation's principal liquidity strengths is its stock of
highly liquid assets; at year-end 1997, liquid assets accounted for
approximately 77 percent of the Corporation's gross assets. An important
component of these liquid assets is the "liquidity warehouse" and the aggregate
warehouse size relative to maturing liabilities. The "liquidity warehouse" is
defined as liquid assets which are under the direct control of the
Treasury/Funding area and which can be liquidated immediately at current market
value.
The relationship between the liquidity warehouse and maturing liabilities
is expressed principally through the two-week "liquidity barometer." This
barometer measures the amount of liquidity that is available to the Corporation
after two weeks of meeting maturing liabilities, without resorting to selling
any "core" assets. Core assets are those not under direct control of
Treasury/Funding. Thus, it illustrates how much of the Firm's ongoing liquidity
needs can be met through its pool of liquid assets. The barometer serves a dual
role as both a principal daily measurement tool and as a contingency planning
tool.
To ensure unimpeded access to market funds, the Firm maintains an array of
funding options diversified by instruments, markets, geography, legal vehicle
issuers and currencies. This diversification helps ensure that its access to
liquidity will remain unimpeded even if specific sources may disappear. In
particular, the Corporation monitors carefully its reliance on unsecured
short-term borrowings, so called "hot" money, to ensure that in the event of a
liquidity disruption, the Firm has alternative means through which to fund its
operations. The Corporation places particular emphasis on a large and diverse
base of stable customer deposits, which are generated incidentally from other
transactions or services provided in its Global Institutional Services business,
as well as through Private Banking relationships. In addition, the Corporation
has a high proportion of unsecured funding provided by capital and long-term
debt.
One of the Corporation's principal sources of day-to-day liquidity is
secured funding provided by securities loaned, equities loaned and securities
sold under repurchase agreements. Generally these involve a wide variety of
assets including U.S. government and agency securities, OECD sovereign bonds,
U.S. and foreign cash equities and money market instruments. The Corporation's
ability to lend on a secured basis has increased dramatically in the past few
years.
Short-term unsecured financing for the Corporation is available under
domestic and euro commercial paper programs. In an effort to foster self-funding
in the Corporation's major subsidiaries, a number of subsidiaries maintain their
own short and long-term issuance capabilities. These include commercial paper
programs, medium-term note issuance facilities and private placement
capabilities.
The Corporation's consolidated long-term debt and mandatorily redeemable
capital securities of subsidiary trusts holding solely junior subordinated
deferrable interest debentures included in risk-based capital ("trust preferred
capital securities"), at December 31, 1997 totaled $16.1 billion, substantially
all of which was unsecured, and consisted of $10.6 billion in senior borrowings,
$4.0 billion of subordinated debt, and $1.472 billion of trust preferred capital
securities issued principally by the Parent Company and Bankers Trust Company
("BTCo"), the Corporation's principal banking subsidiary. These liabilities
mature between 1998 and 2037, as detailed in Notes 9 and 10 of Notes to
Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Capital Resources
The Corporation pursues capital management with the objective of enhancing its
ability to execute its global strategic business plans while retaining financial
flexibility. Management believes that a strong capital base is critical to
achieving these objectives.
Combined consolidated total stockholders' equity and preferred stock of
subsidiary totaled $5.708 billion on December 31, 1997, down $420 million, or 7
percent, from year end 1996, which was up $405 million, or 7 percent, from year
end 1995. The decrease in 1997 was primarily due to the repurchase of preferred
stock of subsidiary and the repurchase of common stock relating to deferred
compensation plans. The increase in 1996 was primarily due to net income,
exercise of employee stock options, and shares issued in connection with an
acquisition, partially offset by dividends declared and the repurchase of stock.
During 1997, the Corporation, through newly established subsidiary trusts,
issued $742 million of trust preferred capital securities, a type of security
that is reported within the Corporation's liabilities, but qualifies as
regulatory capital. Dividends on the trust preferred capital securities are
recorded as interest expense (refer to Note 10 of Notes to the Financial
Statements for further discussion of these securities). The Corporation's
issuance of trust preferred capital securities was an important factor in the 13
percent increase in the Corporation's Tier 1 Capital and the 30 percent increase
in Total Capital during 1997.
The Corporation's primary measure of capital strength is the RAROC
framework (see page 25 for further discussion), which quantifies and assigns
capital to business activities based upon their credit, interest rate, foreign
currency, equity, commodity, liquidity and operating risks. Changes in the
Corporation's global balance sheet are monitored centrally on a regular basis.
In addition, the Corporation actively monitors compliance with bank regulatory
capital requirements, focusing primarily on the risk-based capital guidelines.
The Corporation manages its capital base and on- and off-balance sheet items to
ensure that it remains strongly capitalized.
The Federal Reserve Board's risk-based capital guidelines addressing the
capital adequacy of bank holding companies and banks (collectively "banking
organizations") include: a definition of capital, a framework for calculating
risk-weighted assets and minimum risk-based capital ratios to be maintained by
banking organizations. A banking organization's risk-based capital ratios are
calculated by dividing its qualifying capital by its risk-weighted assets. The
Federal Reserve Board also has a minimum Leverage ratio which is used as a
supplement to the risk-based capital ratios in evaluating the capital adequacy
of banks and bank holding companies. The Leverage ratio is calculated by
dividing Tier 1 Capital by adjusted quarterly average assets.
In March 1997, the Corporation became the first banking organization to
adopt the new market risk amendment to the risk-based capital guidelines issued
by the Federal Reserve, which changed the calculation of the risk-weighted
assets for trading accounts from assigning trading assets to broad risk
categories to the use of internal models to measure market risk. This amendment
is consistent with the amendment to the Basle Capital Accord adopted by the
Basle Committee on Banking Supervision at the Bank for International Settlements
("the BIS"). In addition, the amendment required that the capital and
risk-adjusted assets of the Corporation's Section 20 subsidiary, BT Alex. Brown
Incorporated, no longer be excluded when calculating the risk-based capital
ratios at the holding company level. All banking organizations with significant
trading activity must have adopted this amendment by January 1, 1998. During
1997, early adoption was permissible with prior approval from the institution's
primary federal regulator.
The market risk amendment also provides for the inclusion of Tier 3
Capital, which is defined to be subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either interest or principal if the payment would cause
the issuing organization's risk-based capital ratio to fall below the minimum
required level.
Refer to the following Risk Management section for a detailed discussion
of the amendment, including a summary of the quantitative and qualitative
standards required to manage market risk.
The following discussion of the risk-based capital and leverage ratios
should be read in conjunction with Note 16 of the Notes to Financial Statements,
which details the components of Tier 1 Capital and Tier 2 Capital, as well as
the regulatory guidelines for well-capitalized banks and bank holding companies.
The Corporation's and BTCo's regulatory capital ratios are presented in
Table 4. The Corporation's risk-weighted assets are presented in Table 5.
During 1997, the Corporation's Tier 1 Capital ratio and Leverage ratio
decreased by 100 and 150 basis points, respectively, due to an increase in
risk-weighted assets and an increase in adjusted average assets. The
Corporation's Total Capital ratio increased by 30 basis points due to the
inclusion of $400 million of qualifying Tier 3 Capital.
During 1997, BTCo's Tier 1 Capital ratio and Total Capital ratio decreased
by 30 and 60 basis points, respectively, due primarily to the increase in
risk-weighted assets which was only partially offset by an increase in capital.
However, the increase in capital resulted in a 10 basis point increase to BTCo's
Leverage ratio.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Table 4 presents the regulatory capital ratios of the Corporation and BTCo
at December 31, 1997 and 1996 and the well capitalized guidelines. The ratios
for December 31, 1996 have not been restated for the adoption of the market risk
amendment.
Table 4 Regulatory Capital Ratios
Well
December 31, December 31, Capitalized
1997 1996 Guidelines
- --------------------------------------------------------------------------------
Corporation
Risk-Based Ratios
Tier 1 Capital 8.3% 9.3% 6.0%
Total Capital 14.1% 13.8% 10.0%
Leverage Ratio 4.4% 5.9% 3.0-5.0%
BTCo
Risk-Based Ratios
Tier 1 Capital 9.0% 9.3% 6.0%
Total Capital 12.3% 12.9% 10.0%
Leverage Ratio 5.4% 5.3% 5.0%
The following were the essential components (in millions) used in
calculating the Corporation's and BTCo's risk-based capital ratios:
December 31, 1997 1996
- --------------------------------------------------------------------------------
Corporation
Tier 1 Capital $ 6,431 $ 5,690
Tier 2 Capital 4,138 2,734
Tier 3 Capital 400 --
- --------------------------------------------------------------------------------
Total Capital $10,969 $ 8,424
================================================================================
Total risk-weighted assets $77,726 $61,213
================================================================================
BTCo
Tier 1 Capital $ 5,999 $ 4,869
Tier 2 Capital 2,262 1,900
- --------------------------------------------------------------------------------
Total Capital $ 8,261 $ 6,769
================================================================================
Total risk-weighted assets $66,975 $52,484
================================================================================
Table 5 Risk-Weighted Assets--Corporation (in billions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Balance
sheet/ Risk- sheet/ Risk-
notional weighted notional weighted
amount amounts amount amounts
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks and interest-bearing deposits with banks $ 6.5 $ 1.0 $ 3.8 $ .8
Federal funds sold and securities purchased under resale agreements 20.5 1.6 19.7 1.3
Securities borrowed 16.8 9.0 17.0 10.3
Trading assets(1) 56.6 14.6 48.9 18.2
Securities available for sale 8.1 3.3 7.9 4.0
Loans 19.8 16.2 15.9 12.4
Allowance for credit losses on loans (.7) -- (.8) --
All other assets 12.5 10.2 10.1 8.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 140.1 55.9 122.5 55.2
Less: applicable assets of certain subsidiaries(2) 1.9 .6 24.8 10.4
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $ 138.2 $ 55.3 $ 97.7 $ 44.8
====================================================================================================================================
Off-Balance Sheet Exposures
Derivatives $ 2,143.5 $ 10.4 $ 1,804.1 $ 6.1
Credit-related arrangements 23.7 10.4 16.7 8.3
Securities lending indemnifications 53.8 1.4 37.8 1.9
When-issued securities and other off balance sheet exposures 1.1 .2 4.0 .3
- ------------------------------------------------------------------------------------------------------------------------------------
Total off-balance sheet exposures 2,222.1 22.4 1,862.6 16.6
Less: applicable off-balance sheet exposures of certain subsidiaries(2) -- -- 3.9 --
- ------------------------------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Exposures $ 2,222.1 $ 22.4 $ 1,858.7 $ 16.6
====================================================================================================================================
Less: allowance for credit losses limitation adjustment -- .2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Risk-Weighted Assets $ 77.7 $ 61.2
====================================================================================================================================
</TABLE>
(1) As of December 31, 1997, these assets, along with trading liabilities and
covered market positions represented by derivatives have been
risk-weighted under the market risk-based capital guidelines.
Risk-weighted assets for December 31, 1996 have not been restated for the
adoption of the market risk amendment.
(2) As of December 31, 1996, assets of the Corporation's Section 20 subsidiary
and certain foreign insurance subsidiaries were excluded from the
calculation of risk-weighted assets. In March 1997, upon adoption of the
market risk amendment, the assets of the Corporation's Section 20
subsidiary were no longer required to be excluded from this calculation.
Assets of certain foreign insurance subsidiaries are excluded from the
December 31, 1997 calculation in accordance with current guidelines.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
21
<PAGE>
Risk Management
Risk management is a core competency from which the Corporation derives many of
its competitive advantages. The ability to measure and manage risk is a prime
concern in all of the Corporation's business decisions, and sensitivity to risk
management innovations and issues is an integral part of its culture. Four
overarching principles guide the Corporation's management of risk:
o firm-wide commitment to effective risk management starts at the
senior-management level;
o a strong, centralized and independent control function for risk
management operating in conjunction with decentralized business
activities enables the Corporation to be agile and efficient in its
business activities, yet prudent in its overall risk-taking;
o diversification is an efficient mechanism for managing risk;
o returns earned must be commensurate with the marginal risk
associated with each business activity.
The Corporation has made substantial investments in both information
technology and human capital to support its risk management processes.
Proprietary systems allow a team of dedicated risk management professionals to
track the Corporation's global portfolio from its offices worldwide. This team
of risk management professionals is independent of the Corporation's business
lines and reports directly to senior management.
Market Risk
Each day the Corporation's risk management process assembles position and risk
information on financial instruments of the Corporation whose economic (fair)
value is a function of market-determined variables: interest rates, currency
exchange rates, equity prices, and commodity prices. This information is
consolidated into daily risk and limits reports for the Corporation and business
lines. These reports are reviewed by the Corporation's senior risk managers and
provide them with a consistent set of information upon which to base their
business judgments.
One summary measure of market risk that is produced by this process is
Daily Price Volatility. The Daily Price Volatility of a portfolio is the
potential loss in fair value that would be exceeded 1 percent of the time if
that portfolio were held unchanged for one day. As such, Daily Price Volatility
falls within a general class of risk measures that are referred to as Value at
Risk. The Daily Price Volatility is calculated using proprietary simulation and
risk modeling techniques and incorporates the nonlinear payoffs, or convexity,
and the volatility risk stemming from options in the Corporation's portfolio.
Table 6 provides information on the Daily Price Volatility associated with the
Corporation's positions during 1997. The table shows this information for the
set of financial assets and liabilities whose values are functions of market
traded variables irrespective of accounting classification. This set of figures
is labeled Total Daily Price Volatility in the table. The positions captured by
the Total Daily Price Volatility include both derivative and cash positions that
are reported as trading assets and liabilities, repurchase and resale
agreements, funding assets and liabilities, deposits, assets held for sale and
end-user derivatives. The table also reports information on the Daily Price
Volatility from the subset of cash and derivative positions that are reported as
trading assets and liabilities according to financial accounting standards. This
set of figures is labeled Trading Daily Price Volatility. Finally, the table
reports information on the Daily Price Volatility associated with the
non-trading, market-sensitive positions. This set of positions is labeled
Non-Trading Daily Price Volatility, and the information in this portion of the
table reflects the incremental contribution these positions have on the
Corporation's Total Daily Price Volatility.
Each section in Table 6 shows the sensitivity of the Corporation's
market-risk profile by risk class in 1997. The Corporation's portfolio, on
average, in 1997 was most sensitive to changes in interest rates and equity
prices. Note that the impact of diversification across all risk classes reduced
total risk by $14.6 million on average in 1997.
Figure 1 shows the frequency distribution of the Trading Daily Price
Volatility for 1997 business days. The distribution was centered at $26 million
and ranged between $18.8 million and $36.6 million during 1997.
Figure 1
1997 BTNY Trading Daily Price Volatility Frequency Distribution
The Figure displays a histogram. Daily Price Volatility (DPV) amounts ranging
from $18 million to $37 million appear on the horizontal axis and Frequency
amounts ranging from 0 to 30 observations are displayed on the vertical axis.
The DPV frequencies exhibit a shape similar to a chi-squared distribution. It is
skewed to the right. The mode of 27 observations occurs at a DPV value of $26
million; the median is $26.1 million; and the mean is $26.4 million. At the
upper tail, the frequencies are 3, 5, and 2 for DPV's of $35 million, $36
million, and $37 million, respectively. There are no observations above $37
million. At the lower end of the distribution, the frequencies are 1, 7, and 13
for DPV's of $19 million, $20 million, and $21 million, respectively. There are
no observations below $19 million.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Table 6 BTNY Daily Price Volatility Statistics (in millions)*
Total Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 32.8 $ 17.1 $ 40.5 $ 29.6
Currency 8.8 4.7 14.7 10.1
Equity 21.0 15.6 28.0 28.0
Commodity 1.6 0.9 3.7 1.9
Diversification (14.6) -- -- (19.2)
- --------------------------------------------------------------------------------
Overall Portfolio $ 49.6 ** ** $ 50.4
================================================================================
Trading Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 17.2 $ 12.6 $ 22.7 $ 19.7
Currency 8.1 3.7 14.7 9.9
Equity 12.4 6.0 21.6 21.6
Commodity 1.6 0.9 3.7 1.9
Diversification (12.9) -- -- (16.5)
- --------------------------------------------------------------------------------
Overall Portfolio $ 26.4 ** ** $ 36.6
================================================================================
Non-Trading Daily Price Volatility: Incremental impact of non-trading
positions on Total Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 15.6 $ .8 $ 22.8 $ 9.9
Currency 0.7 -- 2.5 0.2
Equity 8.6 5.9 12.6 6.4
Commodity -- -- -- --
Diversification (1.7) -- -- (2.7)
- --------------------------------------------------------------------------------
Overall Portfolio $ 23.2 ** ** $ 13.8
================================================================================
* The positions of Alex. Brown are included commencing September 1, 1997.
Prior to September 1, 1997, detailed risk information in the format
required for the computation of the Daily Price Volatility is not
available.
** The minimum (maximum) for each risk category occurred on different days so
it is not meaningful to sum the amounts presented above. For example,
during 1997 the minimum Total Daily Price Volatility was $28.2 million and
the maximum Total Daily Price Volatility was $60.4 million.
The methodology underlying these Daily Price Volatility calculations
relies on established asset pricing and statistical models. The Daily Price
Volatility is a loss amount that would be exceeded 1 percent of the time. This
implies that one would expect two or three instances each year when the daily
loss amount exceeded the Daily Price Volatility. A comparison between the
Trading Daily Price Volatility amounts and profit/loss flows associated with
trading activities for each business day during 1997 revealed one instance in
which a loss greater than the Trading Daily Price Volatility occurred. It is
important to note that this comparison does not represent a formal statistical
test because Daily Price Volatility measures the risk associated with the change
in value of a static portfolio, but the trading profits and losses occurring in
any given day reflect a changing portfolio and include fee income from trading
activities. The occurrence of a single outlier (a loss greater than the Trading
Daily Price Volatility) during 1997 suggests that the methodology provides a
reasonable statistical measure of the Corporation's exposure to market risk.
According to the rules governing regulatory capital for commercial banks (see
below), an internal risk model that experienced up to four outliers would be
within the regulatory norm. The performance of the Corporation's model is well
within this standard.
The Daily Price Volatility, as a statistical measure of potential loss,
provides an objective benchmark of portfolio risk which complements, but does
not substitute for, management's judgment of the appropriate level and mix of
risk taken by the Corporation. Furthermore, the methodology employed in the
calculation of Daily Price Volatility will change due to enhancements in
risk-assessment and information-processing technologies and as new risks are
undertaken by the Corporation.
Daily Price Volatility is supplemented by the statistical measures of risk
and return provided by the RAROC framework (discussed below), by scenario
analyses performed weekly by the risk manage-
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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23
<PAGE>
- --------------------------------------------------------------------------------
ment group, and by a formal limits process that monitors and limits the risks
from market concentration and inadequate liquidity of financial instruments in
the portfolio. The RAROC framework provides information on the potential effect
of large changes in interest rates, currency, equity and commodity prices, and
volatilities. As such, it produces a stress test of the Corporation's positions
each business day.
The risk information that is assembled by the risk-management group is
conveyed to senior management through a variety of reports. The two most
important of these reports are a daily risk report that summarizes the market
risks of the Corporation's positions worldwide as of the close of the previous
day and a weekly analysis of market risk and market-risk trends for the
Corporation. Taken together, the various risk measures and reports provide the
Corporation's senior management with timely and relevant risk information.
Regulatory Measures of Market Risk
In 1996 the Federal Reserve Board and the other U.S. federal bank regulatory
agencies jointly issued a final rule that amended the risk-based capital
guidelines to incorporate a measure for market risk ("the market risk
amendment"). The market risk amendment (which is described below) is consistent
with the amendment to the Basle Capital Accord adopted by the BIS. Essentially,
the market risk amendment changed the calculation of risk-weighted assets for
positions in the trading accounts.
Although compliance was mandatory in January 1998 for banks with extensive
trading activities, the rule allowed banks that met certain threshold tests to
adopt the new rule early if they received prior approval from their primary
federal regulator. The Corporation was the first banking organization to receive
this approval, and since the first quarter of 1997, the Corporation's capital
ratios have incorporated the effects of market risk.
The most innovative feature of the market risk amendment is its provision
to allow a bank to measure market risk using the bank's internal risk model.
Capital charges for market risk are calculated based upon the level of specific
risk and general market risk in the bank's trading portfolio. Specific risk
refers to the risk of variations in value due to changes in factors associated
with a particular security (for example, the credit rating of a corporate
debenture). General market risk refers to changes in value due to variations in
market conditions (i.e., levels of interest rates, prices, etc.). Banks may use
internal models to measure their exposure to these risks provided the models and
processes used to manage market risk meet a number of quantitative and
qualitative standards. The following is a summary of these standards:
Quantitative Standards
o the general market risk capital must be based on a Value at Risk approach
and computed daily;
o the Value at Risk must be calibrated to a ten-day holding period and a 99
percent confidence level (i.e., if the Corporation maintained an
absolutely static portfolio for ten business days, there would be a 1
percent chance that the portfolio would decline in value by more than the
Value at Risk);
o the risk model must capture the non-linear price characteristics of option
positions;
o the historical observation period for estimating risk factors must be at
least one year;
o for interest rates, there must be a set of risk factors corresponding to
each currency in which the bank has interest-rate-sensitive on- or
off-balance sheet positions;
o for interest rates, the risk measurement system must incorporate separate
risk factors to capture spread risk between government and other
fixed-income securities;
o for exchange rates, the risk measurement system should incorporate risk
factors corresponding to the individual foreign currencies in which the
bank's positions are denominated;
o for equity prices, there should be risk factors corresponding to each of
the equity markets in which the bank holds significant positions;
o for commodity prices, there should be risk factors corresponding to each
of the commodity markets in which the bank holds significant positions.
Qualitative Standards
o the bank should have an independent risk control unit that reports
directly to senior management;
o the unit should conduct regular back-testing;
o the bank's risk measurement model should be integrated into the day-to-day
risk management process of the bank;
o the risk measurement model should be complemented by a routine and
rigorous program of stress testing.
That the Corporation was the first banking organization to receive recognition
for meeting these standards is evidence of its strong risk-management culture
and the integrity of its processes.
The Daily Price Volatility described previously is a Value at Risk measure
that is based on a one-day holding period instead of the ten-day holding period
stipulated for regulatory capital. Table 7 reports market risk information
calculated under the regulatory standard. These risk numbers are based on the
same proprietary methodologies as were employed in calculating the Daily Price
Volatility, except a ten-day holding period is used in their calculation. As in
the preceding table, Table 7 provides summary risk information for the total
portfolio as well as for trading and non-trading positions. Here again, the
non-trading risk numbers refer to the incremental impact of these positions.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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24
<PAGE>
Table 7 BTNY Ten-Day Value at Risk (in millions)*
Total Ten-Day Value at Risk
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 104.0 $ 53.9 $ 128.1 $ 94.3
Currency 28.1 14.9 48.1 33.1
Equity 66.1 49.3 87.1 87.1
Commodity 5.2 2.9 11.9 6.0
Diversification (46.6) -- -- (61.1)
- --------------------------------------------------------------------------------
Overall Portfolio $ 156.8 ** ** $ 159.4
================================================================================
Trading Ten-Day Value at Risk
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 54.5 $ 39.8 $ 72.5 $ 62.9
Currency 25.8 11.6 48.0 32.4
Equity 39.0 19.1 67.3 67.3
Commodity 5.2 2.9 11.9 6.0
Diversification (41.1) -- -- (53.0)
- --------------------------------------------------------------------------------
Overall Portfolio $ 83.4 ** ** $ 115.6
================================================================================
Non-Trading Ten-Day Value at Risk: Incremental impact of non-trading
positions on Total Ten-Day Value at Risk
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1997 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Rate $ 49.5 $ 2.2 $ 72.1 $ 31.4
Currency 2.3 -- 8.0 0.7
Equity 27.1 18.4 39.8 19.8
Commodity -- -- -- --
Diversification (5.5) -- -- (8.1)
- --------------------------------------------------------------------------------
Overall Portfolio $ 73.4 ** ** $ 43.8
================================================================================
* The positions of Alex. Brown are included commencing September 1, 1997.
Prior to September 1, 1997, detailed risk information in the format
required for the computation of the Daily Price Volatility is not
available.
** The minimum (maximum) for each risk category occurred on different days so
it is not meaningful to sum the amounts presented above. For example,
during 1997 the minimum Total Ten-Day Value at Risk was $89 million and
the maximum Total Ten-Day Value at Risk was $191.4 million.
RAROC--Performance Measurement and Capital Adequacy
The Corporation pioneered the development of risk-based capital attribution
processes. The Corporation's risk capital model, RAROC, is integral to
management's conceptual framework for strategic decision making. This framework
has as its objective maximizing return on risk capital, where risk capital is
attributed to a business activity according to the level of risk it assumes.
Risk capital calculated by the RAROC framework is used to support decisions on
the allocation of human and financial resources. In addition, the framework
results in a disciplined assessment of risk, which produces a benchmark for
assessing capital adequacy both for the Corporation and for its major
businesses.
The definition of risk capital produced by the RAROC process is the amount
of funds required 99 percent of the time to cover a potential after-tax loss
over a one year holding period. Specifically, if the Corporation maintained an
absolutely static portfolio (of assets, counterparties and businesses) for one
year, there would be a 1 percent chance that the portfolio would decline in
value by more than the RAROC risk capital amount after adjusting for taxes.
RAROC is designed to assess the following general classes of risk: market
risk, credit risk and operational risk. Market risk is the potential loss in
economic (fair) value due to changes in interest rates, currency, equity and
commodity prices, and volatilities. Financial instruments of the Corporation
whose fair values are functions of these market variables are included in the
assessment of market risk irrespective of accounting designation. Credit risk is
defined as the potential loss in economic value due to a change in the
likelihood that the obligor will not perform as agreed on a payment obligation.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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25
<PAGE>
- --------------------------------------------------------------------------------
Operational risk is defined by the Corporation in the context of five risk
classes: Relationship, People, Technology, Physical Assets, and Other External.
Losses that are characterized as operational include but are not limited to the
following examples: losses due to a failure of internal controls, personnel
unavailability or injury, and external events including natural disasters or the
failure of external systems such as an exchange. A process using actuarial and
other proprietary models has been implemented to provide an estimate of the
potential losses from these risks, and attribute capital to the Corporation's
business lines. The attribution process is designed as an incentive for
effective operational risk management.
Credit Risk Management
The Credit Risk Management Department, headed by the Chief Credit Officer, is
responsible for developing credit policies, as well as for monitoring and
managing overall credit risk. The department evaluates the creditworthiness of
each borrower/issuer/counterparty and assigns a rating for each. Credit limits
are established at the portfolio level by borrower/issuer/counterparty and by
other categories. One credit officer is responsible for reviewing the entire
credit risk portfolio of a borrower/issuer/counterparty regardless of the nature
of the exposure (e.g., loans, securities, derivatives). Credit officers also
monitor the usage of credit risk by entity versus the limits at the product and
business activity level. The Credit Risk Management Department monitors country
exposures and assigns country risk ratings. It also monitors country, industry,
borrower/issuer/counterparty, product and regional risk concentrations in order
to evaluate the degree of diversification in the portfolio.
RAROC credit capital represents the translation into potential losses of
the exposure of the overall portfolio of the Corporation, both on- and
off-balance sheet, to changes in the likelihood that obligors will not perform
as agreed on payment obligations. This translation is accomplished using
proprietary statistical models. These statistical models incorporate information
on the duration of the exposure, the potential magnitude of the exposure, and
the creditworthiness of the borrower/issuer/counterparty. The Corporation's
senior risk managers regularly review and actively manage the credit risks at
the portfolio level to ensure that the risk characteristics and degree of
diversification as reflected in RAROC capital calculations conform with the
Corporation's policies.
Derivatives
Derivatives are swaps, futures, forwards, options and other similar types of
contracts based on interest rates, foreign exchange rates and the prices of
equities and commodities (or related indices). Derivatives are generally either
privately-negotiated over-the-counter ("OTC") contracts or standard contracts
transacted through regulated exchanges. OTC contracts generally consist of
swaps, forwards and options. In the normal course of business, with the
agreement of the original customer, OTC derivatives may be terminated or
assigned to another customer. Exchange-traded derivatives include futures and
options. These capital markets products are described further in Note 23 of
Notes to Financial Statements. Derivatives may be used for either trading or
end-user purposes.
Trading Derivatives
The Corporation holds derivatives in connection with its activities as a dealer
acting as principal for particular transactions with clients, as a market maker
quoting bid and offer prices to provide liquidity and regular availability of
derivatives for clients, as a risk manager of its own trading positions
resulting from these client-driven transactions and, finally, as a position
taker in the expectation of profiting from favorable movements in prices, rates
or indices. As a result, the Corporation may build up sizable positions in
derivatives. The risks of derivative positions are managed in accordance with
the Corporation's risk management policies.
Substantially all of the Corporation's derivative positions at December
31, 1997 were trading-related, with gains and losses included in trading revenue
as they occur. Contracts with positive fair values are recorded as assets and
contracts with negative fair values are recorded as liabilities, after
application of qualifying master netting agreements. These positions may vary in
size from period to period, similar to the positions in cash instruments also
carried in the Corporation's trading account. Average trading assets and trading
liabilities related to derivatives during 1997 were $13.5 billion and $13.2
billion, respectively. The notional amounts, which are not recorded on the
balance sheet, of trading derivatives totaled $2,026 billion at December 31,
1997 and indicate the volume of activity but do not represent the Corporation's
exposure to market or credit risk.
End-User Derivatives
The Corporation utilizes end-user derivatives to manage exposures to interest
rate, foreign currency and equity market risks associated with certain
liabilities and assets such as interest-bearing deposits, short-term borrowings
and long-term debt, as well as securities available for sale, loans, investments
in non-marketable equity securities and net investments in foreign subsidiaries.
For example, the Corporation's Treasury Department, which manages the majority
of the Corporation's end-user derivatives, utilizes certain instruments
(principally interest rate and currency swaps) to transform fixed-rate-paying
liabilities into variable-rate-paying liabilities. See Note 23 and Note 25 of
Notes to Financial Statements for additional end-user information and for the
fair value of end-user derivatives and related financial instruments. The
notional amounts, which are not recorded on the balance sheet, of end-user
derivatives totaled $118 billion at December 31, 1997 and indicate the volume of
activity but do not represent the Corporation's exposure to market or credit
risk. End-user derivative contracts represent less than 6 percent of the
aggregate notional amounts of all derivatives outstanding at year end.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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26
<PAGE>
- --------------------------------------------------------------------------------
Market Risk
The market risk of derivatives arises principally from the potential for changes
in interest rates, foreign exchange rates, and equity and commodity prices and
is generally similar to the market risk of the cash instruments underlying the
contracts. The market risk to the Corporation is not measured by the price
sensitivity of the individual contracts, but by the net price sensitivity of the
relevant portfolio, including cash instruments. The Corporation generally
manages its exposures by taking risk-offsetting positions. Therefore, the
Corporation believes it is not meaningful to view the market risk of derivatives
in isolation. Market exposures arising from derivatives are monitored in the
Corporation's RAROC framework and are included in the Daily Price Volatility
amounts discussed in the preceding Risk Management section. Commencing in 1997,
the market risk of positions represented by derivatives is also included in the
regulatory risk-based capital ratios.
Liquidity Risk
In times of stress, sharp price movements or volatility shocks may reduce
liquidity in certain derivatives positions, as well as in cash instruments. The
liquidity risk of derivatives is substantially based on the liquidity of the
underlying cash instrument, which affects the ability of the Corporation to
alter the risk profile of its positions rapidly and at a reasonable cost. The
Corporation's mark-to-market practices for derivatives include adjustments in
consideration of liquidity risks, when appropriate. These practices are
consistent with those applied to the Corporation's trading positions in cash
instruments.
Derivatives-Related Credit Risk
Derivative transactions create dynamic credit exposure which changes as markets
move. The credit risk of derivatives arises from the potential for a customer to
default on its contractual obligations. Accordingly, credit risk related to
derivatives depends on the following: the current fair value of the contracts
with the customer; the potential credit exposure over time; the extent to which
legally enforceable netting arrangements allow the fair value of offsetting
contracts with that customer to be netted against each other; the extent to
which collateral held against the contracts reduces credit risk exposure; and
the likelihood of default by the customer.
The Corporation monitors and manages the credit risk associated with
derivatives by applying a uniform credit process for all credit exposures. The
credit risk of derivatives is included in the Corporation's centralized credit
risk management and RAROC systems. In order to reduce derivatives-related credit
risk, the Corporation enters into master netting agreements that provide for
offsetting of all contracts under each such agreement and obtains collateral
where appropriate. Such master netting agreements contemplate payment netting as
well as the net settlement of all covered contracts through a single payment in
a single currency with the same counterparty in the event that a default
(including insolvency) under the agreement occurs. The Corporation monitors
credit risk exposure on a gross and a net basis and on a collateralized and an
uncollateralized basis, as appropriate.
Table 8 summarizes the Corporation's derivatives-related credit risk. It
displays, by internal rating, the Corporation's current credit risk to
customers. The majority of the Corporation's derivative transactions are with
foreign and U.S. commercial banks, as well as other financial institutions,
corporations, securities firms and governments and their agencies. Current
credit risk is calculated based on the current replacement cost of outstanding
positions with customers in OTC derivative financial instruments. The gross
replacement cost of a derivative portfolio with a customer is the positive
mark-to-market value of all transactions with that customer without the effects
of netting or collateral arrangements. The replacement costs, after netting and
collateral, of $14.966 billion more accurately portray the credit risk
associated with the Corporation's derivatives activities with external customers
at December 31, 1997 than do the gross replacement costs. The overall increase
compared to 1996 was predominantly related to short-term foreign exchange
forward contracts with foreign and U.S. commercial bank counterparties.
Approximately 80 percent of the derivatives-related credit risk at December 31,
1997 was to investment-grade customers. The amounts presented in Table 8 do not
reflect the allowance for credit losses of $285 million at December 31, 1997.
Internal ratings are based upon the Corporation's assessment of the
customer's creditworthiness. Ratings of 1 to 4 generally equate to
investment-grade ratings (BBB/Baa and higher) from rating agencies in the U.S.
markets. A rating of 5 usually approximates long-term debt ratings of BB/Ba.
Ratings of 6 to 8 are generally equivalent to B/B and below. Customers in the 6
to 8 category may be internally designated for special monitoring by the Credit
Audit Department. Factors such as guarantors and collateral held, as well as the
impact of country risk on private foreign companies, may differentiate the
Corporation's ratings from those of the rating agencies.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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27
<PAGE>
- --------------------------------------------------------------------------------
The Corporation applies netting based upon the criteria prescribed by
Financial Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts," which provides that
offsetting is appropriate where the available evidence indicates that there are
reasonable assurances that the right of setoff contained in a master netting
agreement governing derivatives contracts would be upheld after default,
including in the event of the customer's bankruptcy.
Collateral also reduces credit risk. The Corporation generally accepts
collateral in the form of cash, U.S. Treasuries, and other approved securities
(generally, only liquid, marketable, publicly-traded securities are acceptable).
Table 8 Derivatives-Related Credit Risk(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Internal Rating For Customer
--------------------------------
(in millions) December 31, 1997 1 to 4 5 6 to 8 Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Replacement costs (gross) $ 40,030 $ 4,832 $ 541 $ 45,403
Impact of netting agreements (26,181) (1,877) (211) (28,269)
- ----------------------------------------------------------------------------------------------------------------
Replacement costs (after netting agreements) 13,849 2,955 330 17,134
Collateral held and applied (1,908) (255) (5) (2,168)
================================================================================================================
Replacement costs after netting and collateral $ 11,941 $ 2,700 $ 325 $ 14,966
================================================================================================================
Replacement costs after netting and collateral, December 31, 1996 $ 8,688 $ 746 $ 53 $ 9,487
================================================================================================================
</TABLE>
(1) End-user derivatives and exchange-traded contracts are not included. A
portion of the increase in amounts related to customers in categories 5
and 6 to 8 resulted from internal downgradings of certain Asian
counterparties reflecting concerns about country risk. Additionally, the
amounts presented do not reflect the allowance for credit losses of $285
million at December 31, 1997 and $190 million at December 31, 1996.
The Corporation's allowance for credit losses is available for credit
losses related to derivatives contracts. Derivatives are considered by the
Credit Audit Department when it reviews both general and specific credit risks
in the Corporation's portfolio.
The international bank regulatory standards for risk-based capital
consider the credit risk arising from derivatives in the assessment of capital
adequacy. These standards were issued under the Basle Capital Accord of July
1988 and adopted in 1989 by the U.S. bank regulators, including the Federal
Reserve Board. These standards use a formula-based assessment of customer credit
risk which, as amended at year-end 1995, reflect the credit-risk-reducing impact
of legally enforceable master netting agreements. These standards include a
calculation for estimating the potential future credit exposure caused by
potential price volatility (the "add-on"). At December 31, 1997, this add-on was
$11.9 billion before application of risk weightings, of which 89 percent, 9
percent, and 2 percent related to customers internally rated 1 to 4, 5, and 6 to
8, respectively. At December 31, 1997, the risk-weighted amounts (reflecting
both current and potential future credit exposure) that were calculated based on
these international standards for derivative financial instruments aggregated to
$10.4 billion after application of risk weightings.
Presented in Table 9 below is a maturity profile of the Corporation's
trading derivative products. This profile indicates the extent of the
Corporation's involvement in derivative transactions of specific maturities and
also provides the basis for calculating the estimate of potential future credit
exposure (the add-on) under the international bank regulatory standards. The
percentages in Table 9 are based on notional amounts which do not necessarily
represent cash flows and do not represent a quantification of the market risk or
credit risk of these positions.
Table 9 Maturity Profile of Trading Derivatives(1)(2)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Interest Foreign Equity- Commodity
Rate Exchange Related and Other
Remaining Maturity at December 31, 1997 Total Contracts Contracts Contracts Contracts
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Within 12 months 60% 18% 40% 1% 1%
After 1 but within 5 years 30 27 3 -- --
After 5 years 10 9 1 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total 100% 54% 44% 1% 1%
======================================================================================================================
</TABLE>
(1) Based on notional amounts. Includes both purchase and sale contracts and
contracts for which the fair values are recorded as trading assets and as
trading liabilities. The leveraging effects of leveraged derivative
transactions are reflected above.
(2) Presented in accordance with the risk-based capital standards, this
maturity profile does not include futures contracts, spot foreign exchange
contracts, or options written. These types of contracts are considered in
the Corporation's market and credit risk management processes.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
- --------------------------------------------------------------------------------
Further information applicable to derivatives in general may be found in
the following sections:
Relevant Information Page Title
- --------------------------------------------------------------------------------
Risk-weighted amounts 20 Capital Resources
Revenue by risk category 14 Trading Revenue
Market risk, Value at Risk, RAROC
and credit management 22 Risk Management
Credit losses 29 Summary of Credit Loss Experience
Nonperforming amounts 32 Nonperforming Assets
Certain foreign exposures 34 Cross Border Outstandings
Accounting 44 Significant Accounting Policies
Balance sheet amounts 47 Trading Assets and Trading Liabilities
Product descriptions, fair
values and notional amounts 67 Derivatives and Financial Instruments
With Off-Balance Sheet Risk
Significant counterparties 71 Concentrations of Credit Risk
End-user derivatives 72 Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
Summary of Credit Loss Experience
Charge-Off Procedures and Adequacy of the Allowance for Credit Losses
As part of the Corporation's overall management and control process, the Credit
Audit Department is charged with the responsibility for performing an ongoing
independent examination of the portfolio. Counterparty risk exposure is analyzed
across all product lines including loans, credit-related commitments,
derivatives and other financial instruments. All significant items in the
portfolio are reviewed annually; those under special supervision, such as cash
basis loans and renegotiated loans, are reviewed quarterly. In addition, all
levels of management are required to bring to the attention of the Credit Audit
Department any credit risk where an additional review of the counterparty's
financial position is believed to be warranted. The Credit Audit Department
reports at least quarterly on the portfolio to management and to the Audit
Committee of the Board of Directors.
In addition to the above procedures, federal and State of New York bank
examiners perform examinations of the Corporation's credit risks. The reports on
these examinations are reviewed by the Credit Audit Department with the Audit
Committee.
The provision for credit losses is dependent upon management's evaluation
as to the amount needed to maintain the allowance for credit losses at a level
considered appropriate in relation to the risk of losses inherent in the
portfolio. Various factors are collectively weighed by management in determining
the adequacy of the allowance. The Credit Audit Department and bank regulatory
authorities assess and issue reports on the quality of the portfolio and on the
adequacy of the allowance. As part of their annual audit, the Corporation's
independent auditors assess the adequacy of the allowance and the provision for
credit losses. Their procedures include discussions with management, a review of
selected credit files and an evaluation of the periodic reports issued by the
Credit Audit Department and regulatory examiners.
In the opinion of management, the allowance, when taken as a whole, is
adequate to absorb reasonably estimated credit losses inherent in the
Corporation's portfolio.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
- --------------------------------------------------------------------------------
Table 10 Analysis of the Allowance for Credit Losses
The following table analyzes the changes in the allowance for credit losses
($ in millions).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for credit losses, beginning of year $ 973 $ 992 $ 1,252 $ 1,324 $ 1,620
- ---------------------------------------------------------------------------------------------------------------------------
Charge-offs
Domestic (nonrefinancing country)
Commercial and industrial 19 46 177 55 64
Financial institutions -- -- -- 11 4
Real estate
Construction 11 3 10 1 6
Mortgage 2 18 22 23 51
Other -- -- -- -- 1
International
Nonrefinancing country 75 22 121 77 302
Refinancing country -- -- -- 1 32
- ---------------------------------------------------------------------------------------------------------------------------
Total charge-offs 107 89 330 168 460
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries
Domestic (nonrefinancing country)
Commercial and industrial 48 32 11 24 19
Real estate
Construction 1 -- -- 1 --
Mortgage 13 7 4 -- 1
Other -- -- -- -- 2
International
Nonrefinancing country 21 20 15 8 7
Refinancing country 1 6 9 38 42
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 84 65 39 71 71
- ---------------------------------------------------------------------------------------------------------------------------
Total net charge-offs(1) 23 24 291 97 389
Allowance related to acquisition 17 -- -- -- --
Provision for credit losses 30 5 31 25 93
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses, end of year(2) $ 997 $ 973 $ 992 $ 1,252 $ 1,324
===========================================================================================================================
Percentage of total net charge-offs to average loans for the year .13% .18% 2.47% .78% 2.54%
===========================================================================================================================
(1) Components:
Secured by real estate $ 5 $ 14 $ 23 $ 24 $ 116
Real estate related (2) 3 2 23 3
Highly leveraged 12 11 30 (5) 15
Other* 9 2 245 92 265
Refinancing country (1) (6) (9) (37) (10)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 23 $ 24 $ 291 $ 97 $ 389
===========================================================================================================================
(2) Allocation:**
Loans $ 699 $ 773
Trading assets 285 190
Other liabilities 13 10
- ---------------------------------------------------------------------------------------
Allowance for credit losses, end of year $ 997 $ 973
=======================================================================================
</TABLE>
* The 1997 amount included net recoveries of $34 million related to
leveraged derivative transactions. The 1996, 1995 and 1994 amounts
included net charge-offs of $15 million, $240 million and $72 million,
respectively, related to leveraged derivative transactions.
** Beginning December 31, 1996, the Corporation has allocated its total
allowance for credit losses as a reduction of loans, a reduction of
trading assets, and as other liabilities. Amounts for years prior to 1996
have not been restated. For further detail, see discussion on the
following page.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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30
<PAGE>
- --------------------------------------------------------------------------------
Provision and Allowance for Credit Losses
The provision for credit losses amounted to $30 million for 1997, compared with
$5 million for 1996 and $31 million in 1995.
The total allowance for credit losses increased to $997 million at
December 31, 1997, from $973 million at year end 1996 and $992 million at
December 31, 1995. Beginning December 31, 1996, in accordance with the American
Institute of Certified Public Accountants Banks and Savings Institutions Audit
Guide, the Corporation has allocated its total allowance for credit losses at
December 31, 1997 and 1996 as presented below. Amounts for years prior to 1996
have not been restated. The Corporation continues to believe that the total
allowance for credit losses is available for credit losses in its entire
portfolio, which is comprised of loans, credit-related commitments, derivatives
and other financial instruments. Due to a multitude of complex and changing
factors that are collectively weighed in determining the adequacy of the
allowance for credit losses, management expects that the allocation of the total
allowance for credit losses may be adjusted as risk factors change.
Pursuant to a regulatory requirement, the table below provides the
components of the allowance for credit losses by category. This breakdown of the
allowance at each year end reflects management's best estimate of possible
credit losses and may not necessarily be indicative of actual future charge-offs
(in millions):
December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Domestic
Commercial and industrial $ 44 $ 75 $ 165 $ 133 $ 115
Financial institutions 9 10 20 20 8
Real estate
Construction 2 8 8 5 15
Mortgage 49 67 70 54 65
Other 1 1 3 2 1
- --------------------------------------------------------------------------------
Total domestic 105 161 266 214 204
International 221 144 222 266 190
- --------------------------------------------------------------------------------
Total allocated 326 305 488 480 394
Unallocated portion*
Domestic 268 288 306 402 599
International 105 180 198 370 331
- --------------------------------------------------------------------------------
Allowance for credit losses--loans 699 773
Allowance for credit losses--
trading assets 285 190
Allowance for credit losses--
other liabilities 13 10
- --------------------------------------------------------------------------------
Total $ 997 $ 973 $ 992 $1,252 $1,324
================================================================================
* This amount and any unabsorbed portion of the allocated allowance are also
available for credit losses in the entire portfolio.
For purposes of providing information required by regulatory authorities
and subject to the above limitations, the following table presents an analysis
of the changes in the international component of the allowance for credit losses
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 348 $ 420 $ 636 $ 521 $ 1,007
- ----------------------------------------------------------------------------------------
Net charge-offs
Charge-offs 75 22 121 78 334
Recoveries 22 26 24 46 49
- ----------------------------------------------------------------------------------------
Total net charge-offs (recoveries)
to the allowance 53 (4) 97 32 285
Allowance related to acquisition 17 -- -- -- --
Provision for credit losses 30 (1) 9 11 40
Reallocation (to) from
domestic allowance 120 (75) (128) 136 (241)
- ----------------------------------------------------------------------------------------
Balance, end of year* $ 462 $ 348 $ 420 $ 636 $ 521
========================================================================================
</TABLE>
* The December 31, 1997 and 1996 amounts were allocated as follows: $326
million and $324 million, respectively, to loans and $136 million and $24
million, respectively, to trading assets.
The reallocations of $120 million, $75 million and $128 million during
1997, 1996 and 1995, respectively, between the international and domestic
components of the allowance for credit losses, were based on the continuing
evaluation of the Corporation's overall credit portfolio.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
31
<PAGE>
Nonperforming Assets
Table 11 shows the Corporation's trend of cash basis loans, renegotiated loans,
other real estate and other nonperforming assets ($ in millions).
Table 11 Nonperforming Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash basis loans (nonrefinancing country)
Domestic
Commercial and industrial $ 49 $117 $263 $316 $285
Secured by real estate 92 233 297 277 306
Financial institutions -- -- 10 25 30
- ----------------------------------------------------------------------------------------------------
Total domestic 141 350 570 618 621
- ----------------------------------------------------------------------------------------------------
International
Commercial and industrial 65 57 106 247 84
Secured by real estate 25 39 65 79 149
Financial institutions -- 4 3 48 --
Other 9 2 -- 2 2
- ----------------------------------------------------------------------------------------------------
Total international 99 102 174 376 235
- ----------------------------------------------------------------------------------------------------
Total cash basis loans (nonrefinancing country) 240 452 744 994 856
Cash basis loans (refinancing country)
International -- -- -- 2 118
- ----------------------------------------------------------------------------------------------------
Total cash basis loans $240 $452 $744 $996 $974
====================================================================================================
Ratio of cash basis loans to total gross loans 1.2% 2.8% 5.9% 7.9% 6.4%
====================================================================================================
Ratio of allowance for credit losses to cash basis loans(1) 291% 171% 133% 126% 136%
====================================================================================================
Renegotiated loans
Secured by real estate $ 25 $ 37 $ 88 $ 65 $ 14
Other -- -- 12 1 7
- ----------------------------------------------------------------------------------------------------
Total renegotiated loans $ 25 $ 37 $100 $ 66 $ 21
====================================================================================================
Other real estate $194 $213 $259 $301 $287
====================================================================================================
Other nonperforming assets
Derivatives $ 34 $ -- $ 1 $ 2 $ 16
Assets acquired in credit workouts 4 10 66 61 85
- ----------------------------------------------------------------------------------------------------
Total other nonperforming assets $ 38 $ 10 $ 67 $ 63 $101
====================================================================================================
Loans 90 days or more past due and still accruing interest(2) $ -- $ -- $ 26 $ -- $ 40
====================================================================================================
</TABLE>
(1) The 1997 and 1996 ratios were computed using the $699 million and $773
million allowance for credit losses that has been allocated to loans.
(2) Represents loans 90 days or more past due with respect to interest or
principal. These loans were considered to be well secured and were in the
process of collection. The December 31, 1993 balance includes $15 million
of international loans.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
Each quarter an extensive review is performed by the Credit Audit
Department and senior credit management of all cash basis loans and classified
assets. Each borrower/counterparty is evaluated to determine whether it
represents a potential loss. Whenever the probability of loss is believed to be
greater than 50 percent, a charge-off of the amount deemed uncollectible is
recommended. Once a charge-off is taken, the remaining portion, if any, is
immediately placed on a cash basis. If the probability of loss is believed to be
less than 50 percent, but collection or liquidation in full is questionable if
present trends continue, the asset is classified as doubtful. It is the
Corporation's policy to place all assets classified as doubtful on a cash basis,
even if the borrower is still making required payments. In addition, it is
generally the Corporation's policy that loans be immediately placed on a cash
basis when they become 90 days past due with respect to interest or principal.
The Corporation's total cash basis loans amounted to $240 million at
December 31, 1997, a decrease of $212 million, or 47 percent, from 1996, which
had decreased $292 million, or 39 percent, from 1995.
Cash basis loans decreased $212 million during 1997, primarily due to a
$155 million decrease in loans secured by real estate.
Within cash basis loans, loans secured by real estate were $117 million at
December 31, 1997. Commercial and industrial loans to highly leveraged borrowers
decreased $76 million to $41 million.
Cash basis loans decreased $292 million during 1996, primarily due to
collections and charge-offs of $109 million in connection with the settlement of
old derivative transactions which were primarily classified as commercial and
industrial loans, as well as a $90 million decrease in loans secured by real
estate and an $87 million decrease in various other commercial and industrial
loans.
In 1997, renegotiated loans decreased $12 million. Renegotiated loans
decreased to $37 million at December 31, 1996 due to $63 million of transfers to
cash basis loans.
Other real estate decreased $19 million, to $194 million at December 31,
1997. In 1996, other real estate decreased $46 million. The 1996 decrease was
primarily attributable to $73 million of sales of properties offset by an
addition of $24 million of foreclosed properties.
Derivative contracts are classified as nonperforming when payments are 90
days past due, or earlier based upon management's judgment as to the probability
of collection of all amounts due under the contracts. Nonperforming derivatives
increased $34 million in 1997 as a result of contracts with one Asian
counterparty.
An analysis of the changes in the Corporation's total cash basis loans
follows:
<TABLE>
<CAPTION>
(in millions)
Year Ended December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 452 $ 744 $ 996 $ 974 $ 1,377
Net transfers to cash basis loans 111 96 314 520 230
Net paydowns (146) (241) (221) (130) (140)
Charge-offs (107) (87) (330) (163) (232)
Net transfers from (to) other
real estate (16) (14) 13 (72) (10)
Transfers to other
nonperforming assets -- -- -- (7) (58)
Loan sales (47) (38) (1) (49) (153)
Other (7) (8) (27) (77) (40)
- ---------------------------------------------------------------------------------------
Balance, end of year $ 240 $ 452 $ 744 $ 996 $ 974
=======================================================================================
</TABLE>
Highly Leveraged Transactions
For purposes of monitoring the extent of its exposure to highly leveraged
transactions ("HLTs"), the Corporation utilizes the following definition. HLTs
are financing transactions the purpose of which involves a buyout, acquisition
or recapitalization and which (i) doubles the subject company's liabilities and
results in a leverage ratio higher than 50 percent or (ii) results in a leverage
ratio higher than 75 percent or (iii) is designated an HLT by a syndication
agent. Borrowers are delisted from HLT status when (1) cash flow tests, relative
to their industry or peer group, are met, or (2) they are no longer highly
leveraged upon emergence from Chapter 11 bankruptcy or similar proceeding. In
addition, certain loans which are fully collateralized by cash or cash
equivalent securities are excluded from HLT reporting.
Amounts included in the table and discussion which follow generally
reflect the above definition.
Table 12 Highly Leveraged Transactions
(in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Loans
Senior debt $2,376 $1,587
Subordinated debt 36 76
- --------------------------------------------------------------------------------
Total loans $2,412 $1,663
================================================================================
Unfunded commitments
Commitments to lend $1,420 $ 875
Letters of credit 186 128
- --------------------------------------------------------------------------------
Total unfunded commitments $1,606 $1,003
================================================================================
Equity investments $ 884 $ 665
================================================================================
Commitments to invest $ 949 $ 425
================================================================================
The Corporation's outstanding loans were to 174 separate borrowers in 47
separate industry groups at December 31, 1997, compared to 127 separate
borrowers in 43 separate industry groups at December 31, 1996. The health
services group at 19 percent was the only industry concentration which exceeded
10 percent of total HLT loans outstanding at December 31, 1997.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
In addition to the amounts shown in Table 12, at December 31, 1997, the
Corporation had issued commitment letters which had been accepted, subject to
documentation and certain other conditions, of $1.168 billion (which were in
various stages of syndication) and had additional HLTs in various stages of
discussion and negotiation.
During 1997, the Corporation originated $6.6 billion of HLT commitments.
It should be noted that the Corporation's loans and commitments in connection
with HLTs fluctuate as new loans and commitments are made and as loans and
commitments are syndicated, participated or paid.
All loans and commitments to finance HLTs are reviewed and approved by
senior credit officers of the Corporation. In addition to a strict transactional
and credit approval process, the portfolio of leveraged loans and commitments is
actively monitored and managed to minimize risk through diversification among
borrowers and industries. As part of this strategy, sell and hold targets are
regularly updated in connection with market opportunities and the addition of
new HLTs. Retention by the Corporation after syndication and sales of loan
participations has typically been less than $50 million, and the average
outstanding per borrower for the portfolio at December 31, 1997 was less than
$14 million. However, at December 31, 1997, the Corporation had total exposure
(loans outstanding plus unfunded commitments) in excess of $50 million to 11
separate highly leveraged borrowers.
At December 31, 1997, $41 million of the HLT loan portfolio was on a cash
basis. In addition, $4 million of the equity investments in HLT companies
represented assets acquired in credit workouts, which are reported as other
nonperforming assets. Net charge-offs of $12 million of HLT loans were recorded
in 1997. In addition, the Corporation recorded a net gain of $146 million in
connection with the sales and/or write-offs of certain equity investments in
highly leveraged companies during 1997.
Generally, fees (typically 2 to 4 percent of the principal amount
committed) and interest charged (typically LIBOR plus 1.5 to 3 percent) on HLT
loans are higher than on other credits. The Corporation does not account for
revenue or expenses from HLTs separately from its other corporate lending
activities. However, it is estimated that transaction fees recognized for
lending activities relating to HLTs were approximately $145 million during 1997
and that as of December 31, 1997, approximately $17 million of fees were
deferred.
Cross-Border Outstandings
The Corporation's cross-border outstandings reflect certain additional economic
and political risks beyond those associated with its domestic outstandings, such
as risks arising from funds transfer restrictions and balance-of-payments
issues, as well as risks arising from operating in different legal and
regulatory jurisdictions. Recent financial instability and market turmoil in
Asia have raised concerns regarding cross-border exposures in Asia.
The Corporation's cross-border outstandings at December 31, 1997 to the
Republic of Korea, Indonesia, and Thailand represented 1.13, .89 and .40,
respectively, as a percentage of total assets. Subsequent to year end, the
Republic of Korea reached an agreement with its major international banks, which
serves to restructure maturing short-term foreign currency debts of domestic
banks. Under this framework, up to $24 billion in private short-term bank debt
can be converted into new one to three year term loans carrying a government
guarantee. The Corporation has approximately $270 million of obligations covered
by this agreement. This program helps stabilize international funding and is a
crucial first step in restoring investor confidence.
Since December 31, 1997, the steep decline in the Indonesian rupiah has
placed a heavy burden on many Indonesian banks and corporations with foreign
currency borrowings whose revenues are denominated in Indonesian rupiah. The
ability of these institutions to honor their obligations is heavily dependent on
the future performance of the Indonesian economy.
Late in 1997, Thailand's government began to implement measures in
accordance with its IMF program. Early in 1998, the IMF relaxed some of its
austerity directed spending guidelines in order to allow the government greater
flexibility in implementing an economic recovery. Continued implementation of
appropriate measures will be crucial in restructuring Thailand's troubled
financial sector and reviving its economy.
Given the continuing economic uncertainty in Asia, the Corporation
believes the level of nonperforming assets and losses related to Asian
counterparties may increase during 1998.
The following table presents the Corporation's cross-border outstandings
at December 31, 1997 for each foreign country where such outstandings exceeded
.75 percent of the Corporation's total assets. The outstanding balances are
presented in accordance with the reporting guidelines adopted by the Federal
Financial Institutions Examination Council (FFIEC) as of March 1997.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
Table 13 Cross-Border Outstandings
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Governments Banks and
% of and Other Commercial
Total Total Official Financial and
($ in millions) Outstandings Assets Institutions Institutions Industrial Other
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997
Japan(1) $ 7,018 5.01% $ 935 $ 4,996 $ 1,087 $ --
France 3,898 2.78 2 3,558 338 --
Spain 3,520 2.51 302 2,940 278 --
Australia 3,003 2.14 507 2,072 424 --
Germany 2,771 1.98 281 2,295 195 --
United Kingdom 2,428 1.73 8 2,309 108 3
Canada 2,258 1.61 579 1,251 426 2
Switzerland 1,919 1.37 -- 1,123 796 --
Brazil(2) 1,917 1.37 809 588 520 --
Republic of Korea(3) 1,583 1.13 186 929 468 --
Netherlands 1,322 0.94 -- 879 443 --
Indonesia(2) 1,247 0.89 24 440 783 --
Italy 1,110 0.79 427 432 251 --
All other cross-border outstandings 12,572 8.97 3,208 6,408 2,905 51
- ----------------------------------------------------------------------------------------------------------------------------
Total cross-border outstandings $46,566 33.22% $ 7,268 $30,220 $ 9,022 $ 56
============================================================================================================================
</TABLE>
(1) The Corporation's cross-border outstandings with Japan primarily consisted
of interest-bearing deposits with banks and trading account assets carried
at fair value.
(2) The Corporation's cross-border outstandings with Brazil and Indonesia
primarily consisted of trading account assets carried at fair value.
(3) The Corporation's cross-border outstandings with the Republic of Korea
primarily consisted of trading account assets carried at fair value and
acceptances outstanding.
At December 31, 1997, total cross-border commitments to borrowers or
counterparties domiciled in the countries presented in Table 13 were: Japan, $15
million; France, $85 million; Australia, $6 million; Germany, $99 million;
United Kingdom, $55 million; Canada, $66 million; Switzerland, $45 million;
Brazil, $22 million; the Republic of Korea, $58 million; the Netherlands, $70
million; Indonesia, $19 million; and Italy, $2 million.
The cross-border claims outstandings were compiled based upon category and
domicile of ultimate risk and are comprised of balances with banks, trading
account assets (including net revaluation gains on foreign exchange and
derivative products), securities available for sale, securities purchased under
resale agreements, loans, accrued interest receivable and acceptances
outstanding.
Governments and official institutions comprises foreign governments and
their agencies; state, provincial and local governments and their agencies; and
central banks. Banks and other financial institutions is comprised of commercial
and savings banks and other similar institutions accepting short-term deposits,
including government-owned banks which do not function as central banks, and
nonbank credit and financial companies.
The amounts outstanding for each country listed above exclude local
country claims. Local country claims, as defined by the FFIEC's March 1997
reporting guidelines, include claims on residents of the same country in which
the booking office is domiciled. Such claims are generally funded with
borrowings that represent liabilities of that office or are hedged with foreign
exchange and derivative products.
The amendments to the FFIEC's cross-border reporting guidelines as adopted
in March 1997 included the addition of net revaluation gains on foreign exchange
and derivative products to the definition of claims outstanding, and the
elimination of the currency denomination criteria when segregating local from
cross-border country claims.
Presented below are the 1997 cross-border outstandings excluding the net
revaluation gains on foreign exchange and
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
derivative products for comparative purposes with the 1996 and 1995 outstanding
balances, as previously reported in accordance with the FFIEC's cross-border
definition at that time, for each foreign country where such outstandings
exceeded one percent of total assets.
Table 14 Cross-Border Claims Outstanding (excluding net revaluation gains on
FX and derivatives)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Governments Banks and
% of and Other Commercial
Total Total Official Financial and
($ in millions) Outstandings Assets Institutions Institutions Industrial Other
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At December 31, 1997
Japan(1) $4,222 3.01% $ 881 $2,364 $ 977 --
Spain 3,290 2.35 302 2,734 254 --
France 2,948 2.10 2 2,696 250 --
Brazil(2) 1,915 1.37 809 587 519 --
Germany 1,890 1.35 281 1,450 159 --
Canada 1,509 1.08 264 890 353 2
=============================================================================================================================
At December 31, 1996
United Kingdom $3,904 3.19% $ 12 $3,461 $ 430 $ 1
Switzerland 3,598 2.94 -- 3,332 266 --
France 3,485 2.84 63 3,005 416 1
Spain 2,670 2.18 960 1,667 43 --
Japan(1) 2,523 2.06 477 979 1,067 --
Germany 1,700 1.39 537 758 405 --
Mexico(3) 1,332 1.09 676 329 327 --
Italy 1,285 1.05 751 384 150 --
Brazil(2) 1,266 1.03 569 454 243 --
=============================================================================================================================
At December 31, 1995
Japan(1) $2,844 2.68% $ 456 $1,393 $ 987 $ 8
France 2,150 2.02 291 1,615 244 --
United Kingdom 1,945 1.83 19 1,448 478 --
Spain 1,877 1.77 1,338 494 44 1
Italy 1,522 1.43 1,265 209 48 --
Brazil(2) 1,120 1.05 475 494 151 --
=============================================================================================================================
</TABLE>
(1) The Corporation's cross-border outstandings with Japan primarily consisted
of interest-bearing deposits with banks and trading assets carried at fair
value.
(2) The Corporation's cross-border outstanding as presented above for Brazil
primarily consisted of trading assets which are carried at fair value.
(3) The Corporation's cross-border outstandings for Mexico primarily consisted
of trading assets carried at fair value and securities purchased under
resale agreements.
On this basis, Switzerland is the only country whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1997. The aggregate cross-border outstandings for Switzerland
amounted to $1.3 billion, or .95 percent of total assets.
Hong Kong and Canada were the only countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1996. The aggregate cross-border outstandings for these countries
amounted to $1.1 billion, or .92 percent of total assets for Hong Kong and $914
million, or .75 percent of total assets for Canada.
Mexico, Germany and Belgium were the only countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1995. The aggregate cross-border outstandings for these countries
amounted to $1.0 billion, or .96 percent of total assets for Mexico (a majority
of which consisted of trading assets carried at fair value), $939 million, or
.88 percent of total assets for Germany, and $840 million, or .79 percent of
total assets for Belgium.
The following table details the cash basis loans of the outstandings for
those countries presented in Tables 13 and 14.
Cash Basis
($ in millions) Loans
- --------------------------------------------------------------------------------
At December 31, 1997
Indonesia $10
Spain 2
- --------------------------------------------------------------------------------
Total $12
================================================================================
At December 31, 1996
Italy $ 3
Spain 2
- --------------------------------------------------------------------------------
Total $ 5
================================================================================
At December 31, 1995
Italy $16
- --------------------------------------------------------------------------------
Total $16
================================================================================
There were no cross-border renegotiated loans for the years ended December
31, 1997, 1996 and 1995.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
Acquisition
On December 2, 1997, the Corporation announced that it had signed a definitive
agreement with National Westminster Bank PLC to acquire NatWest Markets'
Pan-European cash equities business.
The acquisition is expected to be completed by the second quarter of 1998
and is subject to certain closing conditions, including regulatory approvals.
The transaction will be accounted for as a purchase and is expected to be
accretive to the Corporation's earnings per share beginning in 1998.
Accounting Developments
In December 1996, the FASB issued SFAS 127 which deferred for one year the
effective date of some portions of SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The deferred
provisions relate to collateral, repurchase agreements, dollar-rolls, securities
lending and similar transactions. The adoption as of January 1, 1998 of the
deferred portions of SFAS 125 will not have a material impact on the
Corporation's net income, stockholders' equity or total assets.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS 130 also requires that a
company classify items of other comprehensive income by their nature in a
financial statement, and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
stockholders' equity section of a statement of financial position.
SFAS 130 is effective for financial statement periods beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statement periods beginning after
December 15, 1997. Comparative information for earlier years is to be restated.
SFAS 131 need not be applied to interim financial statements in the initial year
of its application.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
38
<PAGE>
Financial Reports
Section
Financial Statements
CONSOLIDATED STATEMENT
OF INCOME 40
CONSOLIDATED BALANCE SHEET 41
CONSOLIDATED STATEMENT
OF CHANGES IN
STOCKHOLDERS' EQUITY 42
CONSOLIDATED STATEMENT
OF CASH FLOWS 43
NOTES TO FINANCIAL
STATEMENTS 44
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR
FINANCIAL REPORTING 79
REPORTS OF
INDEPENDENT AUDITORS 80
Supplemental Financial Data
CONDENSED QUARTERLY
CONSOLIDATED STATEMENT
OF INCOME 82
STOCKHOLDER DATA 82
AVERAGE BALANCES, INTEREST
AND AVERAGE RATES 83
VOLUME/RATE ANALYSIS
OF CHANGES IN NET
INTEREST REVENUE 85
INTEREST RATE SENSITIVITY 86
DEPOSITS 87
10-K Report
This Annual Report includes the Corporation's SEC Report on Form 10-K. However,
portions of the Annual Report, such as pages 1-9, are not required by the Form
10-K report and are not part of the Corporation's Form 10-K. Only those sections
of the Annual Report referenced in the cross-reference index on page 93 are
incorporated in the Form 10-K.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
39
<PAGE>
CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data)
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Net Interest Revenue
Interest revenue $7,285 $6,508 $5,989
Interest expense 5,926 5,451 5,105
- --------------------------------------------------------------------------------
Net Interest Revenue 1,359 1,057 884
Provision for credit losses 30 5 31
- --------------------------------------------------------------------------------
Net Interest Revenue after Provision for Credit Losses 1,329 1,052 853
- --------------------------------------------------------------------------------
Noninterest Revenue
Trading 1,085 1,014 481
Fiduciary and funds management 1,059 876 764
Corporate finance fees 1,113 922 691
Other fees and commissions 606 534 479
Net revenue from equity investment transactions 224 230 153
Securities available for sale gains 158 75 180
Insurance premiums 287 230 234
Other 359 236 147
- --------------------------------------------------------------------------------
Total noninterest revenue 4,891 4,117 3,129
- --------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions 1,273 1,154 1,045
Incentive compensation and employee benefits 1,726 1,216 832
Agency and other professional service fees 391 321 327
Communication and data services 231 237 220
Occupancy, net 181 174 177
Furniture and equipment 224 186 177
Travel and entertainment 142 113 104
Provision for policyholder benefits 333 280 271
Other 423 357 310
Restructuring charges 57 -- 50
- --------------------------------------------------------------------------------
Total noninterest expenses 4,981 4,038 3,513
- --------------------------------------------------------------------------------
Income before income taxes 1,239 1,131 469
Income taxes 373 365 158
- --------------------------------------------------------------------------------
Net Income $ 866 $ 766 $ 311
================================================================================
Net Income Applicable to Common Stock* $ 817 $ 715 $ 260
Earnings per Common Share:
Basic $ 8.15 $ 7.12 $ 2.62
================================================================================
Diluted $ 7.66 $ 6.76 $ 2.54
================================================================================
Cash dividends declared per common share $ 4.00 $ 4.00 $ 4.00
================================================================================
* Amounts shown are used to calculate basic earnings per common share.
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
40
<PAGE>
CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,188 $ 1,568
Interest-bearing deposits with banks 4,272 2,210
Federal funds sold 1,382 1,684
Securities purchased under resale agreements 19,163 18,002
Securities borrowed 16,751 17,005
Trading assets:
Government securities 11,397 16,849
Corporate debt securities 8,128 8,033
Equity securities 7,914 6,089
Swaps, options and other derivatives, net 17,673 11,220
Other trading assets 11,460 6,748
- -------------------------------------------------------------------------------------------------------------
Total trading assets 56,572 48,939
Securities available for sale 8,081 7,920
Loans, net 19,106 15,107
Customer receivables 1,547 1,529
Due from customers on acceptances 633 597
Accounts receivable and accrued interest 4,785 3,032
Other assets 5,622 4,950
- -------------------------------------------------------------------------------------------------------------
Total $ 140,102 $ 122,543
=============================================================================================================
Liabilities
Noninterest-bearing deposits
Domestic offices $ 2,776 $ 2,600
Foreign offices 1,952 1,013
Interest-bearing deposits
Domestic offices 22,353 9,928
Foreign offices 15,749 16,774
- -------------------------------------------------------------------------------------------------------------
Total deposits 42,830 30,315
Trading liabilities:
Securities sold, not yet purchased
Government securities 4,389 7,668
Equity securities 5,273 4,174
Other trading liabilities 519 334
Swaps, options and other derivatives 17,065 11,585
- -------------------------------------------------------------------------------------------------------------
Total trading liabilities 27,246 23,761
Securities loaned and securities sold
under repurchase agreements 17,896 23,454
Other short-term borrowings 19,577 19,409
Acceptances outstanding 633 597
Accounts payable and accrued expenses 6,536 4,792
Other liabilities 3,617 2,049
Long-term debt not included in risk-based capital 11,275 8,732
Long-term debt included in risk-based capital 3,312 2,576
Mandatorily redeemable capital securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures included in risk-based capital 1,472 730
- -------------------------------------------------------------------------------------------------------------
Total liabilities 134,394 116,415
=============================================================================================================
Commitments and contingent liabilities (Notes 7 and 23)
Preferred Stock of Subsidiary -- 250
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 658 810
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued: 1997, 105,378,741 shares;
1996, 103,624,555 shares; 105 104
Capital surplus 1,563 1,437
Retained earnings 4,202 3,988
Common stock in treasury, at cost: 1997, 8,422,401 shares;
1996, 4,435,226 shares (889) (372)
Other stockholders' equity 69 (89)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,708 5,878
- -------------------------------------------------------------------------------------------------------------
Total $ 140,102 $ 122,543
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
41
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, beginning of year $ 810 $ 865 $ 395
Preferred stock issued 1 1 470
Preferred stock repurchased (8) (56) --
Preferred stock redeemed (145) -- --
- ---------------------------------------------------------------------------------------
Balance, end of year 658 810 865
- ---------------------------------------------------------------------------------------
Common Stock
Balance, beginning of year 104 103 101
Issuance of common stock 1 1 2
- ---------------------------------------------------------------------------------------
Balance, end of year 105 104 103
- ---------------------------------------------------------------------------------------
Capital Surplus
Balance, beginning of year 1,437 1,386 1,371
Issuance of common stock 59 19 26
Repurchase and retirement of common stock (6) (16) --
Preferred stock issuance and conversion costs -- -- (17)
Common stock distributed under employee benefit plans 73 41 6
Preferred stock repurchased -- 7 --
- ---------------------------------------------------------------------------------------
Balance, end of year 1,563 1,437 1,386
- ---------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 3,988 3,702 3,796
Net income 866 766 311
Cash dividends declared
Preferred stock (50) (58) (47)
Common stock (366) (335) (326)
Treasury stock distributed under employee benefit plans (236) (80) (32)
Treasury stock associated with acquisition -- (7) --
- ---------------------------------------------------------------------------------------
Balance, end of year 4,202 3,988 3,702
- ---------------------------------------------------------------------------------------
Common Stock in Treasury, at cost
Balance, beginning of year (372) (336) (416)
Purchases of stock (1,038) (608) (38)
Restricted stock granted, net (4) 37 54
Treasury stock distributed under employee benefit plans 525 325 64
Treasury stock associated with acquisition -- 210 --
- ---------------------------------------------------------------------------------------
Balance, end of year (889) (372) (336)
- ---------------------------------------------------------------------------------------
Common Stock Issuable--Stock Awards
Balance, beginning of year 526 233 160
Deferred stock awards granted, net 401 294 89
Deferred stock distributed (26) (1) (16)
- ---------------------------------------------------------------------------------------
Balance, end of year 901 526 233
- ---------------------------------------------------------------------------------------
Deferred Compensation--Stock Awards
Balance, beginning of year (308) (151) (63)
Deferred stock awards granted, net (394) (293) (88)
Restricted stock granted, net (10) (38) (48)
Amortization of deferred compensation, net 274 174 48
- ---------------------------------------------------------------------------------------
Balance, end of year (438) (308) (151)
- ---------------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance, beginning of year (364) (348) (336)
Translation adjustments 78 (40) (3)
Income taxes applicable to translation adjustments (76) 24 (9)
- ---------------------------------------------------------------------------------------
Balance, end of year (362) (364) (348)
- ---------------------------------------------------------------------------------------
Securities Valuation Allowance
Balance, beginning of year 57 19 69
Change in unrealized net gains, after applicable
income taxes and minority interest (89) 38 (50)
- ---------------------------------------------------------------------------------------
Balance, end of year (32) 57 19
- ---------------------------------------------------------------------------------------
Total stockholders' equity, end of year $ 5,708 $ 5,878 $ 5,473
=======================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
42
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 866 $ 766 $ 311
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for credit losses 30 5 31
Provision for policyholder benefits 333 280 271
Restructuring charges 57 -- 50
Deferred income taxes (272) 72 (270)
Depreciation and other amortization and accretion 415 280 165
Other, net (61) (108) (69)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings adjusted for noncash charges and credits 1,368 1,295 489
Net change in:
Trading assets (8,855) (2,742) (1,392)
Trading liabilities 4,525 (2,361) 5,857
Receivables and payables from securities transactions 477 1,196 (1,035)
Customer receivables (18) (41) (293)
Other operating assets and liabilities, net (79) (1,073) 30
Securities available for sale gains (158) (75) (180)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (2,740) (3,801) 3,476
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net change in:
Interest-bearing deposits with banks (2,171) (217) 1,194
Federal funds sold 302 (830) 1,690
Securities purchased under resale agreements (1,197) (4,750) (6,401)
Securities borrowed 254 (5,697) (1,778)
Loans (4,637) (2,914) (279)
Securities available for sale:
Purchases (6,430) (5,910) (4,164)
Maturities and other redemptions 3,845 3,191 3,875
Sales 1,511 1,571 1,871
Acquisitions of premises and equipment (237) (215) (148)
Other, net 911 105 (93)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,849) (15,666) (4,233)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in:
Deposits 12,651 4,708 833
Securities loaned and securities sold under repurchase agreements (5,399) 8,334 (492)
Other short-term borrowings 1,125 3,425 (2,198)
Issuances of long-term debt* 9,645 4,262 4,786
Repayments of long-term debt (5,188) (1,312) (1,634)
Issuances of common stock 48 19 15
Repurchase and retirement of common stock (6) (17) (1)
Issuances of preferred stock -- -- 221
Redemptions of preferred stock of subsidiary (250) -- --
Redemptions and repurchases of preferred stock (152) (49) --
Purchases of treasury stock (1,038) (608) (38)
Cash dividends paid (397) (392) (372)
Other, net 248 258 34
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,287 18,628 1,154
- ------------------------------------------------------------------------------------------------------------------------------
Net effect of exchange rate changes on cash (78) 8 (7)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Due from Banks 620 (831) 390
Cash and due from banks, beginning of year 1,568 2,399 2,009
- ------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year $ 2,188 $ 1,568 $ 2,399
==============================================================================================================================
Interest paid $ 5,515 $ 5,513 $ 5,110
==============================================================================================================================
Income taxes paid, net $ 260 $ 329 $ 282
==============================================================================================================================
Noncash investing activities:
Conversions of loans to other real estate and assets acquired in credit workouts $ 64 $ 24 $ 24
Exchanges of Chilean government bonds for annuity contracts 57 76 88
Other** -- 203 --
- ------------------------------------------------------------------------------------------------------------------------------
Total noncash investing activities $ 121 $ 303 $ 112
==============================================================================================================================
Noncash financing activity: conversion of debt to equity $ 63 $ 3 $ 259
==============================================================================================================================
</TABLE>
* Includes $739 million and $730 million related to mandatorily redeemable
capital securities of subsidiary trusts holding solely junior subordinated
deferrable interest debentures included in risk-based capital for the
years ended December 31, 1997 and 1996, respectively.
** 1996 amount related to treasury stock associated with acquisition.
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1--Merger
On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was merged into a
wholly-owned subsidiary of Bankers Trust New York Corporation (the "Merger"). In
conjunction with the Merger, approximately 22 million shares of common stock
were issued in exchange for all the outstanding shares of Alex. Brown's common
stock (based on an exchange ratio of 0.83 shares of Bankers Trust New York
Corporation's common stock for each share of Alex. Brown's common stock). The
Merger was treated as a tax free exchange.
The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling-of-interests. The
pooling-of-interests method of accounting requires the restatement of all
periods presented as if Alex. Brown and Bankers Trust New York Corporation
together with its subsidiaries (the "Corporation" or the "Firm") had always been
combined. The consolidated statement of changes in stockholders' equity reflects
the accounts of the Corporation as if the additional common stock had been
issued during all the periods presented.
The Corporation recognized $57 million in restructuring charges as a
result of the Merger, such as severance, lease terminations and direct costs of
completing the Merger. At December 31, 1997, $18 million relating to these
charges were classified as accounts payable and accrued expenses.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow.
Eight Months
Ended
August 31, Year Ended Year Ended
1997 December December
($ in millions) (Unaudited) 31, 1996 31, 1995
- --------------------------------------------------------------------------------
Total Net Revenue*
Bankers Trust New York Corporation $3,406 $4,160 $3,209
Alex. Brown Incorporated 661 1,009 773
- --------------------------------------------------------------------------------
Combined $4,067 $5,169 $3,982
================================================================================
Net Income
Bankers Trust New York Corporation $ 491 $ 612 $ 215
Alex. Brown Incorporated 79 154 96
- --------------------------------------------------------------------------------
Combined $ 570 $ 766 $ 311
================================================================================
* Net interest revenue after provision for credit losses plus noninterest
revenue.
Note 2--Significant Accounting Policies
The Corporation is a global provider of a wide range of financial services. The
accounting policies of the Corporation conform with generally accepted
accounting principles and prevailing industry practices. The preparation of
financial statements in conformity with generally accepted accounting principles
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 balance sheet date, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
management's estimates. The following is a description of the significant
accounting policies of the Corporation.
Principles of Consolidation
The consolidated financial statements of the Corporation include Bankers Trust
New York Corporation (the "Parent Company"), Bankers Trust Company and its
subsidiaries ("BTCo") and all other significant, majority-owned subsidiaries,
after elimination of material intercompany transactions and accounts.
Investments in other companies over which the Corporation has significant
influence are accounted for using the equity method of accounting. These
investments are reported in other assets and the related equity income or loss,
as well as disposition gains and losses, is included in noninterest revenue.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at current exchange rates. For operations using the U.S. dollar or
the currency of a highly inflationary economy as their functional currency,
translation gains and losses are generally reported in noninterest revenues.
Translation gains and losses for operations using any other currency as their
functional currency are reported, net of tax effects, in stockholders' equity as
cumulative translation adjustments.
Resale and Repurchase Agreements; Securities Borrowed and Loaned
Resale and repurchase agreements and securities borrowed and loaned are
generally treated as collateralized financings and are carried at the amount of
cash disbursed or received. The Corporation offsets resale and repurchase
agreements which meet the applicable netting criteria.
Generally, the party disbursing the cash takes possession of the
securities serving as collateral for the financing. Securities borrowed or
purchased under resale agreements consist primarily of U.S. government and
federal agency securities and OECD country sovereign bonds.
The Corporation monitors the fair value of the securities received or
sent. For securities borrowed or purchased under resale agreements, the
Corporation requests additional securities or the return of a portion of the
cash disbursed when appropriate in response to a decline in the market value of
the securities received. Similarly, the return of excess securities or
additional cash is requested when appropriate in response to an increase in the
market value of securities lent or sold under repurchase agreements.
Trading Securities; Securities Available for Sale
The Corporation designates debt and marketable equity securities as either held
for trading purposes or available for sale at the date of acquisition.
Debt and marketable equity securities, loans and money market instruments
that are classified as trading assets, as well as short trading positions which
are classified as trading liabilities, are carried at their fair values and
related gains and losses are included in trading revenue.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
Securities available for sale are carried at fair value with the changes
in fair value, net of applicable deferred income taxes, recorded in
stockholders' equity as securities valuation allowance. Realized gains and
losses, as well as the amortization of premiums and accretion of discounts, are
recorded in earnings. The specific identification method is used to determine
the cost of securities sold.
Fair value is generally based on quoted market prices, price quotes from
brokers or dealers or discounted expected cash flows.
Nonmarketable Equity Investments
Nonmarketable equity investments, which include venture capital activities, are
included in other assets and carried at cost, net of other-than-temporary
impairment losses.
Derivatives
The Corporation enters into swaps, futures contracts, forward commitments,
options and other similar types of contracts and commitments based on interest
and foreign exchange rates, and equity and commodity prices, for trading
purposes. Such positions are carried at their fair values as either trading
assets or trading liabilities. Fair values for derivatives are based on quoted
market prices or pricing models which take into account current market and
contractual prices of the underlying instruments as well as time value and yield
curve or volatility factors underlying the positions. Fair values also take into
account expected market risks, administrative costs and credit considerations.
Unrealized gains and losses are reported as assets and liabilities,
respectively, and those arising from contracts covered by qualifying master
netting agreements are reported on a net basis. Gains and losses resulting from
trading positions are included in trading revenue.
In addition to its trading activities, the Corporation, as an end user,
enters into various types of derivative transactions (principally interest rate
and currency swaps) to manage the interest rate, currency and other market risks
arising from a number of categories of its assets and liabilities. Hedge
accounting, as described below, is applied to derivatives used to manage such
risks. To qualify for hedge accounting, the derivative contract must be
designated as a hedge at its inception and must remain effective as a hedge
throughout its term.
The accounting for end-user derivatives follows that of the underlying
item being hedged. Thus, net interest revenue is accrued or amortized for
interest rate contracts, and in addition, hedges of securities available for
sale are carried at fair value with changes in fair value due to market price
changes reported in stockholders' equity as securities valuation allowance.
Foreign exchange rate contracts used to hedge foreign-currency-denominated
assets and liabilities are translated at spot rates with the resulting gains and
losses reported in noninterest revenue or securities valuation allowance, and
the discounts or premiums on these contracts are accrued to net interest
revenue. Translation gains and losses, as well as the accretion of discount and
amortization of premium on foreign exchange rate contracts used to hedge net
investments in foreign entities are reported in stockholders' equity as
cumulative translation adjustments. Hedges of nonmarketable equity securities
are carried at cost. The book values of end-user derivatives are reported in
other assets or other liabilities.
Realized gains and losses on terminated hedges where the underlying hedged
items are still outstanding are deferred and, except for hedges carried at cost,
are amortized to net interest revenue over the remaining term of the hedge or
hedged item, whichever is shorter. Any time the underlying item is also
terminated, the remaining deferred amounts related to the terminated hedge are
recognized and reported consistently with the realized gain or loss on the
underlying item.
Derivatives that do not qualify for hedge accounting are considered to be
trading positions and are accounted for as such.
Loans, Other Real Estate and Other Nonperforming Assets
Loans generally are stated at their outstanding unpaid principal balances net of
any deferred fees on originated loans, and net of any unamortized premiums or
discounts on purchased loans. Interest revenue is accrued on the unpaid
principal balance. Net deferred fees and premiums or discounts are recognized as
an adjustment of the yield (interest revenue) over the lives of the related
loans.
Loans are accounted for on a cash basis once principal or interest
payments are past due 90 days or earlier if considered appropriate by
management. In addition, all loans classified as doubtful and all partially
charged-off loans are accounted for on a cash basis even if the borrower is
still making required payments. Any accrued but unpaid interest previously
recorded on cash basis loans is reversed against current period interest
revenue. Cash receipts of interest on cash basis loans are recorded as either
revenue or a reduction of principal according to management's judgment as to the
collectibility of principal.
Renegotiated loans are those which have been renegotiated to an effective
interest rate lower than the then-current market rate because of a deterioration
in the financial position of the borrower. Interest on such loans is accrued at
the renegotiated rate.
Derivative contracts are classified as nonperforming when payments are
past due 90 days or earlier based upon management's judgment. Thereafter, the
contracts are accounted for at the lower of adjusted cost or fair value with any
decline in fair value charged to trading revenue.
Assets acquired in credit work-outs, including real estate, are recorded
at the lower of fair value less costs to sell or the recorded investment in the
related loan and are classified as other assets. Any excess of the recorded
investment in the loan over the fair value of the asset acquired is charged
against the allowance for credit losses.
Allowance For Credit Losses
The allowance for credit losses is available for credit losses arising from the
Corporation's portfolio of loans, credit-related commitments, derivatives and
other financial instruments. A multitude of complex and changing factors are
collectively weighed by management in determining the adequacy of the allowance.
These factors
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
include management's review of the extent of existing risks in the portfolio and
prevailing economic conditions, evaluations of the quality of the portfolio and
the actual loss experience compared to the level of the allowance. Assessing the
adequacy of the allowance for credit losses is inherently subjective as it
requires making material estimates, including the amount and timing of expected
future cash flows, that may be susceptible to significant change. Amounts deemed
uncollectible are charged off and subsequent recoveries, if any, are credited to
the allowance.
Included in the allowance for credit losses is a valuation allowance for
impaired loans. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the loan's contractual terms. Impairment loss is measured based on
one of the following: the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's observable market price or the
fair value of the collateral if the loan is collateral-dependent.
The Corporation allocates and reports its total allowance for credit
losses as a reduction of loans, a reduction of trading assets for derivatives
and as other liabilities for other credit-related items. Due to the inherent
subjectivity in assessing the adequacy of the allowance for credit losses
discussed above, management expects that the allocation of the total allowance
for credit losses may be adjusted as risk factors change. In the opinion of
management, the total allowance is adequate to absorb reasonably estimated
credit losses inherent in the Corporation's entire portfolio.
Customer Receivables
Customer receivables include amounts due on uncompleted transactions and margin
balances. Securities owned by customers and held as collateral for these
receivables are not reflected in the financial statements.
Premises and Equipment
Premises and equipment owned are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the terms of the leases or the estimated useful
lives of the improvements, whichever are shorter. Maintenance and repairs are
charged to expense and improvements are capitalized. Gains and losses on
dispositions are reflected in earnings.
Leased properties meeting certain criteria are capitalized and amortized
using the straight-line method over the terms of the leases.
Insurance Revenue and Expense
For the Corporation's life insurance subsidiaries, premiums are recognized as
revenue over the premium paying period of the related disability, annuity and
other life insurance policies and are recorded in noninterest revenue as
insurance premiums. Liabilities for future insurance benefits and the related
provision for policyholder benefits reflect the present value of actuarially
determined obligations net of future premiums. The liabilities for future
benefits are included in other liabilities and the expense is recorded in
noninterest expenses as provision for policyholder benefits.
Income Taxes
The Corporation recognizes the current and deferred tax consequences of all
transactions that have been recognized in the financial statements using the
provisions of enacted tax laws. Deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences. The
amount of deferred tax assets is reduced, if necessary, to the amount that,
based on available evidence, will more likely than not be realized.
Stock-Based Compensation
The Corporation accounts for its stock option awards under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic
value-based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The Corporation makes pro
forma disclosures of net income and earnings per share as if the fair
value-based method of accounting had been applied under Statement of Financial
Accounting Standards ("SFAS") 123, "Accounting for Stock-Based Compensation."
The Corporation records its obligations under outstanding deferred stock
awards in stockholders' equity as common stock issuable-stock awards. The
related deferred compensation is also included in stockholders' equity. These
classifications are based upon the Corporation's intent to settle these awards
with its common stock.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Corporation's cash
and cash equivalents are cash and due from banks. Net cash flows from
instruments such as futures, forwards, options and swaps used to hedge assets or
liabilities are classified as cash flows from operating activities.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
presentation.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
Note 3--Trading Assets and Trading Liabilities
The components of these accounts, which are carried at fair value, were as
follows:
(in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Trading assets
U.S. government and agency securities $ 4,096 $ 7,633
Obligations of U.S. states and political subdivisions 350 393
Foreign government securities 6,951 8,823
Corporate debt securities 8,128 8,033
Equity securities 7,914 6,089
Swaps, options and other derivative contracts, net (1)(2) 17,673 11,220
Bankers acceptances and certificates of deposit 2,741 2,548
Other 8,719 4,200
- --------------------------------------------------------------------------------
Total trading assets $56,572 $48,939
================================================================================
Trading liabilities
Securities sold, not yet purchased
U.S. government and agency securities $ 1,660 $ 4,921
Foreign government securities 2,729 2,747
Equity securities 5,273 4,174
Other 519 334
Swaps, options and other derivative contracts(1) 17,065 11,585
- --------------------------------------------------------------------------------
Total trading liabilities $27,246 $23,761
================================================================================
(1) Comprised of fair values of interest rate instruments, foreign exchange
rate instruments, and equity and commodity instruments, reduced by the
effects of master netting agreements, in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts."
(2) Net of allowance for credit losses of $285 million at December 31, 1997
and $190 million as of December 31, 1996.
Note 4--Securities Available for Sale
The fair value, amortized cost, and gross unrealized holding gains and losses
for the Corporation's securities available for sale follow:
<TABLE>
<CAPTION>
(in millions) December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Holding Holding Holding
Fair ------------- Amortized Fair ------------- Amortized Fair ------------- Amortized
Value Gains (Losses) Cost Value Gains (Losses) Cost Value Gains (Losses) Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. government and agencies $ 525 $ 3 $ -- $ 522 $ 332 $ -- $ -- $ 332 $ 431 $ 2 $ (5) $ 434
States of the U.S. and
political subdivisions 1,392 78 (50) 1,364 1,261 51 (37) 1,247 1,387 66 (56) 1,377
Asset-backed(1) 156 -- -- 156 1,352 1 (1) 1,352 1,198 4 (6) 1,200
Certificates of deposit 135 -- -- 135 -- -- -- -- -- -- -- --
Foreign governments 2,122 5 (46) 2,163 1,455 33 (4) 1,426 1,669 14 (11) 1,666
Corporate debt 3,135 1 (61) 3,195 2,872 22 (26) 2,876 1,179 13 (17) 1,183
Mortgage-backed 113 -- -- 113 12 -- -- 12 9 -- -- 9
Equity securities 503 41 (18) 480 636 138 (12) 510 410 83 (8) 335
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $8,081 $128 $(175) $8,128 $7,920 $245 $(80) $7,755 $6,283 $182 $(103) $6,204
====================================================================================================================================
</TABLE>
(1) The decrease in fair value between 1997 and 1996 was due to a transfer of
approximately $1.1 billion from the securities available for sale
portfolio to trading account assets. This transfer was a result of a
change in risk management strategies.
Except for securities of the Government of Chile, there were no securities
of any individual issuer included in securities available for sale that exceeded
10 percent of the Corporation's total stockholders' equity at December 31, 1997.
The Chilean securities are part of the portfolio of Consorcio having an
amortized cost and a fair value of $627 million and $604 million, respectively.
The components of securities available for sale gains as reported in the
consolidated statement of income follow:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Debt securities--gross realized gains $ 53 $ 39 $ 28
Debt securities--gross realized losses (18) (11) (27)
Equity securities--net realized gains 123 47 179
- --------------------------------------------------------------------------------
Total securities available for sale gains $ 158 $ 75 $ 180
================================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
The following table shows the fair value, remaining maturities,
approximate weighted-average yields (based on amortized cost) and total
amortized cost by maturity distribution of the debt components of the
Corporation's securities available for sale at December 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Maturity Distribution
-------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After Mortgage-
One Year Five Years Ten Years Ten Years Backed Total
- ------------------------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and agencies $ 125 5.80% $ 388 6.33% $ -- --% $ 12 6.07% $ -- --% $ 525 6.20%
States of the U.S. and political
subdivisions 20 6.34 103 6.45 578 5.44 691 6.00 -- -- 1,392 5.81
Asset-backed securities 23 6.24 77 6.18 56 6.13 -- -- -- -- 156 6.17
Certificates of deposit 50 7.75 85 6.40 -- -- -- -- -- -- 135 6.90
Foreign government securities 925 12.45 552 4.69 383 6.55 262 6.69 -- -- 2,122 8.63
Corporate debt securities 1,625 7.81 1,100 6.02 307 4.96 103 6.62 -- -- 3,135 6.84
Mortgage-backed securities -- -- -- -- -- -- -- -- 113 7.94 113 7.94
- ------------------------------------------------------------------------------------------------------------------------------------
Total fair value $2,768 $2,305 $1,324 $1,068 $113 $7,578
========================================= ====== ====== ====== ==== ======
Total amortized cost $2,786 $2,346 $1,343 $1,060 $113 $7,648
========================================= ====== ====== ====== ==== ======
</TABLE>
Note 5--Loans
The following table summarizes the composition of loans at the end of each of
the last five years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
($ in millions) December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 4,244 21% $ 3,422 21% $ 2,520 20% $ 2,218 18% $ 2,794 18%
Financial institutions 2,148 11 1,631 10 1,778 14 2,221 17 3,210 21
Real estate
Construction 108 1 133 1 154 1 234 2 245 2
Mortgage 2,088 10 1,562 10 1,276 10 1,126 9 1,550 10
Other 1,427 7 1,436 9 1,490 11 1,078 8 1,809 12
- ----------------------------------------------------------------------------------------------------------------------------
Total domestic 10,015 50 8,184 51 7,218 56 6,877 54 9,608 63
- ----------------------------------------------------------------------------------------------------------------------------
International
Governments and official
institutions 252 1 237 1 227 2 184 2 456 3
Banks and other financial
institutions 3,175 16 3,482 22 1,543 13 2,994 24 1,935 12
Commercial and industrial 4,931 25 2,759 17 1,934 15 1,428 11 1,721 11
Real estate
Construction -- -- -- -- 2 -- 2 -- 2 --
Mortgage 195 1 130 1 176 1 138 1 261 2
Other 1,402 7 1,290 8 1,701 13 1,014 8 1,346 9
- ----------------------------------------------------------------------------------------------------------------------------
Total international 9,955 50 7,898 49 5,583 44 5,760 46 5,721 37
- ----------------------------------------------------------------------------------------------------------------------------
Gross loans 19,970 100% 16,082 100% 12,801 100% 12,637 100% 15,329 100%
=== === === === ===
Less: unearned income 165 202 120 102 100
- ------------------------------------- ------- ------- ------- -------
Total loans $19,805 $15,880 $12,681 $12,535 $15,229
===================================== ======= ======= ======= =======
</TABLE>
On a global basis, the commercial and industrial category and the "other"
category included no single industry group with aggregate borrowings from the
Corporation in excess of 10 percent of the total loan portfolio at December 31,
1997.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
Certain maturity information for the Corporation's loans at December 31,
1997, excluding 1-4 family mortgages, installment loans and lease financing is
summarized below. Actual maturities may differ from contractual maturities since
borrowers may have the right to prepay obligations with or without prepayment
penalties.
Remaining Maturity
- --------------------------------------------------------------------------------
Within After One After
One But Within Five
(in millions) Year Five Years Years Total
- --------------------------------------------------------------------------------
Domestic
Commercial and industrial $ 510 $ 2,844 $ 890 $ 4,244
Financial institutions 1,909 195 44 2,148
Real estate
Construction 14 94 -- 108
Mortgage 383 1,228 290 1,901
Other 711 377 55 1,143
- --------------------------------------------------------------------------------
Total domestic 3,527 4,738 1,279 9,544
International 6,706 2,380 228 9,314
- --------------------------------------------------------------------------------
Total $10,233 $ 7,118 $ 1,507 $18,858
================================================================================
Loans due after one year
With predetermined interest rates $1,726 $404
=====================================================================
With floating or adjustable
interest rates $5,392 $1,103
=====================================================================
Cash Basis Loans and Renegotiated Loans
The Corporation's cash basis loans and renegotiated loans are summarized as
follows:
(in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Cash basis loans
Domestic $141 $350
International 99 102
- --------------------------------------------------------------------------------
Total cash basis loans $240 $452
================================================================================
Domestic renegotiated loans(1) $ 25 $ 37
================================================================================
(1) The Corporation had no international renegotiated loans at December 31,
1997 and 1996.
At December 31, 1997 and December 31, 1996, the Corporation had
commitments to make additional loans to borrowers on a cash basis or
renegotiated status of $11 million and $26 million, respectively.
The following table sets forth the approximate effect on interest revenue
of cash basis loans and renegotiated loans. This disclosure reflects the
interest on loans which were carried on the balance sheet and classified as
either cash basis or renegotiated at December 31 of each year. The rates used in
determining the gross amount of interest which would have been recorded at the
original rate were not necessarily representative of current market rates.
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic loans
Gross amount of interest that would
have been recorded at original rate $16 $38 $64
Less, interest, net of reversals,
recognized in interest revenue 3 7 13
- --------------------------------------------------------------------------------
Reduction of interest revenue 13 31 51
- --------------------------------------------------------------------------------
International loans
Gross amount of interest that would
have been recorded at original rate 5 9 15
Less, interest, net of reversals,
recognized in interest revenue -- -- --
- --------------------------------------------------------------------------------
Reduction of interest revenue 5 9 15
- --------------------------------------------------------------------------------
Total reduction of interest revenue $18 $40 $66
================================================================================
On January 1, 1995, the Corporation adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan." This statement, as amended by SFAS 118,
"Accounting for Impairment of a Loan--Income Recognition and Disclosures,"
requires the creation of a valuation allowance for impaired loans. A loan is
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the loan's
contractual terms. At December 31, 1997 and December 31, 1996, the recorded
investment in loans that was considered to be impaired under SFAS 114 was $265
million and $489 million, respectively, which consisted of total cash basis
loans and renegotiated loans. Included in these amounts were $78 million and
$227 million of loans which required a valuation allowance of $13 million and
$57 million at those same dates, respectively. The average recorded investment
in impaired loans during the years ended December 31, 1997 and December 31, 1996
was approximately $356 million and $633 million, respectively. For the years
ended December 31, 1997, December 31, 1996 and December 31, 1995, the
Corporation recognized interest income on impaired loans of $3 million, $7
million and $13 million, respectively, using the cash basis method of income
recognition described above and in Note 2.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
Note 6--Allowance for Credit Losses
An analysis of the changes in the Corporation's allowance for credit losses
follows:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Balance, beginning of year $ 973 $ 992 $1,252
- --------------------------------------------------------------------------------
Net charge-offs
Charge-offs 107 89 330
Recoveries 84 65 39
- --------------------------------------------------------------------------------
Total net charge-offs 23 24 291
Provision for credit losses 30 5 31
Allowance related to acquisition 17 -- --
- --------------------------------------------------------------------------------
Balance, end of year (1) $ 997 $ 973 $ 992
================================================================================
(1) Allocation*:
Loans $ 699 $ 773
Trading assets 285 190
Other liabilities 13 10
- --------------------------------------------------------------------
Balance, end of year $ 997 $ 973
====================================================================
* Beginning December 31, 1996, the Corporation has allocated its total
allowance for credit losses as a reduction of loans, a reduction of
trading assets, and as other liabilities. 1995 has not been restated.
Note 7--Premises and Equipment; Leases
An analysis of premises and equipment follows:
(in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Land $ 83 $ 99
Buildings 318 425
Leasehold improvements 373 393
Furniture and equipment 1,142 1,138
Construction-in-progress 17 29
Other -- 3
- --------------------------------------------------------------------------------
Total 1,933 2,087
Less accumulated depreciation and amortization 1,031 1,063
- --------------------------------------------------------------------------------
Net book value $ 902 $1,024
================================================================================
In 1997, 280 Park Avenue, a midtown Manhattan office building that was
previously the headquarters of the Corporation, was sold. The sale of this
property was accompanied by a leaseback of a portion of the building. The
related future minimum lease payments are included in the minimum lease payments
below.
The Corporation is a lessee under lease agreements covering real property
and equipment. The future minimum lease payments required under the
Corporation's noncancelable operating leases at the end of 1997 were as follows:
(in millions) Year Ended December 31,
- --------------------------------------------------------------------------------
1998 $ 90
1999 93
2000 91
2001 78
2002 73
2003 and later 439
- --------------------------------------------------------------------------------
Total minimum lease payments 864
Less minimum noncancelable sublease rentals 11
- --------------------------------------------------------------------------------
Net minimum lease payments $853
================================================================================
The following shows the net rental expense for all operating leases:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Gross rental expense $107 $103 $102
Less sublease rental income 3 3 3
- --------------------------------------------------------------------------------
Net rental expense $104 $100 $ 99
================================================================================
Note 8--Securities Loaned and Securities Sold Under Repurchase Agreements and
Other Short-term Borrowings
Short-term borrowings are borrowed funds generally with an original maturity of
one year or less. Debt instruments which contain a provision for early
redemption, exercisable at the option of the security holder, are classified on
the basis of the earliest possible redemption date.
Securities loaned and securities sold under repurchase agreements and
federal funds purchased generally mature in one day; commercial paper generally
matures within 90 days.
The details of these borrowings for the years 1997, 1996 and 1995 are
presented below:
($ in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Securities loaned and securities sold
under repurchase agreements
Balance at year end $17,896 $23,454 $15,684
Average amount outstanding 23,897 26,964 21,861
Maximum amount outstanding at
any month end 27,878 30,471 28,465
Average interest rate for the year 5.91% 5.93% 5.44%
Average interest rate on year-end balance 5.30% 5.81% 6.21%
Federal funds purchased
Balance at year end $ 3,260 $ 5,475 $ 4,658
Average amount outstanding 4,097 3,684 3,623
Maximum amount outstanding at
any month end 8,444 6,982 6,313
Average interest rate for the year 5.03% 4.97% 5.47%
Average interest rate on year-end balance 5.42% 5.77% 5.07%
Commercial paper
Balance at year end $ 8,733 $ 8,080 $ 6,860
Average amount outstanding 8,881 7,399 7,022
Maximum amount outstanding at
any month end 9,584 9,076 8,239
Average interest rate for the year 5.79% 5.78% 6.25%
Average interest rate on year-end balance 5.94% 5.61% 5.81%
Other
Balance at year end $ 7,584 $ 5,854 $ 4,343
Average amount outstanding 7,190 5,378 5,802
Maximum amount outstanding at
any month end 8,249 6,534 7,079
Average interest rate for the year 6.58% 7.25% 7.03%
Average interest rate on year-end balance 5.93% 6.08% 7.41%
================================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
50
<PAGE>
Note 9--Long-Term Debt
In accordance with the Federal Reserve Board's Capital Adequacy Guidelines,
long-term debt included in risk-based capital must meet specific criteria.
Generally, qualifying debt must be unsecured, subordinated and have an original
weighted-average maturity of at least five years. Additionally, the outstanding
amount of long-term debt included in risk-based capital is reduced as these
issues approach maturity. That is, one-fifth of the original issue is amortized
each year during the last five years before maturity.
Risk-based capital as of December 31, 1997 also includes Tier 3 capital.
Tier 3 capital is defined as subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either principal or interest if the payment would cause
the issuing organization's risk-based capital ratios to fall below the minimum
required level.
Long-term debt included in risk-based capital and other long-term debt are
summarized as follows, based on the contractual terms of each issue:
Long-term debt included in risk-based capital
Dec. 31, Dec. 31,
Subordinated Subordinated 1997 1996
(in millions) Fixed Rate Floating Rate Total Total
- --------------------------------------------------------------------------------
Parent Company
Due in 1997 $ -- $ -- $ -- $ 199
Due in 1998 -- -- -- --
Due in 1999 100 150 250 250
Due in 2000 200 -- 200 200
Due in 2001 210 -- 210 210
Due in 2002 610 96 706 715
Due in 2003-2007 609 292 901 718
Thereafter 1,050 25 1,075 710
- --------------------------------------------------------------------------------
Total $2,779 $ 563 $3,342 $3,002
- --------------------------------------------------------------------------------
BTCo
Due in 1997 $ -- $ -- $ -- $ 24
Due in 1998 25 -- 25 27
Due in 1999 9 -- 9 8
Due in 2000 8 -- 8 7
Due in 2001 7 -- 7 7
Due in 2002 7 -- 7 6
Due in 2003-2007 20 100 120 20
Thereafter -- -- -- --
- --------------------------------------------------------------------------------
Total $ 76 $ 100 $ 176 $ 99
- --------------------------------------------------------------------------------
BT Alex. Brown Incorporated
Due in 1997 $ -- $ -- $ -- $ --
Due in 1998 -- -- -- --
Due in 1999 -- 200 200 --
Due in 2000 -- 200 200 --
Due in 2001 -- -- -- --
Due in 2002 -- -- -- --
Due in 2003-2007 -- -- -- --
Thereafter -- -- -- --
- --------------------------------------------------------------------------------
Total $ -- $ 400 $ 400 $ --
- --------------------------------------------------------------------------------
Total long-term debt $3,918 $3,101
- --------------------------------------------------------------------------------
Less: Amortization for risk-based capital purposes (606) (525)
- --------------------------------------------------------------------------------
Total long-term debt included in risk-based capital $3,312 $2,576
================================================================================
Long-term debt not included in risk-based capital
Subordinated
--------------- Senior Senior Dec. 31, Dec. 31,
Fixed Floating Fixed Floating 1997 1996
(in millions) Rate Rate Rate Rate Total Total
- --------------------------------------------------------------------------------
Parent Company
Due in 1997 $-- $ -- $ -- $ -- $ -- $ 66
Due in 1998 -- -- 104 115 219 522
Due in 1999 -- 50 521 264 835 280
Due in 2000 -- -- 1 525 526 461
Due in 2001 4 -- 269 564 837 849
Due in 2002 -- -- 5 596 601 21
Due in 2003-2007 -- -- 111 136 247 175
Thereafter -- -- -- 7 7 --
- --------------------------------------------------------------------------------
Total $ 4 $ 50 $1,011 $2,207 $ 3,272 $2,374
- --------------------------------------------------------------------------------
BTCo
Due in 1997 $ -- $ -- $ -- $1,611
Due in 1998 133 84 217 403
Due in 1999 13 954 967 140
Due in 2000 1 3,100 3,101 987
Due in 2001 2 654 656 652
Due in 2002 33 666 699 318
Due in 2003-2007 23 728 751 464
Thereafter 4 255 259 162
- --------------------------------------------------------------------------------
Total $ 209 $6,441 $ 6,650 $4,737
- --------------------------------------------------------------------------------
BT Alex. Brown Incorporated
Senior/Junior Subordinated Notes due Feb. 1997 to
Nov. 1999 (issuances qualify as risk-based
capital during 1997) $ -- $ 518
Senior Floating Rate Note due Sept. 1998 to Mar. 1999 705 499
Term loans due February 1997 to August 1999 -- 16
BTC Mortgage Investors Trust (fixed rate) 42 63
- --------------------------------------------------------------------------------
Total long-term debt $10,669 $8,207
Add: Amortization for risk-based capital purposes 606 525
- --------------------------------------------------------------------------------
Total long-term debt not included in risk-based capital $11,275 $8,732
================================================================================
Based solely on the contractual terms of the debt issues, at December 31,
1997 and 1996 the Corporation's total fixed rate long-term debt had a
weighted-average interest rate of 7.42 percent and 7.28 percent, respectively.
The Corporation has entered into interest rate and currency swap
agreements for many of its long-term debt issues, in order to manage its
interest rate and currency risks.
The interest rates for the floating rate debt issues and the fixed rate
debt issues effectively converted to floating are generally based on LIBOR,
although in certain instances they are subject to minimum interest rates as
specified in the agreements governing the respective issues.
The weighted-average effective interest rates for total long-term debt,
including the effects of the related swap agreements, were 6.38 percent and 5.90
percent at December 31, 1997 and 1996, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
The Corporation issued $25 million convertible subordinated debentures in
June 1986. The debentures are due June 2001, bear interest at 5 3/4% and are
convertible into the Corporation's common stock at the rate of one share of
common stock for each $20.90 of principal amount of debentures. The debentures
were redeemable at the option of the Corporation at 100.5% through June 11, 1997
and at par thereafter. During 1997 and 1996, $8,320,000 and $75,000 par value,
respectively, of the debentures were converted into 399,450 and 3,586 shares,
respectively, of the Corporation's common stock.
Mandatory convertible securities (equity commitment and equity contract
notes) include covenants requiring the Parent Company, from time to time or at
maturity, as appropriate, to issue common stock or other securities in an amount
equal to the principal amount of the debt securities, in order to comply with
capital adequacy guidelines. In this regard, at December 31, 1997 and 1996, the
Parent Company had dedicated $250 million and $448 million, respectively of net
proceeds from such issuances.
At December 31, 1997 and 1996, certain subsidiaries of Bankers Trust
Company had outstanding $3.69 billion and $2.76 billion, respectively of
mandatory redeemable preference securities as included in the table above which
are not included in risk-based capital. Maturities at December 31, 1997 range
from January 1999 to February 2001 and maturities at December 31, 1996 range
from March 1997 to October 2002.
Note 10--Mandatorily Redeemable Capital Securities of Subsidiary Trusts Holding
Solely Junior Subordinated Deferrable Interest Debentures Included in
Risk-Based Capital ("Trust Preferred Capital Securities")
The trust preferred capital securities are issued by trusts all of whose
outstanding common securities are owned by either the Parent Company or BTCo.
The trust preferred capital securities represent preferred undivided beneficial
interests in the assets of the trusts. The trusts exist for the sole purpose of
issuing the trust preferred capital securities and investing the proceeds
thereof in junior subordinated deferrable interest debentures issued by the
Parent Company or BTCo, as applicable (the "debentures"). The debentures are
unsecured and subordinated to all senior indebtedness of the Parent Company or
BTCo, as applicable, and are the sole assets of the trusts. Payments under the
debentures by either the Parent Company or BTCo are the same as those for the
trust preferred capital securities. The debentures are redeemable prior to
stated maturity at the option of the Parent Company or BTCo during the
redemption periods described below. The trust preferred capital securities are
subject to mandatory redemption upon repayment of the related debentures at
their stated maturity dates or their earlier redemption at a redemption price
equal to their liquidation amount plus accrued distributions to the date fixed
for redemption and the premium, if any, paid by the Parent Company or BTCo upon
concurrent repayment of the related debentures.
The Parent Company and BTCo, as applicable, have issued guarantees for the
payment of distributions and payments on liquidation or redemption of the trust
preferred capital securities, but only to the extent of funds held by the
relevant trust.
The appropriate obligations of the Parent Company or BTCo under each
series of debentures, the relevant indenture and trust agreement, the relevant
guarantee and certain other related agreements, in the aggregate, constitute a
full and unconditional guarantee by the Parent Company or BTCo, as applicable,
of each trust's obligations under the relevant trust preferred capital
securities.
The Corporation is required by the Federal Reserve to maintain certain
levels of capital. The Federal Reserve has announced that certain cumulative
preferred securities having the characteristics of trust preferred capital
securities qualify as minority interest, which is included in Tier 1 Capital for
bank holding companies. Such Tier 1 Capital treatment, together with the Parent
Company's ability to deduct, for federal income tax purposes, interest expense
on the corresponding debentures, provides the Parent Company with a
cost-effective means of obtaining capital for regulatory purposes.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
The following is a summary of the outstanding trust preferred capital securities
and debentures:
<TABLE>
<CAPTION>
Aggregate Aggregate
Liquidation Liquidation Per Annum
Amount of Amount of Interest Stated
Trust Trust Rate of Maturity of
Preferred Preferred Debentures Debentures
Capital Capital and Trust and Trust
Securities at Securities at Preferred Interest Preferred Earlier Redemption
December 31, December 31, Capital Payment Capital Maturity Period of
($ in millions) 1997 1996 Securities Dates Securities Date(b) Debentures
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parent Company--Obligated
BT Institutional Capital Trust A $ 300 $300 8.09% 6/1, 12/1 12/1/26 -- On or after
12/1/06
BT Institutional Capital Trust B 200 200 7.75 6/1, 12/1 12/1/26 -- On or after
12/1/06
BT Capital Trust B 250 -- 7.90 1/15, 7/15 1/15/27 1/15/17 On or after
1/15/07
BT Preferred Capital Trust I 250 -- 8 1/8 3/31, 6/30 2/1/37 2/1/02 On or after
9/30, 12/31 2/1/02
BT Preferred Capital Trust II 250 -- 7.875 2/25, 8/25 2/25/27 2/25/12 On or after
2/25/07
BTCo--Obligated
3-Month
LIBOR 3/30, 6/30 On or after
BTC Capital Trust I 250 250 plus 0.75% 9/30, 12/30 12/30/26 -- 12/30/06
- ----------------------------------------------------------------------------------------------------------------------------------
Total $1,500(a) $750(a)
==================================================================================================================================
</TABLE>
(a) Excludes $28 million and $20 million of deferred issuance costs and
unamortized discount at December 31, 1997 and December 31, 1996,
respectively.
(b) The maturity dates may be shortened under certain circumstances.
Note 11--Preferred Stock of Subsidiary
On January 22, 1993, BT Overseas Finance N. V. ("BTOF"), an indirect,
wholly-owned subsidiary of the Parent Company authorized to issue 10,000
preferred shares, $.01 par value, issued $250 million, or 2,500 shares, of
Auction Rate Cumulative Preferred Stock in four series of 625 shares
each--Series A-D ("BTOF Preferred"). In the first quarter of 1997, BTOF redeemed
all 2,500 shares of the BTOF Preferred at a price of $100,000 per share plus
accrued and unpaid dividends on such shares to the redemption date. Dividends on
these shares ceased to accumulate on the applicable redemption date.
Note 12--Preferred Stock
Series Preferred Stock
The Parent Company is authorized to issue 10 million shares of Series Preferred
Stock, without par value. All shares of Series Preferred Stock constitute one
and the same class and have equal rank and priority over common stockholders as
to dividends and in the event of liquidation. Each series of Series Preferred
Stock has a liquidation preference per share (as indicated below), plus accrued
and unpaid dividends, as well as contingent voting rights. The Series Preferred
Stock outstandings were as follows:
($ in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Series J, Redeemed in 1997 $ -- $ 45
Series Q, Outstanding: 63,847 shares 159 162
Series R, Outstanding: 50,408 shares 126 131
Series I, Redeemed in 1997 -- 100
Series O, Outstanding: 594,902 shares 149 148
Series P, Outstanding: 99,127 shares 99 99
Series S, Outstanding: 50,000 shares 125 125
- --------------------------------------------------------------------------------
Total preferred stock $658 $810
================================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
Series C Junior Participating Preferred Stock
The Parent Company has designated 1 million shares of the Series Preferred Stock
as Series C Junior Participating Preferred Stock ("Series C"), which are
issuable on the exercise of Preferred Share Purchase Rights pursuant to a Rights
Agreement adopted by the Corporation in February 1988 and amended, November 26,
1997. See Note 13 for a more detailed discussion of this agreement. No Series C
shares have ever been issued.
8.55% Cumulative Preferred Stock, Series I
On March 1, 1997, the Parent Company redeemed its remaining outstanding 1
million shares or $100,000,000 liquidation value of the 8.55% Cumulative
Preferred Stock, Series I at $100 per share plus an amount equal to accrued and
unpaid dividends to the date of redemption. Dividends on the Series I were
cumulative and payable quarterly on March 1, June 1, September 1 and December 1
of each year, commencing on June 1, 1995, at a fixed rate of 8.55 percent of the
liquidation preference per annum.
Fixed/Adjustable Rate Cumulative Preferred Stock, Series J
On December 1, 1997, the Parent Company redeemed its remaining outstanding
447,225 shares or $44,722,500 liquidation value of the fixed/adjustable rate
Cumulative Preferred Stock, Series J at $100 per share plus an amount equal to
accrued and unpaid dividends to the date of redemption. Dividends on the Series
J were cumulative and payable quarterly on March 1, June 1, September 1 and
December 1 of each year. The Series J dividend rate was fixed at 7.375 percent
per annum prior to December 1, 1997.
7 5/8% Cumulative Preferred Stock, Series O
On June 2, 1993, the Parent Company issued $150 million of 7 5/8% Convertible
Capital Securities due June 2033. These debt securities were subordinated and
could only be redeemed in whole but not in part, on or after June 1, 1998 at
par, plus accrued and unpaid interest to the redemption date. On March 1, 1995,
the Parent Company reset the interest rate on the 7 5/8% Convertible Capital
Securities to a rate of 6 1/8 percent per annum giving holders of this issue the
right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a
one-tenth interest in a share of the Parent Company's 7 5/8% Cumulative
Preferred Stock, Series O (Liquidation Preference--$250 per share) ("Series O").
Dividends on the Series O are cumulative and payable quarterly on each
March 1, June 1, September 1 and December 1, commencing with the date succeeding
original issuance. Shares of Series O are redeemable at the Parent Company's
option, in whole or in part, at $300 per share (or $30 per depositary share) on
or before June 1, 1998 and thereafter at $250 per share (or $25 per depositary
share), plus, in each case, accrued and unpaid dividends to the redemption date.
Any optional redemption shall be with the approval of the Federal Reserve Board
unless at that time that body should determine that its approval is not
required.
7.50% Cumulative Preferred Stock, Series P
On August 19, 1993, the Parent Company issued $100 million of 7.50% Convertible
Capital Securities due August 2033. These debt securities were subordinated and
could only be redeemed, in whole but not in part, on or after August 15, 1998 at
par, plus accrued and unpaid interest to the redemption date. On May 15, 1995,
the Parent Company reset the interest rate on the 7.50% Convertible Capital
Securities to a rate of 6.00 percent per annum giving holders of this issue the
right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a
one-fortieth interest in a share of the Parent Company's 7.50% Cumulative
Preferred Stock, Series P (Liquidation Preference--$1,000 per share) ("Series
P").
Dividends on the Series P are cumulative and payable quarterly on February
15, May 15, August 15 and November 15, commencing with the date succeeding
original issuance. Shares of Series P are redeemable at the Parent Company's
option, in whole or in part, at $1,200 per share (or $30 per depositary share)
on or before August 15, 1998 and thereafter at $1,000 per share (or $25 per
depositary share), plus, in each case, accrued and unpaid dividends to the
redemption date. Any optional redemption shall be with the approval of the
Federal Reserve Board unless at that time that body should determine that its
approval is not required.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
Adjustable Rate Cumulative Preferred Stock, Series Q
On March 28, 1994, the Parent Company issued $200 million, or 8 million
depositary shares at $25 per share, each representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred Stock, Series Q (Liquidation
Preference--$2,500 per share) ("Series Q"). During 1996, the Parent Company
repurchased approximately 1.5 million shares of Series Q. At the option of the
Parent Company, the Series Q may be redeemed, in whole or in part, on or after
March 1, 1999, at $2,500 per share (or $25 per depositary share), plus, in each
case, accrued and unpaid dividends to the redemption date. Any optional
redemption shall be with the approval of the Federal Reserve Board unless at
that time that body should determine that its approval is not required.
Dividends on the Series Q are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The initial dividend rate was
5.90 percent per annum for the dividend period ending on May 31, 1994.
Thereafter, the dividend rate is determined by a formula that considers the
interest rates of selected short- and long-term U.S. Treasury securities at the
time the rate is set. In no event will the dividend rate be less than 4 1/2
percent or more than 10 1/2 percent per annum.
Adjustable Rate Cumulative Preferred Stock, Series R
On August 22, 1994, the Parent Company issued $150 million, or 6 million
depositary shares at $25 per share, each representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred Stock, Series R (Liquidation
Preference--$2,500 per share) ("Series R"). The Parent Company repurchased
approximately 750 thousand shares and 200 thousand shares of Series R in 1996
and 1997, respectively. At the option of the Parent Company, the Series R may be
redeemed, in whole or in part, on or after September 1, 1999, at $2,500 per
share (or $25 per depositary share), plus, in each case, accrued and unpaid
dividends to the redemption date. Any optional redemption shall be with the
approval of the Federal Reserve Board unless at that time that body should
determine that its approval is not required.
Dividends on the Series R are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The initial dividend rate was
6.42 percent per annum for the dividend period ending on November 30, 1994.
Thereafter, the dividend rate is determined by a formula that considers the
interest rates of selected short- and long-term U.S. Treasury securities at the
time the rate is set. In no event will the dividend rate be less than 4 1/2
percent or more than 10 1/2 percent per annum.
7.75% Cumulative Preferred Stock, Series S
On June 30, 1995, the Corporation issued $125 million, or 5 million depositary
shares at $25 per share, each representing a one-hundredth interest in a share
of the Corporation's 7 3/4% Cumulative Preferred Stock, Series S (Liquidation
Preference--$2,500 per share) ("Series S").
Dividends on the Series S are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year, commencing with the date
succeeding original issuance. At the option of the Corporation, the Series S may
be redeemed, in whole or in part, on or after June 1, 2000, at $2,500 per share
(or $25 per depositary share), plus, in each case, accrued and unpaid dividends
to the redemption date. Any optional redemption shall be with the approval of
the Federal Reserve Board unless at that time that body should determine that
its approval is not required.
Serial Preferred Stock
In 1990, stockholders voted in favor of an amendment to the Restated Certificate
of Incorporation of Bankers Trust New York Corporation to increase the number of
shares of authorized preferred stock from 10 million to 20 million and created a
new class of preferred stock called Serial Preferred Stock which would have
equal rank as the Series Preferred Stock as well as priority over common
stockholders as to dividends and in the event of liquidation. The Parent Company
has decided to defer action on implementing this approved amendment at this
time.
Note 13--Preferred Share Purchase Rights
On February 16, 1988, the Board of Directors of the Parent Company declared a
dividend distribution of one Preferred Share Purchase Right ("Right") for each
share of common stock held, payable February 26, 1988 to stockholders of record
on that date. Rights also automatically attach to each share of common stock
issued after February 26, 1988.
Each Right entitles the registered holder to purchase from the Parent
Company a one-hundredth interest in a share of the Parent Company's Series C
Junior Participating Preferred Stock at an exercise price of $480, as amended,
subject to certain adjustments. The Rights will not be exercisable or
transferable apart from the common stock until the 10th day after either a
public announcement that a person or group (an "Acquiring Person") has acquired
beneficial ownership of 20 percent or more of the common stock, or the
announcement or commencement of a tender or exchange offer for 20 percent or
more of the common stock. If the Corporation is acquired or 50 percent or more
of its consolidated assets or earning power are sold, each holder of a Right
will have the right to receive, upon the exercise at the then current exercise
price of the Right, that number of shares of common stock of the acquiring
company which have a market value of two times the exercise price of the Right.
If any person becomes an Acquiring Person, each holder of a Right other than
Rights beneficially owned by the Acquiring Person (which will be void), will
have the right to receive upon exercise that number of common shares having a
market value of two times the exercise price of the Right. The Rights will
expire on February 26, 2008, as amended, but may be redeemed at any time prior
to a person or group acquiring the beneficial ownership of 20 percent or more of
the common stock. Until a Right is exercised, the holder will have no rights as
a stockholder of the Parent Company.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
After the acquisition by a person or group of beneficial ownership of 20
percent or more of the outstanding common shares and prior to the acquisition by
such person or group of 50 percent or more of the outstanding common shares, the
Board of Directors of the Parent Company may exchange the Rights (other than
Rights owned by such person or group), in whole or in part, at an exchange ratio
of one common share, or a one-hundredth interest in a share of Series C Junior
Participating Preferred Stock (or a share of a class or series of the Parent
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
If issued, each share of Series C Junior Participating Preferred Stock
will be entitled, subject to adjustment, to (i) a quarterly dividend of the
greater of $1 per share or 100 times the quarterly dividend declared on each
share of common stock, (ii) in the event of liquidation, dissolution or winding
up, a preferential liquidation payment of the greater of $100 per share or 100
times the liquidation payment made per share of common stock, and (iii) 100
votes per share voting together with the holders of the Parent Company's common
stock on all matters.
These statements are qualified in their entirety by reference to the
Rights Agreement, as amended as of November 26, 1997, a copy of which was filed
with the Securities and Exchange Commission with the Corporation's Current
Report on Form 8-K filed on November 26, 1997.
Note 14--Common Stock and Stock-Based Compensation Plans
The purposes and number of shares of common stock issued, distributed from
treasury and purchased for treasury during 1997, 1996 and 1995 were as
follows(1):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares outstanding,
beginning of year 99,189,329 98,414,325 95,860,331
- ------------------------------------------------------------------------------------------------------
Shares issued or distributed under Employee Benefit Plans:
Bankers Trust New York
Corporation
1985 Stock Option and
Stock Award Plan
Stock options 96,264 674,441 260,993
Deferred stock awards -- 31,701 --
1991 Stock Option and
Stock Award Plan
Stock options 806,409 1,654,567 367,728
Restricted stock awards, net -- (31,293) (84,539)
Deferred stock awards 95,578 -- 242,264
1994 Stock Option and
Stock Award Plan
Stock options 2,538,395 1,907,957 7,000
Restricted stock awards, net (108,810) 541,910 813,901
Deferred stock awards 156,281 265 --
Alex. Brown Predecessor Plans
Stock Option Plan 1,149,154 491,978 545,308
Employee Debenture
Conversions 2,117,489 141,275 64,267
Equity Compensation Plan 237,304 271,185 163,894
Employee Stock Purchase Plan 68,062 126,701 113,850
Other, net 11,095 21,165 78,415
Conversion of 5 3/4% Convertible
Subordinated Debentures 399,450 3,586 623,685
- ------------------------------------------------------------------------------------------------------
Total shares issued or distributed 7,566,671 5,835,438 3,196,766
Shares issued for acquisitions 14,678 2,881,476 --
Shares purchased for treasury (9,735,358) (7,493,395) (600,495)
Shares purchased and retired (78,980) (448,515) (42,277)
- ------------------------------------------------------------------------------------------------------
Common shares outstanding,
end of year 96,956,340 99,189,329 98,414,325
======================================================================================================
</TABLE>
(1) The information presented reflects the additional shares issued to Alex.
Brown shareholders in conjunction with the Merger.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
The following is a summary of stock option transactions which occurred
during 1995, 1996 and 1997 (number of shares in thousands):
Weighted-Average
Exercise Price Exercise Price
Options Per Option Per Option
- --------------------------------------------------------------------------------
December 31, 1994 10,038 $ 6.83-80.75 $52.38
====================================
Granted 3,163 29.43-69.0625 57.09
Exercised (1,181) 6.83-68.625 32.99
Cancelled (879) 63.63
- ------------------------------------
December 31, 1995 11,141 6.83-80.75 54.89
====================================
Granted 3,947 38.84-83.3125 71.15
Exercised (4,729) 6.83-70.4375 55.15
Cancelled (500) 58.86
- ------------------------------------
December 31, 1996 9,859 14.01-83.3125 60.77
====================================
Granted 7,417 68.44-111.75 93.56
Exercised (4,590) 14.01-79.125 59.37
Cancelled (208) 60.18
- ------------------------------------
December 31, 1997 12,478 16.81-111.75 80.76
==================================== ======
Exercisable at:
December 31, 1996 5,429 56.75
==================================== ======
December 31, 1997 5,622 $62.65
==================================== ======
The following table sets forth information about stock options outstanding
at December 31, 1997 (number of shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Weighted Average Weighted Average Weighted Average
Range of Number of Remaining Exercise Number of Exercise
Exercise Prices Shares Contractual Life Price Shares Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 16.81-30.90 680 6.2 years $ 25.82 680 $ 25.82
$ 38.84-72.59 3,130 6.7 62.58 3,130 62.58
$76.4375-111.75 8,668 9.3 91.63 1,812 76.61
- -----------------------------------------------------------------------------------------------------------------
12,478 8.5 $ 80.76 5,622 $ 62.65
=================================================================================================================
</TABLE>
At December 31, 1997, common stock was reserved for issuance or
distribution as follows:
Dividend Reinvestment and Common Stock Purchase Plan 2,512,549
Employee Benefit Plans
Partner Share (including ESOP shares) 2,274,330
1997 Stock Option and Stock Award Plan 20,000,000
1994 Stock Option and Stock Award Plan 8,481,701
1991 Stock Option and Stock Award Plan 3,920,576
1985 Stock Option and Stock Award Plan 1,441,171
- --------------------------------------------------------------------------------
Total 38,630,327
================================================================================
The Corporation's stock-based compensation plans currently consist of the
continuation of Alex. Brown's and the Corporation's respective plans that were
in effect prior to the Merger. Accordingly, the following information summarizes
Alex. Brown's and the Firm's predecessor plans.
Bankers Trust New York Corporation's Plans
At the Annual Meeting of Stockholders on April 19, 1994, the stockholders
approved the 1994 Stock Option and Stock Award Plan (the "1994 Plan") which made
available for grant, until April 21, 1998, 15 million common shares. The 1994
Plan permits the granting of nonqualified and incentive stock options,
restricted stock, deferred stock and other stock-based awards (collectively, the
"Awards"). Awards are still outstanding under the 1991 Stock Option and Stock
Award Plan (the "1991 Plan") and the 1985 Stock Option and Stock Award Plan (the
"1985 Plan"). No further Awards will be granted under either the 1991 Plan or
the 1985 Plan. These plans are administered by the Human Resources Committee of
the Board of Directors (the "Committee"), none of whom is eligible to
participate therein. The Committee determines whether, to what extent and under
what circumstances the Awards may be settled in cash. Awards granted under these
plans may be satisfied through the use of the Parent Company's authorized but
unissued shares or shares held in the Parent Company's treasury.
At the Annual Meeting of Stockholders on April 15, 1997, stockholders
approved the 1997 Stock Option and Stock Award Plan (the "1997 Plan"). The
provisions of this plan are generally similar to the 1994 Plan and made 20
million shares available for grant under its terms. The Board of Directors has
authorized a stock purchase program to satisfy the awards to be granted under
the 1997 Plan and under prior Stock Option and Stock Award Plans. The
authorization includes the 20 million shares that are subject to the 1997 Plan.
The Corporation intends to satisfy awards granted under
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
the 1997 Plan through the issuance of treasury shares acquired in open market
purchases.
Stock options are granted to purchase stock at a price not less than the
fair market value on the date of grant and may be outstanding for any period up
to 10 years and one day from the date of grant. Generally, no stock option may
be exercised until the employee has remained in the continuous employ of the
Corporation for one year after the option is granted.
Recipients of restricted stock have all the rights of a stockholder of the
Corporation, except for limitations on sale or use of shares during the
restriction period, generally two to three years. The Committee determines all
conditions of the awards, including whether to permit or require cash dividends
to be deferred or reinvested.
Deferred stock awards are the right to receive common stock of the
Corporation at a specified future date. The awards vest from one to three years
from the date of the award. For deferred stock awards, shares of stock are not
distributed until after a specified deferral period extending up to five years
from the vesting date. Prior to distribution, awards may earn amounts equivalent
to quarterly dividends declared by the Corporation and may also earn the
equivalent of the excess of quarterly earnings per common share over the cash
dividends. At December 31, 1997 and 1996, there were deferred stock awards
outstanding of 9,871,227 shares and 6,721,996 shares, respectively.
After providing for stock options granted, restricted stock awards and
deferred stock awards, there were 479,171, and 189,548 shares available for
future grant under the 1994 Plan at December 31, 1997 and 1996, respectively and
9,610,957 shares available for future grant under the 1997 Plan at December 31,
1997. Compensation expense recognized for the restricted stock awards and
deferred stock awards was $274 million and $174 million in 1997 and 1996,
respectively. The weighted-average grant-date fair value of restricted stock
awards and deferred stock awards granted during 1997 was $109.09.
Alex. Brown Predecessor Plans
Equity Incentive Plans
Pursuant to the 1991 Equity Incentive Plan (the "Plan"), Alex. Brown made stock
based awards, prior to the Merger, including stock options, convertible
debentures and restricted stock awards to key employees in any calendar year in
respect of a maximum of 7.5 percent of the total shares of common stock
outstanding on the first day of such year. The Corporation has also sold
convertible subordinated debentures to certain employees pursuant to the Plan.
The debentures were generally convertible into the Corporation's common stock
three years after the date issued or in stages beginning four years after the
date issued. The debentures may be redeemed at par if the employee terminates
employment with the Corporation. The Corporation made loans to the employees to
finance the entire purchase price of the stock and debentures. Loan forgiveness
resulted in compensation expense of $27 million, $9 million and $4 million in
1997, 1996 and 1995, respectively. Information related to debentures outstanding
at December 31, 1997 is as follows:
Weighted average
Principal amount Weighted average conversion
of debentures interest rate Due Date price/share
- --------------------------------------------------------------------------------
$ 69,000 6.750% 1998 $ 20.48
192,000 6.375% 1999 18.47
475,000 5.375% 2000 23.16
3,418,000 6.095% 2001 21.38
6,874,000 6.210% 2002 42.63
6,191,000 6.351% 2003 51.87
================================================================================
The Corporation has granted nonqualified stock options to certain employees and
directors. Payment for the shares may be made in cash, shares of the
Corporation's common stock or a combination thereof. Options granted since
January 1993 expire after ten years. The exercise price for these options is 25%
greater than the lesser of the average market value of the Corporation's common
stock 30 days prior to the date of grant or the market value on the date of
grant.
Pursuant to the Equity Compensation Plan, certain key employees had a
portion of cash compensation withheld and replaced by restricted common stock of
the Corporation at a 15% discount from market and interests in investment
accounts through which the employees can direct investments in selected
Corporation-sponsored investment vehicles. Compensation expense is recorded
currently based on the value of the stock and interests in the investment
accounts on the award date. There will be no new contributions to this plan
after June 1997. During 1997, 1996, and 1995, $1 million, $18 million and $11
million of cash compensation was withheld and replaced by 6,861 shares, 199,982
shares, and 203,128 shares of the Corporation's common stock and interests in
investment accounts for 1997, 1996 and 1995, respectively.
SFAS 123 Pro Forma Information
The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Corporation had
accounted for its employee stock options under the fair value method of SFAS
123.
The weighted-average fair value of options granted during 1997 was $22.70
per option. The fair value for these options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following weighted-average
assumptions for 1997; risk-free interest rate of 6.66 percent; dividend yield of
3.80 percent; volatility factor of the expected market price of the
Corporation's common stock of 28 percent; and a weighted-average expected life
of the option of 5 years.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
pro forma information reflects the compensation expense that would have been
recognized under SFAS 123 for both Alex. Brown and the Corporation on an
historical basis. The fair values of options for 1996 and 1995 have not been
restated to reflect the Merger.
(in millions except for earnings
per share information) 1997 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported $ 866 $ 766 $ 311
Pro forma $ 807 $ 739 $ 301
Basic earnings per share:
As reported $ 8.15 $ 7.12 $ 2.62
Pro forma $ 7.56 $ 6.86 $ 2.51
Diluted earnings per share:
As reported $ 7.66 $ 6.76 $ 2.54
Pro forma $ 7.11 $ 6.51 $ 2.43
================================================================================
Because compensation expense associated with certain stock-based awards is
recognized over the vesting period, the initial impact on pro forma net income
may not be representative of compensation expense in future years, when the
effect of the amortization of multiple awards would be reflected in the income
statement.
Note 15--Asset and Dividend Restrictions
The Federal Reserve Act, as amended by the Monetary Control Act of 1980,
requires that reserve balances on certain deposits of depository institutions be
maintained at the Federal Reserve Bank. The required reserve balances of the
Corporation's subsidiary banks were $294 million and $280 million at December
31, 1997 and 1996, respectively. For the years 1997 and 1996, the average
reserve balances of these banks amounted to $200 million and $196 million,
respectively.
Assets, principally trading assets and securities available for sale, of
approximately $4.470 billion at December 31, 1997 were pledged as collateral to
secure public and trust deposits, for borrowings, and for other purposes.
Federal law also requires that "covered transactions," as defined, engaged
in by insured banks and their subsidiaries with certain affiliates, including
the Parent Company, be at arm's length and limited to 20 percent of capital
surplus. The Federal Reserve Board defines capital surplus as Tier 1 Capital and
Tier 2 Capital plus the balance of the institution's allowance for loan and
lease losses not included in Tier 2 Capital. Additionally, "covered
transactions" with any one such affiliate is limited to 10 percent of capital
and surplus. Covered transactions are defined to include, among other things,
loans and other extensions of credit to such an affiliate and guarantees,
acceptances and letters of credit issued on behalf of such an affiliate. Such
loans, other extensions of credit, guarantees, acceptances and letters of credit
must be secured. Other restrictions also apply to inter-affiliate transactions.
Limitations exist on the availability of BTCo's undistributed earnings for
the payment of dividends to the Parent Company without prior approval of the
bank regulatory authorities. In this regard, BTCo can declare dividends in 1998
without approval of the regulatory authorities of $705 million of its retained
earnings at December 31, 1997, plus an additional amount equal to net profits,
as defined, for 1998 up to the date of any such dividend declaration. The
Federal Reserve Board may prohibit the payment of dividends if it determines
that circumstances relating to the financial condition of a bank are such that
the payment of dividends would be an unsafe and unsound practice.
Certain other subsidiaries are subject to various regulatory and other
restrictions which may limit cash dividends and advances to the Parent Company.
Note 16--Regulatory Capital
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. The Federal
Reserve Board's risk-based capital guidelines addressing the capital adequacy of
bank holding companies and banks (collectively, "banking organizations")
include: a definition of capital, a framework for calculating risk-weighted
assets, and minimum risk-based capital ratios to be maintained by banking
organizations. A banking organization's risk-based capital ratios are calculated
by dividing its qualifying capital by its risk-weighted assets. The Federal
Reserve Board also has a minimum Leverage ratio which is used as a supplement to
the risk-based capital ratios in evaluating the capital adequacy of banks and
bank holding companies. The Leverage ratio is calculated by dividing Tier 1
Capital by adjusted quarterly average assets.
Failure to meet minimum capital requirements can initiate certain
mandates, and possibly additional discretionary actions by the regulators that,
if undertaken, could have a direct material effect on the consolidated financial
statements of the Corporation and BTCo.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1 Capital") and supplemental capital ("Tier 2
Capital"), collectively referred to as Total Capital. Tier 1 Capital includes
common stockholders' equity, qualifying perpetual preferred stock, qualifying
trust preferred capital securities and minority interest in equity accounts of
consolidated subsidiaries. Tier 2 Capital includes perpetual preferred stock and
trust preferred capital securities (to the extent ineligible for Tier 1
Capital), hybrid capital instruments (i.e., perpetual debt and mandatory
convertible securities), limited amounts of subordinated debt, intermediate-term
preferred stock, and a portion of the allowance for credit losses.
Risk-weighted assets are calculated by assigning nontrading account assets
and off-balance sheet items to broad risk categories.
In March 1997, the Corporation became the first banking organization to
adopt the new market risk amendment to the risk-based capital guidelines issued
by the Federal Reserve Board and the Bank for International Settlements (BIS).
The amendment changed the calculation of the risk-weighted assets for trading
accounts from assigning trading assets to broad risk categories to the use of
internal models to measure market risk. In addition, the amendment required that
the capital and risk-adjusted assets of the Corporation's Section 20 subsidiary,
BT Alex. Brown Incorporated, no longer be excluded when calculating the
risk-based capital ratios at the holding company level. All banking institutions
with significant trading activity must have adopted this amendment by January 1,
1998. During 1997, early adoption was permissible with prior approval from the
institution's primary federal regulator.
The market risk amendment also provides for the inclusion of Tier 3
Capital, which is defined to be subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either interest or principal if the payment would cause
the issuing organization's risk-based capital ratio to fall below the minimum
required level.
In accordance with current Federal Reserve Board (FRB) guidelines, the
stockholder's equity and risk-weighted assets of certain foreign insurance
subsidiaries are excluded from the calculation of the regulatory capital ratios.
In computing these ratios, 50 percent of the stockholder's equity of the foreign
insurance subsidiaries is deducted from the Corporation's Tier 1 Capital, and 50
percent is deducted from Tier 2 Capital.
In addition, under the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), five capital
categories were established for banks. Pursuant to that statute, the federal
bank regulatory agencies have specifically defined these categories by
determining that a bank is well capitalized if it maintains a Tier 1 Capital
ratio of at least 6 percent, a Total Capital ratio of at least 10 percent and a
Leverage ratio of at least 5 percent.
The Federal Reserve Board has also adopted these same thresholds for the
Tier 1 Capital ratio and Total Capital ratio in defining a well-capitalized bank
holding company. The well-capitalized threshold for the Leverage ratio may be
set at 3.0 percent to 5.0 percent, depending on other regulatory criteria.
Based on their respective regulatory capital ratios at December 31, 1997
and December 31, 1996, both the Corporation and BTCo are well capitalized. There
are no conditions or events that management believes have changed the
Corporation's and BTCo's well-capitalized status.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
The Corporation's actual capital amounts and ratios are presented in the
table below. The ratios for December 31, 1996 have not been restated for the
adoption of the market risk amendment.
<TABLE>
<CAPTION>
FRB
Minimum To Be Well
For Capitalized
Capital Under
Actual as of Actual as of Adequacy Regulatory
12/31/97 12/31/96 Purposes: Guidelines:
- ------------------------------------------------------------------------------------------
($ in millions) Amount Ratio Amount Ratio Ratio Ratio
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (1)
Corporation (2) $ 6,431 8.3% $ 5,690 9.3% 4.0% 6.0%
BTCo 5,999 9.0% 4,869 9.3% 4.0% 6.0%
Total Capital (1)
Corporation (2) $10,969 14.1% $ 8,424 13.8% 8.0% 10.0%
BTCo 8,261 12.3% 6,769 12.9% 8.0% 10.0%
Leverage (3)
Corporation (2) $ 6,431 4.4% $ 5,690 5.9% 3.0-5.0% 3.0-5.0%
BTCo 5,999 5.4% 4,869 5.3% 3.0% 5.0%
</TABLE>
(1) Ratios are calculated on Tier 1 Capital and Total Capital as a percentage
of risk-weighted assets. The 1997 ratios reflect the adoption of the
market risk amendment.
(2) Capital and risk-weighted assets of certain subsidiaries of the
Corporation have been excluded in accordance with Federal Reserve Board
guidelines.
(3) Ratio is calculated on Tier 1 Capital as a percentage of adjusted
quarterly average assets.
Note 17--Interest Revenue and Interest Expense
The following are the components of interest revenue and interest expense:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Interest Revenue
Interest-bearing deposits with banks $ 395 $ 214 $ 207
Federal funds sold 266 119 104
Securities purchased under
resale agreements 1,352 1,313 829
Securities borrowed 746 825 745
Trading assets 2,488 2,411 2,682
Securities available for sale
Taxable 436 424 332
Exempt from federal income taxes 32 35 60
Loans 1,437 1,046 944
Customer receivables 133 121 86
- --------------------------------------------------------------------------------
Total interest revenue 7,285 6,508 5,989
- --------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits
Domestic offices 895 384 376
Foreign offices 1,181 971 984
Trading liabilities 476 862 1,053
Securities loaned and securities sold
under repurchase agreements 1,413 1,598 1,189
Other short-term borrowings 1,193 1,000 1,045
Long-term debt 655 633 458
Mandatorily redeemable capital
securities of subsidiary trusts holding
solely junior subordinated deferrable
interest debentures included in
risk-based capital 113 3 --
- --------------------------------------------------------------------------------
Total interest expense 5,926 5,451 5,105
- --------------------------------------------------------------------------------
Net interest revenue $1,359 $1,057 $ 884
================================================================================
Note 18--Trading Revenue
The following are the components of trading revenue:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Interest rate risk $ 463 $ 474 $ 120
Foreign exchange risk 277 178 36
Equity and commodity risk 345 362 325
- --------------------------------------------------------------------------------
Total trading revenue $1,085 $1,014 $ 481
================================================================================
Note 19--Pension and Other Employee Benefit Plans
The Corporation's employee benefit plans currently consist of the continuation
of Alex. Brown's and the Corporation's respective plans that were in effect
prior to the Merger. The Corporation is currently in the process of reviewing
the benefit plans of both institutions.
Bankers Trust New York Corporation's Plans
Pension Plans
The Corporation has a trusteed, noncontributory, defined benefit pension plan
covering substantially all domestic employees. The pension plan benefit formula
is based upon years of service and average compensation over the final years of
service. For this principal domestic pension plan, the Corporation's policy is
to fund amounts which are actuarially determined in accordance with the
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension plan assets for this plan primarily consist of equity and
debt securities managed by BTCo.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
The Corporation also has a domestic, unfunded defined contribution plan,
as well as both defined benefit and defined contribution retirement and similar
plans covering the majority of its foreign employees. Contributions to defined
contribution plans are based upon a percentage of salary.
Effective September 30, 1997, a foreign defined benefit plan was changed
to a defined contribution plan. As a result of this change, the Corporation
recognized a $2 million curtailment/settlement gain in other noninterest
revenue.
Pension expense for 1997, 1996 and 1995 included the following components:
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Principal defined benefit plans
(domestic and foreign)
Service cost--benefits earned $ 21 $ 23 $ 17
Interest cost on projected
benefit obligations 45 42 38
Actual return on plan assets (133) (78) (151)
Net amortization and deferral 51 5 83
- -------------------------------------------------------------------------------
Total (16) (8) (13)
Defined contribution plans 18 24 20
Other plans 6 4 5
- -------------------------------------------------------------------------------
Pension expense $ 8 $ 20 $ 12
===============================================================================
The actuarial assumptions used for the principal domestic defined benefit
plan were as follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Discount rate in determining expense 7.50% 7.00% 8.75%
Discount rate in determining benefit
obligations at year end 7.00% 7.50% 7.00%
Rate of increase in future compensation
levels for determining expense 5.00% 5.00% 5.00%
Rate of increase in future compensation
levels for determining benefit obligations
at year end 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
At year end 1997, the effect of changing the discount rate from 7.50
percent to 7.00 percent was to increase the projected benefit obligation,
accumulated benefit obligation and vested benefit obligation by $45 million, $35
million and $32 million, respectively.
At year end 1996, the effect of changing the discount rate from 7.00
percent to 7.50 percent was to decrease the projected benefit obligation,
accumulated benefit obligation and vested benefit obligation by $43 million, $34
million and $34 million, respectively.
The assumptions used for the other domestic and the principal foreign
defined benefit plans were substantially similar to those used for the principal
domestic plan, given local economic conditions in the cases of the principal
foreign plans.
The following table sets forth the funded status and amounts recognized in
the Corporation's balance sheet for its principal domestic and foreign defined
benefit pension plans:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(in millions) Benefits Exceed Assets Benefits Exceed Assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit obligations $(543) $ (20) $(465) $ (20)
==================================================================================================
Accumulated benefit
obligations $(563) $ (21) $(482) $ (20)
==================================================================================================
Projected benefit obligations $(663) $ (22) $(565) $ (21)
Plan assets at fair value 970 3 863 1
- --------------------------------------------------------------------------------------------------
Funded status 307 (19) 298 (20)
Unrecognized net (assets)
obligations (18) 1 (23) 1
Unrecognized prior service cost 13 -- 15 --
Unrecognized net (gain) loss (118) 2 (129) 3
Additional minimum liability -- (4) -- (4)
- --------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 184 $ (20) $ 161 $ (20)
==================================================================================================
</TABLE>
Postretirement Benefits
The Corporation provides health care benefits to employees (retirees) who met
specific age and/or service requirements on January 1, 1990 provided that they
retire (retired) under the principal domestic pension plan with at least ten
years of service. This plan is contributory for participating retirees and also
requires them to absorb deductibles and coinsurance. The Corporation funds the
cost of postretirement health care as benefits are paid. The Corporation also
provides noncontributory life insurance benefits for substantially all domestic
retirees with at least ten years of service. The Corporation's policy with
respect to this plan is to make contributions up to the limits specified by
Section 419 of the U.S. Internal Revenue Code.
The Corporation's postretirement benefits expense for the year ended
December 31, 1997 was $9 million. This consisted of $8 million of interest cost
on accumulated postretirement benefit obligations and $1 million of service cost
attributable to service during the year. For the year ended December 31, 1996
postretirement benefits expense was $10 million. This consisted of $9 million of
interest cost on accumulated postretirement benefit obligations and $1 million
of service cost attributable to service during the year. For the year ended
December 31, 1995 postretirement benefits expense was $9 million. This consisted
of $8 million of interest cost on accumulated postretirement benefit obligations
and $1 million of service cost attributable to service during the year.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
The actuarial assumptions used for the Corporation's postretirement
benefit plans were as follows:
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Retiree Retiree Retiree Retiree
Health Life Health Life
($ in millions) Care Insurance Care Insurance
- --------------------------------------------------------------------------------
Health care cost trend rate:
First year 9.00% N/A 10.00% N/A
================================================================================
Ultimate rate after 4 years (1997)
and 5 years (1996) (based on
roughly equal annual decreases) 5.50% N/A 5.50% N/A
Discount rate in determining
expense 7.50% 7.50% 7.00% 7.00%
- --------------------------------------------------------------------------------
Discount rate in determining
benefit obligations at year-end 7.00% 7.00% 7.50% 7.50%
================================================================================
Rate of increase in future
compensation levels for
determining benefit obligation
at both beginning and
end of the year N/A 5.00% N/A 5.00%
================================================================================
Expected long-term rate of
return on plan assets N/A 9.00% N/A 9.00%
Effect of a one-percentage-point
increase in the health care cost
trend rates on the accumulated
postretirement benefit obligation $ 9 N/A $ 9 N/A
Effect of a one-percentage-point
increase in the assumed health
care cost trend rates on the
aggregate of the service and
interest cost components of net
periodic postretirement expense
for the year ended $ 1 N/A $ 1 N/A
================================================================================
N/A Not applicable.
At year end 1997, the effect of changing the discount rate from 7.50
percent to 7.00 percent was to increase the accumulated postretirement benefit
obligation for the retiree health care plan and the retiree life insurance plan
by $4 million and $1 million, respectively.
At year end 1996, the effect of changing the discount rate from 7.00
percent to 7.50 percent was to decrease the accumulated postretirement benefit
obligation for the retiree health care plan and the retiree life insurance plan
by $2 million and $1 million, respectively.
The following table sets forth the funded status and amounts recognized in
the Corporation's balance sheet:
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Retiree Retiree Retiree Retiree
Health Life Health Life
($ in millions) Care Insurance Care Insurance
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (71) $ (7) $ (80) $ (6)
Fully eligible plan participants (20) -- (17) --
Other active plan participants (21) (7) (21) (6)
- --------------------------------------------------------------------------------
(112) (14) (118) (12)
Plan assets at fair value -- 4 -- 4
- --------------------------------------------------------------------------------
Funded status (112) (10) (118) (8)
Unrecognized prior service cost 7 -- 7 --
Unrecognized net (gain) loss (12) 4 (4) 3
- --------------------------------------------------------------------------------
Accrued postretirement
benefit cost $(117) $ (6) $(115) $ (5)
================================================================================
Profit Sharing Plans
The Corporation maintains a noncontributory profit sharing plan, called Partner
Share, covering substantially all domestic employees. The Corporation's
contribution consists of a fixed contribution equal to six percent of eligible
domestic employees' annual salary (the "Fixed Contribution") as well as an
additional contribution of from zero to nine percent of eligible employees'
annual salary, which percentage is calculated using a formula based on the
Corporation's consolidated income before income taxes (the "Profit-Driven
Contribution"). The 1997 Profit-Driven Contribution was based on the Firm's 1997
consolidated income before income taxes, adjusted to exclude the financial
impact of the Merger. The Profit-Driven Contribution was 7.08 percent, 4.75
percent and 1.69 percent for 1997, 1996 and 1995, respectively. The sum of the
Fixed Contribution and the Profit-Driven Contribution amounted to $53 million,
$41 million and $29 million for the years 1997, 1996 and 1995, respectively.
The Corporation also has a profit sharing plan (called the "UK Profit
Scheme") covering its employees in the United Kingdom. The Corporation's
contributions to this plan range from zero to 14 percent of eligible employees'
annual salary, which percentage is calculated using a formula based on the
Corporation's consolidated income before income taxes. The contribution for
1997, 1996 and 1995 was 11.05 percent, 8.72 percent and 3.11 percent,
respectively. The amount of expense recognized for the UK Profit Scheme was $6
million, $7 million and $2 million for 1997, 1996 and 1995, respectively.
Alex. Brown's Predecessor Plans
Retirement Plans
The Corporation maintains a 401(k) deferred compensation and profit sharing plan
(the "Plan"). Employees are permitted within limitations imposed by tax law to
make pretax contributions to the Plan pursuant to salary reduction agreements.
The Corporation may make discretionary matching and profit sharing contributions
to the Plan and may make additional contributions to preserve the Plan's tax
exempt status. The Corporation also has retirement plans for certain employees
in foreign offices not covered by the Plan. Compensation expense for the
Corporation's contributions to retirement plans was $11 million, $13 million and
$10 million for 1997, 1996 and 1995, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
63
<PAGE>
================================================================================
Deferred Compensation Plan
The Corporation maintains a deferred compensation plan for certain investment
representatives. Eligible participants can direct the investment of their
deferred compensation amounts by selecting among various Corporation-sponsored
investment vehicles and the common stock of the Corporation at a 15% discount
from market. The employees vest in the deferred compensation accounts after four
years. The deferred compensation is forfeited if the employee terminates
employment with the Corporation during the vesting period except for termination
due to death, disability or retirement. The Corporation may allow participants
to extend the deferral period after vesting. The amount of deferred
compensation, including any stock discounts, is being amortized over the periods
in which the employees are providing the related services (compensation expense
of $1 million for 2001, $3 million for 2000, $4 million for 1999, $4 million for
1998, $5 million for 1997, $3 million for 1996 and $2 million for 1995).
Note 20--Income Taxes
The Corporation files consolidated income tax returns which include all
significant domestic subsidiaries.
The domestic and foreign components of consolidated income before income
taxes follow:
(in millions) Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $ 640 $ 347 $ 69
Foreign 599 784 400
- --------------------------------------------------------------------------------
Total $1,239 $1,131 $ 469
================================================================================
For purposes of determining the above amounts, foreign income is defined
as income recorded by operations located outside of the U.S.
Undistributed earnings of certain foreign subsidiaries amounted to
approximately $1.2 billion at December 31, 1997. Federal taxes which would have
approximated $330 million, assuming utilization of foreign tax credits, have not
been provided on these earnings, as they are permanently reinvested outside the
U.S.
Deferred income taxes result from differences in the timing of revenue and
expense recognition for income tax and financial reporting purposes.
An analysis of consolidated income taxes follows:
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income taxes applicable to:
Income before income taxes* $ 373 $ 365 $ 158
Capital surplus (73) (26) 3
Cumulative translation adjustments 76 (24) 9
Securities valuation allowance (57) 32 (26)
- -------------------------------------------------------------------------------
Total $ 319 $ 347 $ 144
===============================================================================
* Includes income tax expense related to securities available for sale
transactions of $68 million, $30 million and $74 million in 1997, 1996 and
1995, respectively.
The components of consolidated income taxes follow:
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Current
Federal $ 198 $ 107 $ 65
Foreign 232 124 317
State and local 161 44 32
- -------------------------------------------------------------------------------
Total current 591 275 414
- -------------------------------------------------------------------------------
Deferred
Federal (203) (52) (132)
Foreign (31) 125 (141)
State and local (38) (1) 3
- -------------------------------------------------------------------------------
Total deferred (272) 72 (270)
- -------------------------------------------------------------------------------
Total $ 319 $ 347 $ 144
===============================================================================
The following is an analysis of the difference between the U.S. federal
statutory income tax rate and the effective tax rate on consolidated income
before income taxes:
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
U.S. federal statutory income tax rate 35% 35% 35%
State and local income taxes 4 4 8
Tax-exempt income (4) (3) (8)
Foreign subsidiary earnings (4) (2) 3
Valuation allowance (2) -- --
Other items, net 1 (2) (4)
- -------------------------------------------------------------------------------
Effective income tax rate 30% 32% 34%
===============================================================================
The following is an analysis of the Corporation's net deferred tax assets:
(in millions) December 31, 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets $1,291 $1,172
Valuation allowance 207 227
- --------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance 1,084 945
Deferred tax liabilities 388 520
- --------------------------------------------------------------------------------
Net deferred tax assets $ 696 $ 425
================================================================================
At December 31, 1997, the Corporation's deferred tax assets were primarily
related to credit losses ($385 million) and employee benefits ($267 million).
Deferred tax liabilities were primarily related to certain trading activities
($193 million) and lease financing activities ($112 million).
At December 31, 1996, the Corporation's deferred tax assets were primarily
related to credit losses ($440 million), foreign tax credit carryforwards ($135
million) that will expire in 1999, 2000 and 2001, and a net operating loss
carryforward ($30 million) which expires in 2011. Deferred tax liabilities were
primarily related to certain trading activities ($119 million) and lease
financing activities ($176 million).
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
Note 21--Earnings per Common Share
At December 31, 1997, the Corporation adopted SFAS 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS with basic EPS and
fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is
calculated by dividing income applicable to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS. All periods presented have been
restated to conform with SFAS 128.
Basic earnings per common share amounts were computed by subtracting from
net income the dividend requirements on preferred stock to arrive at net income
applicable to common stockholders and dividing this amount by the average number
of common shares outstanding during the year. The average number of common
shares outstanding was the sum of the average number of shares of common stock
outstanding and vested but undistributed shares awarded under deferred stock
plans.
Diluted earnings per share amounts were calculated by adding back to net
income applicable to common stockholders the interest expense on the convertible
subordinated debentures and dividing this amount by the average number of common
shares and dilutive potential common shares outstanding during the year.
Diluted earnings per share assumes the conversion into common stock of
outstanding stock options, deferred stock awards (including restricted stock
awards) and convertible subordinated debentures, as computed under the treasury
stock method, if dilutive. Under the treasury stock method, the number of
incremental shares is determined by assuming the issuance of the outstanding
stock options, deferred stock awards, and shares from convertible subordinated
debentures, reduced by the number of shares assumed to be repurchased from the
issuance proceeds, using the average market price for the year of the Parent
Company's common stock.
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Numerator
Net income $ 866 $ 766 $ 311
Preferred stock dividends (49) (51) (51)
- -------------------------------------------------------------------------------
Numerator for basic earnings per
share--net income applicable to
common stockholders 817 715 260
Effect of dilutive securities
Convertible subordinated debentures 3 3 2
- -------------------------------------------------------------------------------
Numerator for diluted earnings per
share--net income applicable to
common stockholders after
assumed conversions $ 820 $ 718 $ 262
===============================================================================
Denominator
Denominator for basic earnings per
share--weighted average shares
outstanding 100.286 100.417 99.162
Effect of dilutive securities
Options 1.839 1.111 0.843
Convertible subordinated
debentures 2.457 3.019 3.083
Deferred stock 2.408 1.618 0.206
- -------------------------------------------------------------------------------
Dilutive potential common shares 6.704 5.748 4.132
Denominator for diluted earnings
per share--adjusted weighted-
average shares after assumed
conversions 106.990 106.165 103.294
===============================================================================
Basic earnings per share $ 8.15 $ 7.12 $ 2.62
===============================================================================
Diluted earnings per share $ 7.66 $ 6.76 $ 2.54
===============================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
Note 22--International Operations
Management views the operations of the Corporation on an organizational unit
basis, as disclosed in the unaudited Management Discussion and Analysis on page
17. However, in order to comply with the financial reporting regulations of the
Securities and Exchange Commission, the Corporation is required to report
international operations on the basis of the domicile of the customer. Pursuant
to these regulations, any business transacted with a customer who is domiciled
outside the U.S. is reported as international operations. Due to the complex
nature of the Corporation's businesses and because its revenue from customers
domiciled outside the U.S. is recorded in both domestic and foreign offices, it
is impossible to segregate with precision the respective contributions to income
from the domestic and international operations. As these operations are highly
integrated, estimates and subjective assumptions have been made to apportion
revenue and expenses between domestic and international operations. These
estimates and assumptions include the following: interest revenue and interest
expense are apportioned to geographic areas based on the geographic distribution
of average interest earning assets. The geographic location of the assets is
determined by the domicile of the customer, or for interest earning securities,
by the domicile of the issuer. For the years ended December 31, 1997 and 1996,
trading gains and losses are primarily allocated based on the geographic
distribution of average trading assets as determined by the domicile of the
issuer. For the year ended December 31, 1995, trading gains and losses are
allocated based on the location of the office recording the gains/losses. All
other noninterest revenue is allocated based on the geographic location of the
office recording the income. Noninterest expense is basically apportioned
geographically based on the geographical distribution of operating income (net
interest revenue plus noninterest revenue). Corporate overhead expenses are
allocated based upon average assets by geographic region. International offices
are assessed a cost of funds charge based on a short-term funding rate.
Allocation of the provision for credit losses is based on the geographical
distribution of net charges to the allowance for credit losses and management's
assessment of the risks associated with the domestic and international
portfolios. International taxes are calculated based on the foreign tax rate for
each foreign office.
Earning assets are allocated by the domicile of the customer. All other
assets are allocated based on the location of the office recording the assets.
Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations (in
millions):
<TABLE>
<CAPTION>
Income Net
Total Total Total before income
assets revenue(1) expenses(1) taxes (loss)
- ---------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 18,203 $ 946 $ 1,005 $ (59) $ (44)
Australia/New Zealand 10,598 939 827 112 83
Western Hemisphere 16,420 1,618 1,509 109 81
Europe 15,787 1,050 1,014 36 26
United Kingdom 29,396 1,374 1,268 106 79
Middle East/Africa 471 66 62 4 3
Intersegment eliminations (18,210) (851) (851) -- --
- ---------------------------------------------------------------------------------------------
Total international 72,665 5,142 4,834 308 228
Domestic operations 67,437 7,034 6,103 931 638
- ---------------------------------------------------------------------------------------------
Total $ 140,102 $ 12,176 $ 10,937 $ 1,239 $ 866
=============================================================================================
International as a percentage
of total 52% 42% 44% 25% 26%
=============================================================================================
<CAPTION>
Income
Total Total Total before Net
assets revenue(1) expenses(1) taxes income
- ---------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 9,622 $ 613 $ 516 $ 97 $ 71
Australia/New Zealand 10,488 1,031 834 197 144
Western Hemisphere 14,631 1,275 1,193 82 60
Europe 14,354 965 941 24 18
United Kingdom 25,447 1,027 1,027 -- --
Middle East/Africa 691 40 35 5 4
Intersegment eliminations (12,759) (591) (591) -- --
- ---------------------------------------------------------------------------------------------
Total international 62,474 4,360 3,955 405 297
Domestic operations 60,069 6,265 5,539 726 469
- ---------------------------------------------------------------------------------------------
Total $ 122,543 $ 10,625 $ 9,494 $ 1,131 $ 766
=============================================================================================
International as a percentage
of total 51% 41% 42% 36% 39%
=============================================================================================
<CAPTION>
Income Net
Total Total Total before income
assets revenue(1) expenses(1)(2) taxes(2) (loss)(2)
- ---------------------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 7,565 $ 710 $ 609 $ 101 $ 70
Australia/New Zealand 7,658 803 657 146 101
Western Hemisphere 10,245 1,201 1,138 63 43
Europe 8,001 818 764 54 37
United Kingdom 28,850 599 807 (208) (144)
Middle East/Africa 302 15 17 (2) (1)
Intersegment eliminations (11,119) (751) (751) -- --
- ---------------------------------------------------------------------------------------------
Total international 51,502 3,395 3,241 154 106
Domestic operations 54,697 5,723 5,408 315 205
- ---------------------------------------------------------------------------------------------
Total $ 106,199 $ 9,118 $ 8,649 $ 469 $ 311
=============================================================================================
International as a percentage
of total 48% 37% 37% 33% 34%
=============================================================================================
</TABLE>
(1) Total revenue includes interest revenue and noninterest revenue. Total
expenses includes interest expense, noninterest expenses and provision for
credit losses.
(2) 1995 balances have been restated to reflect the change in methodology for
allocating operating and corporate overhead expenses.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
66
<PAGE>
================================================================================
Note 23--Derivative Financial Instruments and Financial Instruments with
Off-Balance Sheet Risk
In the normal course of business, the Corporation is a party to a variety of
derivative and off-balance sheet financial instruments to meet the needs of its
customers, to manage its exposure to interest rate and other risks, and to take
trading positions. These financial instruments consist of derivatives (such as
swaps, forwards and options), when-issued securities, securities lending
indemnifications, and credit-related arrangements and involve varying degrees of
credit risk and market risk.
Credit risk, as defined by SFAS 105, represents the maximum potential
accounting loss due to possible non-performance by obligors and counterparties
under the terms of their contracts. Market risk represents the potential loss
due to the decrease in the value of a financial instrument caused primarily by
changes in interest rates or foreign exchange rates, or the prices of equities
or commodities (or related indices).
The Corporation manages the credit risk of its derivative and off-balance
sheet portfolios by limiting the total amount of arrangements outstanding with
individual customers; by monitoring the size and maturity structure of the
portfolios; by obtaining collateral based on management's credit assessment of
the customer; and by applying a uniform credit process for all credit exposures.
Collateral held generally includes cash and U.S. government and federal agency
securities. In order to reduce derivatives-related credit risk, the Corporation
enters into master netting agreements which incorporate the right of setoff to
provide for the net settlement of covered contracts with the same customer in
the event of default or other cancellation of the agreement. In addition,
management evaluates these portfolios periodically to determine whether the
allowance for credit losses is adequate to absorb potential losses in such
portfolios.
For a further discussion of derivative financial instruments, the related
market and credit risks, and controls used to monitor such risks, which is
unaudited and not included as part of these financial statements, see "Risk
Management" on page 22, "Derivatives" on page 26, "Summary of Credit Loss
Experience" on page 29 and "Nonperforming Assets" on page 32. For the
risk-weighted amounts under the risk-based capital guidelines of the
Corporation's derivative and off-balance sheet exposures, which also are
unaudited and not included as part of these financial statements, see "Capital
Resources" on page 20.
Trading Derivative Financial Instruments
The Corporation actively manages trading positions in a variety of derivative
contracts. Many of the Corporation's trading positions are established as a
result of providing derivative products to meet customers' demands. To
anticipate customer demand for such transactions, the Corporation also carries
an inventory of capital markets instruments and maintains its access to market
liquidity by quoting bid and offer prices to, and trading with, other market
makers. These two activities are essential to provide customers with capital
market products at competitive prices. All positions are reported at fair value
and changes in fair values are reflected in trading revenue as they occur.
As required by SFAS 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," the amounts disclosed
below represent the end-of-period fair values of trading derivatives and their
average aggregate fair values during the year. These amounts are presented gross
before the impact of master netting agreements. The gross fair values of trading
derivatives do not represent the amount of market or credit risk of derivatives
in the trading portfolio. Rather, they indicate the extent of involvement in the
over-the-counter (OTC) markets for interest rate, foreign exchange rate, equity
and commodity price derivatives, and exchange traded options during the year.
Any measurement of risk is meaningful only when all related factors are
identified, such as risk-offsetting transactions, master netting agreements, and
the value of any related collateral. The Corporation considers such factors in
its RAROC framework and in other internal risk analyses. The accounting impact
of netting agreements, which is applied on a cross-product basis in accordance
with the terms of each master agreement and which is calculated based on the
criteria prescribed by FIN 39, is provided below in order to display how these
amounts are reflected in trading assets and trading liabilities in the
consolidated balance sheet.
Contracts with positive fair values are recorded as assets and contracts
with negative fair values are recorded as liabilities after application of
master netting agreements. The following table reflects the gross fair values
and balance sheet amounts of trading derivative financial instruments:
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At December 31, 1997 Average during 1997
-------------------- -------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 20,793 $(19,103) $ 17,067 $(15,611)
Interest Rate Contracts
Forwards 48 (40) 52 (56)
Options purchased 1,147 1,114
Options written (1,355) (1,238)
Foreign Exchange Rate Contracts
Spot and Forwards 17,846 (18,031) 13,881 (14,386)
Options purchased 1,299 1,090
Options written (1,192) (1,058)
Equity-related contracts 4,082 (4,607) 3,372 (3,827)
Commodity-related and
other contracts 597 (680) 643 (677)
Exchange-Traded Options
Interest Rate 4 (3) 12 (7)
Foreign Exchange (5) (1)
Equity 411 (318) 313 (199)
- -------------------------------------------------------------------------------------------------
Total Gross Fair Values 46,227 (45,334) 37,544 (37,060)
- -------------------------------------------------------------------------------------------------
Impact of Netting Agreements (28,269) 28,269 (23,816) 23,816
- -------------------------------------------------------------------------------------------------
Less Allowance for Credit Losses (285) -- (194) --
- -------------------------------------------------------------------------------------------------
$ 17,673(1) $(17,065)(1) $ 13,534 $(13,244)
======== ======== ======== ========
<CAPTION>
At December 31, 1996 Average during 1996
-------------------- -------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 16,582 $(15,394) $ 14,880 $(14,345)
Interest Rate Contracts
Forwards 84 (86) 63 (61)
Options purchased 1,149 1,118
Options written (1,252) (1,323)
Foreign Exchange Rate Contracts
Spot and Forwards 9,855 (10,935) 7,754 (9,118)
Options purchased 917 986
Options written (953) (983)
Equity-related contracts 2,696 (2,941) 2,128 (2,374)
Commodity-related and
other contracts 679 (690) 585 (594)
Exchange-Traded Options
Interest Rate 10 (12) 19 (10)
Foreign Exchange -- -- -- (2)
Equity 251 (135) 181 (82)
- -------------------------------------------------------------------------------------------------
Total Gross Fair Values 32,223 (32,398) 27,714 (28,892)
- -------------------------------------------------------------------------------------------------
Impact of Netting Agreements (20,813) 20,813 (17,314) 17,314
- -------------------------------------------------------------------------------------------------
Less Allowance for Credit Losses (190) -- -- --
- -------------------------------------------------------------------------------------------------
$ 11,220(1) $(11,585)(1) $ 10,400 $(11,578)
======== ======== ======== ========
</TABLE>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
Derivative contracts are generally either privately-negotiated OTC
contracts or standard contracts transacted through regulated exchanges. For
information as to the credit risk of OTC trading derivatives, which is unaudited
and not included as part of these financial statements, see "Derivatives" on
page 26. Fair values of futures contracts are not included above due to cash
margining requirements of regulated exchanges. Monthly averages are used in the
table above.
End-User Derivative Financial Instruments
The Corporation, as an end user, utilizes various types of derivative products
(principally interest rate and currency swaps) to manage the interest rate,
currency and other market risks associated with certain liabilities and assets
such as interest-bearing deposits, short-term borrowings and long-term debt, as
well as securities available for sale, loans, investments in non-marketable
equity instruments and net investments in foreign entities. Revenue or expense
pertaining to management of interest rate exposure is predominantly recognized
over the life of the contract as an adjustment to interest revenue or expense.
When the Corporation purchases assets and issues liabilities at fixed
interest rates it subjects itself to fair value fluctuations as market interest
rates change. These fluctuations in fair value are managed by entering into
interest rate contracts which change the fixed rate cash flows into variable
rate cash flows.
When the Corporation purchases foreign currency denominated assets, issues
foreign currency denominated debt or has foreign net investments, it subjects
itself to changes in value as exchange rates move. These fluctuations are
managed by entering into currency swaps and forwards.
The fair values and other information related to end-user derivatives are
disclosed in Note 25.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
Notional Amounts of Trading and End-User Derivative Financial Instruments
Notional amounts indicate the extent of the Corporation's involvement in the
various types and uses of derivative financial instruments and do not measure
the Corporation's exposure to credit or market risks and do not necessarily
represent the amounts exchanged by the parties to the instruments. The amounts
exchanged are based on the contractual notional amounts and the other terms of
the instruments. Notional amounts are not included in the consolidated balance
sheet and generally exceed the future cash requirements relating to the
instruments. The leveraging effects of leveraged derivative transactions are
reflected in the table below.
Notional Amounts
(in millions) December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------
End End
Trading User(1) Trading User(1)
- -----------------------------------------------------------------------------
Interest rate contracts
Swaps $ 693,322 $108,053 $ 589,739 $59,095
Futures 130,884 -- 102,389 --
Forwards 71,243 2,950 67,183 3,325
Options purchased
Exchange traded 27,157 -- 41,106 --
OTC 103,765 427 93,734 1,014
Options written
Exchange traded 17,665 -- 42,300 --
OTC 100,357 -- 96,843 --
- -----------------------------------------------------------------------------
Total $1,144,393 $111,430 $1,033,294 $63,434
=============================================================================
Foreign exchange rate contracts
Spot, forwards, futures $ 684,039 $ 3,023 $ 539,805 $ 2,358
Swaps 69,941 3,468 60,200 2,480
OTC options purchased 28,525 -- 23,118 --
OTC options written 30,405 -- 24,994 --
- -----------------------------------------------------------------------------
Total $ 812,910 $ 6,491 $ 648,117 $ 4,838
=============================================================================
Equity derivative contracts
Swaps $ 7,401 $ 12 $ 6,165 $ 224
Futures and forwards 6,734 -- 2,932 --
Options purchased
Exchange traded 3,680 -- 3,097 --
OTC 15,923 -- 13,556 1
Options written
Exchange traded 6,264 -- 2,648 --
OTC 17,399 -- 14,420 --
- -----------------------------------------------------------------------------
Total $ 57,401 $ 12 $ 42,818 $ 225
=============================================================================
Commodity and other contracts (2)
Swaps $ 3,882 $ -- $ 3,168 $ --
Futures 1,023 -- 792 --
Forwards 2,179 -- 2,304 --
Options purchased
Exchange traded 152 -- 663 --
OTC 1,386 -- 1,879 --
Options written
Exchange traded 366 -- 604 --
OTC 1,915 -- 1,956 --
- -----------------------------------------------------------------------------
Total $ 10,903 $ -- $ 11,366 $ --
=============================================================================
(1) These are hedges of securities available for sale, loans, other assets,
interest-bearing deposits, other short-term borrowings, long-term debt and
net investments in foreign subsidiaries. These are transacted with
derivatives traders within the Corporation who are intermediaries to
external markets.
(2) Excluded from the notional amounts above were benefit-responsive contracts
reflecting actuarial-related risk, minimal market risk and no credit risk,
for which the notional values totaled $11.5 billion at December 31, 1997
and 1996.
Swaps
Interest rate swap contracts generally represent the contractual exchange of
fixed and floating rate payments of a single currency, based on a notional
amount and an interest reference rate. Cross-currency interest rate swap
contracts generally involve the exchange of payments which are based on the
interest reference rates available at the inception of the contract on two
different currency principal balances that are exchanged. The principal balances
are re-exchanged at an agreed upon rate at a specified future date. Equity swap
contracts typically involve the payment of an amount equal to the total return
of a U.S. or international equity index, basket of equities, or an individual
equity over a fixed time period in exchange for receiving a floating interest
rate, both based upon the same notional amount.
Futures and Forwards
Futures and forward contracts represent commitments to purchase or sell
securities, money market instruments, foreign currencies or commodities at a
future date and at a specified price. Futures contracts are traded on regulated
U.S. and international exchanges. The Corporation intends to close out most open
positions in futures contracts prior to maturity; therefore future cash receipts
or payments are generally limited to the change in fair value of the underlying
instruments. Since futures contracts generally entail daily net cash margining
with regulated exchanges, the credit risk is generally minimized to a one-day
receivable. Included in this category of contracts are spot foreign currency
contracts, cash-settled index contracts, and forward rate agreements (agreements
to exchange amounts at a specified future date for interest rate differentials
between an agreed interest rate and a reference rate, computed on a notional
amount).
Options
Option contracts are either deliverable or cash-settled. Deliverable contracts
convey to the purchaser (holder) the right to buy (call) or sell (put)
securities, money market instruments, foreign currencies or commodities at or
before a specified date for a contracted price from the seller (writer) of the
contract. Cash-settled contracts convey to the purchaser the right to the
monetary equivalent of the increase (call) or decrease (put), or a percentage
thereof, in a specified reference rate or index, computed on a notional amount,
from the writer. The initial price of an option contract is equal to the premium
paid by the purchaser and is significantly less than the contract or notional
amount. Included in these contracts are: (i) interest rate caps, floors and
collars, which are agreements to make periodic payments for interest rate
differentials between an agreed upon interest rate and a reference rate and (ii)
purchased options to enter into future (or cancel existing) interest rate swap
contracts ("swap options").
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
The Corporation is subject to credit risk as a purchaser of an option
contract, and is subject to market risk to the extent of the purchase price of
the option. The Corporation is subject to market risk on its written option
contracts, but not to credit risk, except as noted below, since the customer has
already performed according to the terms of the contract by paying a cash
premium up front. However, for SFAS 105 purposes, credit risk arises to the
extent that the option contract requires or permits settlement in the underlying
instrument, and that instrument is subject to credit risk. Such amounts related
to certain written put option contracts on debt securities and certain forward
contracts to purchase debt securities were $2.850 billion and $2.677 billion at
December 31, 1997 and 1996, respectively. The underlying debt securities were
primarily obligations of the U.S. and foreign central and local governments and
U.S. federal agencies.
Financial Instruments with Off-Balance Sheet Credit Risk
As required by SFAS 105, off-balance sheet credit risk amounts are determined
without consideration of the value of any related collateral and reflect the
total potential loss on commitments to purchase when-issued securities for all
obligors (including governments); securities lending indemnifications; and
undrawn commitments, standby letters of credit and similar arrangements.
Securities and Money Market Activities
(in millions) December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Contract Credit Risk Contract Credit Risk
Amount Amount Amount Amount
- --------------------------------------------------------------------------------
When-issued securities
and other Commitments
to sell $ 71 $ -- $ 1,440 $ 2
Commitments to purchase (1) 1,047 1,047 2,511 2,524
Securities lending
indemnifications 53,842 53,842 37,799 37,799
- --------------------------------------------------------------------------------
(1) Includes $.9 billion and $1.1 billion of forward-dated money market assets
at December 31, 1997 and 1996, respectively.
When-issued securities normally begin trading when the U.S. Treasury or
some other issuer of securities announces a forth-coming issue. (In some cases,
trading may begin in anticipation of such an announcement.) Such transactions
are contingent upon the actual issuance of the security. Since the exact price
and terms of the security are unknown before the issue date, trading prior to
that date is on a "yield" basis. On the issue date the exact terms and price of
the security become known and when-issued trading continues until settlement
date, when the securities are delivered and the issuer is paid. On settlement
date, the securities purchased by the Corporation are reported on the balance
sheet.
Securities lending indemnifications represent the market value of
customers' securities lent to third parties. The Corporation indemnifies
customers to the extent of the replacement cost and/or the market value of the
securities in the event of a failure by a third party to return the securities
lent. The market value of collateral, primarily cash, received for customers'
securities lent was in excess of the contract amounts and was approximately $56
billion at December 31, 1997 and $39 billion at December 31, 1996.
Credit-Related Arrangements
(in millions) December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Credit Credit
Contract Risk Contract Risk
Amount Amount Amount Amount
- --------------------------------------------------------------------------------
Commitments to
extend credit (1) $19,079 $19,079 $12,809 $12,809
Standby letters of credit and
similar arrangements (2) 4,605 4,605 3,974 3,974
- --------------------------------------------------------------------------------
(1) Includes participations to other entities of approximately $2 billion at
December 31, 1997 and 1996. Of the non-participated amount, approximately
$4 billion and $2 billion expire in one year or less at December 31, 1997
and 1996, respectively. Additionally, both the contract amount and the
credit risk amount include commitments to enter into securities resale
agreements of $1.7 billion and $2.0 billion at December 31, 1997 and 1996,
respectively.
(2) Includes participations to other entities of approximately $1 billion at
December 31, 1997 and 1996.
Commitments to extend credit represent contractual commitments to make
loans and revolving credits. Commitments generally have fixed expiration dates
or other termination clauses and require the payment of a fee. Since commitments
may expire without being drawn upon, the total contract amounts do not
necessarily represent future cash requirements. Included in the amounts above
are unused commitments to extend credit that are related to loans held for
trading purposes.
Standby letters of credit and similar arrangements ("standbys"), issued
primarily to support corporate obligations, commit the Corporation to make
payments on behalf of customers contingent upon the failure of the customer to
perform under the terms of the contract. Standbys outstanding related to
customer obligations, such as commercial paper, medium- and long-term notes and
debentures (including industrial revenue obligations), as well as other
financial and performance-related obligations. At December 31, 1997, $1.739
billion will expire within one year, $2.483 billion from one to four years and
$383 million after four years.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
For standbys, commitments to extend credit and securities lending
indemnifications, the credit risk amount represents the contractual amount.
Standbys and commitments to extend credit would have market risk if issued or
extended at a fixed rate of interest. However, these contracts are primarily
made at a floating rate. Fees received are generally recognized as revenue over
the life of the commitment.
Note 24--Concentrations of Credit Risk
The Corporation, as required by SFAS 105, has identified two significant
concentrations of credit risk: OECD country banks and OECD country central
governments, their agencies and central banks. Together they represented 24
percent and 34 percent of total credit risk at December 31, 1997 and 1996,
respectively. The Organization for Economic Cooperation and Development (OECD)
is an international organization of countries which are committed to
market-oriented economic policies, including the promotion of private enterprise
and free market prices, liberal trade policies, and the absence of exchange
controls. The OECD consists of 29 industrialized countries that are located
primarily in Western Europe and North America, as well as Australia, Japan, New
Zealand and South Korea. For risk-based capital purposes, domestic and foreign
bank regulators generally assign OECD country central governments, their
agencies and their central banks a credit risk weighting of zero percent, which
means that no credit risk capital is required to support their financial
instruments. OECD country banks are assigned the next lowest credit risk
weighting (20 percent) by these regulators. The largest counterparty
concentration was the U.S. government and its related entities, which comprised
approximately 53 percent of the OECD country governments category. Within all
other counterparties, the amount collateralized by cash and U.S. government
securities represented approximately 32 percent of total credit risk.
The following table reflects the aggregate credit risk by groups of
counterparties, as defined by SFAS 105, relating to on- and off-balance sheet
financial instruments, including derivatives, at December 31, 1997 and 1996.
Credit Risk
On-Balance Off-Balance
(in millions) Sheet Sheet Total
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Significant concentrations (1)
OECD country banks (2) $ 32,765 $ 4,213 $ 36,978
OECD country governments 10,717 2,363 13,080
- --------------------------------------------------------------------------------
Total significant concentrations 43,482 6,576 50,058
All other (3) 82,540 74,847 157,387
- --------------------------------------------------------------------------------
Total $126,022 $ 81,423 $207,445
================================================================================
1996
Significant concentrations (1)
OECD country banks (2) $ 34,799 $ 4,040 $ 38,839
OECD country governments 16,083 3,194 19,277
- --------------------------------------------------------------------------------
Total significant concentrations 50,882 7,234 58,116
All other (3) 60,531 52,463 112,994
- --------------------------------------------------------------------------------
Total $111,413 $ 59,697 $171,110
================================================================================
(1) For these purposes, Poland has been excluded from the OECD categories.
(2) Included in the on-balance sheet component of this category was
approximately $2 billion and $4 billion at December 31, 1997 and 1996,
respectively, that was collateralized by U.S. government securities.
(3) The "all other" category of credit risk is diversified with respect to
type of obligor and counterparty. Included in the on-balance sheet
component of this category was approximately $12 billion and $8 billion at
December 31, 1997 and 1996, respectively, that was collateralized by cash
and U.S. government securities. Included in the off-balance sheet
component of this category at December 31, 1997 was approximately $53
billion that was collateralized by cash and U.S. government securities and
approximately $19 billion of unused commitments to extend credit,
approximately $7 billion of which expire in one year or less. The
corresponding amounts for December 31, 1996 were $37 billion, $11 billion
and $5 billion, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
Note 25--Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires the
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be
substantiated by comparison to independent market quotes and, in many cases, the
estimated fair values would not necessarily be realized in an immediate sale or
settlement of the instrument. The disclosure requirements of SFAS 107 exclude
certain financial instruments and all nonfinancial instruments (e.g., franchise
value of businesses). Accordingly, the aggregate fair value amounts presented do
not represent management's estimation of the underlying value of the
Corporation.
SFAS 119 amended SFAS 107 disclosure requirements as of December 31, 1994.
The amendments, among others, require that the disclosures distinguish between
financial instruments held for trading purposes, measured at fair value with
gains and losses recognized in earnings, and financial instruments held or
issued for purposes other than trading. The fair value of derivative financial
instruments must be disclosed separately from nonderivative financial
instruments. Additionally, the fair value of derivative financial instruments
may not be netted with the fair value of other derivative financial instruments,
except as allowed by FIN 39.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
72
<PAGE>
The following are the estimated fair values of the Corporation's financial
instruments followed by a general description of the methods and assumptions
used to estimate such fair values.
Fair Value of Financial Instruments
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Underlying Effect of Total Fair Value Over
(in millions) December 31, 1997 Book Value Fair Value End-User Derivative Fair Value (Under) Book Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Assets, Including Hedges
Cash and due from banks $ 2,188 $ 2,188 $ -- $ 2,188 $ --
Interest-bearing deposits with banks 4,272 4,273 -- 4,273 1
Federal funds sold 1,382 1,382 -- 1,382 --
Securities purchased under resale agreements 19,163 19,179 -- 19,179 16
Securities borrowed 16,751 16,751 -- 16,751 --
Trading assets, net (see Notes 3 and 23) 56,572 56,857 -- 56,857 285(1)
Securities available for sale (see Note 4) 8,081 8,117 (36) 8,081 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit, net 18,842 19,559 (171) 19,388 546(1)
Customer receivables 1,547 1,547 -- 1,547 --
Due from customers on acceptances 633 633 -- 633 --
Accounts receivable and accrued interest 4,785 4,785 -- 4,785 --
Other financial assets 2,696 2,737 1 2,738 42
Financial Liabilities, Including Hedges
Noninterest-bearing deposits 4,728 4,728 -- 4,728 --
Interest-bearing deposits 38,102 38,264 (62) 38,202 100
Trading liabilities (see Notes 3 and 23) 27,246 27,246 -- 27,246 --
Securities loaned and securities sold
under repurchase agreements 17,896 17,904 -- 17,904 8
Other short-term borrowings 19,577 19,591 8 19,599 22
Acceptances outstanding 633 633 -- 633 --
Other financial liabilities 8,634 8,621 -- 8,621 (13)(1)
Long-term debt* 16,059 16,433 (381) 16,052 (7)
Net investments in foreign subsidiaries -- -- (6) (6) (6)
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
Financial Assets, Including Hedges
Cash and due from banks $ 1,568 $ 1,568 $ -- $ 1,568 $ --
Interest-bearing deposits with banks 2,210 2,212 -- 2,212 2
Federal funds sold 1,684 1,684 -- 1,684 --
Securities purchased under resale agreements 18,002 18,004 -- 18,004 2
Securities borrowed 17,005 17,005 -- 17,005 --
Trading assets, net (see Notes 3 and 23) 48,939 49,129 -- 49,129 190(1)
Securities available for sale (see Note 4) 7,920 7,985 (65) 7,920 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit, net 14,842 15,638 (305) 15,333 491(1)
Customer receivables 1,529 1,529 -- 1,529 --
Due from customers on acceptances 597 597 -- 597 --
Accounts receivable and accrued interest 3,032 3,032 -- 3,032 --
Other financial assets 2,161 2,239 (3) 2,236 75
Financial Liabilities, Including Hedges
Noninterest-bearing deposits 3,613 3,613 -- 3,613 --
Interest-bearing deposits 26,702 26,729 (31) 26,698 (4)
Trading liabilities (see Notes 3 and 23) 23,761 23,761 -- 23,761 --
Securities loaned and securities sold
under repurchase agreements 23,454 23,456 -- 23,456 2
Other short-term borrowings 19,409 19,416 -- 19,416 7
Acceptances outstanding 597 597 -- 597 --
Other financial liabilities 6,367 6,357 -- 6,357 (10)(1)
Long-term debt* 12,038 12,259 (177) 12,082 44
Net investments in foreign subsidiaries -- -- 1 1 1
===============================================================================================================================
</TABLE>
(1) Relates substantially to the allowance for credit losses.
* Includes trust preferred capital securities.
A discussion of the nature, objectives and strategies for using end-user
derivatives can be found in Note 23.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
The following table provides the gross unrealized gains and losses for
end-user derivatives. Gross unrealized gains and losses for hedges of securities
available for sale are recognized in the financial statements with the offset as
an adjustment to securities valuation allowance in stockholders' equity. Gross
unrealized gains and losses for hedges of loans, other assets, interest-bearing
deposits, other short-term borrowings, long-term debt and net investments in
foreign subsidiaries are not yet recognized in the financial statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Net
Securities Interest- Other investments
available Other bearing short-term Long- in foreign
(in millions) December 31, 1997 for sale Loans assets deposits borrowings term debt(1) subsidiaries Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 3 $ 8 $ -- $ 61 $ 20 $ 524 $ -- $ 616
Unrealized (Loss) -- (3) -- (13) (27) (94) -- (137)
- --------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net 3 5 -- 48 (7) 430 -- 479
- --------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 2 1 -- 32 11 3 -- 49
Unrealized (Loss) (51) (184) -- (42) (30) (25) -- (332)
- --------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net (49) (183) -- (10) (19) (22) -- (283)
- --------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain 5 9 -- 93 31 527 -- 665
- --------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) (51) (187) -- (55) (57) (119) -- (469)
- --------------------------------------------------------------------------------------------------------------------------------
Total Net $ (46) $(178) $ -- $ 38 $ (26) $ 408 $ -- $ 196
================================================================================================================================
Forward Rate Agreements
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) -- -- -- (1) -- -- -- (1)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ (1) $ -- $ -- $ -- $ (1)
================================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ 14 $ 6 $ 2 $ 25 $ 34 $ 36 $ 40 $ 157
Unrealized (Loss) -- -- -- -- (16) (63) (46) (125)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ 14 $ 6 $ 2 $ 25 $ 18 $ (27) $ (6) $ 32
================================================================================================================================
Other Contracts (2)
Unrealized Gain $ -- $ 1 $ -- $ -- $ -- $ -- $ -- $ 1
Unrealized (Loss) (4) -- (1) -- -- -- -- (5)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ (4) $ 1 $ (1) $ -- $ -- $ -- $ -- $ (4)
================================================================================================================================
Total Unrealized Gain $ 19 $ 16 $ 2 $ 118 $ 65 $ 563 $ 40 $ 823
Total Unrealized (Loss) (55) (187) (1) (56) (73) (182) (46) (600)
- --------------------------------------------------------------------------------------------------------------------------------
Total Net $ (36) $(171) $ 1 $ 62 $ (8) $ 381 $ (6) $ 223
================================================================================================================================
(in millions) December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 1 $ -- $ -- $ 62 $ 7 $ 262 $ -- $ 332
Unrealized (Loss) -- (14) -- (23) (6) (93) -- (136)
- --------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net 1 (14) -- 39 1 169 -- 196
- --------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 3 -- -- 13 -- 1 -- 17
Unrealized (Loss) (50) (291) -- (45) (1) (28) -- (415)
- --------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net (47) (291) -- (32) (1) (27) -- (398)
- --------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain 4 -- -- 75 7 263 -- 349
- --------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) (50) (305) -- (68) (7) (121) -- (551)
- --------------------------------------------------------------------------------------------------------------------------------
Total Net $ (46) $(305) $ -- $ 7 $ -- $ 142 $ -- $(202)
================================================================================================================================
Forward Rate Agreements
Unrealized Gain $ -- $ -- $ -- $ 1 $ -- $ -- $ -- $ 1
Unrealized (Loss) -- -- -- (1) -- -- -- (1)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
================================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ -- $ -- $ 1 $ 27 $ -- $ 53 $ 42 $ 123
Unrealized (Loss) -- -- -- (3) -- (18) (41) (62)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ 1 $ 24 $ -- $ 35 $ 1 $ 61
================================================================================================================================
Other Contracts (2)
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) (19) -- (4) -- -- -- -- (23)
- --------------------------------------------------------------------------------------------------------------------------------
Net $ (19) $ -- $ (4) $ -- $ -- $ -- $ -- $ (23)
================================================================================================================================
Total Unrealized Gain $ 4 $ -- $ 1 $ 103 $ 7 $ 316 $ 42 $ 473
Total Unrealized (Loss) (69) (305) (4) (72) (7) (139) (41) (637)
- --------------------------------------------------------------------------------------------------------------------------------
Total Net $ (65) $(305) $ (3) $ 31 $ -- $ 177 $ 1 $(164)
================================================================================================================================
</TABLE>
(1) Includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
The unrealized gains and losses on these hedges were determined on the
basis of valuation pricing models which take into account current market and
contractual prices of the underlying instruments, as well as time value and
yield curve or volatility factors underlying the positions.
The remaining maturities of the notional amounts of end-user derivatives
at December 31, 1997 and December 31, 1996 were as follows:
December 31, 1997 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing In: Risk Risk* Risk Amount
- --------------------------------------------------------------------------------
1998 $ 84,500 $ 3,843 $ 12 $ 88,355
1999-2000 14,367 1,849 -- 16,216
2001-2002 4,727 453 -- 5,180
2003 and thereafter 7,836 346 -- 8,182
- --------------------------------------------------------------------------------
Total $111,430 $ 6,491 $ 12 $117,933
================================================================================
December 31, 1996 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing In: Risk Risk* Risk Amount
- --------------------------------------------------------------------------------
1997 $ 41,168 $ 3,271 $ 20 $ 44,459
1998-1999 10,540 750 101 11,391
2000-2001 5,210 689 104 6,003
2002 and thereafter 6,516 128 -- 6,644
- --------------------------------------------------------------------------------
Total $ 63,434 $ 4,838 $ 225 $ 68,497
================================================================================
* Currency swaps and currency forwards are primarily based upon Australian
dollar/U.S. dollar and Japanese yen/U.S. dollar contracts.
For pay variable and pay fixed interest rate swaps entered into as an end
user, the weighted average receive rate and pay rate (interest rates were based
on the weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts at December 31, 1997 and December 31, 1996 were
as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1997 Paying Variable Paying Fixed
------------------------- -------------------------
($ in millions) Notional Receive Pay Notional Receive Pay Total
Notional Amount Maturing In: Amount Rate Rate Amount Rate Rate Notional
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $74,471 5.79% 5.84% $ 6,799 5.83% 6.00% $ 81,270
1999-2000 11,222 5.97 5.72 3,006 5.04 5.62 14,228
2001-2002 3,282 6.56 5.75 1,437 5.32 9.66 4,719
2003 and thereafter 6,730 6.89 5.43 1,106 5.75 7.26 7,836
- ----------------------------------------------------------------------------------------------------
Total $95,705 $12,348 $108,053
====================================================================================================
</TABLE>
All rates were those in effect at December 31, 1997. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1996 Paying Variable Paying Fixed
------------------------- -------------------------
($ in millions) Notional Receive Pay Notional Receive Pay Total
Notional Amount Maturing In: Amount Rate Rate Amount Rate Rate Notional
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $33,275 5.59% 5.52% $ 4,056 5.23% 5.71% $37,331
1998-1999 7,957 5.96 5.52 2,095 4.82 5.82 10,052
2000-2001 3,633 6.87 5.63 1,568 4.98 9.35 5,201
2002 and thereafter 5,579 6.79 5.65 932 5.61 7.14 6,511
- ----------------------------------------------------------------------------------------------------
Total $50,444 $ 8,651 $59,095
====================================================================================================
</TABLE>
All rates were those in effect at December 31, 1996. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
The effect of these end-user derivatives was a net decrease in revenue of
$11 million for the year ended December 31, 1997 and a net decrease in revenue
of $68 million for the year ended December 31, 1996.
The Corporation has reviewed its other categories of off-balance sheet
instruments (forward-dated assets and liabilities, securities lending
indemnifications and securities borrowed) accounted for at cost and has
determined that, in the case of each such category, the unrealized gain or loss
on such instruments at both December 31, 1997 and 1996 was not material.
Methods and Assumptions
For short-term financial instruments, defined as those with remaining maturities
of 90 days or less, the carrying amount was considered to be a reasonable
estimate of fair value. The following instruments were predominantly short-term:
Assets Liabilities
- --------------------------------------------------------------------------------
Cash and due from banks Interest-bearing deposits
Interest-bearing deposits Securities loaned and securities
with banks sold under repurchase agreements
Federal funds sold Other short-term borrowings
Securities purchased under Acceptances outstanding
resale agreements Other financial liabilities
Securities borrowed
Customer receivables
Due from customers
on acceptances
Accounts receivable and
accrued interest
For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair value was determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.
As indicated in Note 2, trading assets (including derivatives), trading
liabilities and securities available for sale are carried at their fair values.
For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
those loans for which quoted market prices were available, fair value was based
on such prices. For other types of loans, fair value was estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. In addition, for loans secured by real estate, appraisal
values for the collateral were considered in the fair value determination. The
fair value estimate of commitments to extend credit and standby letters of
credit represented the unrealized gains and losses on those off-balance sheet
positions and was generally determined in the same manner as loans.
Other financial assets consisted primarily of investments in equity
instruments (excluding, in accordance with SFAS 107, investments accounted for
under the equity method) and cash and cash margins with brokers. The fair value
of non-marketable equity instruments was determined by matrix pricing utilizing
market prices for comparable publicly traded instruments, adjusted for liquidity
and contractual arrangements.
Noninterest-bearing deposits do not have defined maturities. In accordance
with SFAS 107, fair value represented the amount payable on demand as of the
balance sheet date.
Other financial liabilities consisted primarily of accounts payable and
accrued expenses at both December 31, 1997 and 1996.
The fair value of long-term debt was estimated by using market quotes as
well as discounting the remaining contractual cash flows using a rate at which
the Corporation could issue debt with a similar remaining maturity as of the
balance sheet date.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
Note 26--Condensed Parent Company Financial Statements
Condensed Statement of Income
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Revenue
Dividends
Banks $ 93 $ 48 $ 75
Nonbanks 404 196 86
Interest from subsidiaries 615 503 551
Other interest 275 157 150
Trading (103) -- 44
Securities available for sale gains (losses) 45 (7) 114
Other 80 18 85
- -------------------------------------------------------------------------------
Total revenue 1,409 915 1,105
- -------------------------------------------------------------------------------
Expenses
Interest to subsidiaries 217 109 71
Other interest 834 643 714
Other 216 33 --
- -------------------------------------------------------------------------------
Total expenses 1,267 785 785
- -------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed income
of subsidiaries and affiliates 142 130 320
Income taxes (benefit) (222) (99) 25
Income before equity in undistributed
income of subsidiaries and affiliates 364 229 295
Equity in undistributed income
of subsidiaries and affiliates 502 537 16
- -------------------------------------------------------------------------------
Net Income $ 866 $ 766 $ 311
===============================================================================
Condensed Balance Sheet
(in millions) December 31, 1997 1996
- -------------------------------------------------------------------------------
Assets
Cash and due from banks $ 97 $ 24
Interest-bearing deposits with bank subsidiaries 2,204 3,297
Securities purchased under resale agreements
with nonbank subsidiary 492 701
Trading assets 5,773 2,809
Securities available for sale 1,766 1,577
Loans 172 245
Investments in subsidiaries and affiliates
Banks 5,804 4,716
Nonbanks 2,032 2,279
Receivables from subsidiaries and affiliates
Banks 1,811 1,584
Nonbanks 8,535 5,182
Accounts receivable and accrued interest 461 370
Other assets 440 255
- -------------------------------------------------------------------------------
Total assets $29,587 $23,039
===============================================================================
Liabilities and Stockholders' Equity
Trading liabilities $ 312 $ 478
Commercial paper 6,641 5,723
Other short-term borrowings 3,436 1,905
Payables to subsidiaries and affiliates
Banks 727 652
Nonbanks 5,722 2,702
Other liabilities 443 330
Long-term debt 6,598 5,371
- -------------------------------------------------------------------------------
Total liabilities 23,879 17,161
- -------------------------------------------------------------------------------
Total stockholders' equity 5,708 5,878
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $29,587 $23,039
===============================================================================
Condensed Statement of Cash Flows
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 866 $ 766 $ 311
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in undistributed loss
(income) of subsidiaries and affiliates (502) (537) (16)
Deferred income taxes (82) (29) 3
Net change in trading assets (2,964) (1,334) 104
Net change in trading liabilities (166) 130 220
Securities available for sale
(gains) losses (45) 7 (114)
Other, net (632) (323) 282
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,525) (1,320) 790
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in:
Interest-bearing deposits with
bank subsidiaries 1,093 (757) (1,031)
Securities purchased under resale agreements
with nonbank subsidiary (209) (1,512) (1,109)
Securities purchased under resale agreements
with third party -- 48 (48)
Short-term notes receivable from
subsidiaries and affiliates (1,255) 2,557 1,591
Securities available for sale:
Purchases (650) (746) (388)
Maturities and other redemptions 345 229 360
Sales 158 260 876
Increases in long-term notes receivable
from subsidiaries (2,301) (2,015) (484)
Decreases in long-term notes receivable
from subsidiaries 1,037 871 1,379
Capital contributed to subsidiaries and affiliates (688) (867) (290)
Return of capital from subsidiaries and affiliates 300 700 --
Other, net 75 (223) 22
- -------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (2,095) (1,455) 878
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net change in:
Commercial paper and other
short-term borrowings 2,449 1,363 (3,304)
Short-term notes payable to subsidiaries 2,326 878 1,012
Issuance of long-term notes payable
to subsidiaries 770 512 --
Issuance of long-term debt 2,387 1,680 1,496
Repayments of long-term debt (913) (864) (791)
Issuance of preferred stock -- -- 221
Redemption/repurchase of preferred stock (152) (49) --
Purchases of treasury stock (1,038) (608) (38)
Cash dividends paid (384) (378) (361)
Other, net 248 257 33
- -------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 5,693 2,791 (1,732)
- -------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and
Due From Banks 73 16 (64)
Cash and due from banks, beginning of year 24 8 72
- -------------------------------------------------------------------------------
Cash and due from banks, end of year $ 97 $ 24 $ 8
===============================================================================
Interest paid $ 1,007 $ 737 $ 772
===============================================================================
Income taxes paid $ 131 $ 19 $ 9
===============================================================================
Noncash financing activity:
Conversion of debt to equity $ 63 $ 3 $ 259
===============================================================================
Noncash investing activity:
Treasury stock associated with acquisition $ -- $ 203 $ --
===============================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
77
<PAGE>
- --------------------------------------------------------------------------------
Note 27--Bankers Trust Company Consolidated Summarized Financial Information
Consolidated Statement of Income
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Net Interest Revenue
Interest revenue $ 5,287 $ 4,124 $ 3,656
Interest expense 4,070 3,346 3,069
- -------------------------------------------------------------------------------
Net Interest Revenue 1,217 778 587
Provision for credit losses 27 (9) (31)
- -------------------------------------------------------------------------------
Net Interest Revenue After Provision
For Credit Losses 1,190 787 618
- -------------------------------------------------------------------------------
Noninterest Revenue
Trading 611 670 279
Fiduciary and funds management 886 720 654
Corporate finance fees 354 285 230
Other fees and commissions 299 277 242
Securities available for sale gains (losses) 28 23 (4)
Other 415 295 163
- -------------------------------------------------------------------------------
Total noninterest revenue 2,593 2,270 1,564
- -------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions 812 729 683
Incentive compensation and
employee benefits 1,004 716 524
Occupancy, net 149 142 141
Furniture and equipment 185 155 146
Other 1,000 856 736
Restructuring charges 4 -- 43
- -------------------------------------------------------------------------------
Total noninterest expenses 3,154 2,598 2,273
- -------------------------------------------------------------------------------
Income (Loss) before income taxes 629 459 (91)
Income taxes (benefit) 182 115 (53)
- -------------------------------------------------------------------------------
Net Income (Loss) $ 447 $ 344 $ (38)
===============================================================================
In the normal course of business, BTCo enters into various transactions
with the Parent Company and the Parent Company's other subsidiaries. Included in
the above financial statements were the following transactions and balances with
such affiliates.
(in millions) Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Interest revenue $ 349 $ 174 $ 129
Interest expense 239 249 276
Noninterest revenue 326 112 65
Noninterest expenses 253 228 203
(in millions) December 31, 1997 1996
- -------------------------------------------------------------------------------
Interest-earning assets $11,331 $ 1,395
Noninterest-earning assets 841 618
Interest-bearing liabilities 5,652 5,040
Noninterest-bearing liabilities 973 729
Consolidated Balance Sheet
($ in millions, except par values) December 31, 1997 1996
- -------------------------------------------------------------------------------
Assets
Cash and due from banks $ 2,121 $ 1,544
Interest-bearing deposits with banks 4,416 2,494
Federal funds sold 1,897 1,789
Securities purchased under resale agreements 17,836 12,389
Securities borrowed 9,193 8,275
Trading assets, net of allowance for credit losses of $285
at December 31, 1997 and $190 at December 31, 1996 45,488 38,082
Securities available for sale 4,154 4,239
Loans, net of allowance for credit losses of $659
at December 31, 1997 and $723 at December 31, 1996 17,033 13,018
Premises and equipment, net 767 914
Due from customers on acceptances 633 597
Accounts receivable and accrued interest 3,709 2,200
Other assets 2,792 2,412
- -------------------------------------------------------------------------------
Total assets $110,039 $87,953
===============================================================================
Liabilities
Noninterest-bearing deposits
Domestic offices $ 2,856 $ 2,791
Foreign offices 2,122 1,029
Interest-bearing deposits
Domestic offices 21,752 9,196
Foreign offices 18,407 20,556
- -------------------------------------------------------------------------------
Total deposits 45,137 33,572
Trading liabilities 24,967 19,172
Securities loaned and securities sold under
repurchase agreements 10,755 10,095
Other short-term borrowings 8,610 10,391
Acceptances outstanding 633 597
Accounts payable and accrued expenses 3,411 1,993
Other liabilities, including allowance for credit
losses of $3 at December 31, 1997 and $10
at December 31, 1996 2,308 1,022
Long-term debt not included in risk-based capital 6,753 4,828
Long-term debt included in risk-based capital 1,228 1,162
Mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated deferrable
interest debentures included in risk-based capital 243 243
- -------------------------------------------------------------------------------
Total liabilities 104,045 83,075
- -------------------------------------------------------------------------------
Stockholders' Equity
Floating rate non-cumulative preferred stock--
Series A, $1 million par value
Authorized, issued and outstanding:
1997, 1,000 shares; 1996, 600 shares 1,000 600
Common stock, $10 par value
Authorized, issued and outstanding:
1997, 135,166,667 shares; 1996, 100,166,667 shares 1,351 1,001
Capital surplus 540 540
Retained earnings 3,528 3,133
Cumulative translation adjustments (379) (382)
Securities valuation allowance (46) (14)
- -------------------------------------------------------------------------------
Total stockholders' equity 5,994 4,878
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $110,039 $87,953
===============================================================================
See Note 9 for details of BTCo's long-term debt issued to nonaffiliates.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
78
<PAGE>
================================================================================
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
================================================================================
The management of Bankers Trust New York Corporation and its subsidiaries (the
"Corporation") is responsible for preparing the accompanying financial
statements. The financial statements were prepared in accordance with generally
accepted accounting principles and prevailing industry practices, as applicable
to the Corporation. The financial statements include amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the Annual Report and is responsible for its accuracy and
consistency with the financial statements.
The management of the Corporation has established and maintains an
internal control structure and monitors that structure for compliance with
established policies and procedures. The objectives of an internal control
structure are to provide reasonable, but not absolute, assurance as to the
integrity and reliability of the financial statements, the protection of assets
from unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization. The Corporation maintains an
Internal Audit Department that independently monitors and assesses the
effectiveness of the internal controls and recommends possible improvements
thereto. The Corporation also maintains a Credit Risk Management Department
which develops and administers procedures to measure, monitor and control credit
risks across all businesses and recommends to management specific measures for
portfolio restructuring designed to reduce the risk of loss. In addition,
management recognizes its responsibility to foster a strong ethical environment
within the Corporation to ensure that its business affairs are conducted with
integrity and in accordance with high standards of personal and corporate
conduct. This responsibility is characterized and reflected in the Corporation's
Rules for Business Conduct, which are distributed to all employees of the
Corporation. As part of the monitoring system, the Corporation maintains a
Corporate Compliance Department having oversight responsibilities for
administering and coordinating the application of these standards of conduct.
The Corporation's Board of Directors appoints an Audit Committee composed
solely of outside directors. The function of the Audit Committee is to oversee
the accounting, reporting, audit and internal control policies and procedures
established by the Corporation's management. The Committee meets regularly with
management and the internal, credit and independent auditors. The auditors have
free access to the Audit Committee without the presence of management. The
Committee reports regularly to the Board of Directors on its activities, and
such other matters as it deems necessary.
The Corporation's annual financial statements for 1997 have been audited
by KPMG Peat Marwick LLP, independent auditors, whose appointment by the Board
of Directors was approved by the stockholders. Management has made available to
KPMG Peat Marwick LLP all the Corporation's financial records and related data,
as well as the minutes of stockholders' and directors' meetings. Furthermore,
management believes that all its representations to KPMG Peat Marwick LLP are
valid and appropriate. In addition, KPMG Peat Marwick LLP, in determining the
nature and extent of their auditing procedures, evaluated the Corporation's
accounting procedures and policies and the effectiveness of the related internal
control structure.
Management believes that, as of December 31, 1997, the Corporation's
internal control structure was adequate to accomplish the objectives discussed
herein.
/s/ Frank N. Newman
Frank N. Newman
Chairman of the Board,
Chief Executive Officer and President
/s/ Richard H. Daniel
Richard H. Daniel
Vice Chairman,
Chief Financial Officer and
Controller
March 5, 1998
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
79
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Board of Directors and Stockholders of
Bankers Trust New York Corporation
We have audited the consolidated balance sheet of Bankers Trust New York
Corporation and Subsidiaries (the "Corporation") at December 31, 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bankers Trust
New York Corporation and Subsidiaries at December 31, 1997, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet of
Alex. Brown Incorporated as of December 31, 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1996, prior to their restatement
for the 1997 pooling-of-interests with the Corporation and have issued our
report thereon dated January 20, 1997. The contribution of Alex. Brown
Incorporated to combined restated assets represented 2 percent as of December
31, 1996; to combined restated revenues represented 20 percent and 19 percent;
and, to combined restated net income represented 20 percent and 31 percent for
the years ended December 31, 1996 and 1995, respectively. Separate consolidated
financial statements of the Corporation included in the restated financial
statements were audited and reported on separately by other auditors who have
issued their report thereon dated January 23, 1997 except for Note 28, as to
which the date is March 6, 1997. We also audited the combination of the
consolidated balance sheet of the Corporation as of December 31, 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the two-year period then ended, after
restatement for the 1997 pooling-of-interests; in our opinion, such consolidated
financial statements have been properly combined on the basis described in Note
1 of the notes to the consolidated financial statements.
/s/ KPMG PEAT MARWICK LLP
New York, New York
January 22, 1998
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
80
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Board of Directors and Stockholders of
Bankers Trust New York Corporation
We have audited the consolidated balance sheet of Bankers Trust New York
Corporation and Subsidiaries (the "Corporation") at December 31, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1996 (not
presented herein), prior to their restatement for the 1997 pooling-of-interests
with Alex. Brown Incorporated. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bankers Trust
New York Corporation and Subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
January 23, 1997
except for Note 28, as to
which the date is March 6, 1997
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
81
<PAGE>
================================================================================
SUPPLEMENTAL FINANCIAL DATA
================================================================================
The statistical data on pages 82 through 87 should be read in conjunction with
the Financial Review and the financial statements included elsewhere in this
Annual Report.
In the opinion of management, all material adjustments necessary for a
fair presentation of the results of operations for the interim periods have been
made. All such adjustments were of a normal recurring nature.
Condensed Quarterly Consolidated Statement of Income
<TABLE>
<CAPTION>
(in millions, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------- -------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter(1) Quarter(1) Quarter(1) Quarter(1) Quarter(1) Quarter(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue $2,085 $1,789 $1,731 $1,680 $1,686 $1,704 $1,495 $1,623
Interest expense 1,712 1,474 1,391 1,349 1,399 1,434 1,229 1,389
- ---------------------------------------------------------------------------------------------------------------------------
Net interest revenue 373 315 340 331 287 270 266 234
Provision for credit losses 20 10 -- -- -- -- -- 5
- ---------------------------------------------------------------------------------------------------------------------------
Net interest revenue after provision
for credit losses 353 305 340 331 287 270 266 229
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue 1,166 1,465 1,194 1,066 1,068 989 1,072 988
Total noninterest expenses 1,233 1,419 1,225 1,104 1,083 964 1,038 953
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 286 351 309 293 272 295 300 264
Income taxes 79 105 96 93 88 93 99 85
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 207 $ 246 $ 213 $ 200 $ 184 $ 202 $ 201 $ 179
===========================================================================================================================
Net income applicable to
common stock $ 195 $ 235 $ 201 $ 186 $ 170 $ 194 $ 187 $ 164
===========================================================================================================================
Earnings Per
Common Share:(2)
Basic $ 1.95 $ 2.33 $ 2.00 $ 1.86 $ 1.69 $ 1.91 $ 1.87 $ 1.65
Diluted $ 1.82 $ 2.19 $ 1.89 $ 1.76 $ 1.59 $ 1.81 $ 1.77 $ 1.58
===========================================================================================================================
Cash dividends declared per
common share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================================================================
</TABLE>
(1) Amounts have been restated to reflect the merger with Alex. Brown
Incorporated.
(2) Due to changes in the number of average shares outstanding, quarterly
earnings per share do not necessarily add to the totals for the years. In
addition, earnings per share have been restated in connection with the
adoption of SFAS 128.
<TABLE>
<CAPTION>
Stockholder Data
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price (1)
High $131 1/2 $133 5/8 $ 91 1/2 $ 96 3/8 $ 90 7/8 $ 83 1/2 $ 77 7/8 $ 72 3/8
Low 106 86 74 81 1/4 78 68 1/4 65 1/2 61
End of quarter 112 7/16 122 3/8 87 1/8 82 86 1/4 78 5/8 73 7/8 70 7/8
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the Composite Tape. Market Prices at February 27, 1998 for common
stock were follows: High, $118 9/16; Low, $117; Close, $118 1/4.
Dividends
Cash dividends on common stock were paid quarterly in 1997 on the 25th of
January, April, July and October.
Number of Security Holders
At February 27, 1998, the approximate number of holders of record of common
stock was 21,776.
Stock Listings
The principal markets on which the common stock is traded are the New York Stock
Exchange (Symbol: BT) and the London Stock Exchange.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
Average Balances, Interest and Average Rates
The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by the
Corporation. Cash basis and renegotiated loans are included in the averages to
determine an effective yield on all loans. The average balances are principally
daily averages.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -------------------------
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks
(primarily in foreign offices) $ 4,662 $ 395 8.47% $ 2,786 $ 214 7.68% $ 2,777 $ 207 7.45%
Federal funds sold
(in domestic offices) 4,758 266 5.59% 2,179 119 5.46% 1,726 104 6.03%
Securities purchased under resale
agreements
In domestic offices 14,076 847 6.02% 14,368 799 5.56% 10,400 598 5.75%
In foreign offices 9,158 505 5.51% 7,444 514 6.90% 5,732 231 4.03%
- ------------------------------------------------------------ ------------------ ------------------
Total securities purchased
under resale agreements 23,234 1,352 5.82% 21,812 1,313 6.02% 16,132 829 5.14%
Securities borrowed
In domestic offices 13,128 653 4.97% 13,563 678 5.00% 10,647 604 5.67%
In foreign offices 1,763 93 5.28% 2,241 147 6.56% 2,245 141 6.28%
- ------------------------------------------------------------ ------------------ ------------------
Total securities borrowed 14,891 746 5.01% 15,804 825 5.22% 12,892 745 5.78%
Trading Assets
In domestic offices (1) 9,578 850 8.87% 14,458 1,165 8.06% 14,656 1,376 9.39%
In foreign offices 19,449 1,646 8.46% 16,140 1,251 7.75% 16,058 1,320 8.22%
- ------------------------------------------------------------ ------------------ ------------------
Total trading assets (1) 29,027 2,496 8.60% 30,598 2,416 7.90% 30,714 2,696 8.78%
Securities available for sale
In domestic offices
Taxable 2,635 206 7.82% 2,674 195 7.29% 1,891 165 8.73%
Exempt from federal
income taxes (1) 1,076 40 3.72% 1,029 29 2.82% 1,340 51 3.81%
In foreign offices
Taxable 4,011 230 5.73% 3,151 229 7.27% 2,899 167 5.76%
Exempt from federal
income taxes (1) 92 10 10.87% 142 16 11.27% 320 35 10.94%
- ------------------------------------------------------------ ------------------ ------------------
Total securities available for sale (1) 7,814 486 6.22% 6,996 469 6.70% 6,450 418 6.48%
Loans
In domestic offices
Commercial and industrial 4,029 312 7.74% 2,894 221 7.64% 2,178 160 7.35%
Financial institutions 1,269 92 7.25% 942 64 6.79% 620 51 8.23%
Secured by real estate 1,561 131 8.39% 1,409 97 6.88% 1,398 95 6.80%
Other (1) 2,577 175 6.79% 2,177 124 5.70% 2,335 134 5.74%
- ------------------------------------------------------------ ------------------ ------------------
Total in domestic offices (1) 9,436 710 7.52% 7,422 506 6.82% 6,531 440 6.74%
In foreign offices 8,923 695 7.79% 6,253 517 8.27% 5,263 487 9.25%
- ------------------------------------------------------------ ------------------ ------------------
Total loans, excluding fees (1) 18,359 1,405 7.65% 13,675 1,023 7.48% 11,794 927 7.86%
Loan fees -- 32 -- 24 -- 18
- ------------------------------------------------------------ ------------------ ------------------
Total loans, including fees (1) 18,359 1,437 7.83% 13,675 1,047 7.66% 11,794 945 8.01%
- ------------------------------------------------------------ ------------------ ------------------
Customer Receivables
In domestic offices 1,589 133 8.37% 1,476 121 8.20% 1,049 86 8.20%
In foreign offices -- -- -- -- -- --
- ------------------------------------------------------------ ------------------ ------------------
Total customer receivables 1,589 133 8.37% 1,476 121 8.20% 1,049 86 8.20%
- ------------------------------------------------------------ ------------------ ------------------
Total Interest-Earning
Assets(1) 104,334 $7,311 7.01% 95,326 $6,524 6.84% 83,534 $6,030 7.22%
====== ====== ======
Cash and due from banks 1,496 1,347 1,798
Noninterest-earning trading assets 21,906 17,104 19,013
Due from customers on acceptances 682 554 434
All other assets 9,058 8,416 7,740
Allowance for credit losses (970) (986) (1,196)
- -------------------------------------------------- -------- --------
Total Assets $136,506 $121,761 $111,323
================================================== ======== ========
% of assets attributable to foreign offices 50% 48% 41%
</TABLE>
(1) Interest and average rates are presented on a fully taxable basis. The
applicable combined federal, state and local incremental tax rate used to
determine the amounts of the tax equivalent adjustments to interest
revenue (which recognize the income tax savings on tax-exempt assets) was
41 percent for 1997 and 42 percent for 1996 and 1995.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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83
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -------------------------
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities and
Stockholders' Equity
Interest-bearing deposits
In domestic offices
Time deposits $ 12,133 $ 679 5.60% $ 3,088 $ 180 5.83% $ 1,384 $ 99 7.15%
Other 4,707 216 4.59% 3,824 204 5.33% 4,338 277 6.39%
- ------------------------------------------------------------ ------------------ ------------------
Total in domestic offices 16,840 895 5.31% 6,912 384 5.56% 5,722 376 6.57%
In foreign offices
Deposits from banks in
foreign countries 7,628 480 6.29% 7,045 401 5.69% 7,432 496 6.67%
Other time and savings deposits 11,022 611 5.54% 7,802 466 5.97% 7,370 408 5.54%
Other 1,952 90 4.61% 2,039 104 5.10% 1,513 80 5.29%
- ------------------------------------------------------------ ------------------ ------------------
Total in foreign offices 20,602 1,181 5.73% 16,886 971 5.75% 16,315 984 6.03%
- ------------------------------------------------------------ ------------------ ------------------
Total interest-bearing deposits 37,442 2,076 5.54% 23,798 1,355 5.69% 22,037 1,360 6.17%
Trading liabilities
In domestic offices 1,699 181 10.65% 7,840 595 7.59% 6,293 622 9.88%
In foreign offices 3,966 295 7.44% 3,576 267 7.47% 4,922 431 8.76%
- ------------------------------------------------------------ ------------------ ------------------
Total trading liabilities 5,665 476 8.40% 11,416 862 7.55% 11,215 1,053 9.39%
Securities loaned and securities sold
under repurchase agreements
In domestic offices 13,679 837 6.12% 19,109 1,049 5.49% 17,269 1,003 5.81%
In foreign offices 10,218 576 5.64% 7,855 549 6.99% 4,592 186 4.05%
- ------------------------------------------------------------ ------------------ ------------------
Total securities loaned and securities
sold under repurchase agreements 23,897 1,413 5.91% 26,964 1,598 5.93% 21,861 1,189 5.44%
Other short-term borrowings
In domestic offices 14,429 881 6.11% 11,266 633 5.62% 12,051 719 5.97%
In foreign offices 5,739 312 5.44% 5,195 367 7.06% 4,396 326 7.42%
- ------------------------------------------------------------ ------------------ ------------------
Total other short-term borrowings 20,168 1,193 5.92% 16,461 1,000 6.07% 16,447 1,045 6.35%
Long-term debt
In domestic offices 7,725 455 5.89% 6,748 411 6.09% 5,249 341 6.50%
In foreign offices 3,856 200 5.19% 3,907 222 5.68% 2,596 117 4.51%
- ------------------------------------------------------------ ------------------ ------------------
Total long-term debt 11,581 655 5.66% 10,655 633 5.94% 7,845 458 5.84%
- ------------------------------------------------------------ ------------------ ------------------
Trust preferred capital securities 1,401 113 8.07% 42 3 7.14% -- -- --
- ------------------------------------------------------------ ------------------ ------------------
Total Interest-Bearing
Liabilities 100,154 $5,926 5.92% 89,336 $5,451 6.10% 79,405 $5,105 6.43%
====== ====== ======
Noninterest-bearing deposits
In domestic offices 2,331 2,661 2,921
In foreign offices 842 600 509
- -------------------------------------------------- -------- --------
Total noninterest-bearing deposits 3,173 3,261 3,430
Noninterest-bearing trading liabilities 18,199 15,470 16,232
Acceptances outstanding 682 555 441
All other liabilities 8,311 7,108 6,286
Preferred stock of subsidiary 45 250 250
Stockholders' Equity
Preferred stock 717 853 726
Common stockholders' equity 5,225 4,928 4,553
- -------------------------------------------------- -------- --------
Total Liabilities and
Stockholders' Equity $136,506 $121,761 $111,323
================================================== ======== ========
% of liabilities attributable
to foreign offices 49% 50% 40%
Rate spread 1.09% .74% .79%
Net interest margin (net interest
revenue to total interest-
earning assets)
In domestic offices $ 56,367 $ 427 .76% $ 57,234 $ 597 1.04% $ 48,332 $ 438 .91%
In foreign offices 47,967 958 2.00% 38,092 476 1.25% 35,202 487 1.38%
- ------------------------------------------------------------ ------------------ ------------------
Total $104,334 $1,385 1.33% $ 95,326 $1,073 1.13% $ 83,534 $ 925 1.11%
============================================================ ================== ==================
</TABLE>
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<PAGE>
- --------------------------------------------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Revenue
The following table attributes changes in fully taxable net interest revenue to
changes in either average daily balances or average rates for both
interest-earning assets and interest-bearing sources of funds. Because of the
numerous simultaneous balance and rate changes during any period, it is not
possible to precisely allocate such changes between balances and rates. For
purposes of this table, changes which are not due solely to balance or rate
changes are allocated to such categories based on the respective percentage
changes in average daily balances and average rates.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1997/96 1996/95
------------------------------------- -------------------------------------
Increase (decrease) due to change in: Increase (decrease) due to change in:
------------------------------------- -------------------------------------
Average Average Average Average
(in millions) Balance Rate Total Balance Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
Interest Revenue
Interest-bearing deposits with banks $ 157 $ 24 $ 181 $ 1 $ 6 $ 7
Federal funds sold 144 3 147 25 (10) 15
Securities purchased under resale agreements 84 (45) 39 326 158 484
Securities borrowed (47) (32) (79) 157 (77) 80
Trading assets (128) 208 80 (10) (270) (280)
Securities available for sale 52 (35) 17 36 15 51
Loans 366 24 390 145 (43) 102
Customer receivables 9 3 12 35 -- 35
- -----------------------------------------------------------------------------------------------------------------------------
Total interest revenue 637 150 787 715 (221) 494
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits 757 (36) 721 104 (109) (5)
Trading liabilities (474) 88 (386) 19 (210) (191)
Securities loaned and securities sold
under repurchase agreements (181) (4) (185) 296 113 409
Other short-term borrowings 220 (27) 193 1 (46) (45)
Long-term debt 53 (31) 22 167 8 175
Trust preferred capital securities 110 -- 110 3 -- 3
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 485 (10) 475 590 (244) 346
- -----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ 152 $ 160 $ 312 $ 125 $ 23 $ 148
=============================================================================================================================
Domestic Offices
Interest Revenue
Interest-bearing deposits with banks $ 15 $ 1 $ 16 $ (15) $ (6) $ (21)
Federal funds sold 144 3 147 25 (10) 15
Securities purchased under resale agreements (17) 65 48 221 (20) 201
Securities borrowed (22) (3) (25) 152 (78) 74
Trading assets (424) 109 (315) (18) (193) (211)
Securities available for sale -- 22 22 30 (22) 8
Loans 153 55 208 63 6 69
Customer receivables 9 3 12 35 -- 35
- -----------------------------------------------------------------------------------------------------------------------------
Total interest revenue (142) 255 113 493 (323) 170
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits 528 (17) 511 71 (63) 8
Trading liabilities (590) 176 (414) 135 (162) (27)
Securities loaned and securities sold
under repurchase agreements (322) 110 (212) 103 (57) 46
Other short-term borrowings 189 59 248 (45) (41) (86)
Long-term debt 58 (14) 44 92 (22) 70
Trust preferred capital securities 110 -- 110 3 -- 3
Funds provided to foreign offices (139) (352) (491) (352) 287 (65)
Funds provided by foreign offices 57 322 379 601 (386) 215
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense (109) 284 175 608 (444) 164
- -----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (33) $ (29) $ (62) $(115) $ 121 $ 6
=============================================================================================================================
Foreign Offices
Interest Revenue
Interest-bearing deposits with banks $ 136 $ 29 $ 165 $ 2 $ 26 $ 28
Securities purchased under resale agreements 106 (115) (9) 84 199 283
Securities borrowed (28) (26) (54) -- 6 6
Trading assets 273 122 395 7 (76) (69)
Securities available for sale 53 (58) (5) 5 38 43
Loans 211 (29) 182 86 (53) 33
- -----------------------------------------------------------------------------------------------------------------------------
Total interest revenue 751 (77) 674 184 140 324
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits 213 (3) 210 34 (47) (13)
Trading liabilities 29 (1) 28 (107) (57) (164)
Securities loaned and securities sold
under repurchase agreements 146 (119) 27 180 183 363
Other short-term borrowings 36 (91) (55) 57 (16) 41
Long-term debt (3) (19) (22) 69 36 105
Funds provided by domestic offices 139 352 491 352 (287) 65
Funds provided to domestic offices (57) (322) (379) (601) 386 (215)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 503 (203) 300 (16) 198 182
- -----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ 248 $ 126 $ 374 $ 200 $ (58) $ 142
=============================================================================================================================
</TABLE>
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85
<PAGE>
- --------------------------------------------------------------------------------
Interest Rate Sensitivity
Interest rate sensitivity data for the Corporation at December 31, 1997 is
presented in the table below. For purposes of this presentation, the
interest-earning/bearing components of trading assets and trading liabilities
are assumed to reprice within three months.
The interest rate gaps reported in the table arise when assets are funded
with liabilities having different repricing intervals, after considering the
effect of off-balance sheet hedging instruments. Since these gaps are actively
managed and change daily as adjustments are made in interest rate views and
market outlook, positions at the end of any period may not be reflective of the
Corporation's interest rate view in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects of
short-term interest rate changes in all repricing intervals.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
By Repricing Interval
-----------------------------------------------------
After three After six After Non-
Within months months one year After interest-
three but within but within but within five bearing
(in millions) December 31, 1997 months six months one year five years years funds Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks $ 4,162 $ 65 $ 45 $ -- $ -- $ -- $ 4,272
Federal funds sold 1,382 -- -- -- -- -- 1,382
Securities purchased under resale agreements 18,196 199 768 -- -- -- 19,163
Securities borrowed 16,751 -- -- -- -- -- 16,751
Trading assets 29,978 -- -- -- -- 26,879 56,857
Securities available for sale 1,243 980 1,166 1,953 2,739 -- 8,081
Customer receivables 1,547 -- -- -- -- -- 1,547
Gross loans 14,818 1,658 696 1,961 672 -- 19,805
Noninterest-earning assets and allowance
for credit losses -- -- -- -- -- 12,244 12,244
- ------------------------------------------------------------------------------------------------------------------------------------
Total 88,077 2,902 2,675 3,914 3,411 39,123 140,102
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing deposits 24,890 3,500 7,304 748 1,660 -- 38,102
Trading liabilities 4,906 -- -- -- -- 22,340 27,246
Securities loaned and securities sold under
repurchase agreements 17,040 648 208 -- -- -- 17,896
Other short-term borrowings 14,765 3,387 978 344 103 -- 19,577
Long-term debt 3,731 229 275 8,284 2,068 -- 14,587
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior subordinated
deferrable interest debentures -- -- -- -- 1,472 -- 1,472
Preferred stock -- -- 247 411 -- -- 658
Noninterest-bearing liabilities, including allowance
for credit losses, and common stockholders' equity -- -- -- -- -- 20,564 20,564
- ------------------------------------------------------------------------------------------------------------------------------------
Total 65,332 7,764 9,012 9,787 5,303 42,904 140,102
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments (32,585) 10,019 10,661 6,629 5,276 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap $ (9,840) $ 5,157 $ 4,324 $ 756 $3,384 $ (3,781) $ --
====================================================================================================================================
Cumulative Interest Rate Sensitivity Gap $ (9,840) $ (4,683) $ (359) $ 397 $3,781 $ -- $ --
====================================================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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86
<PAGE>
- --------------------------------------------------------------------------------
Deposits
The Corporation's certificates of deposit and other time deposits issued by
domestic and foreign offices in amounts of $100,000 or more, together with their
remaining maturities, and other interest-bearing deposits at December 31, 1997
were as follows:
- --------------------------------------------------------------------------------
(in millions) Domestic Foreign Total
- --------------------------------------------------------------------------------
Certificates of deposit of $100,000 or more
3 months or less $ 2,052 $ 4,801 $ 6,853
Over 3 through 6 months 3,224 1,033 4,257
Over 6 through 12 months 7,678 1,078 8,756
Over 12 months 381 6 387
- --------------------------------------------------------------------------------
Total 13,335 6,918 20,253
- --------------------------------------------------------------------------------
Other time deposits of $100,000 or more
3 months or less 231 5,693 5,924
Over 3 through 6 months 6 421 427
Over 6 through 12 months 2 730 732
Over 12 months -- 28 28
- --------------------------------------------------------------------------------
Total 239 6,872 7,111
- --------------------------------------------------------------------------------
Other 8,779 1,959 10,738
- --------------------------------------------------------------------------------
Total interest-bearing deposits $22,353 $15,749 $38,102
================================================================================
Deposits by foreign depositors in domestic offices amounted to $1.0 billion,
$1.2 billion and $1.0 billion at December 31, 1997, 1996 and 1995, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
87
<PAGE>
================================================================================
DESCRIPTION OF BUSINESS
================================================================================
Bankers Trust New York Corporation
Bankers Trust New York Corporation is a registered bank holding company which
was incorporated in 1965. The Parent Company, which accounted for 6 percent of
consolidated assets at December 31, 1997, supplies Bankers Trust Company
("BTCo"), BT Alex. Brown Incorporated ("BT Alex. Brown"), and its other
subsidiaries with various advisory services and coordinates their general
policies and activities.
The Parent Company is a legal entity separate and distinct from its
subsidiaries, including BTCo. There are various legal limitations governing the
extent to which certain of the Parent Company's subsidiaries may extend credit,
pay dividends or otherwise supply funds to, or engage in transactions with, the
Parent Company or certain of its other subsidiaries. The rights of the Parent
Company to participate in any distribution of assets of any subsidiary upon its
dissolution, winding-up, liquidation or reorganization or otherwise are subject
to the prior claims of creditors of that subsidiary, except to the extent that
the Parent Company may itself be a creditor of that subsidiary and its claims
are recognized. Claims on the Parent Company's subsidiaries by creditors other
than the Parent Company include long-term debt and substantial obligations with
respect to deposit liabilities, trading liabilities, federal funds purchased,
securities sold under repurchase agreements and commercial paper, as well as
short-term borrowings and accounts payable.
Organizational Units
The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Private Client Services Group, and Global
Institutional Services. Three additional units are organized to deliver these
same types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America. See page 11 for a description of these Organizational Units.
Insurance Activities
The Corporation has a 50 percent interest in a Chilean company known as
Consorcio. Consorcio underwrites pension-related life and disability insurance,
and sells pension-related life annuities.
Bankers Trust Company
The Parent Company's principal banking subsidiary is Bankers Trust Company,
which, along with its subsidiaries accounted for 69 percent of the Corporation's
consolidated assets at December 31, 1997. BTCo, founded in 1903, is among the
largest commercial banks in New York City and the United States, based on total
assets. BTCo originates loans and other forms of credit, accepts deposits,
arranges financings and provides numerous other commercial banking and financial
services. BTCo provides a broad range of financial advisory services to its
clients. It also engages in the trading of currencies, securities, derivatives
and commodities.
BT Alex. Brown Incorporated
On September 1, 1997, the Corporation acquired Alex. Brown Incorporated ("ABI"),
the parent of Alex. Brown & Sons Incorporated ("Alex. Brown"). The acquisition
was effected by the merger of ABI with and into a wholly-owned subsidiary of the
Corporation, which subsidiary was then renamed BT Alex. Brown Holdings
Incorporated ("BT Alex. Brown Holdings"). The Corporation contributed all of the
stock of BT Securities Corporation ("BT Securities"), the Corporation's existing
broker-dealer subsidiary, to BT Alex. Brown Holdings, which as a result became
the immediate parent of BT Securities. At the same time, Alex. Brown was merged
into BT Securities, which was then renamed "BT Alex. Brown Incorporated." As a
result of these transactions, BT Alex. Brown Incorporated is a direct
wholly-owned subsidiary of BT Alex. Brown Holdings and an indirect wholly-owned
subsidiary of the Corporation, and combines the operations of BT Securities with
those of Alex. Brown. See also "Financial Review--The Merger" on page 11.
BT Alex. Brown Incorporated, a securities broker-dealer registered with
the Securities and Exchange Commission and a member of the New York Stock
Exchange, is an indirect wholly-owned subsidiary of the Parent Company. It
accounted for 18 percent of the Corporation's consolidated assets at December
31, 1997. BT Alex. Brown provides origination, advisory and execution services
for a broad range of domestic and international clients. It is a leading
underwriter of debt and equity securities for corporations and other issuers and
furnishes industry-focused research. It also provides securities brokerage and
investment advisory services to private clients and institutions and
correspondent clearing services to broker-dealers. BT Alex. Brown is a primary
dealer in U.S. Government securities, a municipal securities broker-dealer and
an underwriter or placement agent for commercial paper, money market
instruments, asset-backed and convertible securities. BT Alex. Brown also
provides global merger, acquisition, corporate and other financial advisory
expertise, structures a broad range of derivative transactions and syndicates
loans for its affiliates and other lenders.
Bankers Trust (Delaware)
Bankers Trust (Delaware) is a state bank chartered under the laws of Delaware,
which, along with its subsidiaries, accounted for 1 percent of the Corporation's
consolidated assets at December 31, 1997. Bankers Trust (Delaware) engages in
commercial banking activities, with an emphasis on lending, funding and
corporate finance. BT Commercial Corporation, its wholly-owned subsidiary, is a
commercial finance company.
Supervision and Regulation
The Parent Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, and as such is required to register with the
Federal Reserve Board. As a registered bank holding company, the Parent Company
is required to file with the Federal Reserve Board certain reports and
information and is restricted in its acquisitions, certain of which are subject
to approval by the Federal Reserve Board. In addition, the Parent Company may be
required to obtain the approval of the New York State Banking Department in
order for it to acquire certain bank and non-bank subsidiaries.
The Parent Company and its nonbank subsidiaries are affiliates of BTCo and
Bankers Trust (Delaware) within the meaning of applicable federal statutes, and
such banks are therefore subject to
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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88
<PAGE>
- --------------------------------------------------------------------------------
restrictions on loans and other extensions of credit to the Parent Company and
certain other affiliates and on certain other types of transactions with them or
involving their securities.
BTCo is subject to the supervision of, and to examination by, the New York
State Banking Department, the Federal Reserve Board and the Federal Deposit
Insurance Corporation. Bankers Trust (Delaware) is subject to regulation by the
Office of the State Bank Commissioner of the State of Delaware and by the
Federal Deposit Insurance Corporation. See Note 15 in Notes to Financial
Statements for the required reserve balances maintained by the Corporation's
subsidiary banks at a Federal Reserve Bank and limitations on the availability
of BTCo's undistributed earnings for the payment of dividends.
BT Alex. Brown is registered as a broker-dealer in all 50 states, the
District of Columbia and Puerto Rico and with the Securities and Exchange
Commission, and is a member of the New York Stock Exchange and the National
Association of Securities Dealers, Inc. and is therefore subject to supervision
by those regulators. As a securities affiliate of a bank, BT Alex. Brown is
subject to the supervision of the Federal Reserve Board, which has imposed
limitations on the gross revenue from certain activities of such affiliates and
certain other conditions governing their operations.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank or savings association
subsidiary of a holding company may be required to reimburse the FDIC for any
loss or anticipated loss to the FDIC that arises from a default of any other
subsidiary bank or savings association of the parent holding company or
assistance provided to such an institution in danger of default.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
revised several other federal banking statutes.
FDICIA establishes five capital categories, ranging from "well
capitalized," to "critically undercapitalized." A depository institution is well
capitalized if it significantly exceeds the minimum level required by regulation
for each relevant capital measure. Under FDICIA, an institution that is not well
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market; in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital restoration plan to the
appropriate federal bank regulatory agency. One requisite element of such a plan
is that the institution's parent holding company must guarantee compliance by
the institution with the plan, subject to certain limitations. In the event of
the parent holding company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to federal bank regulators
to maintain the capital of its depository institution subsidiaries, would be
assumed by the bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital ratios at December 31, 1997,
both BTCo and Bankers Trust (Delaware) are well capitalized, based on the
definitions in the regulations issued by the Federal Reserve Board and the other
federal bank regulatory agencies setting forth the general capital requirements
mandated by FDICIA. See Note 16 in Notes to Financial Statements for information
regarding the Corporation's and BTCo's regulatory capital ratios.
FDICIA contains numerous other provisions, including new reporting
requirements, termination of the "too big to fail" doctrine except for special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.
A federal depositor preference statute was enacted in 1993 providing that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.
In addition to banking and securities laws, regulations and regulatory
agencies governing the Corporation worldwide, the Corporation also is subject to
various other laws, regulations and regulatory agencies throughout the United
States and in other countries. Furthermore, various proposals, bills and
regulations have been and are being considered in the United States Congress,
the New York State Legislature and various other governmental regulatory and
legislative bodies, which could result in changes in the profitability and
governance of the Corporation. It cannot be predicted whether new legislation or
regulations will be adopted and, if so, how they would affect the Corporation.
References under the caption "Supervision and Regulation" to applicable
statutes, regulations and orders are brief summaries of portions thereof which
do not purport to be complete and which are qualified in their entirety by
reference thereto.
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in such statements. In
connection with certain statements made in this report and those that may be
made in the future by or on behalf of the Corporation which are identified as
forward-looking statements, the Corporation notes that the following important
factors, among others, could cause actual results to differ materially from
those set forth in any such forward-looking statements. Further, such
forward-looking statements speak only as of the date on which such statement or
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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89
<PAGE>
- --------------------------------------------------------------------------------
The business and profitability of a large financial services organization
such as the Corporation is influenced by prevailing economic conditions and
governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve Board determine to a significant degree the
cost and the availability of funds obtained from money market sources for
lending and investing. Federal Reserve Board policies and regulations also
influence, directly and indirectly, the rates of interest paid by commercial
banks on their interest-bearing deposits and may also impact the value of
financial instruments held by the Corporation. The nature and impact on the
Corporation of future changes in economic and market conditions and monetary and
fiscal policies, both foreign and domestic, are not predictable and are beyond
the Corporation's control. In addition, these conditions and policies can impact
the Corporation's customers and counterparties which may increase the risk of
default on their obligations to the Corporation and its affiliates. They can
also affect the competitive conditions in the markets and products within which
the Corporation operates, which can have an adverse impact on the Corporation's
ability to maintain its revenue streams.
As part of its ongoing business, the Corporation assumes financial
exposures to interest rates, currencies, equities and other financial products.
In doing so, the Corporation is subject to unforeseen events which may not have
been anticipated or which may have effects which exceed those assumed within its
risk management processes. This risk can be accentuated by volatility and
reduction in liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions concerned. In addition,
the Corporation is dependent on its ability to access the financial markets for
its funding needs.
The Corporation's international operations, which are widely diversified
geographically and vary from country to country, involve certain economic,
political and legal risks which differ from those associated with its domestic
operations. These risks include, among others, the possibility of expropriation
of assets, exchange rate fluctuations, severe reductions in business levels,
restrictions on the withdrawal of funds, balance-of-payments problems and
changes in laws and regulations. In addition, in certain jurisdictions the
Corporation's operations may involve legal uncertainties. See "Cross-Border
Outstandings" on page 34. Further, certain domestic, as well as foreign,
financial institutions with which the Corporation competes may not be subject to
the same regulatory restrictions as the Corporation which may make it more
difficult for the Corporation to compete with those institutions for business.
As noted in "Supervision and Regulation" on page 88, the Corporation is
regulated by and subject to various domestic and international regulators. The
actions of these regulators can have an impact on the profitability and
governance of the Corporation. Increases by regulatory authorities of minimum
capital, reserve, deposit insurance and other financial viability requirements
can also affect the Corporation's profitability.
The Corporation is subject to operational and control risk which is the
potential for loss caused by a breakdown in communication, information,
processing and settlement systems or processes or a lack of compliance with the
procedures on which they rely either within the Corporation or within the
broader financial systems infrastructure. See "Noninterest Expenses" discussion
of the Year 2000 Program on page 16.
As with any large financial institution, the Corporation is also subject
to the risk of litigation and to an unexpected or adverse outcome in such
litigation. Competitive pressures in the marketplace and unfavorable or adverse
publicity and news coverage can have the effect of lessening customer demand for
the Corporation's services. Ultimately, the Corporation's businesses and their
success are dependent on the Corporation's ability to attract and retain high
quality employees.
Properties
BTCo owns a 39-story building known as One Bankers Trust Plaza and a 10-story
office building at 4 Albany Street, both in Manhattan, and a 998-year leasehold
interest in an eight-story office building in the Broadgate complex in London,
England. The other principal office premises leased are a portion of a 42-story
office building located at 280 Park Avenue, (formerly an owned property), seven
stories of a 37-story building at 14-16 Wall Street, both in Manhattan, 13
stories of an office building in Baltimore, Maryland, an eight-story building in
Jersey City, New Jersey, a three-story building in Nashville, Tennessee and a
significant portion of a 42-story office building in Sydney, Australia. Portions
of certain of these properties are leased to tenants or subtenants. In addition
to the offices referred to above, branch offices and locations for other
activities are occupied in cities throughout the world under various types of
ownership and leaseholds. See Note 7 of Notes to Financial Statements for
additional information concerning lease commitments.
Legal Proceedings
Various legal actions and proceedings involving the Parent Company and various
of its subsidiaries are currently pending. Management, after discussions with
counsel, does not anticipate that losses, if any, resulting from such actions
and proceedings would be material.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
90
<PAGE>
================================================================================
EXECUTIVE OFFICERS OF THE REGISTRANT
================================================================================
Set forth below are the names and ages of the executive officers of the Parent
Company, positions held and the year from which held. These officers are elected
annually by the Board of Directors. There are no family relationships among such
persons.*
- --------------------------------------------------------------------------------
Frank N. Newman, 55
Chairman of the Board and Chief Executive Officer and President
Chairman of the Board and Chief Executive Officer of the Parent Company and BTCo
since 1996. President of the Parent Company and BTCo since 1995. Mr. Newman,
former Deputy Secretary of the United States Treasury, joined the Treasury in
1993 after six years with BankAmerica Corporation where he was the chief
financial officer and vice chairman of the board.
George J. Vojta, 62
Vice Chairman of the Board
Vice Chairman of the Board of the Parent Company and BTCo since January 1992;
Executive Vice President 1984-1992. He is in charge of BTCo's Private Client
Services business and oversees BT Ventures and Facilities/Network Management and
Portfolio.
Mark Bieler, 52
Executive Vice President
Executive Vice President of the Parent Company since 1987 and Managing Director
of BTCo since 1992; Executive Vice President of BTCo 1987-1992; Senior Vice
President and head of the Human Resources Department since 1985.
Mary Cirillo, 50
Executive Vice President
Executive Vice President of the Parent Company and Managing Director of BTCo
since June 1997. Ms. Cirillo formerly held many positions in her 20-year career
at Citicorp, including division executive from 1989 to 1992; senior corporate
officer for the business evaluation and corporate re-engineering unit from 1993
to 1994; and Senior Vice President of Global Finance Operations and Technology
from 1994 to 1997. She is head of BTCo's Global Institutional Services business.
Richard H. Daniel, 51
Vice Chairman, Chief Financial Officer and Controller
Vice Chairman of the Parent Company since April 1997. Executive Vice President
of the Parent Company from 1996 to April 1997. Chief Financial Officer
(Principal Financial Officer) and Controller of the Parent Company since 1996.
Vice Chairman of BTCo since September 1997, Managing Director from 1996 to
September 1997. Chief Financial Officer (Principal Financial Officer) and
Controller of BTCo since 1996. Mr. Daniel formerly held the positions of chief
financial officer of Federal Home Loan Mortgage Corporation from 1994 to 1996,
and executive vice president and director of financial analysis and planning at
BankAmerica Corporation from 1987 to 1994.
Yves C. de Balmann, 51
Vice Chairman
Vice Chairman of the Parent Company since April 1997. Senior Vice President of
the Parent Company 1995-1997. Managing Director of BTCo from 1988 to September
1997. He is co-chairman and co-chief executive officer of BT Alex. Brown
Incorporated.
R. Kelly Doherty, 39
Vice Chairman
Vice Chairman of the Parent Company since April 1997. Senior Vice President of
the Parent Company 1995-1997; Vice Chairman of BTCo since September 1997.
Managing Director of BTCo from 1988 to September 1997. Mr. Doherty is currently
on a one-year leave of absence effective February 1998. Prior to his leave, he
was head of BTCo's Trading and Sales and Emerging Markets businesses.
Robert A. Ferguson, 52
Executive Vice President
Executive Vice President of the Parent Company since April 1997. Senior Vice
President of the Parent Company 1995-1997. Managing Director of BTCo since 1985.
He is head of Bankers Trust Australia Ltd.
Duncan P. Hennes, 41
Senior Vice President
Senior Vice President of the Parent Company since 1990. Managing Director of
BTCo since 1990. Mr. Hennes is head of BTCo's Trading and Sales business and
responsible for Treasury/Funding and Arbitrage.
Joseph A. Manganello, Jr., 62
Executive Vice President and Chief Credit Officer
Executive Vice President and Chief Credit Officer of the Parent Company since
1988; Managing Director of BTCo since 1992; and Chief Credit Officer since 1984;
Executive Vice President of BTCo 1982-1992; Department Head of the United States
Department of BTCo prior to 1984. He is in charge of the Credit Risk Management
Department.
I. David Marshall, 51
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Information Officer of the Parent Company and
Managing Director and Chief Information Officer of BTCo since October 1996. Mr.
Marshall formerly held the positions of executive vice president and chief
information officer of Canadian Imperial Bank of Commerce from June 1995 to
October 1996; group executive for Information Systems & Operations and a member
of the Executive Committee at Unitel Communications, Inc., the operating arm of
AT&T in Canada from 1993 to 1995; and from 1977 to 1993 he served with the
Canadian Government consecutively as assistant auditor general; assistant deputy
minister, Information Technology for Revenue Canada and assistant deputy
minister, Information Technology for Employment and Immigration Canada.
Rodney A. McLauchlan, 44
Executive Vice President
Executive Vice President of the Parent Company since April 1997. Senior Vice
President of the Parent Company from 1992 to April 1997. Managing Director of BT
Alex. Brown since September 1997. Managing Director of BT Securities Corporation
1995-1997; Managing Director of BTCo 1987-1995. As of 1998, he is Chairman of
the Global Banking Group and chairs the European and Asian Advisory Boards and
the Client Committee.
Mayo A. Shattuck III, 43
Vice Chairman
Vice Chairman of the Parent Company since September 1997. He formerly held the
positions of President and Chief Operating Officer of Alex. Brown Incorporated
from 1991 to September 1997. He is co-chairman and co-chief executive officer of
BT Alex. Brown Incorporated.
Melvin A. Yellin, 55
Executive Vice President and General Counsel
Executive Vice President and General Counsel of the Parent Company and Managing
Director and General Counsel of BTCo since 1996; Senior Vice President (Chief
Legal Officer) of the Parent Company and Managing Director (Chief Legal Officer)
of BTCo since 1995; Managing Director and Deputy General Counsel of BTCo
1992-1995. Vice President and Counsel 1981-1992. He is in charge of the Legal
Department.
* Certain of the executive officers held the Senior Managing Director title
for a portion of 1996 and 1997. BTCo has since eliminated the title
effective January 1, 1998 and reverted to the use of the Managing Director
title as the most senior title below that of Vice Chairman.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
91
<PAGE>
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5920
Bankers Trust New York Corporation
(Exact Name of Registrant as Specified in Its Charter)
New York 13-6180473
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
130 Liberty Street
New York, NY 10006
(Address of Principal (Zip Code)
Executive Offices)
(212) 250-2500
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each
Exchange On
Title of Each Class Which Registered
- --------------------------------------------------- -----------------------
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
6 1/8% Convertible Capital Securities American Stock Exchange
7 5/8% Cumulative Preferred Stock, Series O American Stock Exchange
Depositary Shares representing a one-tenth interest
in a share of 7 5/8% Cumulative Preferred Stock,
Series O ($250 Liquidation Preference) American Stock Exchange
7.50% Cumulative Preferred Stock, Series P American Stock Exchange
Depositary Shares representing a one-fortieth
interest in a share of 7.50% Cumulative Preferred
Stock, Series P ($1,000 Liquidation Preference) American Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series Q New York Stock Exchange
Depositary Shares representing a one-hundredth
interest in a share of Adjustable Rate Cumulative
Preferred Stock, Series Q ($2,500 Liquidation
Preference) New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series R New York Stock Exchange
Depositary Shares representing a one-hundredth
interest in a share of Adjustable Rate Cumulative
Preferred Stock, Series R ($2,500 Liquidation
Preference) New York Stock Exchange
7 3/4% Cumulative Preferred Stock, Series S ($2,500
Liquidation Preference) New York Stock Exchange
Depositary Shares representing a one-hundredth
interest in a share of 7 3/4% Cumulative Preferred
Stock, Series S ($2,500 Liquidation Preference) New York Stock Exchange
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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 27, 1998: Common Stock, $1 par
value, $11,182,841,128.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 27, 1998: Common Stock, $1 par value,
97,873,138 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
are incorporated by reference into Part III.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
92
<PAGE>
- --------------------------------------------------------------------------------
Form 10-K Cross-Reference Index
Part I
Item No. Pages
1. Business
Description of Business 88
Supplemental Financial Data
International Operations 17, 66
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential 83
Investment Portfolio 47
Loan Portfolio 32-36, 45-46, 48-49
Summary of Credit Loss Experience 29-31, 50
Deposits 87
Return on Equity and Assets 10
Short-Term Borrowings 50
2. Properties 90
3. Legal Proceedings 90
4. Submission of Matters to a Vote of Security Holders *
-- Executive Officers of the Registrant 91
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 59, 82
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
7a. Quantitative and Qualitative Disclosures
About Market Risk 22-26
8. Financial Statements and Supplementary Data
Bankers Trust New York Corporation and
Subsidiaries (Consolidated) 40-43
Notes to Financial Statements 44-78
Reports of Independent Auditors 80-81
Selected Quarterly Financial Data 82
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure *
Part III
The information required by Items 10 through 13 in this part is omitted pursuant
to Instruction G of Form 10-K since the Corporation intends to file with the
Commission a definitive Proxy Statement, pursuant to Regulation 14A, not later
than 120 days after December 31, 1997.
Part IV
Item No.
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a)(1) Financial Statements-See Item 8.
(2) Financial Statement Schedules
All schedules normally required by Form 10-K
are omitted since they are either not applicable
or the required information is shown in the
financial statements or the notes thereto.
(3) Exhibits
3. Articles of Incorporation and By-laws,
as amended **
4. Instruments Defining the Rights of
Security Holders, Including Indentures
(ii) Long-Term Debt Indentures ***
10. Material Contracts
(ii)(C) Acquisition or Sale of any Property,
Plant or Equipment **
(ii)(D) Leases for Principal Premises
described on page 90 **
(iii)(A) Management Contracts and
Compensation Plans **
12. Statements Re Computation of Ratios **
21. Subsidiaries of the Registrant **
23. Consents of Experts **
24. Power of Attorney **
27. Financial Data Schedule
99. Additional Exhibits
(i) Preferred Share Purchase Rights **
(b) Reports on Form 8-K-The Corporation filed four reports on Form 8-K during
the quarter ended December 31, 1997.
-- The report dated October 1, 1997, and filed on October 3, 1997, announced
that the Corporation had entered into a distribution agreement pursuant
to which the Corporation may offer from time to time its Senior
Medium-Term Notes, Series A, and Subordinated Medium-Term Notes, Series
A.
-- The report dated October 23, 1997 and filed on October 24, 1997, filed
the Corporation's Press Release which announced earnings for the quarter
ended September 30, 1997.
-- The report dated and filed on November 26, 1997 announced that the
Corporation entered into an Amendment to Rights Agreement with Harris
Trust and Savings Bank, as Rights Agent, amending the Rights Agreement
dated as of February 22, 1988, between the Corporation and the Rights
Agent.
-- The report dated December 2, 1997 and filed on December 3, 1997, filed
the Corporation's Press Release which announced that a definitive
agreement was signed with National Westminster Bank PLC to acquire
NatWest Markets' Pan-European cash equities business. In addition, the
report filed the By-Laws of Bankers Trust New York Corporation, as
amended.
- --------------------------------------------------------------------------------
* Not applicable.
** A copy of any exhibit not contained herein may be obtained by writing to
James T. Byrne, Jr., Office of the Secretary, Bankers Trust New York
Corporation, One Bankers Trust Plaza, 130 Liberty Street, Mail Stop 2310,
New York, NY 10006.
*** The Corporation hereby agrees to furnish to the Commission, upon request, a
copy of any instruments defining the rights of holders of long-term debt
issued by the Parent Company or its subsidiaries.
This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report. Portions of the 1997 Annual Report to the Corporation's
stockholders are not required by the Form 10-K report and are not "filed" as
part of the Form 10-K. Only those sections of the Annual Report referenced in
the above index are incorporated in the Form 10-K.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
93
<PAGE>
- --------------------------------------------------------------------------------
Form 10-K Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 5, 1998.
Bankers Trust New York Corporation
By /s/ JAMES T. BYRNE, JR.
---------------------------------
(James T. Byrne, Jr., Senior Vice
President and Secretary)
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 5, 1998.
FRANK N. NEWMAN* Chairman of the Board,
- --------------------------------- Chief Executive Officer,
(Frank N. Newman) President and Director
(Principal Executive Officer)
RICHARD H. DANIEL* Vice Chairman,
- --------------------------------- Chief Financial Officer
(Richard H. Daniel) and Controller (Principal
Financial Officer)
RONALD HASSEN* Senior Vice President
- --------------------------------- (Acting Principal
(Ronald Hassen) Accounting Officer)
LEE A. AULT III* Director
- ---------------------------------
(Lee A. Ault III)
NEIL R. AUSTRIAN* Director
- ---------------------------------
(Neil R. Austrian)
GEORGE B. BEITZEL* Director
- ---------------------------------
(George B. Beitzel)
PHILLIP A. GRIFFITHS* Director
- ---------------------------------
(Phillip A. Griffiths)
WILLIAM R. HOWELL* Director
- ---------------------------------
(William R. Howell)
VERNON E. JORDAN, JR.* Director
- ---------------------------------
(Vernon E. Jordan, Jr.)
HAMISH MAXWELL* Director
- ---------------------------------
(Hamish Maxwell)
N. J. NICHOLAS JR.* Director
- ---------------------------------
(N. J. Nicholas Jr.)
RUSSELL E. PALMER* Director
- ---------------------------------
(Russell E. Palmer)
DONALD L. STAHELI* Director
- ---------------------------------
(Donald L. Staheli)
PATRICIA CARRY STEWART* Director
- ---------------------------------
(Patricia Carry Stewart)
G. RICHARD THOMAN* Director
- ---------------------------------
(G. Richard Thoman)
GEORGE J. VOJTA* Vice Chairman
- --------------------------------- of the Board
(George J. Vojta) and Director
PAUL A. VOLCKER* Director
- ---------------------------------
(Paul A. Volcker)
* By /s/ JAMES T. BYRNE, JR.
---------------------------------------
(James T. Byrne, Jr., Attorney-in-Fact)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
94
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
Filed Under
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
BANKERS TRUST NEW YORK CORPORATION
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
103
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
3. Articles of Incorporation and By-laws, as amended
Restated Certificate of Incorporation of the Registrant filed with
the State of New York on June 9, 1988 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on August 30, 1989 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on June 14, 1990 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on March 20, 1992 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on October 27, 1992 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on January 21, 1993 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on June 1, 1993 (1)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on August 18, 1993 (2)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on March 25, 1994 (3)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on August 22, 1994 (4)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on June 29, 1995 (5)
By-laws as in effect November 18, 1997 (24)
4. Instruments Defining the Rights of Security Holders, Including
Indentures
(ii) Long-Term Debt Indentures 93
10. Material Contracts
(ii) (C) Contract of sale for the office building located at 280
Park Avenue, New York 116
(D) Leases for Principal Premises Described on Page 90
Lease Agreement relating to the seven stories of a
37-story building located at 14-16 Wall Street (7)
Lease Agreement relating to the eight-story building
located in Jersey City, New Jersey (8)
Lease Agreement relating to the eight-story building
located in London, England (9)
Lease Agreement relating to the three-story building in
Nashville, Tennessee (10)
Synopsis of the Agreement for Sub-Lease and the
Sub-Lease relating to the 42-story building
located in Sydney, Australia (11)
(iii) (A) Management Contracts and Compensation Plans
(1) Employment Contract for Richard H. Daniel (12)
(2) Partnership for One-hundred Plan--Plan Document, as
amended (20)
(3) Employment Agreement for David Marshall (13)
(4) Consulting Agreement with Paul Volcker (13)
(5) BT Investments (Australia) Limited Group
Notional Equity Participation Plan, as amended (13)
(6) Employment Contract for Frank N. Newman (19)
(7) Severance agreement with B.J. Kingdon (21)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
104
<PAGE>
- --------------------------------------------------------------------------------
(8) Employment agreement with Mary Cirillo (22)
(9) Employment agreement with Alvin B. Krongard (23)
(10) Employment agreement with Mayo A. Shattuck III (23)
1994 Stock Option and Stock Award Plan (14)
1991 Stock Option and Stock Award Plan (15)
1985 Stock Option and Stock Award Plan (16)
January, 1989 amendments thereto (11)
Additional Capital Accumulation Plan (17)
The Supplemental Executive Retirement Plan (9)
Deferred Compensation Plan for Directors (6)
January, 1989 amendments to the Deferred (14)
Compensation Plan for Directors and The
Supplemental Executive Retirement Plan
Partnership for One-Hundred Plan II (22)
Split Dollar Insurance Agreement (23)
Alex. Brown Incorporated 1996 Equity Incentive Plan (23)
12. Statements Re Computation of Ratios
Computation of Consolidated Ratios of Earnings to Fixed Charges 107
Computation of Consolidated Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
Requirements 108
21. Subsidiaries of the Registrant 109
23. Consents of Experts 110-111
24. Power of Attorney 112
27. Financial Data Schedule 114
99. Additional Exhibits
(i) Rights Agreement, as amended, dated November 26, 1997
describing the terms of the Preferred Share
Purchase Rights (18)
(NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
105
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
FOOTNOTE REFERENCES
(1) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated September 24, 1993, file number 1-5920.
(2) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated August 6, 1993, file number 1-5920.
(3) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated March 21, 1994, file number 1-5920.
(4) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated August 12, 1994, file number 1-5920.
(5) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated June 29, 1995, file number 1-5920.
(6) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated November 10, 1995, file number 1-5920.
(7) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1986, file number
1-5920.
(8) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1983, file number
1-5920.
(9) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1987, file number
1-5920.
(10) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1992, file number
1-5920.
(11) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1993, file number
1-5920.
(12) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated May 15, 1996, file number 1-5920.
(13) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated November 14, 1996, file number 1-5920.
(14) This document is incorporated by reference from Bankers Trust New York
Corporation's Registration Statement on Form S-8 (No. 33-54971) as filed
on August 9, 1994.
(15) This document is incorporated by reference from Bankers Trust New York
Corporation's Registration Statement on Form S-8 (No. 33-41014) as filed
on June 10, 1991.
(16) This document is incorporated by reference from Bankers Trust New York
Corporation's Proxy Statement dated as of March 21, 1988, file number
1-5920.
(17) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1989, file number
1-5920.
(18) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated November 26, 1997, file number 1-5920.
(19) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1995, file number
1-5920.
(20) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1996, file number
1-5920.
(21) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated May 15, 1997, file number 1-5920.
(22) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated August 14, 1997, file number 1-5920.
(23) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated November 14, 1997, file number 1-5920.
(24) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated December 2, 1997, file number 1-5920.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
106
AGREEMENT
THIS AGREEMENT, made as of the 18th day of August, 1997, by and
between BANKERS TRUST COMPANY, a New York banking corporation, having an office
at 130 Liberty Street, New York, New York 10006 ("Seller") and BOSTON PROPERTIES
LIMITED PARTNERSHIP, a limited partnership formed under the laws of the State of
Delaware, having an office at c/o Boston Properties, Inc., 8 Arlington Street,
Boston, Massachusetts 02116 ("Purchaser") and, for the purpose of Sections
5.1.7, 5.1.8, 7.6 through 7.10, 16, and 23.7 only of this Agreement, BOSTON
PROPERTIES, INC., a Delaware corporation and the sole general partner of
Purchaser, having an office at 8 Arlington Street, Boston, Massachusetts 02116
("Company").
W I T N E S S E T H :
Seller desires to sell, transfer and convey the land with the
buildings and improvements thereon and all easements and other appurtenances
thereto in the City, County and State of New York, more particularly described
in Exhibit A attached hereto and made a part hereof, commonly known and
designated as 280 Park Avenue (the "Premises"; a schedule listing the definition
of this and other defined terms used in this Agreement is set forth in Schedule
A attached hereto) to Purchaser and Purchaser desires to purchase and acquire
the Premises from Seller on the terms, covenants and conditions hereinafter set
forth.
NOW, THEREFORE, for and in consideration of these presents and of
the mutual covenants and agreements herein contained, Seller and Purchaser
hereby agree as follows:
1. Transaction.
1.1. Seller agrees to sell, transfer and convey the Premises to
Purchaser, and Purchaser agrees to purchase and acquire the Premises from
Seller, upon and subject to all of the terms and conditions of this Agreement.
1.2. This sale includes all and any right, title and interest, if
any, of Seller in and to any land lying in the bed of any street, road or avenue
opened or proposed, in front of or adjoining the Premises, to the
<PAGE>
center line thereof and all strips and gores adjoining the Premises or any part
thereof.
1.3. There shall be included in the sale:
1.3.1. All of Seller's right, title and interest in and to any
easements, declarations, agreements or instruments affecting or in any way
connected to or benefitting the Premises described in Exhibit B attached hereto
(the "Premises Agreements").
1.3.2. All of Seller's right, title and interest in and to (a)
all leases, tenancies and occupancies for any part of the Premises as set forth
on Exhibit C attached hereto and made a part hereof (copies of which Purchaser
acknowledges having examined), excluding (x) subleases and suboccupancies and
(y) the Bankers Lease referred to in Article 11 hereof (the "Space Leases"), and
(b) all other leases, tenancies and occupancies, excluding subleases and
subtenancies, which are hereafter entered into in accordance with Article 10 of
this Agreement, (i.e., the "New Leases"), and (c) all subleases and subtenancies
including, without limitation, those set forth in Exhibit C-1 attached hereto
(such subleases and subtenancies as are listed on Exhibit C-1 being those
consented to in writing by Seller, or based on a thorough review of Seller's
records, known by Seller to exist), and (d) the Bankers Lease, in each case from
and after the Closing Date, and the unapplied security deposits and accrued and
undistributed interest thereon and advance Rents (as defined in Section 6.5.1)
in respect of any period subsequent to the Closing Date paid by the tenants
thereunder which are in Seller's possession or control on the Closing Date,
except to the extent applied by Seller by reason of default by any tenant under
its Space Lease (the "Security Deposits").
1.3.3. All of Seller's right, title and interest, if any, in
all certificates of occupancy, boiler, burner and like transferable licenses,
approvals and permits for the use and operation of the Premises, including,
without limitation, those set forth on Exhibit D attached hereto and made a part
hereof.
1.3.4. All of Seller's right, title and interest, if any, in
all transferable warranties and guarantees of manufacturers, contractors,
materialmen and mechanics who may have furnished labor and/or materials to the
Premises, including, without limitation, those set forth on Exhibit E attached
hereto and made a part hereof; provided, however, without limiting Purchaser's
rights to fully enforce any such warranties and guaranties, should Seller have
any existing monetary claim with respect to any such warranty or guarantee,
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Seller may assert such monetary claim and thereby enforce Seller's rights under
such warranty or guarantee, at Seller's cost and expense and Seller may retain
any awards, judgments or settlements arising from the assertion of any such
claim, provided that Seller shall not thereby adversely affect or impair the
rights as to future claims under such warranties and guaranties to be assigned
to Purchaser by Seller pursuant hereto. This provision shall survive delivery of
the deed.
1.3.5. All of Seller's right, title and interest in and to the
equipment and fixtures used exclusively in connection with the operation and
maintenance of the Premises, but excluding therefrom all of the personal
property and trade fixtures owned or leased (a) by tenants or subtenants under
the Space Leases, or under the Bankers Lease or (b) by Seller in the conduct of
its business or the business of any of its Affiliates at the Premises, or (c) by
the managing agent of the Premises or (d) by any of the parties, other than
Seller or the managing agent, to the Service Contracts (as defined in Section
1.3.7) or (e) by Seller and located in the Premises building management office;
but which shall include, without limitation, the items listed on Exhibit F
attached hereto or equivalent replacements thereof except to the extent that
such items are depleted in the ordinary course of Seller's operation of the
Premises (the "Equipment").
1.3.6. All of Seller's right, title and interest, if any, in
and to the building plans and specifications and site plans in Seller's
possession or control for the Premises, together with all of Seller's right,
title and interest, if any, in and to all building and other governmental
permits for the construction of the Premises.
1.3.7. All of Seller's right, title and interest in and to the
contracts and agreements of which Seller or its managing agent is party relating
to the maintenance or operation of the Premises, other than any management
agreement, and in and to any leases of Equipment (identified as leased Equipment
on Exhibit F attached hereto), which are in effect on the Closing Date and which
are either listed on Exhibit G attached hereto or are entered into by Seller
after the date hereof in accordance with the provisions of Article 10 of this
Agreement, to the extent transferrable by their terms (the "Service Contracts").
1.3.8. All of Seller's right, title and interest, if any, to
use and occupancy of vaults, if any, under the sidewalks or streets abutting the
Premises and Purchaser shall take subject to all license fees and
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charges heretofore or hereafter imposed by any governmental authority having
jurisdiction in the matter (subject to apportionment between the parties as
provided in Section 6.1 hereof) for the use or maintenance of such vault. Seller
makes no representations with respect to the continued use or maintenance of any
such vault or that a license or permit for the maintenance or use thereof has
been obtained.
1.4. This sale does not include any service mark, trademark,
copyright, license or other interest in or right to the use of the name "Bankers
Trust" or "Bankers Trust Building", or any variations thereof. Purchaser
understands that the Premises are commonly known as or identified as the
"Bankers Trust Building" by reason of the occupancy by Bankers Trust Company of
very substantial portions thereof from the construction thereof. By reason
thereof, in its management and ownership of the Premises, Bankers Trust Company
has restricted the use of the name "Bankers Trust Company" by other tenants and
occupants, has maintained that name as the sole distinctive name of the
Premises, has restricted the placement at the Premises of any signs, symbols or
identifying or distinctive materials containing the name or logo of the
competitors of Bankers Trust Company, and has restricted the leasing to
competitors of Bankers Trust Company by it and its tenants of space in the
Premises. Restrictions of this nature which are contained in provisions of the
Initial Bankers Lease (referred to in Section 11.1 hereof) are indicative of
such practices. The occupancy by Bankers Trust Company shall continue after the
delivery of the deed, pursuant to the Bankers Lease, which amends and replaces
in its entirety the Initial Bankers Lease (and removes such provisions
therefrom). Accordingly, Seller and Purchaser agree as follows:
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1.4.1. Purchaser recognizes that the Premises may be known as
the "Bankers Trust Building" and that Seller has a strong interest in
maintaining the integrity of such name. It is therefore understood and agreed
that Seller, and any successor or affiliated entities, shall have the sole and
exclusive right to use the name "Bankers Trust Building" and any variations
thereof. Purchaser shall not use the name "Bankers Trust" or any variations
thereof in any advertising or promotional material, in connection with the
Premises, except in the circumstance where, as permitted by Section 1.4.3(a)
hereof, Purchaser has elected to name the Premises the "Bankers Trust Building",
or otherwise only upon the prior written authorization of Seller.
1.4.2. Purchaser further covenants and agrees that a provision
expressly prohibiting any tenant under a lease of space of the Premises, other
than Seller and any of its successors or Affiliates, from using the name
"Bankers Trust" and any variations thereof, will be inserted in all leases of
space in the Premises made after the Closing Date, and which prohibition shall
be expressly stated to be for the benefit of Seller and enforceable by Seller,
provided, however, for as long as the Premises are known as the "Bankers Trust
Building", such lease may provide that Tenant may use such name in its
letterhead for the purpose of address identification only, and then only in a
manner which will maintain the first-class nature and character of such name,
but will not state or imply any other connection or association with Bankers
Trust Company or its Affiliates and will not use such name in a type face or
style now or hereafter used by Bankers Trust Company as a part of its corporate
identity. Purchaser shall cooperate in all reasonable respects, at the cost of
Seller, with Seller in the enforcement of such prohibition, or any similar
prohibition in any Space Lease or New Lease or which is binding on any subtenant
pursuant to any sublease thereunder, provided that Seller's sole remedy against
such tenant or subtenant shall be limited to injunctive relief but, if Seller
cannot timely obtain such injunction to avoid incurring damages, after having
promptly commenced and prosecuted its claim for injunctive relief with all due
diligence, then, but only then, Seller may recover its actual (but not
consequential, special or punitive) damages against such tenant or subtenant.
1.4.3. From and after the Closing, for so long as the Seller
or any Affiliate thereof is the Tenant under the Bankers Lease, Purchaser shall
after the Closing have the right to use as the distinctive name of the Premises
(a) the "Bankers Trust Building" until notified in writing by Seller to no
longer use as the
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distinctive name of the Premises the "Bankers Trust Building", or (b) "Boston
Properties Plaza" or any variation thereof or (c) any other name, provided such
name is not that of (i) a Competitor at the time of such naming or such earlier
date as Purchaser had agreed to the naming of the Premises, including any
designation by which such Competitor is commonly known, or (ii) a tenant
occupying less than 100,000 rentable square feet of space in the Premises at the
time of such naming, or (d) the street address of the Premises, or (e) the name
of any other tenant of the Premises, except for any name referred to in clause
(a), if such other tenant is both (i) not a Competitor at the time of such
naming or such earlier date as Purchaser had agreed to the naming of the
Premises, including any designation by which such Competitor is commonly known,
and (ii) the occupant of more than 100,000 rentable square feet of space in
Premises at the time of such naming. If so notified by Seller pursuant to clause
(a) of this Section 1.4.3, Purchaser shall cease use of the name "Bankers Trust
Building" as the distinctive name of the Premises within two (2) months after
Purchaser's receipt of Seller's notice to such effect, provided however, if (A)
Purchaser has failed to observe or perform any of the terms and provisions of
this Section 1.4.3, then such change shall be made within ten (10) business days
after Purchaser's receipt of Seller's notice, or (B) in Seller's reasonable
judgment Purchaser has not owned, operated or marketed the Premises in a manner
befitting that of a building named the "Bankers Trust Building", then such
change shall be made within thirty (30) days after Purchaser's receipt of
Seller's notice, provided further, however, Purchaser shall, in any event,
immediately cease to use such name in newspaper, radio, television and similar
advertising media, and shall discontinue use of brochures and other
informational and promotional materials utilizing the name "Bankers Trust"
immediately, in case clause (A) above shall be applicable or otherwise when its
then current supply is exhausted but within such respective applicable period.
Within each such respective applicable period, Purchaser shall discontinue all
such use of the name "Bankers Trust" or any variations thereof pursuant to this
Section 1.4.3.
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1.4.4. For so long as the Seller or any Affiliate thereof is
separately or collectively the Tenant under the Bankers Lease, Purchaser shall
not after the Closing place any signs, symbols or identifying or distinctive
materials containing the name or logo (or other like identification) ("Signage")
at the exterior or on any exterior wall of the Premises or in the East Building
or West Building lobbies of or West Building entrances to the Premises or any
wall thereof except Signage (a) using the name Boston Properties or any
variation thereof, or (b) using the street address of the Premises, or (c) of
another tenant, which (i) other than the presently existing Signage using the
street address and Retail Signage, is not larger than any of the Original Seller
Signage, and (ii) other than the presently existing Signage using the street
address and Retail Signage, is consistent with the prominence of the Original
Seller Signage and (iii) other than the presently existing Signage using the
street address is consistent with the class and character of the Original Seller
Signage and of the Premises and (iv) is not that of a Competitor, including any
designation by which such Competitor is commonly known, at the time such Signage
was placed or such earlier date as Purchaser had agreed to the placement of such
Signage and (v) if the Signage of another tenant, such tenant is the occupant of
(y) retail space on the ground floor of the Premises being used as a restaurant,
cafeteria or like purpose, or general retail space for the sale and delivery to
customers at such space of goods, products or materials principally merchandized
or kept in such space (such signage of such retail space, "Retail Signage") and
such Retail Signage is in close proximity to such retail space on the 48th
Street side of the Premises on the East Building portion of the Premises or on
the 48th Street or 49th Street side of the Premises on the West Building portion
of the Premises, or (z) more than 100,000 rentable square feet of space in the
Premises at the time of such placing of Signage; provided, however,
notwithstanding anything to the contrary hereinabove contained, (A) no Signage,
other than Original Seller Signage, shall be placed at the marble exterior wall
on the Park Avenue side of the Premises south of the main entrance or on the
marble exterior wall on the 49th Street side of the Premises, and (B) no Retail
Signage shall be placed on the Park Avenue side of the Premises or on the 49th
Street side of the Premises on the East Building portion of the Premises.
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1.4.5. From and after the Closing and for so long as the
Seller or any Affiliate thereof is in actual occupancy of at least 20,000
rentable square feet of the Premises, the Purchaser, its successors and assigns,
shall not after the Closing (a) enter into a lease of any space in the Premises
to a Competitor or (b) enter into a lease of any space in the Premises without
including a provision in a form and content substantially similar to the
restriction contained in Exhibit S attached hereto which expressly restricts any
tenant (other than Seller and any of its Affiliates as Tenant under the Bankers
Lease) from any such assignment of lease or subletting to a Competitor, which
restriction shall be expressly stated to be for the benefit of Seller and
enforceable by Seller or (c) consent to the subletting of space under or
assignment of any such lease of space to a Competitor except in accordance with
such restriction or (d) to the extent a similar such restriction is contained in
any Space Lease or New Lease, consent to the subletting of space under or
assignment of any such Space Lease or New Lease, to a Competitor if, in each
such case, such tenant, assignee or subtenant was a Competitor at the time such
lease was made or at the time Purchaser consented to such assignment or
subletting. Purchaser agrees to use reasonable commercial efforts to enforce the
provisions of this Section against the tenant under any such lease which
contains such restriction or a similar restriction, but Purchaser shall, in any
event, furnish the list of Competitors referred to below as Exhibit P, promptly
after Purchaser's receipt from Seller, to each such tenant whose lease contains
a comparable provision for restriction upon assignment or subletting based upon
a list of Competitors of Seller. Purchaser agrees to cooperate in all reasonable
respects, at the cost of Seller, with Seller in the enforcement of such
restriction, or any similar restriction in any Space Lease or New Lease,
provided that Seller's sole remedy against such tenant shall be limited to
injunctive relief but, if Seller cannot timely obtain such injunction to avoid
incurring damages after having promptly commenced and prosecuted its claim for
injunctive relief with all due diligence, then, but only then, Seller may
recover its actual (but not consequential, special or punitive) damages against
such tenant. Anything expressly or impliedly contained in this Section 1.4.5 to
the contrary notwithstanding, none of the preceding provisions will ever be
interpreted or construed as a restriction on Purchaser, its successors and
assigns, from granting its consent to the subletting of space under or
assignment of any Space Lease existing on the date hereof where no restriction
substantially similar to the restriction contained in this Section 1.4.5 has
been included in any such pre-existing Space Lease.
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1.4.6. The following terms have the following meanings for
purposes of Sections 1.4.3 through 1.4.5:
(a) A "Competitor", shall mean for purposes of Sections
1.4.3 through 1.4.5, an entity whose name is contained on any currently
effective list of "Competitors" pursuant to this Section 1.4.6, subject to the
following provisions hereof. The initial list of Competitors is attached as
Exhibit P hereto and such list shall be effective unless it is replaced with a
new list, or modification thereto, provided by Seller to Purchaser, which may be
provided no more often than once in any eighteen (18) month period, subject to
the provisions of this Section 1.4.6, and which shall then constitute Exhibit P,
which shall contain no more than sixteen (16) names of Competitors, and each
such successive list shall be effective and be replaced as hereinabove provided.
In no event shall the foregoing restrictions apply to, nor shall Purchaser be
responsible for, the addition of any entity to a list of Competitors provided by
Seller after Purchaser has agreed to name the Premises for or install signage of
such Competitor, as to Sections 1.4.3 or 1.4.4, or has leased any space or
consented to an assignment of lease or a sublet to such Competitor as to Section
1.4.5. An entity shall not hereafter be included on a list of Competitors
constituting Exhibit P unless in the reasonable judgment of Seller it is a
competitor of Seller.
(b) "Seller" and "Purchaser" shall mean the Seller and
Purchaser, respectively, originally named in this Agreement and, except as
limited by the provisions of the next sentence, their respective successors and
assigns, including, as to Purchaser, any successor owner of the Premises. For
the purposes of Section 1.4.3 through 1.4.6(a), reference to "successors and
assigns" of Seller in this Section 1.4.6(b) shall mean and be limited to (i) a
corporation or business entity (herein called a "successor") into which or with
which Seller shall be merged or consolidated, or to which substantially all or a
substantial part (which part shall include the name "Bankers Trust Company") of
Seller's assets may be transferred, by operation of law or appropriate
instruments of merger, consolidation or transfer, provided that the successor
shall have assumed, among other obligations and liabilities, all of Tenant's
obligations and liabilities under the Bankers Lease, or (ii) an assignment of
the Bankers Lease pursuant to a "Controlling Equity Transfer" (as defined in
Article 10 of the Bankers Lease), provided that the principal purpose of any
such assignment is not the acquisition of the tenant's interest in the Bankers
Lease, or (iii) an
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Affiliate of Seller.
(c) "Affiliate" of any entity shall mean any other
entity or person which shall (i) control, (ii) be under the control of or (iii)
be under common control with such entity (the term "control" as used herein
shall be deemed to mean either (A) ownership (direct or indirect) of more than
fifty percent (50%) of the outstanding voting stock of a corporation, or other
majority equity and control interest if such entity is not a corporation), or
(B) ownership (direct or indirect) of not less than twenty-five percent (25%) of
such stock or other equity interest and the power to direct the affairs of such
corporation or other entity by reason of ownership of voting stock or other
equity interest, by contract or otherwise.
(d) "Original Seller Signage" shall mean (i) the present
exterior signage at the marble exterior wall on the 49th Street side of the
Premises near the Park Avenue side of the Premises and (ii) the present exterior
signage at the marble exterior wall on the Park Avenue side of the Premises
south of the entrance to the Premises and (iii) the present exterior signage on
the exterior wall at the entrance to the Premises at 48th Street and (iv) the
Lobby Signage (as such term is defined in the Bankers Lease), in each case,
containing the name "Bankers Trust" or a logo or identification of Bankers Trust
Company (its successors and assigns and/or Affiliates), as the same may be
moved, changed or removed pursuant to the provisions of the Bankers Lease.
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1.4.7. Without limiting any of Seller's other rights and
remedies set forth in Section 12.8 hereof, Seller shall be entitled to specific
performance, injunctive or other equitable relief in the event of breach by
Purchaser, or any of its servants, agents or employees of Purchaser's
obligations under this Section 1.4, provided, however, that Seller shall not
claim against Purchaser, and Purchaser shall incur no liability for damages, in
the event of any such breach by Purchaser other than for Seller's actual damages
up to but not in excess of Five Million ($5,000,000.00) Dollars for each such
separate breach, except that in the event the covenants in Section 1.4.3 or
Section 1.4.4 are breached by Purchaser, there may be included within the
applicable Five Million ($5,000,000.00) limitation upon damages up to but not in
excess of Seller's actual consequential damages in an amount of up to Five
Hundred Thousand ($500,000.00) of such consequential damages. In no event,
however, may Seller recover punitive or other damages, statutory or otherwise,
for any such breach by Purchaser of the covenants in this Section 1.4. Nothing
herein shall be deemed to relieve Purchaser of any obligation to terminate any
lease entered into by Purchaser or remove any Signage placed on or in the
Premises in breach of the provisions of Section 1.4.4 or Section 1.4.5. For
purposes of Purchaser's liability for damages provided for in this Section
1.4.7, Purchaser shall not be deemed in breach of such covenants until Purchaser
shall fail to observe or perform such terms and provisions of this Section 1.4,
and such failure shall continue for twelve (12) business days after receipt of
notice of such failure from Seller. Without limiting Seller's rights to damages
as heretofore provided in this Section 1.4.7, Seller may, before or after such
twelve (12) business day period, seek and/or obtain specific performance,
injunctive or other equitable relief in the event of failure or breach by
Purchaser of Purchaser's obligations under this Section 1.4.
1.4.8. Purchaser agrees, for itself and its successors and
assigns, that the foregoing provisions are reasonable, that to the extent such
provisions may limit or restrict Purchaser's future use or operation of the
Premises, Purchaser was aware of same when it elected to purchase the Premises,
and to the extent such provisions may affect the Purchaser economically in its
future use or operation of the Premises it took same into account in its
determination of the price it wished to pay for the purchase of the Premises.
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1.4.9. The covenants and agreements set forth in this Section
1.4 shall survive delivery of the deed and shall be binding upon the successors
and assigns of Purchaser and the successors and assigns of Seller (as defined in
Section 1.4.6(b)).
2. Closing.
The closing ("Closing") of the transactions contemplated hereby
shall take place on September 5, 1997, as such date may be extended pursuant to
the terms of this Agreement or accelerated upon the mutual written agreement of
Seller and Purchaser (the "Closing Date"), at the offices of Moses & Singer LLP,
1301 Avenue of the Americas, New York, New York or, at Purchaser's election, at
other offices as have been designated by Purchaser in writing to Seller at least
three (3) business days prior to the Closing in the Borough of Manhattan, at
10:00 A.M. o'clock in the forenoon, or at such other place and time of day as
may be agreed upon in writing by Seller and Purchaser ("Closing Date").
3. Purchase Price and Manner of Payment.
3.1. The purchase price is Three Hundred Twenty One Million Two
Hundred Fifty Thousand and 00/100 ($321,250,000.00) Dollars (the "Purchase
Price"), payable as follows:
3.1.1. Ten Million and 00/100 ($10,000,000.00) Dollars of the
Purchase Price on signing this Agreement, by wire transfer to an account
designated by Seller in immediately available federal funds, receipt whereof is
hereby acknowledged.
3.1.2. Three Hundred Eleven Million Two Hundred Fifty Thousand
and 00/100 ($311,250,000.00) Dollars, plus or minus net adjustments and
prorations provided for in Article 6 of this Agreement, at the Closing payable
by wire transfer (to an account designated by Seller at or prior to Closing) in
immediately available federal funds; provided, however, that uncertified checks
of the Purchaser payable to the order of Seller or its designees for an
aggregate amount up to $100,000 shall (subject to collection) be acceptable for
any adjustments payable to Seller at the Closing.
3.2. The amount of any past due unpaid taxes, assessments, business
improvement district charges, public assembly charges, water charges and sewer
rents which Seller is obligated to pay and discharge, with the interest and
penalties thereon to a date not earlier
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than that required by the title company insuring Purchaser's title to the
Premises, may at the option of Seller be allowed to Purchaser out of the balance
of the Purchase Price, provided official bills therefor with interest and
penalties thereon figured to said date are furnished by Seller at the Closing.
The existence of any such taxes shall not be deemed objections to title if
Seller shall comply with the foregoing requirements.
3.3. If on the date of Closing there are any other liens or
encumbrances on the Premises other than those to which Purchaser's title is to
be subject hereunder, Seller may use any portion of the balance of the Purchase
Price to satisfy the same, provided Seller shall simultaneously either (a)
deliver to Purchaser at the Closing of title instruments in recordable form and
sufficient to satisfy such liens and encumbrances of record, together with the
cost of recording or filing said instruments or, (b) provided that Seller has
made arrangements with the title company employed by Purchaser in advance of
Closing, deposit with said title company sufficient monies, acceptable to and
required by it, to assure the obtaining and the recording of such satisfactions
and the issuance of title insurance to Purchaser free of any such liens and
encumbrances. Purchaser, if request is made within a reasonable time prior to
the Closing Date, agrees to provide at the Closing separate payments of
immediately available federal funds or separate certified checks, as requested
by Seller, aggregating the amount of the balance of the Purchase Price, to
facilitate the satisfaction of any such liens or encumbrances. The existence of
any such other liens and encumbrances shall not be deemed objections to title if
Seller shall comply with the foregoing requirements.
3.4. For purposes hereof, a check (certified or uncertified) of
Purchaser shall mean a check drawn by the grantee named in the deed to be
delivered upon such Closing drawn upon a bank which is a member of the New York
Clearing House Association, Inc. or Bank of Boston, N.A. payable directly to the
order of Seller or the designee of Seller. In lieu of any such check, Purchaser
may at its option deliver a bank check.
3.5. For purposes of this Agreement a "bank check" shall mean an
official check of Bank of Boston, N.A. or of any bank which is a member of the
New York Clearing House Association, Inc. drawn directly to the order of Seller
or its designee, provided that the name of no third party shall appear upon such
official check.
3.6. The sums deposited with the Seller pursuant to Section 3.1.1
shall be invested by the Seller in an account at Bankers Trust Company (bearing
interest
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at the day-to-day savings rate). Whether or not the Closing shall occur
hereunder, the party, whether Seller or Purchaser, entitled to receive the sums
deposited with the Seller pursuant to Section 3.1.1 shall also be entitled to
receive, and Seller shall deliver to such person, either it or the Purchaser,
all interest earned on such sums in accordance with the provisions of the
preceding sentence. The party receiving such sums and interest shall pay any
income taxes on such interest. Each party's taxpayer identification number is
set forth after the signature of such party at the end of this Agreement. Any
such interest shall not be deemed to be a credit to Purchaser against the
Purchase Price.
4. Deliveries on Behalf of Seller
4.1. At the Closing, and as a condition to Purchaser's obligation to
purchase the Premises and pay the Purchase Price, Seller will duly execute,
acknowledge (where appropriate) and/or deliver to Purchaser, in form attached
hereto but when no such form is attached hereto or provided for herein, in the
form acceptable to Purchaser in its reasonable discretion, the following:
4.1.1. A bargain and sale deed to the Premises, without
covenants against grantor's acts, in the form of Exhibit I attached hereto (the
"deed") and duly executed and acknowledged so as to convey to Purchaser the fee
simple of the Premises, free from all encumbrances, except as herein stated.
4.1.2. A bill of sale of the Equipment (with no value separate
from the real estate, except as provided in Section 6.1.8) in the form of
Exhibit J attached hereto.
4.1.3. The landlord's executed counterparts (or, where
originals are unavailable, copies thereof certified by Seller) of all Space
Leases, New Leases, the Bankers Lease and Service Contracts (which shall be made
available to Purchaser at Seller's address first set forth above).
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4.1.4. An assignment of (a) the Space Leases and New Leases,
(b) to the extent assignable, the Service Contracts, (c) the Premises Agreements
and (d) the Bankers Lease and all of Seller's right, title and interest
thereunder from and after the Closing Date in the form of Exhibits K and K-1
annexed hereto and made a part hereof, including an agreement indemnifying and
holding harmless Purchaser against claims and/or liability for the (A) payment
or performance of Landlord Contributions or Landlord Work (as such terms are
defined in Section 8.7.5) excluding (x) Landlord Contributions or Landlord Work
listed in Exhibit C to be assumed by Purchaser and (y) in respect of New Leases,
and (B) Commissions (as defined in Section 8.8 hereof) due up to (and including)
the date of the Closing excluding (i) Commissions listed in Exhibit C as Initial
Commissions (as defined in Section 8.8) to be assumed by Purchaser, and (ii)
Future Commissions (as defined in Section 8.8), (iii) Commissions on New Leases,
if any, and (iv) Commissions with respect to leases entered into by Purchaser
after the Closing Date with tenants with whom Seller or Seller's agent, as of
the Closing Date, was negotiating to lease space in the Premises, and for the
payment of which Commissions Seller would be legally obligated (if Seller had
signed the lease), provided that, at the Closing, Seller identifies in a writing
delivered to Purchaser all such lease negotiations for space in the Premises.
4.1.5. All Security Deposits and the accrued and undistributed
interest on each of such Security Deposits, less permitted administrative
charges, if any, together with a schedule thereof. Such Security Deposits and
interest shall be delivered by Seller by (i) wire transfer in immediately
available federal funds to an account designated by Purchaser at least three (3)
business days prior to the Closing, or if no such account is so designated by
Purchaser, by a separate certified or official bank check payable to the order
of Purchaser, or (ii) by a credit to Purchaser against the Purchase Price,
provided that (a) in the event any cash security deposits and the interest
thereon are held by a bank (including Bankers Trust Company), savings bank,
trust company or savings and loan association, at Seller's option Seller shall
deliver to Purchaser, in lieu of such wire transfer, checks or credit, an
assignment to Purchaser of such deposits and interest and written instructions
to the holder thereof to transfer such deposits and interest to Purchaser, and
(b) with respect to any Security Deposits which are other than cash, Seller
shall execute and deliver to Purchaser at the Closing any appropriate
instruments of assignment or transfer.
4.1.6. Notices addressed to each of the
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tenants under the Space Leases and New Leases, executed by or on behalf of
Seller, dated the Closing Date, which shall include a statement that the
Premises have been conveyed by Seller to Purchaser, that Purchaser as landlord
is responsible for and shall hold the Security Deposits (and interest thereon)
provided for under such tenant's Space Lease or New Lease in accordance with the
terms of such Space Lease or New Lease and with the provisions of law, directing
that Rents and other payments under such tenant's Space Lease or New Lease
thereafter be sent to Purchaser or as Purchaser may direct, and such other
matters as may be reasonably required by Purchaser. Purchaser and Seller shall
immediately after the Closing jointly cause such letters to be mailed by
certified mail to such tenants at the address provided in such Space Leases or
New Leases for the delivery of notices or other communications to such tenants.
4.1.7. Such Estoppel Certificates (as defined in Section 10.5)
as are in Seller's possession from the tenants under the Space Leases. Purchaser
has reviewed and hereby approves the form of such Estoppel Certificates to be
sent by Seller to each such tenant. If at the Closing any tenants under the
Space Leases have not yet delivered an estoppel certificate to Seller, Seller
shall deliver a certificate to Purchaser as to each such Space Lease which shall
be in form of Exhibit L hereto but prepared for and signed by Seller as landlord
under such Space Lease, dated the date of this Agreement, made without the
references to "Tenant's best knowledge" in paragraphs 5 and 6, but with the
following added to paragraph 8 "Based on a judgment search made by Lessor" and
with the following added to paragraph 9(k) "Based on a thorough review of
Lessor's records".
4.1.8. All available keys to entrance doors to, and equipment
and utility rooms located in, the Premises, which keys shall be properly tagged
for identification.
4.1.9. The original (or, if unavailable, a copy) of (a) the
existing certificates of occupancy for the Premises, (b) to the extent they are
in Seller's possession or control, original certificates, licenses, permits,
authorizations and approvals issued for or with respect to the Premises and its
operations, including elevators and life safety systems, by governmental and
quasi-governmental authorities having jurisdiction, and (b) to the extent they
are in Seller's possession, warranties and guarantees which Seller has received
(or a blanket assignment of the same) in connection with any work or services
performed or equipment installed in the Premises.
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4.1.10. A schedule updating Exhibit C and setting forth a
current rent roll for the Premises dated as of the last day of the month
preceding the month in which the Closing occurs (but in no event less than two
(2) business days prior to the Closing) and all arrears in Rents and all
prepayments of Rents under the Space Leases and New Leases.
4.1.11. Copies of the following documents with respect to
the Seller:
(1) The certificate of incorporation of Seller and all
amendments thereof, certified by the New York State Banking Department;
(2) A good standing certificate from the New York State
Banking Department;
(3) By-laws certified to Purchaser by the Secretary or
Assistant Secretary of Seller; and
(4) The resolutions of the board of directors of Seller,
authorizing the transactions contemplated hereby (a copy of which Purchaser
hereby acknowledges receiving and hereby approves), certified by its Secretary
or Assistant Secretary as of the Closing Date as being true and correct copies
of resolutions that were adopted at a meeting of the board of directors of
Seller that was duly called and held on June 17, 1997, and that such resolutions
have not been amended and remain in full force and effect as of the Closing
Date.
(5) An incumbency certificate of an authorized officer
of Seller, evidencing that the person signing such Seller's Documents and all
closing documents hereunder on behalf of Seller is authorized to do so.
4.1.12. The Amended and Restated Bankers Lease (as provided in
Article 11 hereof) and certificate of Seller, in its capacity as landlord and
tenant under the Bankers Lease, to which reference is made in Section 11.2
hereof.
4.1.13. The Building Management Office Sublease (as provided
in Article 11 hereof).
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4.1.14. Certificates or copies of the liability insurance
required by the Bankers Lease of Tenant naming Purchaser as an insured.
4.1.15. If a search of the title to the Premises discloses
judgments, penalties or other returns against other persons having names the
same as or similar to that of Seller, Seller will, on request, deliver to
Purchaser an affidavit showing that such judgments, penalties or other returns
are not against Seller.
4.1.16. Its check(s), to the order of the appropriate tax
collecting agency or official, in the amount of all real property transfer taxes
payable by reason of or in connection with the sale of the Premises by Seller to
Purchaser, and copies of all required returns therefor duly signed and sworn to
(if necessary) by Seller. In lieu of delivering such checks, Seller may elect,
upon notice to Purchaser given at least five (5) business days prior to the
Closing Date, to have Purchaser pay any of such taxes and charges by certified
check or bank check and give Purchaser a credit against the Purchase Price in
the amount thereof; provided, however, no such election shall relieve Seller of
its obligation to execute, deliver and file all required returns in connection
with the sale of the Premises which may be required by governmental authority
consistent with the provisions of the preceding sentence.
4.1.17. A so-called FIRPTA affidavit duly executed by Seller
stating that Seller is not a "foreign person" within the meaning of Section 1445
or 7701 of the Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder. Seller shall also provide all information and execute
all documents necessary (if any) to comply with the reporting provisions of
Section 6045(e) of the Internal Revenue Code of 1986, as amended.
4.1.18. Such financial information as may reasonably be
necessary in order for Purchaser's accountants to prepare, at Purchaser's
expense, (i) audited statements of revenues and base building operating expenses
of the Seller in respect of the Premises for the calendar year 1996, and (ii)
unaudited statements of revenues and base building operating expenses of the
Seller in respect of the Premises for the period January 1, 1997 to and
including June 30, 1997.
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4.1.19. Affidavits and indemnifications executed by Seller
regarding mechanics' and materialmen's liens and parties in possession
sufficient to eliminate on Purchaser's title insurance policy exceptions for
these matters and other standard title exceptions, other than those as to which
Purchaser has agreed pursuant to this Agreement to accept title to the Premises
subject thereto.
4.1.20. A Bring-Down Certificate as provided in Section 8.19.
4.1.21. "As built" plans for the Premises to the extent such
plans are in Seller's possession or control.
4.1.22. Such other and further documents and instruments as
are expressly provided for or contemplated herein to be delivered by Seller.
5. Deliveries and Agreements by and on behalf of Purchaser.
5.1. At the Closing, and as a condition to Seller's obligation to
sell the Premises and deliver the deed and other Seller's Documents, Purchaser
will duly execute, acknowledge (when appropriate) and/or deliver to Seller, in
form attached hereto but when no such form is attached hereto or provided for
hereunder, in the form acceptable to Seller in its reasonable discretion, the
following:
5.1.1. The balance of the cash portion of the Purchase Price
in accordance with Section 3.1.2 hereof.
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5.1.2. An assumption from and after the Closing Date of the
(a) Space Leases, New Leases, Service Contracts and Premises Agreements and (b)
the Bankers Lease, and an agreement assuming and indemnifying and holding
harmless Seller against claims and/or liability for the payment of (x) Landlord
Work and Landlord Contributions accruing or arising from and after the Closing
Date (i) the obligation as to which is to be assumed by the Purchaser pursuant
to Exhibit C and (ii) as to New Leases, and (y) Commissions (i) listed in
Exhibit C as Initial Commissions to be assumed by Purchaser and (ii) due from
and after the date hereof, as to Future Commissions, (iii) Commissions as to New
Leases, if any, and (iv) Commissions with respect to leases entered into by
Purchaser after the Closing Date with tenants with whom Seller or Seller's
agent, as of the Closing Date, was negotiating to lease space in the Premises,
and for the payment of which Commissions Seller would be legally obligated (if
Seller had signed the lease), provided that, at the Closing, Seller identifies
in a writing delivered to Purchaser all such lease negotiations for space in the
Premises, in the forms of Exhibit K and K-1, respectively, attached hereto and
made a part hereof.
5.1.3. The letters to tenants referred to in Article 4 signed
by or on behalf of Purchaser.
5.1.4. The Building Management Office Sublease.
5.1.5. Certificates or copies of fire insurance (with extended
coverage) insuring the Premises in the form required of landlord by the Bankers
Lease and of subtenant under the Building Management Office Sublease.
5.1.6. With respect to the Purchaser: (i) the partnership
agreement or operating agreement, respectively, and all amendments, attachments
and agreements related thereto certified to Seller by the general partner
thereof; (ii) any certificates filed or required to be filed by the Purchaser in
the state of its formation and, if not formed in New York State, then also from
New York State, in order for it to be organized and/or to do business in those
states; (iii) any consents by other partners or members required to authorize
the transactions contemplated by this Agreement; and (iv) if requested by
Seller, an acknowledgement by each of the general partners or members of his or
its continued membership in Purchaser.
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5.1.7. With respect to the Company, as general partner of the
Purchaser: (i) the certificate of incorporation of the Company and all
amendments thereof, certified by the Secretary of State of the state of the
Company's incorporation, together with a certificate of said Secretary of State
to the effect that the corporation is in good standing therein; (ii) by-laws
certified to Seller by the secretary of the Company; and (iii) resolutions of
the board of directors of the Company authorizing the transactions contemplated
hereby (a copy of which Seller hereby acknowledges receiving and hereby
approves) certified by a secretary or assistant secretary as of the Closing Date
as being true and correct copies of resolutions that were adopted at a meeting
of the board of directors of the Company that was duly called and held on August
5, 1997, and that such resolutions have not been amended and remain in full
force and effect as of the Closing Date;
5.1.8. An incumbency certificate of an officer of the Company,
evidencing that the person signing this Agreement and all closing documents
hereunder on behalf of Purchaser is authorized to do so.
5.1.9. All required real property transfer tax returns, duly
signed and sworn to, if necessary by Purchaser, and Purchaser shall cause all
such returns and, if Seller makes the election referred to in the second
sentence of Section 4.1.16 hereof, checks of Purchaser as required by such
Section in payment of such taxes to be delivered to the appropriate tax
officials promptly after the Closing.
5.1.10. Such other and further documents and instruments as
are expressly provided for or contemplated herein to be delivered by Purchaser
to Seller.
6. Adjustments at Closing
6.1. The following adjustments are to be made at the Closing as of
the day immediately preceding the Closing Date:
6.1.1. All current period's Rents under the Space Leases and
New Leases if, as and when collected, including Additional Rent (as defined in
Section 6.5.1) and other charges; except Rent and Additional Rent arrears shall
be adjusted as provided in Section 6.5 hereof.
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6.1.2. Prepaid and accrued items, such as fees for
transferable licenses and permits, if any.
6.1.3. Current charges and payments under the Service
Contracts or renewals or replacements thereof permitted pursuant to Section 10.4
hereof.
6.1.4. Water rents, sewer charges, gas, telephone, electricity
and other utility services on the basis of the most recently issued bills
therefor, in accordance with the provisions of Section 6.4, subject to
adjustment after the Closing when the next bills are available, or if current
meter readings are available, on the basis of such readings. Such charges
referred to above which are payable by any tenant to a third party shall not be
apportioned hereunder, and Purchaser shall accept title subject to any of such
unpaid charges and Purchaser shall look solely to the tenant responsible
therefor for the payment of the same. If Seller shall have paid any of such
charges on behalf of any tenant, and shall not have been reimbursed therefor by
the time of Closing, Purchaser shall credit to Seller an amount equal to all
such charges so paid by Seller.
6.1.5. Real estate taxes, business improvement district
charges, electric generator tax, public assembly charges, assessments and sewer
rents, for and on the basis of the fiscal year for which assessed, if assessed
on or prior to the Closing Date subject, however, to the provisions of Section
6.3. Seller shall receive the entire advantage of any discounts for the
prepayment by it of any taxes, water rates or sewer rents.
6.1.6. Value of fuel, if any, stored on the Premises, at
Seller's cost, including any taxes, on the basis of a statement from Seller's
supplier or Seller.
6.1.7. Personal property taxes, if any, on the basis of the
fiscal year for which assessed.
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6.1.8. Purchaser shall pay for any submeters which are in
inventory at the Premises at the time of Closing, at the cost to Seller thereof
to be determined by a certificate of an agent or employee of Seller; Purchaser
shall pay to Seller the amount of any and all sales or similar taxes payable in
connection therewith, and the Purchaser shall execute and deliver any tax
returns required of it in connection therewith (it being agreed that no part of
the consideration hereunder has been ascribed thereto by the parties), said
obligations of Purchaser to survive the delivery of the deed.
6.1.9. Permitted administrative charges, if any, on tenants'
security deposits.
6.1.10. To the extent transferred to Purchaser, transferable
deposits with any utility companies or other persons or entities who supply
goods or services in connection with the operation of the Premises which will
remain on deposit after the Closing.
6.1.11. If, on the Closing Date, the Premises or any part
thereof shall be or shall have been affected by an assessment or assessments
which are or may become payable in annual installments, of which the first
installment is then a charge or lien, or has been paid, then for the purposes of
this Agreement all of the installments of any such assessments, including those
which are to become due and payable after the Closing Date, shall be apportioned
between the parties on the basis of amortizing the same on a straight-line basis
over the term of such installments. This provision shall survive the delivery of
the deed.
6.1.12. There shall be an adjustment in favor of Seller in the
amount of all Initial Commissions listed in Exhibit C to be assumed by
Purchaser, all Future Commissions, all Landlord Work and all Landlord
Contributions listed in Exhibit C to be assumed by Purchaser, which, prior to
the Closing Date, have been paid by Seller.
6.1.13. There shall be an adjustment in favor of Seller in the
amount of all Expenses under New Leases paid or incurred by Seller prior to the
Closing in accordance with Section 10.1.1.
6.1.14. Other apportionments and adjustments, if any, pursuant
to Article 10.
6.1.15. All current period Rents under
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the Bankers Lease.
There shall be no other adjustments or prorations except as
elsewhere in this Agreement expressly provided. Except as elsewhere in this
Agreement provided, the "customs in respect of title closings" adopted by the
Real Estate Board of New York Inc. shall apply to the apportionment and other
matters herein mentioned.
6.2. Purchaser hereby assigns to Seller all rights which it would
otherwise have, if any, for a tax saving or refund for all real estate and other
taxes due with respect to the Premises for all tax years or portions thereof
prior to the Closing Date, excepting only the tax year in which the Closing
occurs (i.e., the tax year July 1, 1997 through June 30, 1998) and hereby
authorizes Seller to commence or continue whatever actions or proceedings Seller
may deem advisable in order to effect any such saving or refund, in the name of
Seller; provided, however, that all costs and expenses in respect to the
prosecution of any such claim, action or proceeding by Seller shall be borne
entirely by Seller; provided, further however, that Seller shall not take any
action in connection with any such claim, action or proceeding which shall
adversely affect Purchaser's claim for a tax savings or refund for the tax year
in which the Closing shall occur and for tax years subsequent to the tax year in
which the Closing shall occur. Seller shall not be deemed to have adversely
affected Purchaser's claim for such a tax savings or refund if Seller endeavors
to settle all presently open claims for a tax saving or refund for all real
estate and other taxes due with respect to the Premises for all tax years prior
to the tax year in which the Closing occurs, through the administrative claim
level of the New York City Department of Law, on the basis of a reduction from
the assessed valuation for tax year July 1, 1996 through June 30, 1997 that is
at least proportionate to the reduction obtained for the remaining such open tax
years. If the Department of Law shall fail or refuse to settle all such open tax
years on that basis, the Seller shall be free to settle all such prior tax years
at its discretion as Seller may deem advisable or otherwise prosecute any such
claim, action or proceeding at its discretion as Seller may deem advisable.
Seller shall instruct its attorney which attends such pre-trial discussions or
hearing or hearings at the Department of Law conducted with respect to such
proportional settlement, to fully advise Purchaser as to what transpired at such
hearing or hearings. Seller hereby assigns to Purchaser all rights which it
would otherwise have, if any, for a tax saving or refund for all real estate and
other taxes due with respect to the Premises for the tax year in which the
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Closing occurs, and hereby authorizes Purchaser to commence or continue at
Purchaser's sole cost and expense, whatever action or proceedings Purchaser may
deem advisable in order to effect any such savings or refund, in the name of
Seller; provided, however, that Purchaser shall not take any action in
connection with any such claim, action or proceeding which shall adversely
affect Seller's claim for a tax savings or refund for the tax years prior to
that in which the Closing shall occur. Seller and Purchaser shall not withdraw,
compromise or settle any such proceedings for the tax year in which the Closing
shall occur without the prior written consent of the other, which consent Seller
and Purchaser agree shall not be unreasonably withheld or delayed. All tax
savings which Purchaser may recover for the tax year in which the Closing shall
occur, shall, after deducting all reasonable costs and expenses in obtaining
such savings (including, without limitation, attorneys' fees) be apportioned
between Seller and Purchaser and, as to the portion, if any, of such refund or
credit to which present tenants of the Premises may be entitled (whether by way
of refund or rent credit) under the terms of their respective Space Leases,
Purchaser shall promptly refund such tax refund or credit to the tenants
entitled thereto and after allocating to Seller Seller's allocable share of such
refund or credit to tenants, Purchaser shall promptly pay the balance to Seller
of the Seller's allocable share. Notwithstanding any provisions of this Section
6.2 to the contrary, and without duplication of any other provision of this
Agreement, if, despite the fact that Seller has hereby assigned to Purchaser all
tax savings, refunds or credits for the tax year in which the Closing occurs,
Seller receives any tax refund or credit (including, without limitation,
pursuant to the provisions of the preceding sentence), the Seller shall promptly
pay to the Purchaser, the amount of such refund or credit for application by
Purchaser pursuant to the provisions of the previous sentence. If after the
Closing Seller shall receive any tax refund or credit for any tax year prior to
that in which the Closing occurred, Seller and Purchaser will cooperate in
determining what portions of such refund or credit must be refunded or credited
to the past or present tenants of the Premises, if any, and as to the portion,
if any, of such refund or credit to which the past or present tenants of the
Premises may be entitled (whether by way of refund or rent credit) under the
terms of their respective leases or Space Leases as in effect as of the date
hereof, Seller shall turn such portion over to Purchaser and Purchaser shall
promptly refund such tax refund or credit to the tenants entitled thereto.
Purchaser shall indemnify and hold Seller harmless from and against all losses,
damages, costs and expenses (including attorneys' fees) that Seller may
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suffer or incur as a result of the failure by Purchaser to refund such tax
refund or credit to such tenants in accordance with this Section 6.2. Seller
shall indemnify and hold Purchaser harmless from and against all losses,
damages, costs and expenses (including attorneys' fees) that Purchaser may
suffer or incur as a result of the failure of Seller to refund any and all tax
refunds or credits to tenants of the Premises in accordance with this Section
6.2. Each of Seller and Purchaser further agree to execute any and all further
instruments and documents which Purchaser or Seller, in its reasonable
discretion, may deem necessary in order to effect the provisions of this Section
6.2. The provisions of this Section 6.2 shall survive the delivery of the deed.
6.3. If the closing of the title shall occur before the tax rate is
fixed, the apportionment of taxes shall be upon the basis of the taxes actually
billed, but when the final tax rate is determined, there shall be a ratable
adjustment on a per diem basis between Seller and Purchaser if final taxes vary
from such billed taxes, with such adjustment to be completed within ten (10)
business days after either party has informed the other that adjustment is
necessary. Purchaser shall promptly pay any tax refund or adjustment due to any
tenant under the Space Leases as a result of such change in the tax rates.
Purchaser shall indemnify and hold Seller harmless from and against all losses,
damages, costs and expenses (including attorneys' fees) that Seller may suffer
or incur as a result of the failure by Purchaser to pay such tax refund or
adjustment to such tenants under the provisions of the previous sentence. The
provisions of this Section 6.3 shall survive delivery of the deed.
6.4. As to charges for water, electricity, gas and other utilities
for the Premises, Seller shall endeavor to furnish a current meter reading at
the Closing, which readings shall have been made not earlier than two (2)
business days prior to the time herein set for Closing, and Seller shall pay the
charges therefor to such date. In the event that such a meter reading cannot be
obtained, Seller shall furnish a reading to a date not more than thirty (30)
days prior to the time herein set for Closing, and the unfixed meter charge
based thereon for the intervening time shall be apportioned on the basis of such
last reading; in such event the parties agree to notify the utility company to
read the meters as soon as possible after Closing and to render a final bill to
Seller. The final bill shall be apportioned as of the Closing Date. The
provisions of this Section 6.4 shall survive the delivery of the deed.
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6.5. As to rents and Additional Rents under Space Leases and New
Leases:
6.5.1. If on the Closing Date any tenant under any Space Lease
or New Lease is in arrears in the payment of basic or fixed rent ("Basic Rent"),
percentage rent, escalation charges for real estate taxes, wage rates, operating
expenses and maintenance escalation rents or charges or cost-of-living increases
("Basic Additional Rent"), service charges, electric charges, overtime heating,
air-conditioning and/or ventilation charges or other charges of a similar nature
(collectively with Basic Additional Rent "Additional Rent"; and collectively
with any such Basic Rent, "Rents"), whether or not in arrears, such Basic Rent
and Basic Additional Rent received from such tenant after the Closing shall be
applied in the following order of priority: (i) first to any month or months
following the month in which the Closing occurred up to the month in which such
Basic Rent and Basic Additional Rent is received, (ii) then to the month in
which the Closing occurred, (iii) then to the month preceding the month in which
the Closing occurred, and (iv) then to the period prior to the month preceding
the month in which the Closing occurred. If Rents or any portion thereof
received by Seller or Purchaser after the Closing are payable to the other party
by reason of this allocation, the appropriate sum, less a proportionate share of
any reasonable attorneys' fees and costs and expenses of collection thereof
actually incurred, shall be paid to the other party within fifteen (15) days
after receipt thereof.
6.5.2. Notwithstanding anything to the contrary contained in
Section 6.5.1., if any tenant under a Space Lease or New Lease is required to
pay Additional Rent other than Basic Additional Rent which are collected by
Purchaser after the Closing Date and which are attributable in whole or in part
to any period prior to the Closing, whether or not billed as of the Closing
Date, or if adjustments in Basic Additional Rent are required to be made between
the landlord and the tenant under the Space Lease or New Lease after the Closing
(pursuant in cases of reimbursement of expenses, to an allocation on the basis
of the respective periods with respect to which such expenses were incurred or
taxes were payable or sales were made), then Purchaser shall pay to Seller
within fifteen (15) days of the first receipt of Additional Rents from the
applicable tenant after the Closing, Seller's proportionate share thereof less a
proportionate share of any reasonable attorneys' fees and costs and expenses of
collection thereof. If, under the terms of any Space Lease or New Lease, any
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Basic Additional Rents paid by the tenant thereunder prior to Closing for any
period ending prior to the Closing are to be adjusted between the landlord and
the tenant thereunder after the Closing, (x) Seller agrees, with respect to such
adjustments which are in favor of any such tenant, to reimburse Purchaser,
within fifteen (15) days after demand, for the amount of such adjustments which
the landlord under such Space Lease or New Lease is obligated to pay or credit
to such tenant and (y) Purchaser agrees, with respect to such adjustments which
are in favor of landlord, to use good faith efforts in accordance with Section
6.5.3 to bill and collect on behalf of Seller any such adjustment with respect
to any periods prior to the Closing Date. No adjustment which results in the
compromising of any claim shall be made without Seller's prior approval, which
approval shall not be unreasonably withheld or delayed.
6.5.3. Seller shall cooperate with Purchaser to assist
Purchaser in the billing and collection on behalf of Seller after the Closing of
Rents including Additional Rents in arrears as of the date of the Closing or
which are due to Seller pursuant to Sections 6.5.1 and 6.5.2. Purchaser will
also make a good faith effort after Closing to bill for and collect on behalf of
Seller all such Rents and Additional Rents in arrears or which are due to Seller
pursuant to Sections 6.5.1. and 6.5.2., but Purchaser will not be obligated to
institute any independent lawsuit to collect delinquent Rents and Additional
Rents but Purchaser shall include in any lawsuit for Rents and Additional Rents
due after the Closing which it may institute a claim for Rents and Additional
Rents due prior to Closing. The provisions of this Section 6.5.3 shall survive
delivery of the deed.
6.6. If the landlord under any Space Lease, other than a New
Lease, has an obligation, whether accrued or contingent, to pay any Landlord
Contributions which are listed in Exhibit C annexed hereto, and whether payable
prior to or after Closing, then Seller shall be responsible for same, except for
those Landlord Contributions to be assumed by Purchaser listed in Exhibit C.
Seller and Purchaser shall keep each other fully advised, and shall furnish to
the other true and complete copies of, any requisitions or requests for payment
and other communications with the tenants involved relating to such payments to
be made by Seller after the Closing. Purchaser shall not amend, modify or waive
any of the provisions of any such Space Lease relating to such obligations of
Seller without the prior written consent of Seller first obtained but which
shall not be unreasonably withheld or delayed by Seller. If any such sum which
Seller is so obligated to pay is due
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and payable to the tenant involved, Seller shall directly pay such sum to the
Purchaser within twelve (12) business days after receipt of all requisitions and
other documentation required by such Space Lease and of Purchaser's
certification to Seller that such sum is due and payable to such tenant in
accordance with the provisions of such Space Lease, and upon receipt thereof,
Purchaser shall promptly pay such requisition to such tenant under such Space
Lease. Purchaser shall indemnify and hold Seller harmless from and against all
losses, damages, costs and expenses (including attorneys' fees) that Seller may
suffer or incur as a result of the failure by Purchaser to pay such requisition
to such tenant under the provisions of the previous sentence. The provisions of
this Section 6.6 shall survive the delivery of the deed hereunder.
6.7. After the Closing, Seller shall perform Landlord's Work listed
as items 2 and 3 on Exhibit C, Landlord's Work, attached hereto.
6.8. If any of the items subject to apportionment under the
foregoing provisions of this Article 6 cannot be apportioned at the Closing
because of the unavailability of the information necessary to compute such
apportionments, or if any errors in the computations of any apportionments made
at the Closing are discovered subsequent thereto, then such items shall be
apportioned and such errors corrected as soon as practicable after the Closing
Date and the proper party reimbursed.
6.9. The provisions of this Article which require any act to be
performed after the Closing shall survive the Closing.
7. Representations and Warranties of Purchaser and the Company
In order to induce Seller to enter into the transactions provided
for in this Agreement, Purchaser and, as to Sections 7.6 through 7.10, the
Company hereby warrants and represents to Seller, which warranties and
representations shall survive delivery of the deed hereunder for a period of one
(1) year after the Closing Date, that as of the date of this Agreement and on
the Closing Date:
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7.1. Purchaser is a limited partnership duly organized and validly
existing under the laws of the State of Delaware, governed by that certain
amended and restated agreement of limited partnership dated June 23, 1997, and
has the power to acquire, own and operate the Premises. Purchaser and the
general partner of Purchaser each has the power to enter into the transactions
contemplated by this Agreement and to execute, deliver and perform this
Agreement, the Bankers Lease, and the assumptions and other documents
contemplated hereby to be executed and performed by Purchaser (collectively, the
"Purchaser's Documents"). The execution, delivery and performance by Purchaser
of this Agreement and the other Purchaser's Documents has been duly authorized
by all partnership action of Purchaser, and this Agreement is, and at the
Closing, the other Purchaser's Documents will, when executed and delivered by
Purchaser, constitute the legal, valid, binding obligations of Purchaser
enforceable against Purchaser in accordance with their respective terms and
provisions, subject to applicable bankruptcy and other like laws affecting the
rights of contractual parties and creditors generally, and the exercise of
judicial or administrative discretion in accordance with general equitable
principles (whether such enforceability is considered in a proceeding in equity
or at law).
7.2. There are no suits, actions or proceedings pending or, to the
actual knowledge of Purchaser, threatened against or affecting Purchaser before
or by any court or administrative agency or officer, to prohibit or enjoin the
consummation of the transactions provided for herein or which could materially
and adversely affect the ability of the Purchaser to perform its obligations
under the Purchaser's Documents.
7.3. Except as provided in Section 4.1.16 hereof, no consent,
approval or other action of, or filing or registration with, any governmental
agency, commission or officer is required in connection with the execution,
delivery, observance or performance by Purchaser of this Agreement, or any of
the Purchaser Documents, or any of the transactions provided for herein.
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7.4. There has not been filed by or against Purchaser, the general
partner of Purchaser or any corporation, partnership, or other entity with
respect to which Purchaser is a principal shareholder, controlling person,
general partner or managing member, as the case may be, a petition in bankruptcy
or insolvency proceedings or for reorganization, or for the appointment of a
receiver or trustee, nor has any such entity made an assignment for the benefit
of creditors or filed a petition for an arrangement or entered into an
arrangement with creditors or admitted in writing the inability to pay its debts
as they become due.
7.5. The execution and delivery of this Agreement and the
Purchaser's Documents, and the transactions provided for herein and therein,
respectively, and compliance with or fulfillment of the terms hereof and
thereof, will not (a) conflict with or result in a breach of any of the terms
and provisions of or constitute a default under or conflict with or result in
the creation of any mortgage, lien, charge or encumbrance of any nature
whatsoever (except as contemplated by the transactions described in this
Agreement) upon any of the properties or assets of Purchaser pursuant to, any
agreement, indenture, mortgage, lien, lease, consent, license, franchise or
other instrument to which Purchaser or the general partner of Purchaser is bound
or under which Purchaser's properties are affected, or (b) violate any law,
rule, regulation, judgment, order, decree, writ or injunction applicable to
Purchaser.
7.6. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware, and has the power to enter
into the transactions contemplated by this Agreement on behalf of Purchaser and
to execute and deliver this Agreement, and the assumptions and other documents
contemplated hereby to be executed and delivered by the Company on behalf of
Purchaser. The execution and delivery by the Company of this Agreement and the
other Purchaser's Documents on behalf of Purchaser has been duly authorized by
all corporate action of the Company.
7.7. There are no suits, actions or proceedings pending or, to the
actual knowledge of the Company, threatened against or affecting the Company
before or by any court or administrative agency or officer, to prohibit or
enjoin the consummation of the transactions provided for herein or which could
materially and adversely affect the ability of the Purchaser to perform its
obligations under the Purchaser's Documents or the Company to execute and
deliver the Purchaser's Documents on behalf of Purchaser.
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7.8. Except as provided in Section 4.1.16 hereof, no consent,
approval or other action of, or filing or registration with, any governmental
agency, commission or officer is required in connection with the execution and
delivery by the Company of the Purchaser's Documents on behalf of the Purchaser,
or any of the transactions provided for therein.
7.9. There has not been filed by or against the Company, or any
corporation, partnership, or other entity with respect to which the Company is a
principal shareholder, controlling person, general partner or managing member,
as the case may be, a petition in bankruptcy or insolvency proceedings or for
reorganization, or for the appointment of a receiver or trustee, nor has any
such entity made an assignment for the benefit of creditors or filed a petition
for an arrangement or entered into an arrangement with creditors or admitted in
writing the inability to pay its debts as they become due.
7.10. The execution and delivery by the Company of the Purchaser's
Documents on behalf of the Purchaser, and the transactions provided for therein,
and compliance with or fulfillment of the terms thereof, will not (a) conflict
with or result in a breach of any of the terms and provisions of or constitute a
default under or conflict with or result in the creation of any mortgage, lien,
charge or encumbrance of any nature whatsoever (except as contemplated by the
transactions described in this Agreement) upon any of the properties or assets
of the Company pursuant to, any agreement, indenture, mortgage, lien, lease,
consent, license, franchise or other instrument to which the Company is bound or
under which the Company's properties are affected, or (b) violate any law, rule,
regulation, judgment, order, decree, writ or injunction applicable to the
Company.
7.11. For the purpose of this Section 7, "survive delivery of the
deed hereunder for a period of one (1) year after the Closing Date" shall mean
and require that Seller shall commence a lawsuit against Purchaser or the
Company, as the case may be, on the basis of such representation or warranty in
a court of competent jurisdiction within one (1) year from the Closing Date.
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8. Representations and Warranties of Seller
In order to induce Purchaser to enter into the transactions provided
for in this Agreement, Seller hereby warrants and represents to Purchaser that
as of the date of this Agreement and, as to Section 8.1 through 8.5, 8.7.2(ii)
and 8.13, on the Closing Date:
8.1. Seller is a duly organized and validly existing corporation
under the banking laws of the State of New York, and has full power and
authority to enter into the transactions contemplated by this Agreement and to
execute, deliver and perform this Agreement, the Bankers Lease, and the
assignments, bill of sale and other documents contemplated hereby to be executed
and performed by Seller (collectively, "Seller's Documents"). The execution,
delivery and performance by Seller of this Agreement and the other Seller's
Documents have been duly authorized by all necessary action of the board of
directors (or executive committee) of Seller and this Agreement is and at the
Closing, the other Seller's Documents will, when executed and delivered by
Seller, constitute the legal, valid and binding obligations of Seller
enforceable against Seller in accordance with their respective terms and
provisions, subject to applicable bankruptcy and other like laws affecting the
rights of contractual parties and creditors generally, and the exercise of
judicial or administrative discretion in accordance with general equitable
principles (whether such enforceability is considered in a proceeding in equity
or at law).
8.2. There are no suits, actions or proceeding pending or, to the
actual knowledge of Seller, threatened against or affecting Seller before or by
any court or administrative agency or officer, to prohibit or enjoin the
consummation of the transactions provided for herein or which could materially
and adversely affect the ability of the Seller to perform its obligations under
the Seller's Documents.
8.3. Except as provided for in Section 4.1.16 hereof, no consent,
approval or other action of, or filing or registration with, any governmental
agency, commission or officer is required in connection with the execution,
delivery, observance or performance by Seller of this Agreement or any of the
transactions provided for herein.
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8.4. There has not been filed by or against Seller or any Affiliate
of Seller which may be the tenant under the Bankers Lease, a petition in
bankruptcy or insolvency proceedings or for reorganization, or for the
appointment of a receiver or trustee, nor has Seller or any Affiliate of Seller
which may be the tenant under the Bankers Lease made an assignment for the
benefit of creditors or filed a petition for an arrangement or entered into an
arrangement with creditors or admitted in writing the inability to pay its debts
as they become due.
8.5. The execution and delivery of this Agreement and the other
Seller's Documents, the transactions provided for herein and therein,
respectively, and compliance with or fulfillment of the terms hereof and
thereof, will not (a) conflict with or result in a breach of any of the terms
and provisions of or constitute a default under or conflict with, or result in
the creation of any mortgage, lien, charge or encumbrance of any nature
whatsoever (except as contemplated by the transactions described in this
Agreement) upon any of the properties or assets of Seller pursuant to, any
agreement, indenture, mortgage, lien, lease, consent, license, franchise or
other instrument to which Seller is bound or under which Seller's properties are
affected, or (b) violate any law, order, rule, regulation, judgment, decree,
writ or injunction applicable to Seller.
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8.6. Exhibit C hereto lists each of the Space Leases and the Bankers
Lease existing as of the date hereof, including all modifications, amendments,
supplements or other changes thereto. True and complete copies of such Space
Leases and the Bankers Lease have been delivered to Purchaser. As of the date
hereof, there are no written agreements in force or rights of occupancy or
possession, for the use, lease or occupancy of space in or at the Premises or
any portion thereof (whether or not the terms thereof have commenced) to which
the Seller, its Affiliates or any of its designees are a party or are bound as
landlord or to which any part of the Premises is subject, other than the Space
Leases listed in Exhibit C hereto and the Bankers Lease, excluding subleases and
suboccupancies and the occupancy by Seller or its Affiliates. If there is any
variance between the terms, provisions and conditions contained in any Space
Lease or the Bankers Lease exhibited to Purchaser and in any statement with
respect to the Space Leases or the Bankers Lease set forth in Exhibit C or
elsewhere stated herein, or in any abstract of the Space Leases or the Bankers
Lease furnished by the Seller to the Purchaser, the terms, provisions and
conditions contained in the Space Leases and the Bankers Lease (and not as
described in Exhibit C or elsewhere stated herein or such abstract) shall
control and shall constitute Seller's representation and warranty, and, only to
the extent such provisions are at variance with the provisions of any Space
Lease or the Bankers Lease, said Exhibit C or other statements herein or such
abstract (which abstract shall in no event constitute a representation or
warranty of Seller) shall not constitute any representation or warranty in
respect thereto, provided, however, that the provisions of this sentence shall
not be interpreted or construed, nor be deemed to limit, restrict or otherwise
detract from or affect (a) Seller's representations made in the three (3)
preceding sentences, or (b) any of the rights of Purchaser under this Agreement
if the representations made by Seller in the three (3) preceding sentences are
not true, correct and complete on the date hereof and on the Closing Date.
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8.7. Except as otherwise set forth in Exhibit C, as to the Space
Leases and the Bankers Lease, as of the date hereof:
8.7.1. Seller has not sent written notice to any tenant
claiming that such tenant is in default, which default remains uncured, and to
the best of Seller's actual knowledge, there exists no event which, with the
passage of time or the giving of notice, or both, would constitute (i) a
monetary default by the tenant under the terms of any such Space Lease or (ii)
or any other default by the tenant which would have a material adverse effect on
the landlord's rights under such Space Leases considered in the aggregate.
8.7.2. To the best of Seller's actual knowledge, (i) no
tenants under such Space Leases have claimed or asserted any defaults, defenses,
counterclaims, set-offs or offsets against the Rents or Additional Rents
reserved under their respective Space Leases, which claims have not been
discharged or resolved, and (ii) Seller is not in default under any provision of
any of the Space Leases which when considered in the aggregate would have a
material adverse effect on the landlord's rights under such Space Leases, which
defaults have not been discharged or resolved.
8.7.3. There are no arrearages under the Space Leases in the
payment of Basic Rents or Basic Additional Rents or, to the best of Seller's
actual knowledge, in the payment of Additional Rents (other than Basic
Additional Rents).
8.7.4. No tenant has paid Rent for more than one month in
advance (except in the case of real estate tax or similar reimbursements).
8.7.5. Seller has no present obligations to perform any
improvements or alterations in any tenant's space in order to prepare such space
for tenant's occupancy as landlord under such Space Leases ("Landlord Work") or
the Bankers Lease which has not been completed and fully paid for or to make any
contribution, reimbursement, allowance or other payment to any such tenant for
or on account of such improvements or alterations by any tenant under such Space
Leases ("Landlord Contributions") or the Bankers Lease which has not been fully
paid.
8.7.6. Seller has assigned none of its rights under such Space
Leases or the Bankers Lease, and, except as to mortgages held by an Affiliate of
Seller which mortgages will be satisfied or released as a lien
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on the Premises at or prior to Closing, Seller has not mortgaged, pledged,
hypothecated, granted a security interest in, or otherwise encumbered landlord's
interest under such Space Leases or the Bankers Lease.
8.7.7. No action or proceeding instituted against Seller by
any tenant and not covered by insurance is presently pending in any court.
8.7.8. There are no security deposits.
8.8. All brokerage commissions or other compensation due brokers
("Commissions") arising by reason of such Space Leases or the Bankers Lease,
whether for the initial term thereof and original premises demised thereunder
("Initial Commissions") and/or for renewals, elections not to terminate,
extensions or options to lease additional space, or otherwise with respect to
leasing transactions ("Future Commissions"), (x) to the extent due through the
date hereof have been fully paid or (y) to the extent accrued but not payable
until after the date hereof are set forth and described in Exhibit C attached
hereto, which Exhibit sets forth each such contract or agreement pursuant to
which such Commissions are payable or (z) as to Commissions for the payment of
which Seller is not now but would have been legally obligated if Seller had
signed a lease, with tenants with whom Seller or Seller's agent, as of the date
hereof, was negotiating to lease space in the Premises, are set forth and
described in Exhibit C hereto, which Exhibit sets forth each such contract or
agreement pursuant to which such Commissions, in the circumstances described in
this clause (z) become payable (the "Brokerage Agreements"). True and complete
copies of the Brokerage Agreements have been delivered to Purchaser.
8.9. The copies of the real property tax bills for the Premises for
the current tax year which have been furnished by Seller to Purchaser are true
and correct copies of the tax bills for the Premises, and there are no tax
abatements or exemptions or, to Seller's best knowledge, except for real estate
tax fiscal years 1993/94 through 1997/98 for the East Building and 1994/95
through 1997/98 for the West and Middle Buildings, there are no real property
tax reduction proceeding affecting the Premises.
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8.10. (a) There are no material Service Contracts with respect to
the Premises other than those listed on Exhibit G attached hereto. Such Service
Contracts are accurately and completely set forth in Exhibit G, and the copies
thereof furnished by Seller to Purchaser are true and complete.
(b) To the best of Seller's actual knowledge, there are no
claims or any basis for claims in respect of the Premises or its operation by
any of the parties to such Service Contracts which when considered in the
aggregate would have a material adverse effect on the operation of the Premises.
8.11. Seller has not, as of the date of this Agreement, received
written notice from any governmental or quasi-governmental body or agency with
respect to any actual or threatened taking of the Premises or any portion
thereof for any public or quasi-public purpose by the exercise of the right of
condemnation or eminent domain, and to the best of Seller's knowledge, there are
no such actions or proceedings pending, presently threatened or contemplated by
any governmental or quasi-governmental body or agency.
8.12. Except as disclosed in writing to Purchaser prior to the date
of the Agreement, there are no suits, actions or proceedings pending against or
affecting the Premises or any portion thereof before or by any court or
administrative agency or officer, and to the best of Seller's actual knowledge,
there are no such actions or proceedings threatened.
8.13. None of the employees presently employed by Seller at the
Premises is subject to a union contract to which Seller is party or is bound.
Seller's managing agent's employees are union employees, however, such
management agreement shall be terminated by Seller as of the Closing Date. None
of the employment agreements or arrangements with employees presently employed
by Seller at the Premises will be binding on Purchaser after the Closing.
8.14. Seller has not received any notices from any insurer or its
agent requiring performance of any work with respect to Premises or canceling or
threatening to cancel any policy, which notices have not been discharged or
resolved.
8.15. To the best of Seller's actual knowledge, Seller has received
no notice from any third party as to a material breach or violation by Seller
nor, to the best of Seller's actual knowledge, is Seller in material breach or
violation, of Seller's covenants and
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obligations under the Premises Agreements which would have a material adverse
affect on Seller's rights under such Premises Agreement.
8.16. No investigations, inquiries, orders, hearings, actions or
other proceedings by or before any governmental board, agency or authority are
pending, or, to the best of Seller's actual knowledge, threatened in connection
with any Environmental Activity or alleged Environmental Activity at the
Premises. For the purposes of this Section 8.16 the terms "Hazardous Materials"
and "Environmental Activity" shall have the following meanings:
"Environmental Activity" means any use, storage, release, threatened
release, emission, remediation, discharge, generation, processing,
abatement, removal or disposition of any Hazardous Materials from,
under, into or on the Premises or any handling, transportation or
treatment of Hazardous Materials arranged by or on behalf of Seller
and relating to the Premises.
"Hazardous Materials" means (a) hazardous materials, hazardous
wastes, and hazardous substances as those terms are defined in the
following statutes and their implementing regulations: the Hazardous
Materials Transportation Act, 49 U.S.C. ss.1801 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq.,
the Comprehensive Environmental Response, Compensation and Liability
Act, as amended by the Superfund Amendments and Reauthorization Act,
42 U.S.C. ss.9601 et seq., the Clean Water Act, 33 U.S.C. ss.1251 et
seq., the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq.,
the Clean Air Act, 42 U.S.C. ss.7401 et seq., (b) petroleum,
including crude oil and any fractions thereof, (c) natural gas,
synthetic gas, and any mixtures thereof, (d) asbestos and/or any
material which contains 1% or more, by weight, of any hydrated
mineral silicate, including but not limited to chrysotile, amosite,
crocidolite, tremolite, anthophylite and/or actionlite, whether
friable or non-friable, (e) PCBs or PCB-containing materials or
fluids, and (f) any additional substance or material which at this
time is classified or considered to be hazardous or toxic under any
federal, New York or any other law applicable to the Premises.
Notwithstanding anything to the contrary contained in this
definition of Hazardous
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Materials, no material shall be deemed to be a Hazardous Material if
such Hazardous Material is contained in legally permissible
containers in legally permissible amounts.
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8.17. If, on or before the date of Closing, any representation made
by Seller in this Agreement shall be discovered or otherwise determined, to be
inaccurate as and when made ("Misrepresentation"), to such an extent that such
Misrepresentation(s), would result, or could reasonably in good faith be
expected to result, in damages to Purchaser in an aggregate amount, together
with Bring-Down Damages (as defined in Section 8.19) and any claims against or
obligations of Seller pursuant to Sections 12.1, 12.4 and 12.5, in excess of Ten
Million and 00/100 Dollars ($10,000,000) (collectively, "Material
Misrepresentations and Changed Circumstances", and if equal to or less than such
amount, "Non-Material Misrepresentations and Changed Circumstances"), then
Purchaser shall give prompt written notice thereof to Seller (the "Materiality
Notice") (but in any event on or prior to the Closing). Seller shall have the
right to cure any Misrepresentations or Changed Circumstances, but not the
obligation to cure the Material Misrepresentations and Changed Circumstances,
within ninety (90) days after the date scheduled for Closing, provided that
Seller promptly commences to cure such Misrepresentations and Changed
Circumstances and thereafter continues diligently and in good faith to cure the
Misrepresentations and Changed Circumstances. The Closing shall be extended, if
necessary, in order to permit the cure described above, but in no event shall
the date of the Closing be so extended for more than ninety (90) days. In the
event that Seller elects not to cure any such Material Misrepresentations and
Changed Circumstances, Seller may notify Purchaser of such election within five
(5) business days after its receipt of the Materiality Notice. If Seller elects
not to cure the Material Misrepresentations and Changed Circumstances or if, by
the expiration of the cure period provided for above, Seller has failed to cure
the Material Misrepresentations and Changed Circumstances, Purchaser may, as its
sole and exclusive remedy, either (i) waive such Material Misrepresentations and
Changed Circumstances and proceed to consummate this Agreement in accordance
with its terms subject to the Material Misrepresentations and Changed
Circumstances with a reduction in the Purchase Price in an amount equal to the
damages the parties reasonably and in good faith expect to result to Purchaser
from such Material Misrepresentations and Changed Circumstances (but, together
with any claims against or obligations of Seller pursuant to Sections 12.1, 12.4
and 12.5 not exceeding $10,000,000); provided, however, that if the parties
reasonably and in good faith disagree as to the amount of damages Purchaser
would suffer on account of such Material Misrepresentations and Changed
Circumstances, the amount of damages on account thereof as reasonably in good
faith determined by Purchaser shall be deposited
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with Seller at the Closing and the amount of such damages, if any, shall be
decided by binding arbitration under the Commercial Rules of the American
Arbitration Association, to be arbitrated by a single arbitrator appointed
pursuant to such rules, or (ii) terminate this Agreement by written notice given
to Seller within five (5) business days after the expiration of the cure period
or Seller's notice of election not to cure such Material Misrepresentations and
Changed Circumstances, as the case may be. In the event this Agreement is so
terminated by Purchaser, the parties hereto shall be released from all further
obligations and liabilities hereunder, and Purchaser shall be refunded any sums
deposited with Seller under this Agreement, and Seller shall pay to Purchaser
the net charges incurred by Purchaser for survey updates and for examination of
title to the Premises. Any Non-Material Misrepresentations and Changed
Circumstances shall not be waived by Purchaser and Purchaser shall be entitled
to a reduction in the Purchase Price at the Closing in an aggregate amount of
damages to Purchaser which would result, or which reasonably in good faith be
expected to result to Purchaser by reason of any Non-Material Misrepresentations
and Changed Circumstances, together with Bring-Down Damages and any uncured
claims against or obligations of Seller pursuant to Sections 12.1, 12.4 and
12.5, up to $10,000,000 in the aggregate of such damages, determined in the
manner hereinabove set forth for determining a reduction in the Purchase Price
for Material Misrepresentations and Changed Circumstances.
8.18. References in this Section 8 or elsewhere in this Agreement to
"Seller's actual knowledge" means any state of facts of which any of the
following have actual knowledge: (i) Seller's senior officers above the level of
vice president, its directors or members of its executive committee, or (ii) the
officers of Seller's Real Estate Management Department responsible for the
management of the Premises at the level of vice president and above (including
the officer responsible for day-to-day management of the Premises), or (iii)
David L. Wiener or James Muscarella.
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8.19. At Closing Seller shall provide a certificate dated as of the
Closing Date (the "Bring-Down Certificate") of an authorized officer of Seller
certifying (a) to the correctness of the warranties and representations in
Sections 8.1 through 8.5, 8.7.2(ii) and 8.13 and (b) whether and to the extent
that any of the warranties and representations in Sections 8.6, 8.7.6, 8.7.8,
8.8, 8.9 or 8.10(a) are not correct on and as of the Closing Date, and to the
extent such certificate discloses that any such warranties or representations
are not correct on and as of the Closing Date, such disclosures shall be deemed
a Misrepresentation of Seller for purposes of this Agreement, and (c) as to
whether and how, by reason of any change of circumstance occurring between the
date hereof and the Closing Date (other than a change of circumstances expressly
provided for in and permitted by this Agreement) any of the other warranties and
representations of Seller made in Article 8 are not true and correct on and as
of the Closing Date as if made on and as of the Closing Date, except that as to
Sections 8.12 and 8.15 the certificate need only refer to such changed
circumstances which would have a material adverse affect on the use and
operation of the Premises from the manner in which the Premises are presently
used and operated (such changes in such other warranties and representations set
forth in such certificate, except as to Section 8.11 [as to which the provisions
of Section 12.7 shall govern and control] and as to Sections 8.14 and 8.16 [as
to which the provisions of Section 12.5 shall govern and control] and as to any
mechanics liens referred to in Section 12.6 [as to which the provisions of
Section 12.6 shall govern and control] and as to Sections 8.7.1(i) and 8.7.3 [as
to which the provisions of Section 6.5.1 shall govern and control] are referred
to as ("Changed Circumstances")). The amount of damages to Purchaser which would
result, or could reasonably in good faith be expected to result to Purchaser by
reason of the Changed Circumstances as set forth in the Bring-Down Certificate,
when divided by two (2), are referred to as "Bring-Down Damages".
8.20. Notwithstanding anything to the contrary contained in this
Agreement, the warranties and representations of Seller set forth in this
Article 8 and in the Bring-Down Certificate shall survive the delivery of the
deed hereunder for a period of one (1) year after the Closing Date (except (i)
for those warranties and representations in Section 8.6, which shall survive the
Closing without any time limitation, and (ii) as may be otherwise limited by
Section 8.22 hereof).
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8.21. Any statement made by Seller in a certificate by Seller
delivered at the Closing pursuant to Section 4.1.7 shall be deemed for purposes
of this Article 8 to be a separate representation and warranty of Seller
hereunder made pursuant to this Article 8, which shall survive the delivery of
the deed hereunder for a period of one (1) year after the Closing Date except
(a) for those statements in paragraphs 1, 2, 7, 9(a), (c), (d) and (h) of such
certificate which shall survive the Closing without any time limitation, and (b)
as may be otherwise limited by Section 8.22 hereof.
8.22. Notwithstanding anything to the contrary contained in this
Section 8 or in any indemnity to be made by Seller in any of the Seller's
Documents, if any such warranty, representation or indemnity of Seller shall
relate to a matter as to which a tenant is estopped pursuant to the provisions
of any tenant estoppel certificate signed by said tenant, said warranty,
representation and indemnity of Seller to the extent thereof shall not survive
the Closing and the delivery of the deed hereunder; provided however, that
nothing contained in the foregoing provision of this sentence shall be construed
or interpreted as limiting, restricting, affecting or extinguishing Seller's
representation and warranty set forth in the first, second and third sentences
of Section 8.6 hereof respecting the accuracy and completeness of the content
and substance (i.e. the terms, provisions, covenants and conditions) of the
instruments, documents and/or other writings comprising each of the Space Leases
and the Bankers Lease, which representation and warranty made by Seller in the
first, second and third sentences of Section 8.6 hereof shall survive the
Closing and delivery of the deed hereunder without limitation in time. It is
further understood and agreed for the purposes of the previous sentence, that
the provisions of Sections 8.7.1, 8.7.3 and 8.7.6 are each not a matter as to
which a tenant is estopped pursuant to such Estoppel Certificate. Furthermore,
except as set forth in Section 8.17, Seller shall have no liability in
connection with this Agreement by reason of an inaccuracy of a representation or
warranty, if and to the extent that such inaccuracy is in fact disclosed in a
notice by Seller to Purchaser, at or prior to the Closing and Purchaser elects,
nevertheless, to close title hereunder.
8.23. For the purpose of this Section 8, "survive delivery of the
deed hereunder for a period of one (1) year after the Closing Date" shall mean
and require that Purchaser shall commence a lawsuit against Seller on the basis
of such representation or warranty in a court of competent jurisdiction within
one (1) year
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from the Closing Date.
9. No Other Representations
9.1.1. Purchaser affirms that, except as expressly provided
for in this Agreement, Seller has not made nor has Purchaser relied upon any
representation, warranty or promise with respect to the subject matter of this
Agreement, including, without limitation, any warranties or representations,
express or implied, as to (a) the value, use, tax status or physical condition
of the Premises, equipment or property, or any part hereof, repairs thereto,
income therefrom, expenses of maintenance or operation thereof, or as to the
accuracy of the survey or plans thereof, (b) the adequacy of any plans,
specifications or site plans for the Premises or their compliance with law, (c)
any leases or tenancies of any part of the Premises, or rental controls or
regulations affecting the Premises, (d) the potential qualification of the
Premises for any and all benefits conferred by federal, state or municipal laws,
whether for subsidies, special real estate tax treatment, insurance, mortgages,
or any other benefits, whether similar or dissimilar to those enumerated, (e)
the availability of any financing for the purchase, alteration or operation of
the Premises from any source, including but not limited to State, City or
Federal government or any institutional lender, (f) the applicability or effect
of or compliance with any building, subdivision, land sales, securities,
ecology, environmental protection and like laws, ordinances, rules and
regulations of governmental authorities, including those of any and all
regulatory agencies and administrative officials having or asserting
jurisdiction over the Premises, (g) habitability, merchantability or fitness for
a particular purpose, (h) title, (i) latent or patent physical or environmental
conditions, (j) valuation, or (k) any other matter or thing relating to the
Premises.
9.1.2. Purchaser has had an opportunity to investigate the
Premises and the books and records pertaining to the Premises and such other
matters it has deemed necessary or appropriate. Without limiting the generality
of the foregoing, Purchaser has examined the Premises and agrees to accept them
"as is" and in their present condition, subject to reasonable wear and tear
prior to the Closing and subject to those matters herein specified, including,
without limitation, Purchaser's reliance upon the survivability pursuant to the
provisions of this Agreement of Seller's representations and warranties
expressly made as of the date of this Agreement and to be remade on the Closing
Date. Purchaser represents to Seller that Purchaser has
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conducted, or will conduct prior to Closing, such investigations of the
Premises, including but not limited to, the physical and environmental
conditions thereof, as Purchaser deems necessary to satisfy itself as to the
condition of the Premises and the existence or nonexistence or curative action
to be taken with respect to any hazardous or toxic substances on or discharged
from the Premises; and without derogating or otherwise limiting Seller's
representations, warranties and covenants expressly made in this Agreement,
Purchaser will rely upon such investigations and not upon any information
(including specifically, without limitation, any offering memorandum or property
information packages distributed with respect to the Premises) provided by or on
behalf of Seller or its agents or employees with respect thereto, other than
such representations, warranties and covenants of Seller as are expressly set
forth in this Agreement. Notwithstanding the foregoing, with respect to the
claim disclosed to Purchaser pursuant to Section 8.12 as to 415 Madison Avenue,
in the event that the reasonable actual out-of-pocket cost incurred by Purchaser
to repair the damages referred to in such claim, on a one-time basis, shall
exceed $100,000, then Seller shall pay to Purchaser, within twenty (20) days
after demand therefor, accompanied by documentation reasonably supporting
Purchaser's costs, one-half (1/2) of such documented reasonable actual
out-of-pocket costs in excess of $100,000. The provisions of the previous
sentence shall survive the closing and the delivery of the deed hereunder.
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9.1.3. Upon the Closing, except as otherwise expressly
provided in this Agreement, Purchaser shall assume the risk that adverse
matters, including but not limited to, construction defects and adverse physical
and environmental conditions, may not have been revealed by Purchaser's
investigations, and Purchaser, upon Closing, shall, except as otherwise
expressly provided in this Agreement, be deemed to have waived, relinquished and
released Seller (and Seller's officers, directors, and employees) from and
against any and all claims, demands, causes of action (including causes of
action in tort), losses, damages, liabilities, costs and expenses (including
attorneys' fees and court costs) of any and every kind or character, known or
unknown, which Purchaser might have asserted or alleged against Seller (and
Seller's officers, directors, and employees) at any time by reason of or arising
out of any latent or patent construction defects or physical conditions,
violations of any applicable laws (including, without limitation, any
environmental laws) and any and all other acts, omissions, events, circumstances
or matters regarding the Premises other than for the fraudulent misconduct of
Seller, its officers, directors and employees. Purchaser agrees that should any
cleanup, remediation or removal of hazardous substances or other environmental
conditions on the Premises be required after the date of Closing, such cleanup,
removal or remediation shall be the responsibility of and shall be performed at
the sole cost and expense of Purchaser. Notwithstanding the foregoing
provisions, nothing set forth in this Section 9.1.3 shall be interpreted or
construed as limiting, restricting, extinguishing or otherwise affecting
Seller's representations and warranties made in this Agreement or the
survivability thereof for the time limitation herein provided.
9.1.4. Except as otherwise provided in this Agreement, no
representations, warranties, covenants or other obligations of Seller set forth
in this Agreement shall survive the delivery of the deed or the Closing of title
hereunder, and, except as to representations and warranties which survive the
Closing, no action based thereon shall be commenced after the Closing. In any
event, the acceptance by Purchaser of a deed conveying the Premises shall
constitute an acknowledgment by Purchaser that all obligations of Seller in
respect of the Premises or otherwise set forth in this Agreement and required to
be performed as of the Closing Date have been discharged in full; and upon such
acceptance, Seller shall be released from any and all such obligations by reason
of this Agreement, except only such obligations, if any, as are pursuant to the
express provisions of this Agreement to survive the delivery of
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the deed or the Closing of title hereunder.
9.2. The Seller is not liable or bound in any manner by any verbal
or written statements, representations, real estate broker's "set-ups" or
information pertaining to the Premises furnished by any real estate broker or
other person, unless the same are specifically set forth herein.
9.3. Seller's existing insurance policies covering the Premises are
blanket policies. Purchaser acknowledges that such policies are not to be
assigned to Purchaser hereunder.
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9.4. Seller makes no warranty or representation as to the validity
or enforceability of the Space Leases, as to any tenant's compliance or
non-compliance with the terms thereof, or as to the terms of any occupancy
thereunder, except as set forth in Sections 8.6 and 8.7 hereof.
10. Space Leases
10.1. After the date of this Agreement, Seller shall not, without
Purchaser's prior written consent in each instance, which consent shall not be
unreasonably withheld or delayed and shall be given or denied, with the reasons
for such denial, within the applicable period specified in Section 10.2 hereof,
(a) enter into a new lease for space in the Premises which is presently vacant
or which may become vacant, or extend or renew any now existing Space Lease,
except pursuant to the exercise by a tenant of a right or option to enter into a
new lease, extend, renew or lease, or right of first offer or similar right
contained in such tenant's existing Space Lease (a "New Lease") or (b) consent
to an assignment or subletting as to any Space Lease as to which Seller's
consent is required and for which the conditions for Seller not to unreasonably
withhold consent have not been satisfied (the "Assignment or Subletting").
Seller shall furnish Purchaser with all information in Seller's possession or
required to be delivered to Seller under the applicable Space Lease or New Lease
regarding such proposed New Lease or Assignment or Subletting, reasonably
necessary to enable Purchaser to make informed decisions including in respect of
a "New Lease" the form of "New Lease" being proposed for execution.
Notwithstanding anything to the contrary contained in the previous provisions of
this Section, Purchaser hereby approves of (a) the terms of the proposed "New
Leases" set forth and described in Exhibit H annexed hereto, if any, so that any
such New Lease which Seller desires to enter into in accordance with the
provisions of this sentence shall not require Purchaser's prior written consent
as to the financial and other terms set forth and described in Exhibit H, but
Purchaser's consent shall be required as to the form of the New Lease being
proposed for execution prior to its execution and delivery by the tenant and
Seller, in its capacity as landlord thereunder. Seller shall deliver to
Purchaser a true and complete copy of each such New Lease or Assignment or
Subletting, if any, promptly after the execution and delivery thereof.
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10.1.1. Seller shall keep accurate records of all of the
following types of expenses (collectively, "Expenses") incurred or payable by
Seller in connection with any New Lease: (a) brokerage commissions and fees to
effect such leasing transaction, (b) expenses incurred for demolition, asbestos
abatement, repairs, improvements, equipment, painting, decorating, partitioning
and other items to satisfy the tenant's requirements with regard to such leasing
transactions, (c) reimbursements to the tenant for the cost of any of the items
described in the preceding clause (b), (d) legal fees for services in connection
with the preparation of documents and other services rendered in connection with
the effectuation of the leasing transaction, (e) without duplication of the
foregoing, the obligations to reimburse the tenant for its initial tenant
installations or improvements and (f) expenses incurred for the purpose of
satisfying or terminating the obligations of a tenant under a New Lease to a
landlord under another lease (whether or not such other lease covers space in
the Premises). If, prior to the Closing, Seller shall have entered into a New
Lease in accordance with the provisions of Section 10.1 above, at the Closing,
(x) Purchaser shall reimburse Seller in the amount of all Expenses theretofore
paid for or incurred by Seller, and (y) Seller shall credit Purchaser in the
amount of any Rents or Additional Rents, including prepaid Rents, and Security
Deposits, received by Seller under the New Lease in excess of a per diem amount
for each day of the term of the New Lease through the day prior to the Closing
based upon Eighteen Dollars ($18.00) per annum per rentable square foot of the
New Lease. Seller shall make available to Purchaser all records, bills, vouchers
and other data in such Seller's control verifying such Expenses and the payment
thereof.
10.1.2. Nothing herein shall be deemed to create any
obligation on Seller's part to enter into any "New Lease" for space which is
presently vacant or which may become vacant.
10.2. With respect to any matter to be submitted to Purchaser for
its consent pursuant to Sections 10.1, 10.3 or 10.4 hereof, Purchaser shall
consent or deny consent in writing within five (5) business days after receipt
by Purchaser of Seller's notice thereof. If Purchaser's denial or objection is
not given to Seller within such time period, Purchaser shall be deemed to have
granted its approval.
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10.3. The right and privilege is reserved to Seller to institute
summary proceedings against any tenant of a Space Lease for any material default
or failure to perform by any such tenant prior to the time of the Closing
provided Purchaser is given prior written notice of Seller's intent to commence
such proceedings and Purchaser has consented thereto, which consent shall not be
unreasonably withheld or delayed if Seller's rights and remedies under the Space
Lease would be prejudiced if the Closing were not to occur prior to the Closing
Date contemplated by this Agreement. It is agreed that no representations have
been made and no responsibility is assumed by Seller with respect to the
continued occupancy of the Premises, or any part or parts thereof, by any tenant
or tenants now or hereafter in possession.
10.4. Seller shall not prior to the Closing Date (a) modify in any
respect or cancel any of the Space Leases or New Leases, (b) accept a surrender
of any Space Lease or New Lease except pursuant to any right or option of tenant
to do so contained in the Space Lease or New Lease, (c) terminate any Space
Lease or New Lease except as provided in Section 10.3, or (d) extend, renew,
replace or modify any Service Contract or enter into a new Service Contract
except (x) with the Purchaser's prior written consent, which consent shall not
be unreasonably withheld or delayed or (y) in the ordinary course of business,
on a good faith, arms-length basis and in the case of a new Service Contract if
the applicable Service Contract can be terminated by the owner of the Premises
without penalty on not more than thirty (30) days' notice. Subject to the
foregoing provisions of this Section and without limiting any other provision of
this Agreement, Seller may, at any time and from time to time prior to the
Closing Date in the ordinary course of business (x) enforce (by legal process,
agreement or otherwise) or decline to enforce any existing or future Space
Lease, New Lease or Service Contract upon any breach of obligation by any party
thereto, provided that Seller shall use good faith efforts to keep Purchaser
advised with respect thereto, and subject to the provisions of Section 10.3; and
(y) otherwise operate the Premises and improvements thereon in the normal course
of business; provided, however, except as may be required by applicable law (and
as limited in Section 12.5 hereof) or by the terms and provisions of any Space
Lease or New Lease (to the extent such obligation is not assumed by Purchaser),
that Seller shall not be obligated to make any capital improvement or
replacement or to replace any Equipment depleted in the ordinary course of
Seller's operation of the Premises, and Purchaser shall not be entitled to
decline to
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consummate any transaction contemplated herein or to receive any abatement or
other damages or compensation by reason of any act or transaction hereinbefore
in this sentence described.
10.5. Seller shall use reasonable efforts (but without obligation to
incur any material cost or expense or to pursue any remedy it may have against a
tenant for its failure to comply) to obtain and deliver to Purchaser prior to
Closing, a written estoppel certificate in the form of Exhibit L attached hereto
and made a part hereof signed by each tenant occupying space at the Premises.
Seller shall furnish to Purchaser all correspondence and other written
instruments obtained from such tenants in response to such request. The signed
certificates are referred to herein as the "Estoppel Certificates".
11. Bankers Lease; Building Management Office Sublease
11.1. Prior hereto Seller executed and delivered, as landlord and
tenant, without merger, the agreement of lease (the "Initial Bankers Lease"),
covering a portion of the Premises, in the form previously delivered by Seller
to Purchaser. At the Closing, and immediately prior to delivery of the deed,
Seller shall execute as landlord and tenant, without merger of estates, an
Amended and Restated Bankers Lease in the form of Exhibit M annexed hereto and
made a part hereof (such Initial Bankers Lease and Amended and Restated Bankers
Lease, collectively, the "Bankers Lease"). At the Closing Seller, as landlord,
shall assign to Purchaser and Purchaser shall assume, pursuant to the Assignment
and Assumption Agreement in the form of Exhibit K-1 the Bankers Lease. Purchaser
and Seller shall, at the request of either party, also execute, acknowledge and
deliver a memorandum of the Bankers Lease in form for recording, in the form of
Exhibit N annexed hereto. If at the Closing the fee of the Premises is or
contemporaneously with the Closing shall be subject to a mortgage under which
the Purchaser is mortgagor, which Purchaser acknowledges must be a mortgage
permitted by Article 31 of the Bankers Lease, the Purchaser shall obtain and
deliver to Seller, as tenant under the Bankers Lease, a subordination,
non-disturbance and attornment agreement in recordable form in favor of Seller
executed and acknowledged by said mortgagee which shall at the Closing be
executed by Purchaser as landlord under the Bankers Lease, and Seller, as tenant
under the Bankers Lease, in the form of Exhibit T attached hereto.
11.2. Seller represents and agrees that, with respect to the Bankers
Lease, it will at the Closing
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execute and deliver to Purchaser its certificate affirming that, as of the
Closing Date, the representations contained in the first three sentences of
Section 8.6 shall be true and correct as to the Bankers Lease, that Seller, in
its capacity as tenant under the Bankers Lease, has accepted possession of the
Demised Premises thereunder, that the Bankers Lease is in full force and effect
and no rent under the Bankers Lease has been prepaid -for more than one (1)
month in advance of its due date. Such representations shall survive the Closing
without time limitation. The assignment of the Bankers Lease to Purchaser shall
constitute Seller's agreement, warranty and representation to Purchaser (which
shall survive the Closing and the delivery of such Bankers Lease assignment
without limitation in time) that, if and to the extent that, prior to the
Closing and assignment to Purchaser of the Bankers Lease, Seller, in its
capacity as both landlord and tenant under the Bankers Lease, would have had the
right to assert the existence of any of the matters to which reference is made
in the succeeding clauses (i), (ii) and (iii) of this sentence, Seller does
hereby waive any right to assert that there exists as of the Closing Date, any
(i) defaults, defenses, counterclaims, set-offs, or offsets against the Rents
and Additional Rents reserved under the Bankers Lease, or (ii) any default or
event which, with the giving of notice or lapse of time, or both, would
constitute an event of default by landlord under the Bankers Lease, including,
without limitation, landlord defaults for which the tenant under the Bankers
Lease may exercise remedies of self-help or terminate the Bankers Lease, or
(iii) or any default or event which, with the giving of notice or lapse of time,
or both, would constitute an event of default by tenant under the Bankers Lease;
provided that all obligations of the landlord under the Bankers Lease shall be
performed and observed by Purchaser as landlord from and after the Closing, as
provided in the Bankers Lease and the Assignment and Assumption Agreement to be
executed and delivered at Closing in the form annexed hereto as Exhibit K-1, and
tenant under the Bankers Lease shall not be estopped or prevented hereby or
thereby from asserting or enforcing any rights or remedies of tenant under the
Bankers Lease as to such prospective obligations of landlord to be performed and
observed by Landlord under the Bankers Lease from and after the Closing Date.
11.3. At the Closing, and immediately after the execution and
delivery of the deed, Seller shall execute, as sublandlord, and Purchaser shall
execute, as subtenant, a sublease of the Building Management Office, in this
Agreement called the "Building Management Office Sublease", in the form of
Exhibit O annexed hereto.
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12. Closing Objections
12.1. If Seller shall be unable to convey to Purchaser title to the
Premises or to deliver possession of the Premises in accordance with the
provisions of this Agreement, or otherwise comply with the provisions of this
Agreement, unless created or caused by any act or omission of Purchaser, Seller
shall use reasonable efforts to remove any defects in title or to deliver
possession as provided herein or otherwise comply with the provisions of this
Agreement and the Closing Date shall be extended for a period of up to ninety
(90) days in order to do so; provided, however, that Seller shall not be
required to expend or incur obligations in excess of $10,000,000 in the
aggregate (inclusive of any sums expended or obligations incurred pursuant to
Section 8.17, Section 12.4 and Section 12.5 hereof) provided, however, that this
limit shall not apply to the removal of mortgages securing the payment of money
or encumbrances voluntarily created by Seller after the date hereof, as to which
there shall be no monetary limit. If at the time of Closing (either as
originally established under this Agreement or as extended), Seller remains
unable to convey title or deliver possession of the Premises or otherwise comply
with the provisions of this Agreement, all as herein agreed and subject to the
terms hereof, Purchaser shall have the option exercisable within five (5)
business days after the expiration of such extended period of either (a)
accepting the Premises with such title or in such condition as Seller can
deliver and paying therefor the Purchase Price and all other amounts, if any,
owed pursuant to this Agreement without abatement or deduction, except as
otherwise provided in Section 8.17 hereof, or (b) by delivery of written notice
to Seller terminating this Agreement. Upon such termination, the deposit and all
interest accrued thereon shall be promptly refunded by Seller to Purchaser, and
there shall be paid by Seller to Purchaser such survey costs and title
examination charges as have been incurred by Purchaser, whereupon, upon such
payments being made by Seller, all rights, duties and obligations of Seller and
Purchaser under this Agreement shall terminate without recourse and this
Agreement shall become null and void. The existence of any of the conditions to
which Purchaser agrees to take subject or as to which Purchaser agrees it shall
not raise an objection under this Agreement shall not be deemed or construed to
render Seller's title unmarketable or not in compliance with this Agreement,
Purchaser shall not have the right to refuse to take title by reason thereof,
and the Purchase Price shall not in any respect be reduced nor shall Purchaser
be entitled to damages by reason thereof (except as provided in Section 8.17).
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12.2. The Premises shall be sold and are to be conveyed subject to
the following matters, none of which shall be objections to title:
(a) Any state of facts which a current and accurate
survey of the Premises might disclose, provided that such facts confirm the
state of facts shown on the Lovell-S.P. Belcher survey referred to in the next
sentence and the existence of any additional facts disclosed by such survey do
not render the title to the Premises unmarketable. Seller has furnished to
Purchaser a copy of a survey of the Premises made by Earl B. Lovell - S.P.
Belcher, Inc. originally dated November 14, 1962 and redated May 27, 1997 and
Purchaser has caused Seller's survey to be remade or redated as of July 24,
1997. For the purposes of this Agreement, none of the facts shown on such survey
shall be deemed to render title unmarketable, and Purchaser shall accept title
subject thereto.
(b) Zoning regulations and ordinances and all variances
issued thereunder and building restrictions and regulations affecting the
Premises on the date of delivery of the deed hereunder.
(c) Consents by Seller or by any former owner of the
Premises for the erection of any structure or structures, on, under or above any
street or streets on which the Premises may abut provided such location of any
structure or structures does not render title to the Premises unmarketable.
(d) The right of governmental or municipal authorities
to revoke licenses for or to require the removal of any vaults which may be
beyond the building lines or under sidewalks.
(e) Rights and easements, if any, relating to the
construction and maintenance, in connection with any telephone company or public
utility, of wires, poles, pipes, conduits and appurtenances thereto, on, in,
under or across the Premises, provided such rights and easements do not
materially and adversely affect the continued maintenance, use or operation of
the Premises as currently maintained, used and operated.
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(f) Covenants, restrictions, easements, agreements,
rights-of-way and encroachments (i) relating solely to the "Retained Space" or
"Retained Property" as referred to in item 3 of Exhibit B, which do not in any
way affect or impair the rights of Purchaser or increase the costs to Purchaser,
in respect of the exercise by Purchaser of its rights and easements in the
"Retained Space" or "Retained Property", and which has no affect or impact upon
the "Conveyed Property" as referred to in item 3 of Exhibit B, and as to which
either Chicago Title Insurance Company or Purchaser's title company is willing
in writing to affirmatively insure Purchaser to such effect in Purchaser's title
insurance policy, and (ii) as are set forth and described in Exhibit B. For
purposes of this Agreement, the covenants, restrictions, easements, agreements,
rights of way and encroachments set forth and described in Exhibit B attached
hereto and made a part hereof shall be deemed not to be title objections and
Purchaser shall accept title subject thereto.
(g) Unpaid liens not yet due and payable for taxes,
business improvement district charges, electric generator tax, public assembly
charges, water charges and sewer rents, subject, however, to apportionment
thereof, as herein provided.
(h) Any and all assessments becoming liens subsequent to
the date hereof subject, however, to apportionment as herein provided.
(i) All building, subdivision, land sales, securities,
ecology, environmental protection and like laws, ordinances, rules and
regulations of governmental authorities affecting the Premises, including those
of any and all regulatory agencies and administrative officials having or
asserting jurisdiction over the Premises.
(j) The Space Leases and New Leases and all subleases
and subtenancies by, through or under the Space Leases or New Leases.
(k) The Bankers Lease.
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(l) The standard exceptions as are found in an ALTA
Owner's Policy of Title Insurance modified so as to exclude from exceptions to
coverage (1) taxes, tax liens, tax sale, water rates, sewer and assessments due
and payable on the Closing Date, (2) mechanics' and materialmen's liens other
than those referred to in (m) below, (3) the general survey exception, and (4)
rights of tenants or persons in possession, other than as tenants only.
(m) Subject to the provisions of Section 12.6, financing
statements, chattel mortgages, notices of mechanic's liens or other evidences of
lien filed against the Premises in respect of property owned by or work, labor
or services performed for or furnished to tenants or subtenants under any Space
Leases or New Lease.
12.3. Seller shall convey and Purchaser shall accept marketable fee
simple title, subject only to the matters set forth as title exceptions in this
Agreement. Purchaser shall accept a title insuring that, in the case of
encroachments not herein mentioned but shown on the survey of the Premises, the
building or the portions thereof which encroach may remain undisturbed so long
as the building stands; and unless omitted in Purchaser's title insurance
policy, in the case of judgments or mechanics liens disclosed by the Title
Report, that Chicago Title Insurance Company or the Purchaser's title insurance
company is willing in writing to affirmatively insure that collection will not
be enforced against the Premises.
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12.4. Purchaser has reviewed the examination of the title to the
Premises made by Chicago Title Insurance Company dated June 25, 1997 as amended
through August 15, 1997 Title No. 9701-00151 (the "Title Report"). Subject to
the succeeding provisions of this sentence, Purchaser is satisfied with Schedule
B to the Title Report and none of the matters shown on or reflected in said
Schedule B shall constitute an objection to title hereunder provided that, at or
prior to the Closing, (y) exceptions lettered A, B, C and D to Schedule B-1
thereof shall be modified consistent with the provisions of Section 12.2(l)
hereof and (z) exceptions numbered 11, 13, 15, 16, 17, 18, 19, 20, 21, 23, 25
and 26 shall be omitted such that the same will not appear as Schedule B
exceptions to title in the ALTA Owner's Policy of Title Insurance to be obtained
by Purchaser at the Closing (or in the case of number 15 and 18 that Chicago
Title Insurance Company or the Purchaser's title insurance company is willing in
writing to affirmatively insure that collection will not be enforced against the
Premises). If any changes shall occur in the Title Report, Purchaser shall
within five (5) business days after being apprised thereof deliver to Seller and
its attorneys a written notice listing any objections (excluding objections to
title which have been waived by Purchaser hereinabove or which are created or
caused by any act or omission of Purchaser). If Purchaser shall fail to timely
give such notice, it shall be deemed that Purchaser had no objection thereto.
With respect to any objections to title set forth in such notice, Seller shall
have the same rights and obligations to cure and Purchaser shall have the same
option to accept title subject to such matters or to terminate this Agreement as
hereinabove provided in Section 12.1 hereof, which provisions shall be
applicable to and govern the rights of the parties hereto with respect to
changes (other than those referred to in clauses (y) and (z) of the second
sentence of this Section 12.4) occurring in the Title Report after the date of
this Agreement, provided, however, if Seller shall have no obligation to cure
such title defect pursuant to Section 12.1 and notifies Purchaser that Seller
does not intend to cure same, Purchaser may, as its sole and exclusive remedy,
within five (5) business days after receipt of Seller's notice, elect to accept
the Premises or terminate this Agreement in accordance with paragraphs (a) or
(b) of Section 12.1.
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12.5. Except as hereinafter provided in this Section 12.5., (a) all
notes or notices of violations of law or governmental ordinances, orders or
requirements which were noted or issued by any governmental department, agency
or bureau having jurisdiction as to conditions affecting the Premises and (b)
all liens against the Premises pursuant to the Administrative Code of the City
of New York (hereinafter in this Section 12.5, "liens"), and (c) all notices
from insurers or governmental boards, agencies or authorities referred to in
Sections 8.14 and 8.16 ("insurance or environmental claims") if applicable,
shall be removed or complied with by Seller if such violations or liens or
insurance or environmental claims were noted or issued, or attached to the
Premises or were received by Seller (x) prior to the date hereof or (y) after
the date hereof and prior to the Closing which materially impact the continuous
operation of the Premises in the manner in which it has been operated and could
not be remedied prior to a date when under the terms of the Space Leases and the
Bankers Lease the tenants under such leases are entitled to abatements or
termination by reason thereof. Seller shall adjourn the Closing for up to sixty
(60) days for such purpose (subject, however, to the provisions of Section
12.5.1 hereof). If such removal or compliance has not been completed prior to
the Closing, Seller shall indemnify Purchaser at the Closing by agreement
reasonably satisfactory to Seller and Purchaser for the reasonably estimated
unpaid cost to effect or complete such removal or compliance of any such
violations or liens or insurance or environmental claims which Seller is
obligated to remove or comply with pursuant to the provisions of Section 12.5(x)
plus one-half (1/2) of the reasonably estimated aggregate cost to remove or
comply with any such violations or liens or insurance or environmental claims
which Seller is obligated to remove or comply with pursuant to the provisions of
Section 12.5(y) above, and Purchaser shall be required to accept title to the
Premises subject thereto. Notwithstanding anything to the contrary hereinabove
contained:
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12.5.1. If the reasonably estimated aggregate cost to remove
or comply with any such violations or liens or insurance or environmental claims
which Seller is required to remove or comply with pursuant to the provisions of
Section 12.5 (x) above plus one-half (1/2) of the reasonably estimated aggregate
cost to remove or comply with any such violations or liens or insurance or
environmental claims which Seller is obligated to remove or comply with pursuant
to the provisions of Section 12.5(y) above shall exceed $10,000,000 in the
aggregate (inclusive of any sums expended or obligations incurred pursuant to
Section 8.17, Section 12.1 and Section 12.4 hereof), Seller shall have the right
to cancel this Agreement, in which event the sole liability of Seller shall be
as set forth in Section 12.1 and this Agreement shall be terminated and be of no
further force or effect, unless Purchaser within five (5) business days after
receipt of notice of the exercise by Seller of its option to cancel this
Agreement elects by written notice given to Seller to accept title to the
Premises subject to all such violations, liens and insurance or environmental
claims, in which event Purchaser shall be entitled to a credit of an amount up
to $10,000,000 in the aggregate (inclusive of any credit provided to Purchaser
pursuant to Sections 8.17, 12.1 or 12.4 hereof) against the Purchase Price
payable at the Closing. For purposes of this Section 12.5, the cost to remove or
comply with any such violations or liens or insurance or environmental claims
shall be determined by a licensed general contractor selected by Seller and
reasonably satisfactory to Purchaser.
12.5.2. Regardless of whether a violation has been noted or
issued prior to the date of this Agreement, Seller shall not be obligated to
remove or comply with any violations or liens or insurance or environmental
claims which a tenant is required to remove or comply with pursuant to the terms
of its Space Lease. Purchaser shall accept the Premises subject to all such
violations or liens or insurance or environmental claims without any liability
of Seller with respect thereto or any abatement of or credit against the
Purchase Price.
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12.5.3. Purchaser agrees that all other notes or notices of
violation of law or municipal ordinances, orders or requirements or liens or
insurance or environmental claims not referred to in Sections 12.5 (x) and (y)
and 12.5.2 noted or issued by any county, city, state or federal department or
agency thereof, or any other governmental regulatory authority, shall not be
deemed objections to title, and that it will take title subject to the same, and
Seller from and after the Closing will have no responsibility or obligation in
respect of any such other violations or liens or insurance or environmental
claims affecting the Premises, whether before or at such Closing, or at any time
thereafter.
12.5.4. If required, Seller, upon written request by
Purchaser, shall promptly furnish to Purchaser written authorizations to make
any necessary searches for the purposes of determining whether notes or notices
of violations have been noted or issued with respect to the Premises or liens
have attached thereto.
12.6. Notwithstanding anything to the contrary in this Agreement
contained, if a contractor, materialman or supplier engaged directly or
indirectly by a tenant under any Space Lease shall file a mechanics lien prior
to the Closing, Seller shall have no obligation to discharge such mechanic's
lien or cause it to be omitted as an exception from title, and Purchaser may not
treat such mechanics lien as an objection to title and Purchaser shall take
title subject to same, provided, however, that if such a mechanics lien in an
amount in excess of $50,000 shall be filed and shall be a lien against the
Premises at the Closing (a) if Purchaser shall at or after the Closing elect to
obtain a surety bond to remove such mechanics lien as a lien against the
Premises, Seller shall at Closing or, thereafter within twenty (20) days after
demand by Purchaser, reimburse Purchaser for one-half (1/2) of the premium for
obtaining such bond, but Purchaser shall repay to Seller, if as and when repaid
by the tenant under the Space Lease, or otherwise, one-half (1/2) of the amount
of such premium so repaid, within twenty (20) days after Purchaser's receipt
thereof, and (b) if after Purchaser has exercised all of its rights and remedies
under the Space Lease by reason of the filing of such mechanics lien, such
rights and remedies to be exercised in good faith and with all due diligence,
including, without limitation, seeking to obtain a judgment awarding damages
(provided that Purchaser may but shall not be obligated to evict the tenant or
terminate its Space Lease), and seeking to collect damages from the tenant,
Purchaser has incurred actual damages by reason of the filing of such mechanics
lien (exclusive of such bonding premium, attorney's fees and disbursements),
applying any recoveries first to its claim against the tenant with respect to
the mechanics
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lien, Seller will reimburse Purchaser for one-half (1/2) of such
reasonable actual damages, but not to exceed one-half (1/2) of the principal
amount of such mechanics lien, within twenty (20) days after demand therefor
accompanied by documentation reasonably supporting Purchaser's damages. The
provisions of this Section 12.6 shall survive the Closing and the delivery of
deed.
12.7. The risk of loss or damage to the Premises by fire or other
casualty or taking by eminent domain until the delivery of the deed hereunder is
assumed by Seller. In the case of fire or other casualty or the taking of the
Premises or any part thereof by eminent domain, Seller shall promptly notify
Purchaser in writing thereof ("Seller's Notice"), and in such event the parties
agree as follows:
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12.7.1. In the event of damage or taking (a) of a material
part of the Premises (herein deemed to be any taking or damage greater than
immaterial as defined below), or (b) where such damage or taking, whether
material or immaterial, would permit (i) the tenant under the Bankers Lease to
terminate the Bankers Lease or (ii) both of the tenants under the Furman Selz
Space Lease and the National Football League Space Lease to terminate their
respective Space Leases, by reason of (y) such casualty or taking event having
occurred, without regard to the estimated time required, as a consequence of
such event, for restoration, or (z) the estimated time required for restoration
to be completed under the Bankers Lease or such Space Lease (rather than the
actual time which such work takes to complete), unless prior to Seller's
delivery to Purchaser of Seller's Notice, a tenant under the Bankers Lease or
under such Space Lease(s) has in writing waived its rights or elected not to
terminate the Bankers Lease or such Space Lease(s) (Seller's Notice to include
the facts respecting such lease to enable Purchaser to make its succeeding
election), (but any such waiver or election shall not be deemed to relieve or
release the landlord under the Bankers Lease or such Space Lease from
performance of any obligations to repair, restore, replace and/or rebuild
pursuant to the provisions of the Bankers Lease or such Space Lease), then,
Purchaser shall have the option, exercisable within ten (10) business days after
receipt of Seller's Notice, either to (a) declare this Agreement null and void
(in which event Seller shall refund Purchaser's downpayment, and neither party
shall have any further right or obligation to or against the other) or (b) to
accept the Premises in the condition in which they are left following such
damage or taking, with an abatement of the Purchase Price measured by the
proceeds of any insurance or condemnation award collected in excess of the
amounts, if any, expended by Seller for the repair or replacement of such damage
or taking, and in any case in which the proceeds (or award) have not been
collected by Seller at the time of Closing, an assignment by Seller of all
rights to the collection of any such net proceeds or award shall be in full
satisfaction and discharge of Seller's obligation with respect to the matters
referred to in this Section and Purchaser shall accept the Premises without
abatement of the Purchase Price.
12.7.2. In the event of damage or taking of an immaterial part
of the Premises this Agreement shall remain in full force and effect with an
abatement of the Purchase Price measured by the proceeds of any insurance or
condemnation award collected, in excess of the amounts, if any, expended by
Seller for the repair or
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replacement of such damage or taking, and in any case in which the proceeds (or
award) have not been collected by Seller at the time of Closing, an assignment
by Seller of all rights to the collection of any such net proceeds or award
shall be in full satisfaction and discharge of Seller's obligations with respect
to the matters referred to in this Section and Purchaser shall accept the
Premises without abatement of the Purchase Price.
12.7.3. An immaterial part of the Premises shall have been
deemed to have been taken or damaged if the cost of repair or replacement in the
case of fire or casualty or the value in the case of eminent domain, as the case
may be, shall be $10,000,000.00 or less (as determined by an insurance adjustor
selected by Seller and reasonably satisfactory to Purchaser).
12.7.4. In the event of fire or other casualty, Seller will in
good faith, but (so long as this Agreement shall be in full force and effect)
subject to Purchaser's approval not to be unreasonably withheld, adjust the loss
with the insurance carriers. As soon as the loss has been adjusted to the
satisfaction of Seller, but (so long as this Agreement shall be in full force
and effect) subject to Purchaser's approval not to be unreasonably withheld,
Seller shall, if this Agreement has not been declared null and void, at
Purchaser's request (but Seller prior thereto without Purchaser's approval may
but shall have no obligation) commence the repair of the damage.
12.8. In the event prior to the Closing Purchaser should default (or
any of its representations under this Agreement shall prove to be untrue in any
material respect) and such default or misrepresentation is not cured or remedied
within twenty (20) days after receipt of notice thereof given by Seller to
Purchaser, Seller as its sole and exclusive remedy at law or in equity shall
only have the right to terminate this Agreement and retain the downpayment as
liquidated damages. The parties hereto agree that the damages that Seller will
sustain as a result of any default or breach by Purchaser will be substantial
but will be difficult if not impossible to ascertain and therefore the parties
agree that in such event, Seller may keep the downpayment hereunder as and for
its liquidated damages and neither party shall have any further claim against
the other.
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12.9. Subject to the provisions of Section 8.17, in the event prior
to Closing Seller should default (or any of its representations under this
Agreement shall prove to be Material Misrepresentations) and such default or
Material Misrepresentation is not cured or remedied within twenty (20) days
after receipt of notice thereof given by Purchaser to Seller or such greater
extended period as is expressly provided for in this Agreement, then Purchaser's
sole remedy shall be either (a) to terminate this Agreement and receive the
return of the downpayment and all interest accrued thereon, and Seller shall pay
to Purchaser such survey costs and the charges for examination of title as has
been incurred by Purchaser, which return shall operate to terminate this
Agreement and release Seller from any and all liability hereunder or (b) to
enforce specific performance of Seller's obligation hereunder, and Purchaser
agrees that Purchaser shall not and hereby waives any right to seek damages
against Seller.
13. Costs and Expenses.
13.1. Seller shall pay all documentary stamps, deed recordation
taxes and all transfer taxes, if any, on the sale, provided for herein, except
as otherwise provided in Section 4.1.16. Purchaser shall pay all title insurance
premiums and recording and filing fees of whatever kind or nature, and the cost
of any survey except as otherwise provided herein, and all costs and expenses
relating to Purchaser's due diligence inspections. All other costs and expenses
incident to this transaction and the closing thereof shall be paid by the party
incurring same, including, without limitation, its own attorneys' fees.
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14. Brokerage
Purchaser represents and warrants that it has not dealt with any
other broker, finder or advisor other than Insigna/Edward S. Gordon Co., Inc.,
which acted as broker herein, and BT Securities Corporation which acted as
advisor herein, (collectively, the "Broker and Advisor") in connection with this
transaction. Each party hereto represents to the other that it has not dealt
with any broker, finder or advisor in connection with this Agreement and the
transactions contemplated hereby, other than the Broker and Advisor. Purchaser
and Seller agree to indemnify and hold the other free and harmless from all
losses, damages, costs and expenses (including attorneys' fees) that the other
may suffer as a result of claims made or suits brought by any broker, finder or
advisor other than the Broker and Advisor who shall claim to have introduced the
indemnifying party to this transaction or who shall claim to have dealt with or
had discussions with the indemnifying party with respect to this transaction.
Seller shall pay the commission or other compensation of the Broker and Advisor
pursuant to separate agreements with Seller. The provisions of this Section 14
shall survive the delivery of the deed hereunder or, if the Closing does not
occur, notwithstanding anything to the contrary contained in this Agreement, the
termination of this Agreement.
15. Notices
15.1. Any notice pursuant to this Agreement shall be given in
writing by (a) personal delivery, or (b) reputable national overnight delivery
service with proof of delivery, or (c) United States Mail, postage prepaid,
registered or certified mail, return receipt requested, or (d) legible facsimile
transmission sent to the intended addressee at the address set forth below, or
to such address or to the attention of such other person as the addressee shall
have designated by written notice sent in accordance herewith, and shall be
deemed to have been given upon receipt or refusal to accept delivery, or, in the
case of facsimile transmission, as of the date of the transmission provided that
an original of such facsimile is also sent to the intended addressee by means
described in clauses (a), (b) or (c) above. Unless changed in accordance with
the preceding sentence, the addresses for notice given pursuant to this
Agreement shall be as follows:
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If to Seller:
Bankers Trust Company
Real Estate Management Department
130 Liberty Street, Mail Stop 2221
New York, New York 10006
Attention: Bruce Bloch,
Vice President
Telecopier: (212) 250-8664
with a copy to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard E. Strauss, Esq.
Telecopier: (212) 554-7700
If to Purchaser or the Company:
Boston Properties, Inc.
8 Arlington Street
Boston, Massachusetts 02116
Attention: Edward H. Linde, President
Telecopier: (617) 536-4233
with a copy to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Peter Van, Esq.
Telecopier: 617-951-8736
and an additional copy to:
Boston Properties Limited Partnership
c/o Boston Properties, Inc.
599 Lexington Avenue, Suite 3700
New York, New York 10022
Attention: Senior Vice President
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Telecopier: (212) 326-4050
16. Time of the Essence
It is understood and agreed, any rule or law of equity to the
contrary notwithstanding, that time is of the essence of each and every
provision of this Agreement, whether or not so stated therein (except as to any
rights to adjourn the Closing Date as set forth in Sections 8.17 and 12.1
herein), except that Seller and Purchaser may each adjourn the Closing once to a
subsequent date for any reason or no reason, so long as the adjournment of
Seller or Purchaser does not exceed four (4) business days, and the adjourned
date shall also be a time of the essence date.
17. Further Assurances
17.1. Each of the parties hereby agrees to execute, acknowledge (if
necessary) and deliver such other documents or instruments not inconsistent with
the provisions of this Agreement as the other may reasonably require from time
to time after the Closing to carry out the intents and purposes of this
Agreement. The party making the request agrees to pay all reasonable costs
associated therewith. This provision shall survive delivery of the deed.
18. Access to Records
18.1. The Seller agrees to make available for Purchaser's
examination and duplication at Seller's offices from time to time during regular
business hours, promptly after the date hereof and for ninety (90) days
subsequent to Closing, all records, statements and accounts bearing on or
relating to (a) Rents and Additional Rents under the Space Leases and the
collection or payment thereof and (b) the ownership, operation, leasing,
management and construction of the Premises and expenditures made in connection
therewith; provided, however, Purchaser shall give Seller reasonable advance
notice thereof and shall conduct such examination in an manner so as not to
interfere with the conduct of Seller's business.
18.2. If any portion or the whole of the information above referred
to in this Section 18 is maintained by a third party, the applicable party
hereto shall direct such third party to make available to the other party hereto
the information at such third party's office in New York City, for the purpose
of reviewing and/or duplicating such information.
18.3. The provisions of this Article 18
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shall survive the Closing and delivery of the deed.
19. Successors and Assigns
19.1. This Agreement shall be binding upon and inure to the benefit
of Seller and Purchaser and their respective legal representatives, designees,
successors and assigns, provided that, except as provided in the next sentence
or an assignment to an Affiliate of Seller, neither party may assign, pledge or
otherwise transfer its rights and obligations hereunder without the prior
written consent of the other party, which such party may withhold in its sole
discretion, and, without limiting either party's other rights and remedies, any
such assignment, pledge or transfer made without the prior written consent of
the other party shall be void and of no force and effect. Notwithstanding the
foregoing provisions, Seller may assign its rights and obligations under this
Agreement to an Affiliate of Seller without obtaining the prior written consent
of Purchaser, provided that (a) prompt notice thereof is given by Seller to
Purchaser of such assignment, identifying Seller's Affiliate by name and
address, and explaining the relationship by which such assignee is an Affiliate
of Seller, and (b) Bankers Trust Company shall guaranty the performance of the
obligations of such Affiliate under this Agreement and the Bankers Lease
pursuant to the provisions of a guaranty of this Agreement and the Bankers
Lease, in each case, reasonably satisfactory to Purchaser and its counsel.
Notwithstanding the foregoing, at the Closing Purchaser may collaterally assign
its rights and remedies under this Agreement which shall survive the Closing
Date to a mortgagee referred to in the last sentence of Section 11.1, to secure
the mortgage loan referred to in such sentence.
20. Gender and Number
20.1. Whenever the context so requires, references herein to the
neuter gender shall include the masculine and/or feminine gender, and the
singular number shall include the plural.
21. Applicable Law
21.1. THIS AGREEMENT IS PERFORMABLE IN THE STATE OF NEW YORK AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
SUBSTANTIVE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF SUCH STATE. SELLER
AND PURCHASER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT SITTING IN THE CITY AND STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
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AND HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING SHALL BE HEARD AND DETERMINED IN A STATE OR FEDERAL COURT SITTING IN
THE CITY AND STATE OF NEW YORK. PURCHASER AND SELLER AGREE THAT THE PROVISIONS
OF THIS SECTION 21 SHALL SURVIVE THE CLOSING OF THE TRANSACTION CONTEMPLATED BY
THIS AGREEMENT.
22. Construction
22.1. The parties acknowledge that the parties and their counsel
have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any exhibits or amendments hereto.
23. Miscellaneous
23.1. Except as provided in the last sentence of Section 19.1, the
provisions of this Agreement and of the documents to be executed and delivered
at Closing are and will be for the benefit of Seller and Purchaser only and are
not for the benefit of any third party, and accordingly, (except as aforesaid)
no third party shall have the right to enforce the provisions of this Agreement
or documents to be executed and delivered at Closing.
23.2. This Agreement and the instruments referred to herein embody
the entire agreement and understanding between the parties hereto relating to
the subject matter hereof and may not be amended, waived or discharged except by
an instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought.
23.3. Purchaser shall be entitled to and Seller shall deliver
possession of the Premises to Purchaser upon the Closing of this Agreement,
subject, however, to the Bankers Lease, the Space Leases, the New Leases and the
other matters described herein.
23.4. This Agreement shall not be binding or effective until
Purchaser and Seller have executed and delivered a counterpart of the same, each
of which shall constitute an original, but all of which taken together shall
constitute one agreement.
23.5. Neither Seller nor Purchaser shall record this Agreement or
any memorandum hereof.
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23.6. If any provision of this Agreement shall be held to be
illegal, unenforceable or inapplicable in any respect, each such holding shall
not affect the enforceability of any other provision of this Agreement under any
other circumstances.
23.7. The provisions of the confidentiality agreement dated June 4,
1997 between Seller and Purchaser and of July 22, 1997 between Seller and the
Company are hereby incorporated herein by reference and made a part hereof. All
books, records, documents or agreements of Seller inspected by or delivered to
Purchaser pursuant to this Agreement shall be subject to the provisions of such
confidentiality letter agreement. If the Closing does not occur for any reason
whatsoever, Purchaser shall return to Seller all copies of the foregoing
materials.
23.8. Seller and Purchaser shall cooperate concerning advertising
and similar publicity regarding the transaction, but this Section shall not
otherwise inhibit any such advertising or similar publicity or other disclosure
as to this transaction.
23.9. The West Building at the Premises (the "West Building") was
constructed by Sigmund Sommer in 1968. The Trust Under Article Sixth u/w/o
Sigmund Sommer (the "Trust"), as successor in interest to Sigmund Sommer, sold
the West Building to Seller on May 25, 1994. Inscribed lettering is presently on
the exterior wall of the West Building reciting the name of Sigmund Sommer as
builder (the "Inscription"). Purchaser agrees that upon the purchase of the West
Building by Purchaser or any Affiliate of Purchaser, Purchaser and/or any
Affiliate which may own the West Building shall maintain such Inscription at its
present location for so long as the West Building stands, provided such
Inscription may be replaced with a similar Inscription or plaque, in the same or
a similar location, which replacement Inscription or plaque may refer to Sigmund
Sommer as builder and which may refer to the then owner or its affiliate, as
owner. In the event that Purchaser or its Affiliate shall sell their interest in
the West Building to a person or entity not affiliated with Purchaser, Purchaser
or its Affiliate shall request that such purchaser agree to continue to maintain
the Inscription or replacement therefor as provided in the previous paragraph.
However, Purchaser or its Affiliate shall have no liability to the Trust or any
of its trustees or beneficiaries or to
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Seller in the event such purchaser shall refuse for any reason whatsoever to
continue such agreement. If such purchaser continued such agreement, neither
Purchaser, its Affiliate, such purchaser or its successors and assigns shall
have any liability to the Trust or any of its trustees or beneficiaries or
Seller if such purchaser, its successors and assigns failed to carry out its
obligations under such agreement.
23.10. There are currently two (2) tenants (the "Holdover Tenants")
occupying space on the 26th floor of the East Building (the "26th Floor Space")
pursuant to Space Leases which are license agreements, which Space Leases are
due to expire on or before September 30, 1997. In the event that one or both of
such Holdover Tenants shall remain in occupancy in the 26th Floor Space for more
than five (5) days after the Closing Date, Seller shall pay to Purchaser the sum
of $ 1,122.85 for each day that one or both of such Holdover Tenant(s) shall
occupy any part of the 26th Floor Space until September 30, 1997, whereupon
Seller shall have no further liability to Purchaser with respect to such
Holdover Tenants. This provision shall survive delivery of the deed.
23.11. The captions and headings throughout this Agreement are for
convenience and reference only and they shall in no way be held or deemed to
define, modify or alter the meaning, scope or intent of any provision of this
Agreement. Words such as "herein," "hereinafter," "hereof" and "hereunder" refer
to this Agreement as a whole and not merely to the paragraph, Section or other
subdivision in which such words appear, unless the context otherwise requires.
The singular shall include the plural, and the masculine shall include the
feminine and the neuter, and visa versa, unless the context otherwise requires.
References to "Sections" are to Sections of this Agreement, unless otherwise
specifically provided.
23.12. Except as otherwise expressly provided and without waiver of
the provisions of Section 16 hereof, no delay or omission by any party hereto to
exercise any right or power occurring upon any noncompliance or failure of
performance by the other party under the provisions of this Agreement shall
impair any such right or power or be construed to be a waiver thereof. A waiver
by any party hereto of any of the terms, covenants, conditions or agreements
hereof to be performed by the other party shall not be construed to be a waiver
of any succeeding breach thereof or of any other term, covenant, condition or
agreement herein contained.
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23.13. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and all such counterparts shall together
constitute one and the same instrument.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SELLER:
BANKERS TRUST COMPANY
By: /s/ David Wiener
-----------------------------
Taxpayer ID No.: 13-4941247
----------
PURCHASER:
BOSTON PROPERTIES LIMITED
PARTNERSHIP
By: Boston Properties, Inc.,
its general partner
By: /s/ Mort Zuckerman
------------------------
Taxpayer ID No.: 04-3372948
----------
THE COMPANY (For the Purposes of
Sections 5.1, 7.6 through 7.10,
16 and 23.7 only):
BOSTON PROPERTIES, INC.
By: /s/ Mort Zuckerman
-----------------------------
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SCHEDULE A
DEFINED TERMS
Additional Rent.................................................6.5.1
Affiliate....................................................1.4.6(c)
Assignment or Subletting.........................................10.1
bank check........................................................3.5
Bankers Lease....................................................11.1
Bankers Lease Amendment..........................................11.1
Bankers Trust Building..........................................1.4.1
Basic Additional Rent...........................................6.5.1
Basic Rent......................................................6.5.1
Bring-Down Certificate...........................................8.19
Bring-Down Damages...............................................8.19
Broker and Advisor.................................................14
Brokerage Agreements..............................................8.8
Building Management Office Sublease..............................11.2
Changed Circumstances............................................8.19
Closing.............................................................2
Closing Date........................................................2
Commissions.......................................................8.8
Company......................................................Preamble
Competitor...................................................1.4.6(a)
control......................................................1.4.6(c)
Controlling Equity Transfer..................................1.4.6(b)
deed............................................................4.1.1
Environmental Activity...........................................8.16
Equipment.......................................................1.3.5
Estoppel Certificates............................................10.5
Expenses.......................................................10.1.1
foreign person.................................................4.1.17
Future Commissions................................................8.8
Hazardous Materials..............................................8.16
Holdover Tenants................................................23.11
Indemnified Person..............................................23.10
Initial Bankers Lease............................................11.1
Initial Commissions...............................................8.8
Inscription......................................................23.9
insurance and environmental claims...............................12.5
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Landlord Contributions..........................................8.7.5
Landlord Work...................................................8.7.5
liens............................................................12.5
Material Misrepresentations and Changed Circumstances............8.17
Materiality Notice...............................................8.17
Misrepresentation................................................8.17
Non-Material Misrepresentations
and Changed Circumstances......................................8.17
New Lease........................................................10.1
New Leases.....................................................1.3.2.
Original Seller Signage......................................1.4.6(d)
Premises.....................................................Preamble
Premises Agreements............................................1.3.1.
Purchase Price....................................................3.1
Purchaser....................................................Preamble
Purchaser's Documents.............................................7.1
Rents...........................................................6.5.1
Retail Signage..................................................1.4.4
Security Deposits..............................................1.3.2.
Seller.......................................................Preamble
Seller's Documents................................................8.1
Seller's Notice..................................................12.7
Service Contracts...............................................1.3.7
Signage.........................................................1.4.4
Space Leases...................................................1.3.2.
successor....................................................1.4.6(b)
Title Report.....................................................12.4
Trust............................................................23.9
26th Floor Space.................................................23.4
West Building....................................................23.9
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<PAGE>
EXHIBITS
A. Premises.
B. Recorded Documents.
C. Space Lease Schedule.
C-1. Subleases and Subtenancies
D. Transferable Licenses and Permits
E. Transferable Warranties and Guarantees
F. Equipment.
G. Service Contracts.
H. Proposed New Leases.
I. Deed
J. Bill of Sale.
K. Assignment and Assumption of Contracts.
K-1. Assignment and Assumption of Bankers Lease.
L. Estoppel Certificate.
M. Bankers Lease.
N. Memorandum of Bankers Lease.
O. Building Management Office Sublease
P. Competitors
Q. Intentionally Omitted
R. Intentionally Omitted
S. Form of Leasing Restriction
T. Subordination, Nondisturbance and Attornment
Agreement
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
ALL that certain, plot, piece or parcel of land, situate, lying and being in the
borough of Manhattan, County of New York, City and State of New York, bounded
and described as follows:
BEGINNING at the corner formed by the intersection of the northerly line of 48th
Street with the westerly line of Park Avenue;
RUNNING THENCE northerly along the westerly line of Park Avenue, 200 feet 10
inches to the southerly line of 49th Street;
THENCE westerly along the southerly line of 49th Street, 314 feet 0 inches;
THENCE southerly parallel to the westerly line of Park Avenue, 100 feet 5 inches
to the center line of the block;
THENCE easterly along the center line of the block parallel to the southerly
line of 49th Street, 30 feet 8 inches;
THENCE southerly parallel to the westerly line of Park Avenue, 100 feet 5 inches
to the northerly line of 48th Street;
THENCE easterly along the northerly line of 48th Street, 283 feet 4 inches to
the point or place of BEGINNING.
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<PAGE>
EXHIBIT B
RECORDED DOCUMENTS
1. Covenants and Restrictions recorded in Liber 651 Cp 106, as repeated
in Liber 632 Cp 673, Liber 633 Cp 237, Liber 634 Cp 393, Liber 713
Cp 144, Liber 603 Cp 644 and Liber 1192 Cp 62, repeated in Liber 637
Cp 123, Liber 644 Cp 632, Liber 648 Cp 185, Liber 637 Cp 125.
2. License Agreement made by Metropolitan Transportation Authority, The
New York and Harlem Railroad Company, The Owasco River Railway, Inc.
and The Penn Central Corporation, as Licensors, to Bankers Trust
Company, as Licensee, dated as of December 31, 1979 and recorded on
February 1, 1980 in Reel 512 Page 1116.
3. Rights and Easements as set forth in an Indenture made between
Robert W. Blanchette, Richard C. Bond, John H. McArthur, Penn
Central Transportation Company and The Owasco River Railway, Inc.
dated as of October 24, 1978 and recorded November 17, 1978 in Reel
460 Page 1523.
4. Reservation of Rights, Interests and Easements by and between The
New York Central Railroad Company and Hotel Chatham, Inc. dated July
26, 1946 and recorded July 30, 1946 in Liber 4452 Cp 134.
(a) Memorandum of Lease made by and among American Premier
Underwriters, Inc. (f/k/a Penn Central Corporation) and The
Owasco River Railway, Inc., as Landlord, and Metropolitan
Transportation Authority, as Tenant, dated April 8, 1994 and
recorded April 14, 1994 in Reel 2080 Page 1537.
(b) Subordination, Non-disturbance and Attornment Agreement made
by and between the New York and Harlem Railroad Company, as
Ground Lessor, and Metropolitan Transportation Authority, as
Tenant, dated April 8, 1994 and recorded April 14, 1994 in
Reel 2080 Page 1833.
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<PAGE>
(c) Subordination, Non-disturbance and Attornment Agreement made
by and between The Chase Manhattan Bank of Connecticut, as
Mortgagee, and Metropolitan Transportation Authority, as
Tenant, dated April 8, 1994 and recorded April 14, 1994 in
Reel 2080 Page 1730, as amended by First Amendment dated June
5, 1995 and recorded on August 21, 1995 in Reel 2235 Page
1107.
(d) Memorandum of First Amendment of Lease made by and among
American Premier Underwriters, Inc., The Owasco River Railway,
Inc. and Metropolitan Transportation Authority dated April 8,
1994 and recorded August 21, 1995 in Reel 2235 Page 1035.
5. Terms, Covenants, Conditions and Reservations contained in deed from
The Owasco River Railway, Inc., the New York and Harlem Railroad
Company and The Penn Central Corporation, as Grantors, to Bankers
Trust Company, as Grantee, dated April 30, 1979 recorded in Reel 479
Page 1744.
6. Declaration of Restrictions Designating a Single Zoning Lot made
between The Owasco River Railway, Inc., The Penn Central
Corporation, successor in interest to The New York Central Railroad,
The New York and Harlem Railroad Company, The 51st St. Realty
Corporation, Despatch Shops, Inc., Rose Associates, Bankers Trust
Company and Sigmund Sommer dated April 30, 1979 and recorded May 2,
1979 in Reel 479 Page 1721.
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<PAGE>
280 Park Avenue
EXHIBIT C
List of Space Leases and Bankers Lease
Subtenant Register
Advance Rents
Letters of Credit
Lease Security Deposit Report
Initial Commissions
Brokerage Agreements
Tenant Defaults
Potential Tenant Claims
Landlord Contributions
<PAGE>
280 Park Avenue
EXHIBIT C
Landlord's Work
6.1. Landlord's Work shown on Exhibit F to the Furman Selz Space
Lease as to the West Building portion of the 8th Floor of the Premises.
6.2. Landlord's Work shown on Exhibit F to the Furman Selz Space
Lease as to the Middle Building portion of the 8th Floor of the Premises.
6.3. Landlord's Work on Exhibit F to the Furman Selz Space Lease as
to the construction of Building standard bathrooms on the 8th Floor of the East
Building of the Premises in accordance with NYC local laws No. 58/57 and the
Americans with Disability Act.
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<PAGE>
280 Park Avenue
EXHIBIT C
Landlord's Work to be Assumed by Purchaser
1. Landlord's Work shown on Exhibit F to the Furman Selz Space Lease
as to the West Building portion of the 8th Floor of the Premises.
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<PAGE>
280 Park Avenue
EXHIBIT D
Transferable Permits and Certificates
<PAGE>
280 Park Avenue
EXHIBIT E
Transferable Warranties and Guarantees
<PAGE>
EXHIBIT F
280 Park Avenue
East and West Building
Tools and Attic Stock
<PAGE>
Exhibit G
East and West Building
280 Park Avenue
Service Contracts
<PAGE>
EXHIBIT I
BARGAIN AND SALE DEED WITHOUT
COVENANT AGAINST GRANTOR'S ACTS
THIS INDENTURE made the day of nineteen hundred and ninety-seven
between BANKERS TRUST COMPANY, a New York banking corporation with a place of
business at 130 Liberty Street, New York, New York, 10006, party of the first
part, and BOSTON PROPERTIES LIMITED PARTNERSHIP, a limited partnership formed
under the laws of the State of Delaware, having an office at c/o Boston
Properties, Inc., 8 Arlington Street, Boston, Massachusetts 02116, party of the
second part,
WITNESSETH, that the party of the first part, in consideration of
TEN ($10.00) dollars, lawful money of the United States, paid by the party of
the second part, does hereby grant and release unto the party of the second
part, the heirs or successors and assigns of the party of the second part
forever;
ALL those certain plots, pieces or parcels of land, with the
buildings and improvements thereon erected, situate, lying and being in the
City, County and State of New York, being more particularly described in
Schedule A annexed hereto and made a part hereof (said land with the buildings
and improvements thereon, the "Premises");
TOGETHER with all and any right, title and interest, if any, of
Seller in and to any land lying in the bed of any street, road or avenue opened
or proposed, in front of or adjoining the Premises, to the center line thereof
and all strips and gores adjoining the Premises or any part thereof.
TOGETHER with the appurtenances and all the easements, estate and
rights of the party of the first part in and to the Premises.
TO HAVE AND TO HOLD the Premises unto the party of the second part,
the heirs or successors and assigns of the party of the second part forever.
SUBJECT, HOWEVER, to that certain Amended and Restated Agreement of
Lease between Bankers Trust Company, as both landlord and tenant, dated as of
the date hereof (the "Bankers Lease"), without merger, the landlord's interest
in which is to be assigned by the party of the first part to the party of the
second part immediately following execution and delivery hereof, and
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<PAGE>
a memorandum thereof is to be recorded immediately following recording of this
deed.
This conveyance has been authorized by the Board of Directors of the
party of the first part. The Premises do not constitute all or substantially all
of the assets of the party of the first part.
AND the party of the first part, in compliance with Section 13 of
the Lien Law, covenants that the party of the first part will receive the
consideration for this conveyance and will hold the right to receive such
consideration as a trust fund to be applied first for the purpose of paying the
cost of improvement and will apply the same first to the payment of the cost of
the improvement before using any part of the total of the same for any other
purpose.
The word "party" shall be construed as if it read "parties" whenever
the sense of this indenture so requires.
IN WITNESS WHEREOF, the parties hereto have duly executed this deed
the day and year first above written.
IN PRESENCE OF:
BANKERS TRUST COMPANY
By:
- -------------------------
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _______ day of __________________, 1997, before me personally
came _________________________ to me known, who, being by me duly sworn, did
depose and say that he resides at ________________________________________; that
he is the ________________________ of BANKERS TRUST COMPANY, the corporation
described in and which executed the above instrument, and that he signed his
name thereto by like order.
-----------------------------
Notary Public
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<PAGE>
SCHEDULE A
[Legal Description]
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<PAGE>
EXHIBIT J
BILL OF SALE
BANKERS TRUST COMPANY, a New York banking corporation with a place
of business at 130 Liberty Street, New York, New York 10006 ("Seller"), having
this day sold, transferred and conveyed the land and building known as 280 Park
Avenue, New York, New York (the "Premises") to BOSTON PROPERTIES LIMITED
PARTNERSHIP, a limited partnership formed under the laws of the State of
Delaware, having an office at c/o Boston Properties, Inc., 8 Arlington Street,
Boston, Massachusetts 02116, ("Purchaser"), pursuant to an agreement between
Seller and Purchaser dated _______________, 1997 (the "Agreement"), for good and
valuable consideration paid by Purchaser, the receipt of which is hereby
acknowledged, DOES HEREBY ASSIGN, SET OVER, TRANSFER AND CONVEY unto Purchaser,
all right, title and interest in, to and under the following, from and after the
date hereof:
1. All fixtures, equipment, personal property and all other property
attached to, located on or at the Premises used exclusively in connection with
the operation and maintenance of the Premises. Without limiting the generality
of the provisions of the immediately preceding sentence, such fixtures and
articles of personal property shall include those described on Exhibit "A"
annexed hereto. Notwithstanding the foregoing provisions of this paragraph,
there shall not be included in this sale and assignment any (a) fixtures,
equipment or other property which is owned or used by tenants or subtenants of
any part of the Premises, and (b) Seller in the conduct of its business or by
any of its affiliates in the conduct of their business or (c) the managing agent
of the Premises or (d) by any of the parties, other than Seller or such managing
agent, to the service contracts for the maintenance, operation, construction or
improvement of the Premises or (e) by Seller and located in the Premises
building management office.
2. All of Seller's right, title and interest, if any, in all
certificates of occupancy, boiler, burner and like transferable licenses,
approvals and permits for the use and operation of the Premises, including,
without limitation, those set forth on Exhibit "B" annexed hereto.
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<PAGE>
3. All of Seller's right, title and interest, if any, in all
transferable warranties and guarantees of manufacturers, contractors,
materialmen, mechanics or suppliers who may have furnished labor and/or
materials to the Premises, including, without limitation, those set forth on
Exhibit C attached hereto and made a part hereof; provided, however, without
limiting Purchaser's rights to fully enforce any such warranties and guaranties,
should Seller have any existing monetary claim with respect to any such warranty
or guarantee, Seller may assert such monetary claim and thereby enforce Seller's
rights under such warranty or guarantee, at Seller's cost and expense and Seller
may retain any awards, judgments or settlements arising from the assertion of
any such claim, provided that Seller shall not thereby adversely affect or
impair the rights as to future claims under such warranties and guaranties to be
assigned to Purchaser by Seller pursuant hereto.
4. All of Seller's right, title and interest, if any, in and to the
building plans and specifications and site plans in Seller's possession for the
Premises, together with all of Seller's right, title and interest, if any, in
and to all building and other governmental permits for the construction of the
Premises.
The property described herein is conveyed and transferred in "as is"
condition, without recourse to Seller and without warranties or representations
of any kind or nature whatsoever, express or implied, including, without
limitation, with respect to the physical condition of said property or Seller's
title thereto, except for any representations and warranties, if any, which
pursuant to the express provisions of the Agreement survive after the date
hereof.
To have and to hold the same unto the Purchaser, its successors and
assigns forever.
IN WITNESS WHEREOF, Seller has executed and delivered this Bill of
Sale on ________________, 1997.
BANKERS TRUST COMPANY
By: _____________________
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<PAGE>
EXHIBIT K
ASSIGNMENT AND ASSUMPTION AGREEMENT
BANKERS TRUST COMPANY, a New York banking corporation with a place
of business at 130 Liberty Street, New York, New York 10006 ("Assignor"), having
this day sold, assigned, transferred and conveyed the land and building known as
280 Park Avenue, New York, New York (the "Premises") to BOSTON PROPERTIES
LIMITED PARTNERSHIP, a Delaware limited partnership, with a place of business at
c/o Boston Properties, Inc., 8 Arlington Street, Boston, Massachusetts 02116
("Assignee"), pursuant to an agreement between Assignor and Assignee dated
_________________, 1997 (the "Agreement"), Assignor and Assignee, for good and
valuable consideration paid one to the other, the receipt of which is hereby
acknowledged, do hereby agree as follows:
1. Assignor hereby assigns, sets over, transfers and conveys unto
Assignee all right, title and interest of Assignor accruing or arising from and
after the date hereof, in, to and under the following: (a) all leases,
tenancies, subleases, subtenancies and occupancies of the Premises or any part
thereof, other than the Bankers Lease (as such term is defined in the Agreement)
(the "Space Leases"), and all guarantees thereof, if any, which Space Leases and
guarantees are listed and described in Exhibit A annexed hereto, and all rents
payable by tenants under the Space Leases, accruing or arising from and after
the date hereof, subject to the provisions of the Agreement; and (b) all
contracts or agreements related to the maintenance, operation, construction or
improvement of the Premises or for the lease of equipment or other personal
property located at the Premises, now in effect (the "Service Contracts") which
are listed and described in Exhibit B annexed hereto; and (c) the declarations,
agreements and instruments which are listed and described in Exhibit C annexed
hereto (the "Premises Agreements").
2. Assignee acknowledges receipt of a counterpart of the Space
Leases, the Service Contracts and Premises Agreements (the Space Leases, Service
Contracts and Premises Agreements, collectively, the "Agreements"), accepts the
within assignment, and does hereby assume and agree to perform each and every
burden, obligation and liability of Assignor accruing or arising under and by
virtue of the Agreements, from and after the date hereof, and agrees to accept
and take same subject to all the terms, covenants and conditions thereof,
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<PAGE>
without recourse to the Assignor and without any representation or warranty of
Assignor, express or implied, except those, if any, which pursuant to the
express provisions of the Agreement survive after the date hereof.
3. Assignee hereby agrees to indemnify Assignor and to defend and
hold Assignor harmless from and against all loss, damage and expense (including,
without limitation, reasonable counsel fees and disbursements) on account of any
obligations of or claims that may be asserted or made against Assignor under the
Agreements accruing or arising from and after the date hereof and (a) as to the
New Leases, accruing or arising from and after the date of the Agreement and (b)
as to certain Landlord Work and Landlord Contributions accruing or arising after
the Closing Date the obligation as to which or the payment of which is listed in
Exhibit C to the Agreement to be assumed by Assignee; and Assignor agrees to
indemnify Assignee and to defend and hold Assignee harmless from and against all
loss, damage and expense (including, without limitation, reasonable counsel fees
and disbursements) on account of any obligations or claims that may be asserted
or made against Assignee under the Agreements accruing or arising prior to the
date hereof other than those which, pursuant to the express provisions of the
Agreement, Assignee has agreed to pay or assume.
4. Assignee acknowledges receipt of a counterpart of those contracts
and agreements providing for the payment of brokerage commissions arising by
reason of such Space Leases and/or renewals, elections not to terminate,
extensions or options to lease additional space (the "Brokerage Agreements")
which are listed and described in Exhibit C annexed hereto, and does hereby
assume and agree to perform each and every burden, obligation and liability of
Assignor accruing or arising under and by virtue of the Brokerage Agreements,
(i) listed in Exhibit C to the Agreement as Initial Commissions (as such term is
defined in the Agreement) to be assumed by Assignee, (ii) due from and after the
date of the Agreement as to Future Commissions (as such term is defined in the
Agreement), (iii) as to New Leases (as such term is defined in the Agreement)
and (iv) with respect to leases entered into by Assignee after the date hereof
with tenants with whom Assignor or Assignor's agents, as of the date hereof, was
negotiating to lease space in the Premises, as listed on Exhibit E annexed
hereto.
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<PAGE>
5. Assignee hereby agrees to indemnify Assignor and to defend and
hold Assignor harmless from and against all loss, damage and expense (including,
without limitation, reasonable counsel fees and disbursements) on account of any
obligations of or claims that may be asserted or made against Assignor under the
Brokerage Agreements accruing or arising out of obligations thereunder which
Assignee has hereinabove agreed to observe and perform; and Assignor agrees to
indemnify Assignee and to defend and hold Assignee harmless from and against all
loss, damage and expense (including, without limitation, reasonable counsel fees
and disbursements) on account of any other obligations or claims that may be
asserted or made against Assignee under the Brokerage Agreements accruing or
arising prior to the date hereof, excluding those (i) listed in Exhibit C to the
Agreement as Initial Commissions to be assumed by Assignee, (ii) due from and
after the date of the Agreement as to Future Commissions, (iii) as to New
Leases, and (iv) with respect to leases entered into by Assignee after the date
hereof with tenants with whom Assignor or Assignor's agents, as of the date
hereof, was negotiating to lease space in the Premises, as listed on Exhibit E
annexed hereto.
6. Assignor further assigns, transfers, sets over and conveys unto
Assignee, and Assignee acknowledges receipt of, security deposits under the
Space Leases as shown on Exhibit D annexed hereto, and Assignee agrees to hold
such sums as security as required by law and by the provisions of the respective
Space Leases, pursuant to which such security shall have been deposited by
tenants and subtenants, and hereby indemnifies Assignor against any claim by any
such tenant or subtenant in respect of the sums so paid to Assignee.
IN WITNESS WHEREOF, the Assignor and Assignee have duly executed and
delivered this Assignment and Assumption Agreement the ____ day of
__________________, 1997.
BANKERS TRUST COMPANY
By: _________________________
BOSTON PROPERTIES LIMITED
PARTNERSHIP
By: Boston Properties, Inc.,
its general partner
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<PAGE>
By: _______________________
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<PAGE>
Insignia/Edward S. Gordon Co., Inc., the managing agent of the
Premises retained by Assignor, hereby joins in this assignment of those of the
Service Contracts entered into or held by such managing agent for and on behalf
of Assignor, upon all of the terms and provisions of paragraph 1 hereof
applicable thereto.
INSIGNIA/EDWARD S. GORDON
CO., INC.
By:
-------------------------
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<PAGE>
EXHIBIT A
Space Leases
EXHIBIT B
Service Contracts and Equipment Leases
EXHIBIT C
Brokerage Agreements
EXHIBIT D
Security Deposits
EXHIBIT E
Leases in Negotiation as of the Closing Date
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<PAGE>
EXHIBIT K-1
ASSIGNMENT AND ASSUMPTION AGREEMENT (BANKERS LEASE)
BANKERS TRUST COMPANY, a New York banking corporation with a place
of business at 130 Liberty Street, New York, New York 10006 ("Assignor"), having
this day sold, assigned, transferred and conveyed the land and building known as
280 Park Avenue, New York, New York (the "Premises") to BOSTON PROPERTIES
LIMITED PARTNERSHIP, a Delaware limited partnership, with a place of business at
c/o Boston Properties, Inc., 8 Arlington Street, Boston, Massachusetts 02116
("Assignee"), pursuant to an agreement between Assignor and Assignee dated
____________________, 1997 (the "Agreement"), which sale was made subject to
that certain Amended and Restated Agreement of Lease dated the date hereof (the
"Bankers Lease") between Assignor, as Landlord, and Bankers Trust Company, as
Tenant (the "Tenant"), without merger of the estates, Assignor, Assignee and
Tenant, for good and valuable consideration paid one to the other, the receipt
of which is hereby acknowledged, do hereby agree as follows:
1. Assignor hereby assigns, sets over, transfers and conveys unto
Assignee all right, title and interest of Assignor accruing or arising from and
after the date hereof, in, to and under the Bankers Lease and all rents and
other amounts payable by the Tenant under the Bankers Lease, accruing or arising
from and after the date hereof. There is excluded from the foregoing assignment
all right, title and interest of Assignor as tenant under the said Bankers
Lease.
2. Assignee acknowledges to Assignor receipt of a counterpart of the
Bankers Lease, accepts the within assignment, and does hereby for the benefit of
Assignor assume and agree to perform each and every burden, obligation and
liability of Assignor accruing or arising under and by virtue of Bankers Lease
from and after the date hereof, and agrees to accept and take same subject to
all the terms, covenants and conditions thereof, without recourse to the
Assignor and without any representation or warranty of Assignor, express or
implied, except those, if any, which pursuant to the express provisions of the
Agreement survive after the date hereof.
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<PAGE>
3. Assignee hereby acknowledges to Tenant receipt of a counterpart
of the Bankers Lease, its acceptance of the said assignment, and does hereby for
the benefit of Tenant assume and agree to perform each and every burden,
obligation and liability of landlord accruing or arising under and by virtue of
the Bankers Lease, from and after the date hereof, subject to all the terms,
covenants and conditions thereof.
4. Assignee affirms that, except as expressly provided for in the
Agreement, including, without limitation, the agreements, warranties,
representations and waiver made by Assignor (in its capacity as both landlord
and tenant under the Bankers Lease) pursuant to Section 11.2 of the Agreement,
upon which agreements, warranties, representations and waiver Assignee is
relying in consummating its purchase of the Premises and accepting an assignment
of the Bankers Lease, Tenant, both in its capacity as tenant under the Bankers
Lease and as Seller under the Agreement, has not made nor has Assignee relied
upon any representation, warranty or promise made by Tenant, both in its
capacity as tenant under the Bankers Lease and as Seller under the Agreement,
with respect to the subject matter of the Agreement, including, without
limitation, any warranties or representations, express or implied, as to (a) the
value, use, tax status or physical condition of the Premises, equipment or
property, or any part hereof, repairs thereto, income therefrom, expenses of
maintenance or operation thereof, or as to the accuracy of the survey or plans
thereof, (b) the adequacy of any plans, specifications or site plans for the
Premises or their compliance with law, (c) any leases or tenancies of any part
of the Premises, or rental controls or regulations affecting the Premises, (d)
the potential qualification of the Premises for any and all benefits conferred
by federal, state or municipal laws, whether for subsidies, special real estate
tax treatment, insurance, mortgages, or any other benefits, whether similar or
dissimilar to those enumerated, (e) the availability of any financing for the
purchase, alteration or operation of the Premises from any source, including but
not limited to State, City or Federal government or any institutional lender,
(f) the applicability or effect of or compliance with any building, subdivision,
land sales, securities, ecology, environmental protection and like laws,
ordinances, rules and regulations of governmental authorities, including those
of any and all regulatory agencies and administrative officials having or
asserting jurisdiction over the Premises, (g) habitability, merchantability or
fitness for a particular purpose, (h) title, (i) latent or patent
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<PAGE>
physical or environmental conditions, (j) valuation, or (k) any other matter or
thing relating to the Premises.
5. Assignee has had an opportunity to investigate the Premises and
the books and records pertaining to the Premises and such other matters it has
deemed necessary or appropriate. Without limiting the generality of the
foregoing, Assignee has examined the Premises and agrees to accept them "as is"
and in their present condition, subject, however, to Assignee's reliance upon
the survivability of Assignor's representations and warranties expressly made as
of the date of the Agreement and being remade on the date hereof, with recourse
to the Assignor (other than for fraudulent misconduct) solely as provided in the
Agreement. Assignee has conducted such investigations of the Premises, including
but not limited to, the physical and environmental conditions thereof, as
Assignee deems necessary to satisfy itself as to the condition of the Premises
and the existence or nonexistence or curative action to be taken with respect to
any hazardous or toxic substances on or discharged from the Premises, and,
without derogating or otherwise limiting Assignor's representations, warranties
and covenants expressly made in the Agreement and with recourse to the Assignor
solely as provided in the Agreement, Assignee will rely upon such investigations
and not upon any information (including specifically, without limitation, any
offering memorandum or property information packages distributed with respect to
the Premises) provided by or on behalf of Assignor or Tenant or its agents or
employees with respect thereto, other than such representations, warranties and
covenants of Assignor as are expressly set forth in the Agreement.
6. Except as otherwise expressly provided in the Agreement, Assignee
has assumed the risk that adverse matters, including but not limited to,
construction defects and adverse physical and environmental conditions, may not
have been revealed by Assignee's investigations, and Assignee shall except as
otherwise expressly provided in the Agreement, be deemed to have waived,
relinquished and released Assignor (and Assignor's officers, directors and
employees) and Tenant from and against any and all claims, demands, causes of
action (including causes of action in tort), losses, damages, liabilities, costs
and expenses (including attorneys' fees and court costs) of any and every kind
or character, known or unknown, which Assignee might have asserted or alleged
against Assignor (and Assignor's officers, directors and employees) and Tenant
at any time by reason of or arising out of any latent or patent construction
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<PAGE>
defects or physical conditions, violations of any applicable laws (including,
without limitation, any environmental laws) and any and all other acts,
omissions, events, circumstances or matters regarding the Premises with recourse
to the Assignor solely as provided in the Agreement other than for the
fraudulent misconduct of Assignor, its officers, directors and employees.
Assignee agrees that should any cleanup, remediation or removal of hazardous
substances or other environmental conditions on the Premises be required after
the date hereof, such cleanup, removal or remediation shall be the
responsibility of and shall be performed at the sole cost and expense of
Assignee. Notwithstanding the foregoing provisions, nothing set forth in this
Paragraph 6 shall be interpreted or construed as limiting, restricting,
extinguishing or otherwise affecting Assignor's and Tenant's representations and
warranties made in the Agreement or the survivability thereof for the time
limitation provided for in the Agreement, with recourse to the Assignor (other
than for fraudulent misconduct) solely as provided in the Agreement.
7. Except as hereinafter provided in the next sentence, Assignee
hereby acknowledges and confirms to Tenant that it has not been induced to
execute and deliver said assumption of the Bankers Lease as a result of, and,
with respect to Assignee's acceptance of the within assignment of the Bankers
Lease and its assumption of the landlord's obligations thereunder, is not
relying upon, any representations or warranties, express or implied, written or
oral, or agreements, indemnities or conditions, express or implied, written or
oral, of or by Assignor, as seller of the Premises or assignor of landlord's
interest under the Bankers Lease. However, nothing contained in the preceding
sentence shall be interpreted or construed to limit, extinguish or otherwise
affect (a) those surviving representations and warranties made by Assignor under
the Agreement in its capacity as seller of the Premises, with recourse to the
Assignor (other than for fraudulent misconduct) solely as provided in the
Agreement, or (b) the representations and waiver made by Assignor (in its
capacity as both landlord and tenant under the Bankers Lease) pursuant to
Section 11.2 of the Agreement, upon which agreements, warranties,
representations and waiver Assignee is relying in consummating its purchase of
the Premises and accepting an assignment of the Bankers Lease. Assignee shall
not assert, as a defense to or reduction of any of the liabilities or
obligations of the Assignee under the Bankers Lease, or to the enforcement by
Tenant of any of its rights or remedies under the Bankers Lease, or any right of
offset, defense or
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<PAGE>
counterclaim, with respect to any claims, liabilities or obligations owed or
owing by, or asserted to be owed or owing by, Assignor (as seller to Assignee of
the Premises or assignor to Assignee of the Bankers Lease) to Assignee or any of
its partners or affiliates, whether or not such claims, liabilities or
obligations arise out of or in connection with the aforesaid sale of the
Premises to Assignee or any representations or warranties, agreements,
indemnities or conditions made, expressly or impliedly, by Assignor to Assignee
in connection with such sale, or to which such sale was subject, unless the same
were represented or waived by Assignor pursuant to the provisions of Section
11.2 of the Agreement.
8. From and after the date hereof all Notices under the Bankers
Lease shall be made to, and all payments of rent under the Bankers Lease shall
be paid to, Assignee, at
________________________________________, Attention:
_____________________________.
IN WITNESS WHEREOF, the Assignor, Assignee and Tenant have duly
executed and delivered this Assignment and Assumption Agreement the ____ day of
_________________, 1997.
BANKERS TRUST COMPANY,
as Assignor
By:
----------------------------
, Vice President
BOSTON PROPERTIES LIMITED
PARTNERSHIP
By: Boston Properties, Inc.,
its general partner
By:
------------------------
BANKERS TRUST COMPANY,
as Tenant
By:
----------------------------
, Vice President
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<PAGE>
EXHIBIT L
The undersigned ("Tenant") hereby certifies to Bankers Trust Company
("Landlord"), the holder or prospective holder of any mortgage covering the
below referred to Property (the "Mortgagee") and the vendee under any contract
of sale with respect to the Property (the "Purchaser") as follows:
1. The undersigned is the lessee under that certain lease dated as
specified in 9(a) below, as modified, changed, altered, supplemented or amended
as indicated in 9(h) below (the "Lease"), by the between Landlord and the
undersigned or the person specified in 9(b) below, as Lessee, covering those
certain premises specified in 9(c) below (the "Premises") at 280 Park Avenue, in
the City, County and State of New York ("Property").
2. The Lease has not been modified or amended (except as indicated
in 9(h) below).
3. The Tenant has accepted possession of the Premises.
4. The Lease is in full force and effect.
5. To Tenant's best knowledge, as of the date hereof, Landlord is
not in default in the performance of any of the terms of the Lease, and no event
has occurred which, with the passage of time or the giving of notice, or both,
will constitute a default by Landlord under the terms of the Lease.
6. To Tenant's best knowledge, as of the date hereof, there are no
off-sets or defenses under the Lease against the enforcement of any of the terms
of the Lease on the part of the Tenant to be performed.
7. No rent under the Lease has been paid for more than one (1) month
in advance of its due date (except in the case of real estate tax and similar
reimbursements).
8. There are no actions, whether voluntary or otherwise, pending
against the Tenant or against any guarantor of Tenant's obligations under the
Lease, under the bankruptcy, reorganization, arrangement, moratorium or similar
laws of the United States, any state thereof or any other jurisdiction.
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9. (a) The date of the Lease is ________, 19__.
(b) The original lessee of the Lease, if different from the
undersigned, was ____________________.
(c) The Premises covered by the Lease are
__________________________________________________________________.
(d) The term of the Lease began (or is scheduled to begin) on
__________________, 199__ and will expire on _________________, ____, unless
sooner terminated under the provisions of the Lease or extended pursuant to the
terms of the Lease.
(e) The fixed rent for the Premises has been paid to and
including _________________, 1997.
(f) The fixed rent being paid pursuant to the Lease is at the
annual rate of $__________, excluding electric. Such fixed rent, together with
additional rent payable pursuant to the Lease as to tax escalation and porter's
wage rate escalation, for the previous calendar month, results in an aggregate
current monthly rent of $_____________, excluding electric. Electric charges for
the previous calendar month were $___________ (exclusive of sales tax and any
retroactive adjustments).
(g) The amount of security deposit, if any, under the Lease
held by Landlord is $_______________, together with any interest thereon
pursuant to the Lease, and Landlord holds no other funds of the Tenant.
(h) The Lease has not been modified, changed, altered,
supplemented or amended in any way, except as indicated therein or by the
following agreements: ______________________________________________________.
(i) All of the work in or improvements to the Premises
required by the terms of the Lease to be performed by Landlord to prepare the
Demised Premises for Tenant's initial occupancy have been completed in
accordance with the Lease, except as follows [If completed, please state "None";
otherwise please specify]:
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<PAGE>
__________________________________________________________________.
(j) All payments required to be made by Landlord pursuant to
the Lease for or on account of any improvements to the Premises made by Tenant
to prepare the Premises for Tenant's initial occupancy have been made in full,
except as follows [If made in full, please state "None"; otherwise please
specify]:
__________________________________________________________________.
(k) Unless otherwise specified below, the interest of Tenant
in the Lease has not been assigned or encumbered, and no part of the Premises
demised by the Lease has been sublet. [If none, please state "None"; otherwise
please specify]:__________________________________________________.
10. This certification shall inure to the benefit of Mortgagee and
Purchaser, and their respective successors and assigns, and shall be binding
upon Tenant and Tenant's successors and permitted assigns. This certification is
made to induce Purchaser to consummate a purchase of the Property and/or to
induce Mortgagee to make and maintain a mortgage loan secured by the Property,
as the case may be, knowing that said Purchaser and/or Mortgagee as applicable,
shall rely upon the truth of this certification in making and/or maintaining
such purchase or mortgage, as applicable.
Dated: _______________ -------------------------
Tenant
By:
---------------------
Title:
------------------
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<PAGE>
EXHIBIT M
AMENDED AND RESTATED AGREEMENT OF LEASE
between
BANKERS TRUST COMPANY,
Landlord
and
BANKERS TRUST COMPANY,
Tenant
Dated: As of September 11, 1997
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LEASE made as of this 11th day of
September, 1997 between BANKERS TRUST COMPANY, a New York banking corporation,
having an office at 130 Liberty Street, New York, New York 10006 ("Landlord"),
and BANKERS TRUST COMPANY, a New York banking corporation, having an office at
130 Liberty Street, New York, New York 10006 ("Tenant").
W I T N E S S E T H:
ARTICLE 1
DEFINITIONS, TERM
Section 1.01. The terms defined in this Article shall have, for all
purposes of this Lease and all agreements supplemental thereto, the meanings
herein specified unless the context otherwise requires.
"Affiliate" of any entity shall mean any other entity or person
which shall (i) control, (ii) be under the control of or (iii) be under common
control with such entity (the term "control" as used herein shall be deemed to
mean either (A) ownership (direct or indirect) of more than fifty percent (50%)
of the outstanding voting stock of a corporation, or other majority equity and
control interest if such entity is not a corporation), or (B) ownership (direct
or indirect) of not less than twenty-five percent (25%) of such stock or other
equity interest and the power to direct the affairs of such corporation or other
entity by reason of ownership of voting stock or other equity interest, by
contract or otherwise, or (C) in the case of individuals, the person in question
is the employer, employee, parent, child, spouse or sibling of the other
individual or entity.
"Base Price Index" shall mean the last Price Index issued prior to
the date of this Lease.
"Building" shall mean the office building at 280 Park Avenue, New
York, New York, comprising the "East Building" which is located on parcel A
shown on Exhibit A annexed hereto and the "Middle Building" and "West Building"
located on parcels B, C and D shown on Exhibit A annexed hereto (including the
fixtures, appurtenances and equipment thereof), all improvements related thereto
and any replacements thereof.
<PAGE>
"Building Systems" shall mean the mechanical, electrical, sprinkler,
heating, ventilating, air conditioning, elevator, plumbing, sanitary,
life-safety and other service systems of the Building.
"Bureau" shall mean the Federal Bureau of Labor Statistics or any
successor agency that shall issue the Price Index.
"Business Days" shall mean all days excluding Sundays, New Year's
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day and holidays observed by Locals 32B and 32J of the Building
Service Employees International Union AFL-CIO (or any successor thereto or
replacement thereof), not hereinbefore specifically mentioned, provided,
however, the term "Business Days" shall include Sundays and such excluded days
(which may be a Sunday) on which a majority of the banks in the City of New York
are, or the New York Stock Exchange is, open for business.
"Business Hours" shall mean 8:00 A.M. to 6:00 P.M. on Business Days
except that on Saturdays such term shall mean 9:00 A.M. to 1:00 P.M.
"Commencement Date" shall mean the date hereof.
"Comparison Price Index" shall mean the last Price Index issued
prior to the Computation Date.
"Computation Date" shall mean the date as of which a CPI Adjustment
is to be made.
"CPI Adjustment" shall mean the quotient of the Comparison Price
Index divided by the Base Price Index.
"Demised Premises" shall initially mean the space in the Building
substantially as shown by crosshatching on the floor plans attached hereto as
Exhibit B, consisting of (i) a portion of the 3rd floor of the West Building and
the entire 3rd floor of the Middle and East Building; the entire 5th floor of
the West and Middle Building; the entire 6th and 7th floors of the Building; and
the entire 22nd and 23rd floors of the West Building (collectively, the "Office
Space") comprising in total 184,618 rentable square feet, (ii) a portion of the
1st floor (lower lobby) of the East Building and a portion of the 2nd floor of
the West and East Building (collectively, the "Banking Space") comprising in
total 23,658 rentable square feet, and (iii) space on the cellar floor and
subcellar floor (collectively, the "Cellar Space") comprising in total 1,618
rentable square feet. If Tenant shall exercise any option described in Article
25 hereof, the space referred to and described in such Article
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as to which Tenant shall have exercised such option shall become part of the
Demised Premises and of the Office Space (unless located on the cellar or
subcellar floors, in which case such space shall be Cellar Space) when vacant
possession of such space is delivered to Tenant in accordance with the terms and
conditions of such Article. Attached hereto as Exhibit C is a schedule which the
parties hereto agree shall conclusively be deemed to show the initial rentable
square feet on each floor of the Demised Premises in the East, Middle and West
Buildings, comprising 209,894 rentable square feet, and in each of the East,
Middle and West Building and in the Building, in the aggregate. The number of
rentable square feet in the Demised Premises or in the Building as shown on
Exhibit C shall not be affected by any subsequent remeasurement of the Building.
"Expedited Arbitration" shall mean arbitration performed in
accordance with the procedures set forth in Section 27.02 hereof.
"Fixed Rent" shall mean the annual rental payable by Tenant for the
Demised Premises in equal monthly installments as provided for in Section 2.01
of this Lease.
"Governmental Authority (Authorities)" shall mean the United States
of America, the State of New York, the City of New York, any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of the foregoing, now existing or hereafter created,
having jurisdiction over the Real Property or any portion thereof or the curbs,
sidewalks, and areas adjacent thereto.
"Interest Rate" shall mean a rate per annum equal to the prime
lending rate of Bankers Trust Company in effect from time to time plus two
percent (2%), but not in excess of the maximum legal rate permitted by law. The
prime lending rate of Bankers Trust Company shall be the rate announced from
time to time as its prime lending rate.
"Issue" shall mean the release to the public (which is currently
released on a monthly basis) of any such Price Index, and the date of issue
shall be the date on which such Price Index is so released, whether or not the
Price Index so released is for the month in which it is released or any
preceding period.
"Land" shall mean parcels A, B, C and D described and shown on the
plot plan annexed hereto as Exhibit A.
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<PAGE>
"Landlord" shall mean only the owner, or the mortgagee in
possession, at the time in question of the Real Property (or the owner of a
lease of the Building or of the Real Property); provided, however, Landlord
agrees, in the event of a transfer of title to the Real Property or said lease
or in the event of a lease of the Land or the Real Property, to cause the
transferee to execute and deliver to Tenant, an agreement, in recordable form,
whereby the transferee agrees to be bound by and to perform, during the period
of its ownership, all of the obligations of Landlord hereunder accruing after
such transfer, including without limitation (and specifically mentioning) the
obligations of Landlord under Articles 24, 25, 26 and 31 of this Lease. Upon the
delivery by the transferee to Tenant of such assumption agreement, the
transferor shall be relieved of all covenants and obligations of Landlord under
this Lease accruing after such transfer, but not from any covenants and
obligations which accrued prior to such transfer; provided, further, that the
initial Landlord hereunder, Bankers Trust Company, shall be relieved of all
covenants and obligations of Landlord under this Lease in the event of a
transfer of its title to the Real Property.
"Lease" shall mean the Agreement of Lease between Landlord and
Tenant dated July 1, 1997 as amended and restated by this Amended and Restated
Agreement of Lease and any and all Schedules and Exhibits annexed hereto, as the
same may be amended or otherwise modified from time to time in accordance with
the terms hereof.
"Original Demised Premises" shall mean the Demised Premises
originally demised pursuant to this Lease.
"Original Tenant" shall mean the Tenant originally named in this
Lease or a "successor" thereto or an assignee thereof in accordance with the
provisions of Section 10.01(b) (i) or (ii) hereof.
"person" shall mean any natural person or persons, or partnership, a
corporation and any other form of business or legal association or entity or any
Governmental Authority.
"Price Index" shall mean the Consumer Price Index for all Urban
Consumers (1982-84=100) specified for "All Items" relating to New York-Northern
New Jersey-Long Island NY-NJ-CT issued by the Bureau. If such index shall cease
to be published or if such index is computed upon a basis different from the
basis currently utilized, Landlord shall have the right to substitute therefor
any other recognized index of changes in the cost of living substantially
similar to the Price Index first specified above published by any governmental
department or agency, any college or university
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<PAGE>
or any reputable financial publication and thereafter for all purposes under
this Lease such substitute index shall constitute the Price Index as hereinabove
defined, which substituted index shall be adjusted, if possible, to have the
same, or substantially the same, base factors as the aforementioned Consumer
Price Index.
"Real Property" shall mean collectively the Building and the Land.
"Rents" shall mean the Fixed Rent and any additional rent payable
hereunder.
"Requirements" shall mean all present and future laws, rules,
orders, ordinances, regulations, statutes, requirements, codes and executive
orders, extraordinary as well as ordinary (including, without limitation, any of
same relating to environmental and hazardous waste matters), of all Governmental
Authorities, and of any applicable fire rating bureau, or other body exercising
similar functions, affecting the Real Property and/or the Demised Premises or
the maintenance, use or occupation thereof, or any street, avenue or sidewalk
comprising a part of or in front thereof or any vault in or under the same.
"Tenant" on the date as of which this Lease is made, shall mean the
originally named Tenant, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question.
"Term of this Lease" shall mean the Initial Term of years ("Initial
Term") commencing on the Commencement Date and expiring on February 28, 2011
(the "Expiration Date") and, at Tenant's option, shall include one or more of
the Renewal Terms provided for in Article 24 upon exercise by Tenant of its
Renewal Option as to such Renewal Term.
Additional defined terms are defined in those Sections of the Lease
noted on Schedule A attached hereto.
Section 1.02. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord, the Demised Premises, together with the appurtenances, including
without limitation, the nonexclusive right to use the "common areas" of the
Building, which shall include (i) with respect to any partial floor which Tenant
may lease in the Building, the corridors and passenger and freight elevator
lobbies of such floors, (ii) the "base building" toilets on the floors of the
Demised Premises, (iii) the sidewalks, driveways, entrances, passages, esplanade
areas, vestibules, lobbies, halls, corridors, elevators and public stairways and
(iv) other portions of the Real Property that Landlord makes available from time
to time for the common use of the tenants of the Building subject to the terms
and conditions
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<PAGE>
of this Lease and the Rules and Regulations. This Amended and Restated Agreement
of Lease amends and restates in its entirety the Agreement of Lease dated July
1, 1997 between Landlord and Tenant. TO HAVE AND TO HOLD unto Tenant, its
successors and permitted assigns, for the Term of this Lease or until the Term
of this Lease sooner terminates as hereinafter provided, subject to the
provisions of this Lease.
ARTICLE 2
FIXED RENT, ADJUSTMENT OF FIXED RENT
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<PAGE>
Section 2.01. During the Term of this Lease, except as hereinafter
provided, Tenant shall pay, at Landlord's address as herein set forth or at such
other address as Landlord may from time to time designate, Fixed Rent in equal
monthly installments in advance on the first day of each calendar month without
notice or demand and without setoff or deduction, except as expressly provided
herein. Fixed Rent for the Office Space and Banking Space shall be (A) at an
annual rate of $7,289,660.00 for the period commencing on the Commencement Date
through and including the last day of the month in which the fifth (5th)
anniversary of the Commencement Date occurs, in equal monthly installments of
$607,471.67, and (B) at the annual rate of $9,372,420.00 for the period
commencing on the first day of the month next succeeding the month in which the
fifth (5th) anniversary of the Commencement Date occurs through and including
the last day of the month in which the tenth (10th) anniversary of the
Commencement Date occurs, in equal monthly installments of $781,035.00, and (C)
at the annual rate of $11,455,180.00 for the period commencing on the first day
of the month next succeeding the month in which the tenth (10th) anniversary of
the Commencement Date occurs through and including the Expiration Date, in equal
monthly installments of $954,598.33. Fixed Rent for the Cellar Space shall be
(A) at an annual rate of $20,225.00 for the period commencing on the
Commencement Date through and including the last day of the month in which the
fifth (5th) anniversary of the Commencement Date occurs, in equal monthly
installments of $1,685.42, and (B) at the annual rate of $22,247.50 for the
period commencing on the first day of the month next succeeding the month in
which the fifth (5th) anniversary of the Commencement Date occurs through and
including the last day of the month in which the tenth (10th) anniversary of the
Commencement Date occurs, in equal monthly installments of $1,853.96, and (C) at
the annual rate of $24,480.34 for the period commencing on the first day of the
month next succeeding the month in which the tenth (10th) anniversary of the
Commencement Date occurs through and including the Expiration Date, in equal
monthly installments of $2,040.03. If the Commencement Date shall be other than
the first day of a calendar month, the first installment of Fixed Rent for that
month shall be pro rated on a per diem basis for the period from the
Commencement Date to the end of the month in which the Commencement Date occurs,
and shall be payable on the Commencement Date.
Section 2.02. Fixed Rent specified in Sections 2.01 and 2.02 does not take
into account increases in real estate taxes and/or expenses of Landlord in
operating the Building during the Term of this Lease. Provision therefor is
hereinafter made in this Section 2.02.
(a) For the purposes of this Section 2.02, the following
definitions shall apply:
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"Real Estate Taxes" shall mean the aggregate of taxes and
assessments (net of any discounts and/or refunds) imposed upon the Real Property
exclusive of any special assessment for a public improvement unless such
assessment is a City-wide or Borough-wide assessment (which assessments, if
payable in installments, shall be deemed payable in the maximum number of
permissible installments), and together with any fees, levies, assessments or
charges imposed by any business improvement district of which the Real Property
is a part, and exclusive of penalties and of interest, other than interest
accruing by reason of Landlord's exercise of any option to pay assessments in
the maximum number of installments. If, due to a future change in the method of
taxation, any franchise, income, profit or other tax shall be levied against
Landlord in substitution, in whole or in part, for or in lieu of any tax which
would otherwise constitute a Real Estate Tax, such franchise, income, profit or
other tax shall be deemed to be a Real Estate Tax for the purposes hereof to the
extent that it shall have been so levied in substitution for or in lieu of a
Real Estate Tax; provided, however, that in each such instance where a tax is
levied in substitution for or in lieu of any tax which would otherwise
constitute a Real Estate Tax, such tax, for purposes of computing Real Estate
Taxes, shall be computed as if the Real Property were the sole asset of
Landlord. Except as provided in the immediately preceding sentence, Real Estate
Taxes shall not include any municipal, state, federal or other income, gross
receipts, excess profits, revenue, corporation franchise, corporate,
unincorporated association, estate, inheritance, succession, gift, payroll,
stamp, transfer, capital levy, capital stock, gains or similar tax imposed upon
Landlord or taxes imposed, levied or assessed solely because of the nature of
the entity of Landlord.
"Tax Year" shall mean the City of New York fiscal year, July 1 to
June 30 (or such other fiscal years as hereafter may be duly adopted by the City
of New York as the fiscal year for real estate tax purposes).
"Tax Comparative Year" shall mean each Tax Year, subsequent to the
Initial Tax Year, in which occurs any part of the Term of this Lease.
"Base Real Estate Taxes" shall mean one-half (1/2) of Real Estate
Taxes for the Base Tax Period.
"Base Tax Period" shall mean the Tax Years from July 1, 1997 to June
30, 1998 and from July 1, 1998 to June 30, 1999.
"Initial Tax Year" shall mean the Tax Year from July 1, 1997 to June
30, 1998.
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<PAGE>
"Tenant's Proportionate Share" shall mean a fraction (expressed as a
percentage) of which the numerator is the rentable square foot area of the
Demised Premises exclusive of the Cellar Space, and the denominator is the total
rentable square foot area of the Building, exclusive of the space in the
Building on the cellar or subcellar floors. In the event that Tenant leases
other space from Landlord as provided in Article 25 hereof, or the rentable
square feet in the Demised Premises is reduced pursuant to any of the provisions
of this Lease, such numerator shall be adjusted in accordance with the rentable
square feet so affected, as determined based on the measurements shown on
Exhibit B-1 attached hereto. In the event that the usable square feet in the
Building is increased, such denominator shall be adjusted in accordance with the
rentable square feet so increased, based on the building measurement systems
used in determining the measurements shown on Exhibit B-1 attached hereto. As of
the Commencement Date, Tenant's Proportionate Share is 17.67%.
"Wage Rate" shall mean the regular average hourly wage rate
(computed on an hourly basis), without fringe benefits, required to be paid to
or for the benefit of porters engaged in the general maintenance and operation
of Class A office buildings) pursuant to a collective bargaining agreement
between the Realty Advisory Board on Labor Relations, Incorporated (or any
successor thereto, "R.A.B.") and the Local of the Building Service Employees
International Union AFL-CIO (or successor thereto, the "Local"); provided,
however, that if any such collective bargaining agreement shall require porters
to be regularly employed on days or during hours when overtime or other premium
pay rates are in effect, then the term "regular average hourly wage rate" shall
mean the regular average hourly wage rate for the hours in a calendar week which
porters are required to be regularly employed (whether or not actually at work
in the Building), e.g., if, for example, an agreement between R.A.B. and the
Local would require the regular employment of porters for forty (40) hours
during a calendar week at a regular hourly wage rate of $12.00 for the first
thirty (30) hours and at an overtime hourly average wage of $15.00 for the
remaining ten (10) hours, then the regular average hourly wage rate under this
subsection would be the quotient arrived at by dividing the total weekly average
wages of $510.00 by the total number of required hours of employment which is
forty (40) and resulting in a regular average hourly wage rate of $12.75. The
computation of the regular average hourly wage rate shall be on the same basis
whether based on an hourly or other pay scale but predicated on the number of
hours in such respective work week, whether paid by Landlord or any independent
contractor. In calendar year 1997 the minimum standard weekly wages without
fringe benefits for such
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porters is $603.48 which for a 40 hour regular work week is $15.087 per hour. If
any such agreement is not entered into or if the R.A.B. (or its successor) shall
cease to bargain collectively, then the Wage Rate shall be the minimum regular
hourly wage rate as aforesaid payable to or for the benefit of porters engaged
in the maintenance and operation of the Building and payable by either Landlord
or the contractor furnishing such services, but not in excess of the minimum
regular hourly wage rate and other sums as aforesaid for porters engaged in the
general maintenance and operation of buildings of the same type as, and in the
vicinity of, the Building. For purposes hereof, the term "porter" shall mean
that classification of non-supervisory employees employed in and about office
buildings in the Borough of Manhattan such as the Building who devote a major
portion of their time to general cleaning, maintenance and miscellaneous
services essentially of a non-technical and non-mechanical nature and are the
type of employees who are now included in the classification of "Class
A--Others" in the collective bargaining agreement between R.A.B. and the Local
(but not those employees whose wages are subject to increase for a temporary
period).
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<PAGE>
"Base Wage Rate" shall mean one-half (1/2) of the sum of the Wage
Rate in effect on January 1, 1997 and of the Wage Rate in effect on January 1,
1998.
"Wage Rate Comparative Year" shall mean each calendar year,
subsequent to December 31, 1997, in which occurs any part of the Term of this
Lease, excluding any unexercised Renewal Options.
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<PAGE>
(b) (i) If the Real Estate Taxes payable for any Tax Year any
part or all of which falls within the Term of this Lease (other than the
Initial Tax Year) shall represent an increase above the Base Real Estate
Taxes, then Tenant shall pay as additional rent for such Tax Year (i.e.,
the Tax Comparative Year) a sum equal to Tenant's Proportionate Share of
the increase of such Real Estate Taxes. Landlord shall submit to Tenant,
(x) at least thirty (30) days prior to the date on which Tenant must make
its first payment to Landlord on account of the Tax Comparative Year
involved, a statement by Landlord setting forth the Real Estate Taxes for
that Tax Comparative Year and comparing the same with the Base Real Estate
Taxes and setting forth the amount, if any, of additional rent payable by
Tenant pursuant to this paragraph (b) and (y) at least thirty (30) days
prior to the date when subsequent payments are to be made by Tenant to
Landlord during such Tax Comparative Year on account of such additional
rent, a similar statement for such additional rent. Each such statement
shall be accompanied by copies of the official tax bills or assessment
notice for Real Estate Taxes for such portion of the Tax Comparative Year
and the tax bill for the immediately preceding portion of the previous or
that Tax Year (as the case may be) receipted by the taxing authorities as
paid by Landlord for such portion of such Tax Year. If any such statement
shall show a payment due from Tenant for the Tax Comparative Year, Tenant
shall make such payment to Landlord within thirty (30) days after Tenant's
receipt of such statement and other accompanying information provided for
as to clause (x) or (y) above, as applicable, but in no event earlier than
thirty (30) days before the date when Landlord could last make payment of
such Real Estate Taxes without incurring penalties and/or interest, of
such amount(s) as shall be the applicable Tenant's Proportionate Share of
such increase in such installment of Real Estate Taxes, as evidenced by
such tax bills ("Real Estate Tax Escalation Payment"). In the event that
Tenant has overpaid any additional rent payable pursuant to this paragraph
(b) for any Tax Comparative Year, Landlord shall immediately refund to
Tenant the amount of Tenant's overpayment, together with interest at the
Interest Rate on the amount of any such overpayment, from the date when
Tenant shall have made such overpayment to the date Landlord shall make
such refund to Tenant.
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(ii) In case the Real Estate Taxes for any Tax
Comparative Year or part thereof shall be reduced after a payment shall
have been made in respect of such Tax Comparative Year pursuant to this
paragraph (b) (whether before or after the Expiration Date of the Term),
Landlord shall within thirty (30) days after receipt of a refund or
remission by or on behalf of Landlord (including receipt by any lessor or
mortgagee referred to in Article 31) pay to Tenant an amount equal to the
product obtained by multiplying the net refund of such Real Estate Taxes
(and of any interest recovered) so received (after deduction of reasonable
and customary expenses, including counsel fees, incurred by Landlord in
connection with reducing the assessed valuation and/or in obtaining such
refund of such Real Estate Taxes (and if more than one (1) Tax Year is
affected, such expenses shall be allocated by Landlord, in its reasonable
judgment, to the Tax Years as to which such expenses were incurred,
provided that any such allocation shall be made consistently for all
tenants of the Building) by the Tenant's Proportionate Share.
(c) If, in any Wage Rate Comparative Year, the Wage Rate shall
exceed the Base Wage Rate, then Tenant shall pay as additional rent for such
Wage Rate Comparative Year, an amount equal to seventy-five (75%) percent of one
cent ($.01) multiplied by the number of rentable square feet of the Demised
Premises, less the Cellar Space, for each one cent ($.01) or fraction thereof
that such Wage Rate exceeds the Base Wage Rate (the "Wage Escalation Payment"),
such Wage Escalation Payment to be made in accordance with this Section 2.02(c).
Within ninety (90) days after any Wage Rate Comparative Year for any part or all
of which there is an increase or decrease in the Wage Rate, Landlord may (and
shall if there is a decrease) send Tenant a statement setting forth (i) a
comparison of the Wage Rate in the Wage Rate Comparative Year with the Base Wage
Rate and (ii) the amount of the Wage Escalation Payment, if any, resulting from
such comparison. If any such statement shall show a payment due from Tenant for
the Wage Rate Comparative Year, Tenant shall pay to Landlord, within thirty (30)
days after receipt of such statement, an amount equal to one-twelfth (1/12th) of
such Wage Escalation Payment multiplied by the sum of months that have elapsed
prior to the making of such payment since the end of the immediately prior Wage
Rate Comparative Year (to the extent not theretofore paid to the Landlord); and,
until the earlier of the date that a new statement shall be or is required to be
submitted as above provided, Tenant shall pay as additional rent, with the
monthly installments of Fixed Rent thereafter payable, an amount equal to
one-twelfth (1/12th) of such Wage Escalation Payment. In the event that Tenant
has overpaid the
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additional rent payable pursuant to this paragraph (c) for the Wage Rate
Comparative Year and/or the period which shall have elapsed since the end of the
immediately prior Comparative Year, Landlord shall immediately refund to Tenant
the amount of Tenant's overpayment, together with interest at the Interest Rate
on the amount of any such overpayment, from the date when Tenant shall have made
such overpayment to the date Landlord shall make such refund to Tenant.
(d) In the event that the date fixed for the expiration of the
full Term of this Lease or for any abatement of the rent payable hereunder
pursuant to any provision of this Lease or for any termination of this Lease
(other than a default termination) or for any increase or decrease in square
foot area of the Demised Premises shall be a day other than the end of a Tax
Comparative Year or Wage Rate Comparative Year, then in each such event, in
applying the provisions of this Section 2.02 with respect to any Tax Comparative
Year or Wage Rate Comparative Year in which such Expiration Date, such
termination or such increase or decrease in area occurred or such rent abatement
existed, appropriate adjustments shall be made to reflect the result of such
event on a basis consistent with the principles underlying the provisions of
this Section, taking into consideration (x) the portion of such respective
Comparative Year which shall have elapsed prior to such Expiration Date, such
termination or such increase or decrease in square foot area of the Demised
Premises, or (y) the period of such rent abatement or such increase or decrease
in area, as the case may be, and (z) in the case of any such rent abatement or
increase or decrease in area, the portion of the Demised Premises to which the
same relates, i.e., whether such portion is located in the Office Space or
Cellar Space.
(e) (i) If Landlord shall fail to send to Tenant the
comparative statements described in the provisions of paragraphs (b) or
(c) of this Section 2.02 within one (1) year after any Tax Comparative
Year or Wage Rate Comparative Year, respectively, then, notwithstanding
anything to the contrary contained in this Section 2.02, Tenant shall not
be liable to pay to Landlord a sum equal to any additional rent pursuant
to this Section 2.02 for said Comparative Year which would have been
payable had such statement been timely sent.
(ii) If, by law, any Real Estate Taxes may, at the
option of the taxpayer, be paid in installments (whether or not interest
shall accrue on the unpaid balance thereof), Landlord shall exercise (or
shall be deemed for the purposes hereof to have exercised) the option to
pay the same in the maximum number of installments permissible.
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(iii) (A) For each and every Tax Comparative Year for
which Landlord may do so, Landlord shall, through legal remedies
including, without limitation, the filing of protests, contest the
assessed value of the Real Property and/or the validity of any increase in
Real Estate Taxes and in good faith either prosecute such protest to final
determination or not prosecute such protest to final determination, taking
into account in good faith the best interests of the Real Property and the
other tenants therein.
(iv) Landlord shall cause the Real Property not to be
merged or included in any other tax parcel or lot outside of the Land.
Landlord shall pay and discharge, before delinquent, all Real Estate Taxes
which become due during the Term of this Lease.
(v) Any comparative statement sent to Tenant shall be
conclusively binding upon Tenant unless, within the later of (x) one
hundred eighty (180) days after such statement is sent, or (y) twenty (20)
days after the date Tenant has received such additional information
concerning such statement reasonably requested by Tenant of Landlord in
writing (if such request shall be made by Tenant no later than ninety (90)
days after Tenant has received the statement), Tenant shall send a written
notice to Landlord objecting to such statement and specifying the respects
in which such statement is claimed to be incorrect. If such notice is
sent, either party may refer the decision of the issues raised by such
notice to arbitration pursuant to Article 27 hereof. Notwithstanding the
giving of such notice by Tenant, and pending the resolution of any such
dispute, Tenant shall pay to Landlord when due the amount shown on any
such comparative statement, as provided in this Article 2, except as
provided in Section 2.05 as to manifest errors, so that if Tenant has paid
an amount in excess of its proper additional rent under this Section 2.02,
Landlord shall within thirty (30) days after such determination refund to
Tenant the amount of Tenant's overpayment, together with interest at the
Interest Rate on the amount of any such overpayment, from the date when
Tenant shall have made such overpayment to the date Landlord shall make
such refund to Tenant.
(vi) In any case pursuant to this Section 2.02 where
Landlord is required to give Tenant a refund in the amount of Tenant's
prior overpayment of additional rent due hereunder, then in the event
Landlord fails to pay to Tenant any such refund within thirty (30) days
after such refund of an overpayment is due and payable by Landlord
hereunder, Tenant shall
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have the right, after ten (10) Business Days prior notice to Landlord, to
offset against the next installments of Fixed Rent and additional rent due
under this Lease such amount with interest thereon at the Interest Rate
from the date of such overpayment until the date of such offset.
(vii) Any disputes or controversies arising under this
Section 2.02 shall be disposed of by arbitration pursuant to Article 27 of
this Lease.
Section 2.03. (a)(i) As used in this Section 2.03.:
"Median Percentage Increase" shall mean the Other Project Percentage
Increase for the Median Project; provided that if the aggregate number of
buildings at the time included in Exhibit E attached hereto and made a part
hereof, is an even number, the "Median Percentage Increase" shall mean the
average of the Other Project Percentage Increases for the two (2) Other Projects
which constitute the Median Project (e.g., 2.05% in the series .3%, .4%, 1%, 2%,
2.1%, 2.2%, 3% and 4%).
"Median Project" shall mean the Other Project whose Other Project
Percentage Increase in respect of any Tax Year shall be the arithmetic median of
all Other Project Percentage Increases in respect of such Tax Year (e.g., 2% in
the series .3%, .4%, 1%, 2%, 2.1%, 2.2% and 3%); provided that if the aggregate
number of buildings at the time included in Exhibit E is an even number, the
"Median Project" shall mean the two (2) Other Projects whose Other Project
Percentage Increases shall be the median of all other Project Percentage
Increases in respect of such Tax Year (e.g., 2% and 2.1% in the series .3%, .4%,
1%, 2%, 2.1%, 2.2%, 3% and 4%).
"Assessed Valuation" shall mean the aggregate amount for which the
Real Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of imposition of real estate taxes, as may be changed from time to time by the
taxing authorities, or by adjudication or settlement of a tax protest and/or
proceeding. If for any Tax Year there shall be both a transition assessment and
an actual assessment for the Real Property, as each such term is now utilized on
the assessment rolls of the City of New York, the term "Assessed Valuation" for
the Real Property for such Tax Year shall mean the lesser of the transition
assessment and the actual assessment for such Tax Year (i.e., the value for the
Real Property upon which real estate taxes are based for such Tax Year).
"Other Project Assessed Valuation" shall mean the
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amount for which an Other Project is assessed pursuant to applicable provisions
of the New York City Charter and of the Administrative Code of the City of New
York for the purpose of imposition of real estate taxes, as may be changed from
time to time by the taxing authorities, or by adjudication or settlement of a
tax protest and/or proceeding. If for any Tax Year there shall be both a
transition assessment and an actual assessment for any Other Project, as each
such term is now utilized on the assessment rolls of the City of New York, the
term "Other Project Assessed Valuation" for such Other Project for such Tax Year
shall mean the lesser of the transition assessment and the actual assessment for
such Tax Year (i.e., the value for such Other Project upon which real estate
taxes are based for such Tax Year).
"Other Project Percentage Increase" shall mean, as to each of the
Other Projects, for any Tax Year, the percentage obtained by dividing (i) the
excess, if any, of the Other Project Assessed Valuation of such Other Project
for such Tax Year over the Other Project Assessed Valuation of such Other
Project for the Sale Event Year by (ii) the Assessed Valuation of such Other
Project for the Sale Event Year, and converting the result into a percentage
(e.g., if the Assessed Valuation of an Other Project in a Tax Year were
$110,000,000 and the Assessed Valuation of such Other Project in the Sale Event
Year were $100,000,000, the Other Project Percentage Increase would be obtained
by dividing 10 by 100, which equals .1, which equals 10%).
"Other Projects" shall mean the buildings in Manhattan listed on
Exhibit E, together with the land on which such buildings are situated and all
equipment and other improvements and appurtenances of every kind and description
now located or hereafter erected, constructed or placed upon the land on which
such buildings are situated and any and all alterations, renewals and
replacements thereof, additions thereto and substitutions therefor. If a
building listed in Exhibit E shall be removed from the assessment rolls of the
City of New York or the general use of all or substantially all of a building
listed in Exhibit E shall change (e.g. from commercial to residential), such
building shall cease to be an Other Project and shall be deemed to be deleted
from Exhibit E.
"Rate" shall mean, as to each Tax Year occurring during the Tax
Credit Period, the real estate tax rate of New York City applicable to the Real
Property during such Tax Year.
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"Real Property Percentage Increase" shall mean, for any Tax Year,
the percentage obtained by dividing (i) the excess, if any, of the Assessed
Valuation for such Tax Year over the Assessed Valuation for the Sale Event Year
by (ii) the Assessed Valuation for the Sale Event Year, and converting the
result into a percentage (e.g., if the Assessed Valuation in a Tax Year were
$165,000,000 and the Assessed Valuation in the Sale Event Year were
$150,000,000, the Real Property Percentage Increase would be obtained by
dividing 15 by 150, which equals .1, which equals 10%).
"Sale Event" shall mean either of the following as shall occur
during the Tax Credit Period: (i) a sale of the entire Building, or (ii) a
mortgage granted thereon convertible into an ownership interest therein of at
least fifty percent (50%), or (iii) a sale of greater than a fifty percent (50%)
stock, partnership or other direct interest in Landlord, if the Governmental
Authority responsible for assessing real property in New York City for real
estate tax purposes shall then have a policy that enables said Governmental
Authority to reassess real property primarily on the basis of such a sale,
mortgage or transfer described in (i) or (ii) or (iii) and said policy is then
in effect.
"Sale Event Date" shall mean, with respect to any Sale Event, the
date of such Sale Event.
"Sale Event Year" shall mean the Tax Year in which a Sale Event
occurs.
(a) Anything contained in this Section 2.03 to the contrary
notwithstanding, but subject to the further provisions of this Section 2.03,
during the period commencing on July 1, 1998 and ending on the Expiration Date
(the "Tax Credit Period"), Tenant shall be entitled to a credit (the "Tax
Credit") in an amount calculated as provided in this Section 2.03, against a
Real Estate Tax Escalation Payment for a Tax Year, subsequent to a Sale Event
Year, which is due to an increase in Real Estate Taxes deemed to be
attributable, pursuant to Section 2.03(c), to any Sale Event which occurs during
the Tax Credit Period. The Tax Credit for each Tax Year in the Tax Credit Period
shall be taken in equal installments against the installment payments made by
Tenant pursuant to Section 2.02 on account of Real Estate Tax Escalation
Payments for such Tax Year (e.g., if the Tax Credit in respect of a Tax Year
were $50,000, the Real Estate Tax Escalation Payments with respect to such Tax
Year were $500,000 and two installment payments are required, the installments
to be paid by Tenant to Landlord would each be in the sum of $225,000). The Tax
Credit shall be set forth in a statement(s) delivered by Landlord to Tenant (the
"tax credit statement"), subject to the provisions of Section 2.05.
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(b) The amount of the Tax Credit for each Tax Year in the Tax
Credit Period shall be calculated as follows:
(A) If in any Tax Year following a Sale Event Year
the Assessed Valuation for such Tax Year exceeds the Assessed
Valuation for the Sale Event Year and the Real Property Percentage
Increase for such Tax Year exceeds the Median Percentage Increase
for such Tax Year, then (x) the excess of the Real Property
Percentage Increase over the Median Percentage Increase (the "Sale
Event Percentage Increase") shall be deemed to be attributable to
the Sale Event, and (y) the Tax Credit for such Tax Year in question
shall be an amount equal to the product of (1) the Sale Event
Percentage Increase, multiplied by (2) the Assessed Valuation for
the Sale Event Year, multiplied by (3) the Rate, multiplied by (4)
Tenant's Proportionate Share in effect during the Tax Year in
question. (For example, if the Assessed Valuation increases from
$150,000,000 in the Sale Event Year to $165,000,000 in the next Tax
Year after the Sale Event Year and the Median Percentage Increase
for such Tax Year is 1%, the Sale Event Percentage Increase would be
deemed to be 10% less 1%, or 9%, and the Tax credit would be
$150,000,000 x 9% x the Rate x Tenant's Proportionate Share (as so
determined).)
(B) If (i) there is no Tax Credit with respect to
a Tax Year following a Sale Event Year or (ii) the Sale Event
Percentage Increase for any Tax Year after the Sale Event Year
equals zero (or less than zero), then there shall be no further Tax
Credits in respect of such Sale Event.
(C) If the Sale Event Percentage Increase for any
Tax Year after the first Tax Year following the Sale Event Year is
greater than the Sale Event Percentage Increase for the immediately
preceding Tax Year, then the Tax Credit for such Tax Year and each
subsequent Tax Year shall be an amount equal to the product of (1)
the lowest Sale Event Percentage Increase in effect for any
preceding Tax Year, multiplied by (2) the Assessed Valuation for the
Sale Event Year, multiplied by (3) the Rate, multiplied by (4)
Tenant's Proportionate Share (as so determined) from time to time
applicable for each such Tax Year.
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(D) If there shall be an increase in the Assessed
Valuation due to a Sale Event and tax reduction or other proceedings
are instituted to reduce or eliminate the increase in the Assessed
Valuation due to such Sale Event and any such reduction shall occur
and shall relate to any period in which Tenant shall have received a
Tax Credit based upon a determination, pursuant to clauses (A) or
(C) above, of the occurrence of a Sale Event Percentage Increase,
Landlord shall make appropriate adjustments in respect of the Tax
Credit (by recomputing the applicable Real Property Percentage
Increase).
(c) Within ten (10) Business Days after request by Tenant
during the Tax Credit Period, which request may not be made more frequently than
once in each calendar year, Landlord shall advise Tenant as to whether or not
there has been a Sale Event during the Tax Credit Period in respect of which
Landlord has not previously advised Tenant and Landlord's notice to Tenant shall
provide Tenant with reasonable details concerning any such Sale Event.
(d) In no event shall the provisions of this Section 2.03
reduce any Tax Escalation Payment to below zero or reduce the Fixed Rent.
(e) The provisions of this Section 2.4(d) shall survive the
expiration of the Term or the earlier termination of this Lease.
Section 2.04. In the event of delinquent payments of Fixed Rent and
additional rent payable to Landlord by Tenant pursuant hereto, Tenant will pay
interest at the Interest Rate on such overdue Fixed Rent and additional rent for
the period from the date thirty (30) days after such due date until so paid to
Landlord if any such amount is received thirty (30) days or more after its due
date, but if any provision of this Lease specifically provides for interest on
underpayments of additional rent, such as where Landlord and Tenant disagree on
the amount of additional rent payable, this provision shall not be applicable to
such underpayments.
Section 2.05. Any sum of money payable by Tenant to Landlord, pursuant to
any provision of this Lease, except for Fixed Rent, shall be deemed additional
rent. Fixed Rent and such additional rent unless otherwise specifically provided
for herein, shall be due and payable in lawful money of the United States of
America, by check drawn on (i) a bank or trust company which is a member of The
New York Clearing House Association (a "Clearing House Bank") or (ii)
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any other bank, provided that all such checks drawn on such other bank received
by Landlord shall clear in Landlord's account not later than a check drawn on a
Clearing House Bank would so clear if received by Landlord on the due date and,
in either case, promptly deposited for payment, addressed to Landlord as
provided in Article 22 hereof, on the first day of the month, unless another
date or time is specifically set forth herein. Fixed Rent shall be payable
without notice or demand. Fixed Rent and additional rent shall be payable
without any setoff, deduction or abatement (except as expressly provided in this
Lease). If Tenant believes in good faith that any bill or statement for any Rent
is manifestly incorrect on its face, Tenant shall so notify Landlord at least
five (5) days prior to the date such payment is due and if Tenant shall timely
give such notice, Tenant shall not be deemed in default of this Lease by not
making such payment (to the extent asserted in such notice to be manifestly
incorrect) if Landlord has notified Tenant that it agrees with Tenant's notice
or if Landlord shall not so notify Tenant, until five (5) Business Days after
Landlord has notified Tenant that it disagrees with Tenant's notice but in no
event earlier than the date such payment is due hereunder (but for the
provisions of this sentence).
ARTICLE 3
USE
Section 3.01. Tenant may use and occupy the Demised Premises for any
lawful purpose which is either in keeping with the class and character of the
Building or a use to which Tenant presently puts the Demised Premises. Such use
shall include, but shall not be limited to, the right of Tenant to use the
Office Space and Banking Space portions of Demised Premises for:
(a) the conduct of a banking, trust, safe deposit, insurance,
investment or securities business, or for other financial services of a then
similar kind and character to any of such businesses, or any combination of the
foregoing, and for similar or allied businesses as an adjunct thereto, and for
unrelated businesses as an incident thereto;
(b) computer, electronic data processing equipment and
business machines, including computer networks and printing and duplicating
equipment used for purposes incidental in the business of the Tenant or its
subtenants or Users;
(c) training facilities which are incidental to Tenant's or
its subtenant's business, such as training of
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Tenant's or its subtenant's or User's personnel;
(d) cafeteria or other dining and cooking facilities
(collectively, "Dining Facilities") for the purpose of preparing and serving
food and beverages for Tenant's or its subtenant's or User's officers,
directors, employees and guests and the sale of snack foods, beverages,
confections, newspapers and other convenience items by vending machines or
otherwise; provided that Tenant shall (i) not allow odors to escape from the
Demised Premises into other portions of the Building, (ii) contract with an
exterminator to exterminate vermin and rodents on a regular basis as part of a
program to keep the Demised Premises free of vermin and rodents by reason of the
Tenant's and/or its subtenant's operation of food vending services and
cafeteria, (iii) clean all grease traps, (iv) bag all wet garbage and place same
in containers that prevent the escape of odors, and (v) operate such Dining
Facilities in accordance with all health, sanitary and fire codes and insurance
company recommendations and requirements if they affect the rates or premiums
payable by Landlord; in addition, Tenant may install and operate vending
machines for the exclusive use of officers, directors, employees and business
guests of Tenant and/or its permitted assignees, subtenants, and Users, provided
that each vending machine dispensing liquids, where necessary, shall have a
waterproof pan thereunder and be connected to a drain.
(e) meeting rooms, auditoriums, exercise, health, medical and
day care facilities, for service to and use only by officers, directors,
employees and guests of Tenant or its subtenants or Users;
(f) messenger service in connection with and incidental to
Tenant's or its subtenant's or User's business;
(g) a barber shop, shoeshine and/or bootblack for service only
to officers, directors, employees and guests of Tenant and its subtenants or
Users;
(h) the storage of supplies, furniture, furnishings and
equipment, books, records and files and other items incidental to office uses;
(i) the installation of "private" lavatory facilities;
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(j) the operation of "ATM" machines, vending machines and
similar items for the exclusive use of officers, directors, employees and guests
of Tenant or its subtenants or Users;
(k) the installation in the Demised Premises of one or more
private elevators serving only the Demised Premises or part thereof (it being
understood however, that the now existing "vault" private elevator servicing the
1st and 2nd floors of the Demised Premises is not part of the Demised Premises);
and
(l) the installation of trading floors and other electronic
and technological support systems.
Such use shall include the right of Tenant to use the Cellar Space
portion of the Demised Premises for storage and equipment service and support
purposes.
Notwithstanding the foregoing, if and to the extent that any such
uses specified in Section 3.01, other than general, administrative and executive
offices, violate or conflict with any restrictions upon use of the Demised
Premises presently contained in any other now existing lease of space at the
Building, Tenant shall not use the Demised Premises for that other purpose which
so violates or conflicts with such other lease unless and until such other
tenant shall consent thereto.
Section 3.02. Notwithstanding anything in the first sentence of Section
3.01 to the contrary but except as expressly permitted by the second sentence of
Section 3.01, Tenant shall not use or occupy, or permit any portion of the
Demised Premises to be used or occupied, as a restaurant, cafeteria or like
purpose, or for manufacturing, or predominantly for the sale at retail or
auction of merchandise by off-the-street visits to the Demised Premises of goods
or property principally stored or kept at the Demised Premises (excluding,
however, the providing of services or as an incident to the uses permitted by
Section 3.01) of any kind. The term "retail" shall mean the sale and delivery to
customers at the Demised Premises (other than the Banking Space) of any products
or materials principally stored or kept in the Demised Premises (other than the
Banking Space), excluding, however, the providing of services or as an incident
to the uses permitted by Section 3.01.
Section 3.03. Provided Tenant complies with the provisions of Article 4,
including obtaining Landlord's consent if the Alteration would otherwise require
Landlord's consent under Article 4, Tenant may cause application to be made for
and obtain amendments to the certificate(s) of
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occupancy for the Building to permit the use of the Demised Premises, or
portions thereof, for any of the uses specifically enumerated in Sections 3.01.
Any such applications shall be made at Tenant's sole cost and expense, except
that Tenant will have no responsibility to remedy any building violations not
caused by Tenant. Landlord shall cooperate with Tenant in respect of any such
application, including making same in the name of Landlord if necessary,
provided that, if Landlord shall fail to so cooperate, Tenant may make such
application in its own name or on behalf of Landlord. To the extent that any
such amendment to the certificate of occupancy referred to above would require
work in order to permit Tenant to occupy the Demised Premises for such purposes,
then, to the extent it is practicable to do so, Landlord will perform such work
at Tenant's request provided Tenant agrees in writing in form and substance
reasonably satisfactory to Landlord to bear all reasonable expenses relating
thereto. Landlord will advise Tenant in writing of the estimated cost and
expense to Landlord in performing any such work prior to commencing any work.
Section 3.04. Landlord consents to use of desk space in the Demised
Premises for the purposes permitted in this Lease by persons or entities
affiliated with (including, without limitation, Affiliates), or providing
service to, Tenant or its subtenants, or with which Tenant or its subtenants
have a business relationship in the ordinary course of business of Tenant or its
subtenants, as the case may be ("Users"), subject to the following conditions,
in which event such use by Users shall not be deemed a subletting for purposes
of this Lease:
(i) The Users shall have no rights under this Lease and
Landlord shall have no liability or obligation to the Users under this
Lease or for any reason whatsoever in connection with the use or occupancy
of the Demised Premises;
(ii) not more than twenty-five percent (25%) of the
Demised Premises shall be occupied by Users which are not Affiliated with
Tenant or its subtenants;
(iii) No separate entrances to the Demised Premises from
public areas shall be constructed to access the space used by any User
which is not Affiliated with Tenant or its subtenants;
(iv) Tenant shall give written notice to Landlord prior
to the occupancy of such User;
(v) The Users shall use the Demised Premises in
conformity with all applicable provisions
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of the Lease, including this Article 3;
(vi) Any breach or violation of this Lease by a User
shall be deemed to be and shall constitute a default by Tenant under this
Lease, and any act or omission of a User shall be deemed to be and shall
constitute the act or omission of Tenant under this Lease;
(vii) The right of the Users to occupy a portion of the
Demised Premises shall not be deemed to be an assignment of, or sublease
under, this Lease and any occupancy of the Demised Premises shall
automatically terminate upon expiration or earlier termination of this
Lease;
(viii) Tenant hereby indemnifies Landlord against loss,
claim or damage arising from the acts or omission of the Users;
(ix) No User shall be entitled, directly or indirectly,
to diplomatic or sovereign immunity and each User shall be subject to the
service of process at, and the jurisdiction of the courts of, the State of
New York; and
(x) Nothing herein shall be deemed a consent to use of
the Demised Premises by any party other than Tenant, its subtenants and
such Users.
Section 3.05. In connection with, and incidental to, Tenant's use of the
Premises as provided in this Article 3, Tenant, at its sole cost and expense and
upon compliance with (i) all applicable Requirements, including, without
limitation, the obtaining of all required licenses and permits, (ii) all
insurance requirements and (iii) the other provisions of this Lease, may use the
fire stairwells (the "Fire Stairs") (which are deemed part of the Demised
Premises for the purposes of Article 8 hereof) between contiguous floors and
located above or below the Demised Premises for the sole purpose of gaining
ingress to, and egress from, the floors of the Demised Premises. In the event
that Tenant so uses the Fire Stairs, Tenant shall, at its sole cost and expense,
install a card key security access system or other security system reasonably
satisfactory to Landlord in order to gain access from such Fire Stairs to the
Demised Premises, and agrees that it shall not compromise such system or any
life safety system of the Building. All reasonable out-of-pocket costs incurred
by Landlord (which would not have been so incurred without such use by Tenant)
as a result of such use of the Fire Stairs shall be paid by Tenant to Landlord
within twenty (20) days after demand. Neither Landlord nor Landlord's agents
shall be liable for any injury or damage
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to persons or property, or interruption of Tenant's business as a result of, or
in connection with, the use of the Fire Stairs (including any such injury or
damage or interruption of Tenant's business caused by other tenants or persons
in the Building using the Fire Stairs or entering the Demised Premises from the
Fire Stairs), other than any liability which Landlord would have incurred in the
absence of such use of the Fire Stairs by Tenant; it being expressly understood
and agreed that Tenant shall bear the burden of proof to show that the liability
would have been imposed on Landlord in the absence of Tenant's use of the Fire
Stairs. If Tenant shall so use the Fire Stairs, Tenant shall keep the Fire
Stairs unobstructed and free of debris, refuse, trash and any other materials
caused by Tenant's use.
ARTICLE 4
ALTERATIONS AND INSTALLATIONS,
MECHANICS' LIENS, OWNERSHIP OF IMPROVEMENTS
Section 4.01. (a) Tenant, at its expense, may make alterations,
installations or other improvements in or to the Demised Premises
("Alterations"); provided that, prior to undertaking such Alterations Tenant
shall submit to Landlord for approval plans and specifications for the
Alterations to be performed, which approval Landlord agrees not to unreasonably
withhold or delay. Landlord may as a condition of its approval require Tenant
(i) to make reasonable revisions in and to its plans and specifications
requested by Landlord to the extent only that such requested revisions relate to
the impact of the Alterations on the structural integrity of the Building and
its systems, or (ii) to agree that any portion of such Alterations connected to
or involving any portion of the HVAC, plumbing, electrical or other systems of
the Building be performed by a contractor selected by Tenant and approved by
Landlord, such approval not to be unreasonably withheld or delayed. If Landlord
withholds its consent, it shall specify its reasons therefor and, if Landlord
shall not consent or deny its consent to any plans, specifications or other
requests submitted to it pursuant to this Article IV within fifteen (15) days
after its receipt thereof, or as to the contractor within ten (10) days after
Tenant's submission to Landlord of the name of the contractor for Landlord's
approval, Landlord shall be deemed to have consented to the Alterations covered
by such plans, specifications or other request, or to use by Tenant of such
contractor, as the case may be. No such consent by Landlord shall add to or
detract from the provisions of this Lease. If Landlord denies consent to any
such plans, specifications or other requests for such Alterations or consent to
use of a contractor for which such consent is required hereby, then, at Tenant's
request, the reasonableness of Landlord's denial shall be
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submitted to Expedited Arbitration. Tenant may submit to Landlord a list of
contractors for Landlord's approval prior to or together with the submission to
Landlord of Tenant's plans and specifications. Any approval by Landlord of a
contractor shall be effective for twelve (12) months unless previously revoked
in accordance with the standards of reasonableness provided herein by notice
given to Tenant, provided, however, no revocation of such approval shall be
effective as to a contractor with which Tenant then has a currently effective
contract during the pendency of such contract. Notwithstanding the foregoing,
Landlord agrees that no consent or approval shall be required as to Alterations
which (w) do not affect the structural elements, (x) do not affect the integrity
of the Building or its external appearance, (y) do not affect any part of the
Building other than the Demised Premises, or affect the Building Systems, other
than to cause a de minimus affect on such Building Systems, and (z) do not
affect any service (other than the freight elevator service if utilized by
Tenant in accordance with this lease, including without limitation, the rules
and regulations hereto) required to be furnished by Landlord to Tenant or to any
other tenant or occupant of the Building and if either (A) the total cost of the
Alterations, as reasonably estimated by Tenant (and of all other Alterations
part of the same construction project) is $250,000 or less subject to CPI
Adjustment, or (B) such Alterations are purely decorative such as painting or
carpeting or relate to relocating electric outlets or moving low voltage
communications cables, but Tenant shall provide Landlord five (5) Business Days
prior written notice thereof and a copy of any required permits therefor, and
such Alterations shall otherwise be undertaken in accordance herewith (the
"Pre-Approved Alterations"). It is understood that Tenant shall submit to
Landlord its plans and specifications for the Pre-Approved Alterations (other
than such as are purely decorative, or relate to relocating electric outlets or
moving low voltage communications cables and other Pre-Approved Alterations as
to which plans and specifications would not customarily be prepared in
accordance with good construction practice) prior to commencing such
Pre-Approved Alterations, even though Landlord's consent is not required
therefor.
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(b) All Alterations by Tenant referred to in this Section 4.01
shall be done in a good and workmanlike manner in compliance with all applicable
Requirements and in such a manner as not to unnecessarily and unreasonably
interfere with (i) the use of other portions of the Building by Landlord and
other tenants of the Building, or (ii) any construction work being performed
elsewhere in the Building by Landlord or by any other tenant of the Building, or
(iii) ingress and egress to, in and from the Building or any other premises
demised in the Building or (iv) to the extent reasonably possible, any labor
union employees of Landlord or any agreement between Landlord and such labor
union and in case of any such labor union interference, Tenant shall forthwith
remove such interfering labor from the Building and Demised Premises. All Tenant
Alterations shall be done between the hours of 8:00 A.M. to 6:00 P.M. on
Business Days, provided, however, that Tenant shall have the right to make
Alterations after 6:00 P.M. on Business Days or on days other than Business
Days, if (i) Tenant has given Landlord reasonable notice prior to commencing
such Alteration and (ii) a representative of Tenant's general contractor or
construction manager (i.e., a job foreman) shall be present at the Demised
Premises during such non-Business Hours. All demolition work, core drilling or
other comparably noisy work performed within the Demised Premises must be
performed as expeditiously as possible after 6:00 P.M. on Business Days or on
days other than Business Days, provided that demolition work performed in
accordance with this Section 4.01(b) shall be deemed not to cause interference
with use of other portions of the Building solely by reason of noise or
vibrations caused by such work in the course of performing the same in
accordance with good construction practice.
(c) Notwithstanding the foregoing provisions concerning
Landlord's consent to Alterations, Tenant shall have the right, at Tenant's
expense, subject to the provisions of this Article, to install private bathroom
facilities in the Demised Premises and ventilate and exhaust same by connecting
Tenant's toilet exhaust ducts to Landlord's toilet exhaust riser system.
Furthermore, Landlord shall either permit Tenant to exhaust kitchen fumes
through the exterior wall of the Building or provide space within a vertical
shaft to the Building's roof for the same purpose, in either case subject to
applicable Requirements and the provisions of this Article 4.
(d) Subject to compliance with the provisions of this Article
4, Tenant shall have the right, at its expense, to connect into the Building's
steam system to obtain steam for Tenant's Dining Facilities, provided that
Tenant shall, at its expense, install and maintain a submeter measuring Tenant's
consumption of steam and pay the
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charges provided for in Section 23.10 hereof.
(e) Subject to compliance with the provisions of this Article
4, Tenant shall have the right to install vents or louvers in the Middle and
West Building facade (only on the North side thereof) to the extent required, in
Landlord's reasonable judgment, for fresh air intake for Tenant's supplemental
air conditioning, provided such vents or louvers are installed at full windows
only and at locations approved by Landlord.
(f) Any Alterations for which consent has been received or is
deemed to have been received shall be performed substantially in accordance with
the approved plans and specifications therefor, and no material amendments or
additions thereto shall be made without the prior consent of Landlord if
Landlord's consent thereto is otherwise required hereunder. Within thirty (30)
days of the completion of any Alterations contemplated by this Article 4, Tenant
shall deliver to Landlord three (3) sets of "final" drawings (and the field
notes therefor) and CADD diskette copies (for which such drawings are
customarily prepared) with respect to such Alterations together with copies of
all relevant approvals of Governmental Authorities for same.
Section 4.02. Prior to commencing any of Tenant's Alterations, Tenant
shall procure all required permits and authorizations of all Governmental
Authorities having jurisdiction. Landlord shall cooperate with Tenant, at
Tenant's expense, to obtain such permits, authorizations and certificates,
including executing proper forms required by the Department of Buildings of the
City of New York or successor agency. Tenant's Alterations shall not cause,
result in or constitute, a violation of any Requirement, including without
limitation, the rules and regulations of the New York City Department of
Buildings. After completion of any of Tenant's Alterations, Tenant, with
Landlord's cooperation, shall furnish Landlord with a certificate of the New
York City Department of Buildings to the effect that after an inspection by the
New York City Department of Buildings, Tenant's Alterations comply with the
rules and regulations of the New York City Department of Buildings, if such
certificates are then obtainable and customarily issued.
Section 4.03. (a) Subject to compliance with the provisions of this
Article 4 and the other applicable provisions of this Lease, upon prior notice
to Landlord, Tenant shall have access to, and the right to use, the shafts,
risers and conduits located in the Building (including the roof) to the extent
required for the installation and maintenance of Tenant's Alterations
(including, without limitation, Tenant's Dining Facilities)
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or, if no such existing shaftway, riser or conduit is available, such pathway
shall be in a location reasonably designated by Landlord, provided however, that
(i) in Landlord's reasonable judgement, adequate space is available for such
purpose and shall not be required to serve the needs or reasonably anticipated
needs of other tenants or occupants in the Building (Landlord shall evaluate
such needs of Tenant and other tenants or occupants on a non-discriminatory
basis) or the reasonably anticipated needs of the Building, and (ii) in
Landlord's reasonable judgement, the operation of the Building shall not, and
will not in the future, be adversely affected thereby. Landlord shall provide
Tenant and its employees, agents and subcontractors with reasonable access
thereto at reasonable times (and subject to the rights of other tenants) so as
to permit Tenant to install and maintain in such shafts, risers and conduits the
necessary piping, flues, vents, grease traps, kitchen hood fire extinguishing
systems, wiring or other equipment required in connection therewith.
(b) The foregoing shall include, without limitation, the right
to install in shaft(s) adjoining the Demised Premises and connecting appropriate
connecting points in the basement with the Demised Premises, telephone conduits
to be used for Tenant's telephone or other communications wiring. Tenant may
elect to obtain communications services from an alternate provider selected by
Tenant, provided Landlord has consented to such provider, such consent not to be
unreasonably withheld if in Landlord's judgment such provider is reputable and
financially stable, would not cause a risk of damage to the Building or the
Building Systems or any other telephone, communications or other equipment in
the Building or in such risers, conduits and shafts thereof or a risk of
vandalism or theft and does not cause a labor conflict, and Tenant complies with
the other provisions of this Lease applicable thereto. Landlord shall not impose
any fee on Tenant or such provider to so service the Demised Premises, or
install or connect the provider's equipment and network through the Building's
risers, conduits and shafts, subject to the provisions of this Section relating
to the use of such risers, conduits and shafts, other than usual charges in the
event such provider requires other space in the Building for its equipment and
reimbursement of Landlord's actual costs and expenses with respect to
installations by and service of such provider. Landlord shall have the right to
establish reasonable rules and regulations in connection therewith (including,
without limitation, the establishment of safeguards and procedures to assure
that services to other portions of the Building shall not be interrupted or
adversely affected) and to have Building personnel accompany Tenant and its
agents and contractors at the time of any such installation or maintenance.
Insurance required to be maintained hereunder shall cover any such activities.
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Section 4.04. Approval by Landlord or Landlord's architect or engineer of
Tenant's drawings and specifications shall not be deemed to mean approval of
structural capacity, adequacy of utilities, or of any other technical matters,
or that said drawings and specifications are in compliance with Requirements,
and such approval shall not relieve Tenant from its responsibility for the
proper and adequate design and construction of any such Alterations, nor shall
such approval impose any liability on Landlord or waive any of Landlord's rights
hereunder. Landlord shall have the right at all times during the performance of
any Alteration, in or to the Demised Premises, to inspect the portion of the
Demised Premises where such Alteration is being made, upon reasonable notice to
Tenant and at reasonable times, provided that any such inspections shall be made
in such a manner as shall not unnecessarily or unreasonably interfere with the
performance of such Alterations. Tenant may have representatives present at such
inspections. Tenant shall reimburse Landlord for any reasonable out-of-pocket
costs that may be incurred by Landlord for architects or engineers (not employed
by Landlord) in connection with Landlord's review of Tenant's plans and
specifications for any proposed Alterations, to which Landlord must consent,
such reimbursement to be made within thirty (30) days after Tenant's receipt of
a statement therefor from Landlord.
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Section 4.05. Tenant will not permit to be created or to remain, and will
discharge of record within thirty (30) days after notice of such filing, by
payment, filing of the bond required by law or otherwise, any mechanic's lien
filed against the Demised Premises or the Building for work claimed to have been
done for, or materials claimed to have been furnished to, Tenant; and, if Tenant
is in default beyond its applicable cure period by reason thereof, Landlord may,
in addition to any other rights and remedies it may have by reason of Tenant's
default, cause any such lien to be removed of record by bond, deposit or other
substitute security (but not by payment if Tenant is in good faith contesting
any such lien) as Landlord may elect, and Tenant shall reimburse Landlord for
all actual out-of-pocket costs and expenses incidental to the removal of record
of any such lien incurred by Landlord together with interest thereon at the
Interest Rate. Tenant at its expense may contest by appropriate legal
proceedings conducted with due diligence, the amount or validity of any such
lien if such proceedings shall suspend the collection of any sums payable to
satisfy such lien from Landlord or the Building. Notice is hereby given that
Landlord shall not be liable for any labor or materials furnished or to be
furnished to Tenant upon credit, and that no mechanic's or other lien for any
such labor or materials shall attach to or affect the reversion or other estate
or interest of Landlord in and to the Demised Premises.
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Section 4.06. All alterations, installations, additions and improvements
made and installed by Landlord at Landlord's expense shall become and be the
property of Landlord and shall remain upon and be surrendered with the Demised
Premises as a part thereof at the end of the Term of this Lease. All Alterations
made and installed by Tenant or its Affiliates or its subtenants, or at Tenant's
or its Affiliates or subtenants' expense, upon or in the Demised Premises
(whether prior to or during the Term of this Lease), shall remain the property
of Tenant and may be removed from the Demised Premises at any time by Tenant at
Tenant's option, provided, however, that Tenant shall repair and restore in a
good and workmanlike manner any structural damage to any part of the Building
caused by such removal. Notwithstanding the foregoing, Landlord shall have the
right and privilege to serve a written notice ("Removal Notice") upon Tenant
together with Landlord's approval of Tenant's plans for any of Tenant's
Alterations to be made from and after the date hereof requiring that any
Alterations which affect the structure of the Building or any Building System
and which are nonstandard office installations (such as stairways, vaults,
kitchens, bathrooms, and similar type work or installations) which involve
construction which differs materially from that generally included in a standard
office work letter in buildings in the City of New York similar to the Building,
shall be removed at the Expiration Date or the earlier termination of this
Lease; provided, however, Landlord shall not require removal of pantries, raised
flooring and wiring and cabling under raised flooring (except that if requested
by Landlord Tenant shall disconnect such wiring from the Building Systems). In
the event of service of such Removal Notice, Tenant will, at Tenant's own cost
and expense, no later than the Expiration Date or the earlier termination of
this Lease remove the Alterations required to be removed, and repair the portion
of the Demised Premises affected by such removal, in accordance with the Removal
Notice. Any of such Alterations not so removed by Tenant by the Expiration Date
or earlier termination of this Lease, may, at the option of the Landlord, be
deemed to have been abandoned and in such case may either be retained by
Landlord as its property or may be disposed of without accountability, at
Tenant's expense in such manner as Landlord may see fit.
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Section 4.07. All furniture, furnishings and trade fixtures, including
without limitation, art work, fine arts, murals, carpets, rugs, business
machines and equipment, special woodwork, closets, panelling, special lighting
fixtures, and any other movable property, except as referred to in Section 4.06,
installed by Tenant or its Affiliates or its subtenants or at its expense,
whether prior to or during the Term ("Tenant's Property") is and shall remain
the property of Tenant. Tenant may at its option remove all or any part of
Tenant's Property at any time on or prior to the Expiration Date or earlier
termination of this Lease. In the event Tenant shall decide not to remove any
part of Tenant's Property, Tenant shall notify Landlord in writing not less than
thirty (30) days prior to the expiration of the Term, specifying the items of
Tenant's Property which Tenant has decided not to remove. If, within ten (10)
Business Days after the service of such notice, or, if no such notice shall be
given, within thirty (30) days prior to the expiration or earlier termination of
the Term, Landlord shall request Tenant to remove any of Tenant's Property,
Tenant shall at its expense promptly remove the same and, if Tenant shall fail
to do so Landlord shall have the right to remove such property and to dispose of
the same without accountability to Tenant and at the cost and expense of Tenant.
As to Tenant's Property which Landlord does not request Tenant to remove, the
same shall, if not removed by Tenant, be deemed abandoned and shall become the
property of Landlord.
Section 4.08. If Tenant shall employ any contractor to do any work in the
Demised Premises permitted by this Lease, such contractor and any subcontractor
shall agree to employ only such labor as will not result in jurisdictional
disputes or strikes. Tenant will inform Landlord in writing of the names of any
contractor or subcontractor Tenant proposes to use in the Demised Premises at
least five (5) days prior to the beginning of the work by such contractor or
subcontractor or, in the event of an emergency, in such shorter period of time
as circumstances may permit.
Section 4.09. Tenant shall, during any period wherein Alterations are
being made in or to the Demised Premises, carry insurance and/or require the
contractor or contractors doing such work to carry insurance in the amounts and
classes of coverage set forth below insuring the contractor(s), sub-contractor,
Tenant, Landlord, any lessor or mortgagee permitted by Article 31 hereof, as
hereinafter set forth:
(a) Worker's Compensation (Statutory Limits) and Employer's
Liability in an amount not less than $1,000,000; and
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(b) Commercial Comprehensive General Liability, including
contractual and completed operations coverage for a combined single limit for
property damage and bodily injury of $3,000,000; and
(c) Comprehensive automobile liability coverage (including
bodily injury and property damage) for owned, non-owned and hired vehicles when
on the Real Property in an amount not less than $2,000,000 combined single
limit.
All amounts of insurance coverage hereinbefore provided may be
increased by Landlord on reasonable written notice to Tenant so that the amount
thereof adequately protects Landlord's interest; provided, however, that the
amount of such insurance shall in no event exceed the amount customarily
required of tenants of space the permitted uses of which are similar to the uses
permitted herein in first class office buildings in midtown Manhattan of similar
age and construction.
Certificates evidencing the above coverage shall be deposited with
Landlord with proof of payment of the premiums thereon prior to the commencement
of the Alterations then planned to be done.
Section 4.10. The provisions of this Article 4 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 5
REPAIRS -- FLOOR LOAD
Section 5.01. Tenant shall make, at Tenant's cost and expense, all
nonstructural repairs to the Demised Premises and the equipment therein as and
when needed to preserve them in good working order and condition, reasonable
wear and tear, obsolescence and damage from the elements, fire or other casualty
excepted. Notwithstanding the foregoing, all damage or injury to the fixtures,
equipment and appurtenances in the Demised Premises, whether requiring
structural or nonstructural repairs, caused by or resulting from the acts or
negligence of Tenant (except fire or other damage caused by Tenant's acts or
negligence, if the fire or other all-risk insurance policies carried (or which
are required to be carried hereunder) by Landlord are not or would not be
invalidated by this provision as and to the extent provided in Section 7.08),
shall be repaired promptly by Tenant at its sole cost and expense, reasonable
wear and tear, obsolescence and damage and repairs for which Tenant is not
responsible under the terms of this Lease excepted. All damage or injury to the
fixtures, equipment and appurtenances in the Demised Premises or thereto caused
by
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Tenant moving property in or out of the Building or by the installation or
removal of furniture, fixtures or other property, and for which Landlord has not
been or will not be reimbursed by insurance required to be or otherwise
maintained by Landlord or Tenant, shall be repaired, restored or replaced
promptly by Tenant at its sole cost and expense, which repairs, restorations and
replacements shall be reasonably comparable in quality to the original work or
installations. If Tenant fails to make any repairs, restorations or replacements
referred to in this Section 5.01, Landlord may serve notice of such failure on
Tenant and of Landlord's intention to enforce its rights pursuant to this
sentence, and if Tenant fails to make such repairs, restorations, or
replacements or to diligently commence efforts to make such repairs,
restorations or replacements within twenty (20) days of the giving of such
notice, they may be made by Landlord at the reasonable expense of Tenant and
such expense shall be collectible as additional rent and shall be paid by Tenant
within thirty (30) days after submission to Tenant of a bill therefor.
Furthermore, any of the aforesaid repairs required to be made by Tenant may, at
the election of Landlord be made solely by Landlord if the required repairs,
restorations or replacements are structural in nature or affect any Building
System or any portion of the Building outside of the Demised Premises, in which
event such repairs shall be made at the reasonable expense of Tenant and the
reasonable cost thereof incurred by Landlord shall be paid to Landlord as
additional rent within thirty (30) days after submission of the bill therefor.
Such election by Landlord shall be made within ten (10) days after Landlord is
notified by Tenant or otherwise has actual knowledge that such repair,
restoration or replacement is required, by notice given to Tenant, failing which
it shall be deemed that Landlord has elected to perform such repair.
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Section 5.02. Landlord shall make all structural or non-structural
repairs, restorations and replacements, other than those specified in Section
5.01, necessary to put, keep and maintain the Real Property (including, the
sidewalks and curbs adjacent to the Building) and the Demised Premises in good
condition and repair consistent with a first-class office building in the
midtown Park Avenue area of New York City and, in addition, repair, maintain and
keep in good working condition and repair, and replace, if necessary, consistent
with a first class office building in the midtown Park Avenue area of New York
City, all electric wiring, conduits and risers, plumbing, water, heat and
chilled water facilities, air conditioning controls and air distribution systems
and other Building Systems, and all elevators, escalators, entrances, lobbies,
halls and public areas in the Building through which access may be had to the
Demised Premises and all "base building" bathrooms on floors on which the
Demised Premises are located, and in addition make all repairs, restorations and
replacements, structural and otherwise, interior and exterior, ordinary and
extraordinary, the need for which arises out of the acts or negligence of
Landlord or its employees, agents, contractors or invitees (except fire or other
damage caused by Landlord's acts or negligence, if the fire or other all-risk
insurance policies carried (or which are required to be carried hereunder) by
Tenant are not or would not be invalidated by this provision as and to the
extent provided in Section 7.08). All such repairs shall be made and performed
with reasonable diligence and so as to minimize interference with the conduct of
Tenant's business and access to the Demised Premises, provided, however, nothing
contained in this sentence shall be deemed to impose upon Landlord any
obligation to employ contractors or labor at so-called overtime or other premium
pay rates; provided, further, that in cases where there is or will be a material
interference with Tenant's business or access to the Demised Premises, or the
health or safety of the occupants of the Demised Premises is or will be
adversely affected, Landlord shall employ contractors or labor at overtime or
other premium pay rates. In all other cases, at Tenant's request and expense,
Landlord shall employ contractors or labor at so-called overtime or other
premium pay rates and incur any other overtime costs or expenses in making any
repairs, alterations, additions or improvements. All replacements made by
Landlord shall be at least equal in utility and quality to the utility and
quality that the materials and equipment being replaced had when they were new.
Section 5.03. Tenant shall not place a load upon any floor of the Demised
Premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed by law (which is currently 50 lbs. of
live load per square foot and 20 lbs. of dead load per square
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foot).
Section 5.04. Except as otherwise provided in this Lease, there shall be
no allowance to Tenant for a diminution of rental value and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from the making of any repairs, alterations, additions or improvements
in or to any portion of the Building or the Demised Premises or in or to the
fixtures, appurtenances or equipment therein, provided, however, that Landlord
shall do all such work in a manner so as to minimize interference with the
conduct of Tenant's business and access to the Demised Premises in accordance
with the provisions of Section 5.02.
Section 5.05. Landlord agrees that the noise and vibration levels in the
Demised Premises resulting from the operation of the Building Systems shall not
exceed a noise criterion environment in general offices areas of the Demised
Premises of "NC-40" within 15 feet of the perimeter HVAC units and "NC-35"
elsewhere in the Demised Premises, subject to standard deviation of +/-2 "NC
points". The Landlord agrees that it shall include in leases hereafter executed
with other tenants, requirements that if such tenant uses any space on a floor
directly above the Demised Premises for a fitness center or gymnasium, such
tenant will insulate the floors to minimize vibration and if such tenant shall
use such space for any "wet" use, such tenant shall protect against water
infiltration to the extent required by good construction practice. Landlord
shall not be responsible for any failure of the Building Systems to operate in
accordance with such noise criteria to the extent the same is attributable to
Tenant's modifications to the Building Systems.
ARTICLE 6
REQUIREMENTS OF LAW, FIRE INSURANCE
Section 6.01. Tenant, at Tenant's expense, shall comply with all
Requirements of any Governmental Authority, which shall impose any violation,
order or duty upon Landlord or Tenant with respect to the Demised Premises if
such violation, order or duty arises or results from Tenant's use or occupancy
of the Demised Premises in a manner contrary to the purposes for which they are
leased to Tenant, or from Tenant's failure to comply with Tenant's covenants or
agreements in this Lease, or from Tenant's negligence, except that Landlord
shall nevertheless be and remain responsible for structural changes and other
work, whether or not structural, which Landlord is otherwise obligated hereunder
to perform.
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Section 6.02. Tenant shall not do or permit to be done any act or thing
upon the Demised Premises, other than Tenant's use of the Demised Premises for
the purposes stated in Article 3 hereof, which will invalidate or be in conflict
with New York standard fire insurance policies covering the Building, or which
would increase the rate of such fire insurance applicable to the Building to an
amount higher than it otherwise would be unless Tenant pays the amount of such
increase pursuant to Section 6.03. Tenant shall neither do nor permit to be done
any act or thing upon the Demised Premises, other than Tenant's use of the
Demised Premises for the purposes stated in Article 3 hereof, which shall or
might subject Landlord to any liability or responsibility for injury to any
person or persons or to property by reason of any business or operation being
conducted in the Demised Premises.
Section 6.03. If, by reason of the failure of Tenant to comply with the
provisions of Section 6.02, the rate for such standard fire insurance with
extended coverage shall at any time be higher than it otherwise would be, then
Tenant shall reimburse Landlord, as additional rent hereunder, for that part of
all such insurance premiums thereafter paid by Landlord which shall have been
charged because of such violation by Tenant, and shall make such reimbursement
within thirty (30) days after receipt of Landlord's detailed request therefor in
writing accompanied by a copy of its insurance bill.
Section 6.04. If any violations of record against the Building that are
not caused by Tenant shall prevent Tenant from obtaining any permit, certificate
or approval necessary for Tenant or any subtenant to begin the performance of
any Alterations or to operate its business in any part of the Demised Premises,
(a) Tenant shall promptly notify Landlord, (b) Fixed Rent and additional rent
shall be abated one day for each day that Tenant or any subtenant is delayed in
beginning the performance of the Alterations or the operation of its business
solely by reason of the existence of such violation as to that portion of the
Demised Premises so affected (computed on a ratable square foot basis as to each
portion of the Office Space, Banking Space or Cellar Space so affected), (c)
Landlord shall use its best efforts to remove or cause the removal of such
violation with reasonable diligence and (d) Landlord shall have the right and
authority to obtain any such permit, certificate or approval on behalf of
Tenant.
Section 6.05. Notwithstanding the provisions of Section 6.01, Tenant, at
its own cost and expense, in its name and/or (wherever necessary) Landlord's
name, may contest, in any manner permitted by law (including appeals to a court,
or governmental department or authority having jurisdiction in the matter), the
validity or the enforcement
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of any Requirement, with which Tenant is required to comply pursuant to this
Lease, and may contest the validity thereof and/or defer compliance therewith
provided that such noncompliance shall not (a) subject Landlord to criminal
prosecution, (b) neither the Building nor any part thereof is subject to being
condemned or vacated, by reason of noncompliance or otherwise by reason of such
contest, and (c) such noncompliance or contest does not constitute or result in
any violation of any lease or mortgage permitted by Article 31 hereof held by a
Recognized Lending Institution (as such term is defined in Section 31.01) (or if
any such lease and/or mortgage permits such noncompliance or contest only if
Landlord takes some specified action or furnishes security, such action is taken
and/or such security is furnished at the expense of Tenant). Tenant shall
promptly and diligently prosecute such contest in its name and/or in the name of
Landlord (if necessary). Such noncompliance by Tenant during such contest shall
not be deemed a breach of the covenants of this Lease. Landlord, without expense
or liability to it, shall cooperate with Tenant and execute any documents or
pleadings required for such purpose, provided that Landlord shall reasonably be
satisfied that the facts set forth in any such documents or pleadings are
accurate. Tenant shall indemnify and hold harmless Landlord against the cost and
expenses thereof and, in addition thereto, all liability for any damages,
interest, penalties and expenses (including, but not limited to, reasonable
attorneys' fees of Landlord) resulting from or incurred in connection with such
contest or noncompliance. Landlord may, at Landlord's expense, join in such
contest, provided, however, that the conduct of any such proceeding shall be
under the control and direction of Tenant.
Section 6.06. Landlord shall comply or cause compliance with all
Requirements now or hereafter affecting the Real Property or Demised Premises
which are not Tenant's obligations to comply pursuant to the provisions of this
Lease. Landlord may defer such compliance or contest the validity thereof at its
expense, after notice to Tenant, by appropriate proceedings prosecuted
diligently and in good faith provided that (a) the condition which is the
subject of such contest does not pose a danger to persons or property, or
materially interfere with Tenant's use or occupancy of the Demised Premises or
access thereto and (b) Tenant is not subject to criminal prosecution by reason
of Landlord's noncompliance or otherwise by reason of such contest. Nothing in
this Section shall be deemed to limit or detract from any of Tenants rights
under Sections 6.04 or 21.02.
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Section 6.07. In no event shall Tenant transfer, use, store or handle any
material or substance now or hereafter designated as hazardous or toxic
substances under the laws and regulations of any Governmental Authority other
than those customarily used in connection with the business of Tenant permitted
in Article 3 or in connection with customary cleaning practice for office space.
Tenant shall have the absolute responsibility (as between Tenant and Landlord)
to cause all materials and substances which now or hereafter are designated as
hazardous or toxic substances that are transported to or from, used, stored or
handled at, or disposed of from the Demised Premises during the term of this
Lease by a person other than Landlord or its agents, to be transported, used,
stored, handled and disposed of in compliance with all applicable laws and
regulations. The foregoing liability of Tenant shall expressly survive the
expiration or earlier termination of the term of this Lease. Tenant shall
indemnify and hold Landlord harmless from any and all claims, liability,
damages, costs and expenses, including reasonable attorney's fees, arising out
of or relating to Tenant's breach of the covenants contained in this Section.
Section 6.08. In no event shall Landlord cause or permit any material or
substance now designated as hazardous or toxic substances under the laws and
regulations of any Governmental Authority to be incorporated into the Demised
Premises nor shall Landlord transfer, use, store or handle any such material or
substance in the Building, other than those customarily used in connection with
the operation, maintenance or repair of the Building (including, without
limitation, cleaning products). The foregoing liability of Landlord shall
expressly survive the expiration or earlier termination of the term of this
Lease. Landlord shall indemnify and hold Tenant harmless from any and all
claims, liability, damages, costs and expenses, including reasonable attorney's
fees, arising out of or relating to Landlord's breach of the covenants contained
in this Section.
ARTICLE 7
PROPERTY -- LOSS, DAMAGE,
REIMBURSEMENT, INSURANCE WAIVERS OF SUBROGATION
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Section 7.01. Neither Landlord nor its agents shall be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any part of
the Building or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless any of the foregoing shall be caused by or
due to the intentional acts or negligence of Landlord, its agents, servants or
employees or the failure by Landlord to fulfill any of its obligations under
this Lease.
Section 7.02. Subject to the provisions of Section 7.08 hereof, Tenant
shall indemnify and hold harmless Landlord for all expenses, damages or fines
incurred or suffered by Landlord and for which Landlord has not been or will not
be reimbursed by insurance, by reason of (a) any breach, violation or
nonperformance by Tenant or its agents or employees, of any covenant or
provisions of this Lease to be observed or performed on the part of Tenant, or
(b) damage to persons or property caused by moving property of or for Tenant in
or out of the Building, or (c) the carelessness, negligence or improper conduct
of Tenant, or its agents or employees, in the use or occupancy of the Demised
Premises. Nothing contained herein shall be construed to require Tenant to
indemnify, defend or hold Landlord harmless to the extent that any damage, claim
or loss is a result of the acts or negligence of Landlord or any of its
employees, servants, agents, partners, successors or assigns. Tenant's liability
under this Section shall be reduced by the net proceeds due to Landlord plus the
deductible under any insurance on the risks in question maintained by Landlord
for the Landlord's benefit. Landlord shall promptly notify Tenant of any claim
asserted against Landlord on account of any such breach or violation, damage or
injury and shall promptly deliver to Tenant the original or a true copy of any
summons or other process, pleadings, or notice issued in any suit or other
proceeding to assert or enforce any such claim.
Section 7.03. Subject to the provisions of Section 7.08 hereof, Landlord
shall indemnify and hold harmless Tenant for all expenses, damages or fines
incurred or suffered by Tenant and for which Tenant has not been or will not be
reimbursed by insurance, by reason of (a) any breach, violation or
nonperformance by Landlord or its agents or employees, of any covenant or
provisions of this Lease to be observed or performed on the part of Landlord, or
(b) damage to persons or property caused by moving property of or for Landlord
in or out of the Building, or (c) the carelessness, negligence or improper
conduct of Landlord, or its agents or employees. Nothing contained herein shall
be construed to require Landlord to indemnify, defend or hold Tenant harmless to
the extent that any damage, claim or loss is a
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result of the acts or negligence of Tenant, or its employees, servants, agents
or partners, successors or assigns. Landlord's liability under this Section
shall be reduced by the net proceeds due to Tenant plus the deductible under any
insurance on the risks in question maintained by Tenant for the Tenant's
benefit. Tenant shall promptly notify Landlord of any claim asserted against
Tenant on account of any such breach or violation, damage or injury and shall
promptly deliver to Landlord the original or a true copy of any summons or other
process, pleadings, or notice issued in any suit or other proceeding to assert
or enforce any such claim.
Section 7.04. The words "indemnify and hold harmless" shall mean that the
indemnifying party agrees to indemnify, hold and save harmless the other and its
partners, directors, officers, shareholders, agents and employees from and
against all loss, cost, liability, claim, damage, fine, penalty and expense,
including reasonable attorneys' fees and disbursements (whether incurred in
resisting and defending any action or proceeding or incurred in enforcing the
indemnification rights of the other against the indemnifying party). Whenever a
party is required to indemnify another person pursuant to the terms and
conditions of this Lease, (i) the indemnifying party shall pay to the other
person upon rendition of bills or statements therefor, an amount equal to all
losses, costs, liabilities, claims, damages, fines, penalties and expenses (x)
incurred by the indemnified person(s) and (y) for which the indemnifying party
has indemnified the indemnified person hereunder, (ii) notwithstanding the
foregoing, the indemnifying party shall not be required to pay attorneys' fees
and expenses incurred by the indemnified person if it is determined in such
action or proceeding that the indemnified person was not entitled to be so
indemnified or in the case of an action or proceeding brought by a third party,
the indemnifying party uses attorneys to defend such action or proceeding which
are reasonably satisfactory to the indemnified person, which attorneys shall be
directed by the indemnifying party, (iii) attorneys retained by an insurance
company providing coverage against the action or proceeding in question shall be
reasonably satisfactory to the indemnified person and shall be directed by such
insurance company, (iv) the indemnifying party shall conduct all settlement
negotiations regarding the matter in question and the indemnified person shall
not enter into any settlement agreement with respect to a matter for which the
indemnifying party has indemnified such person against liability (except and to
the extent such indemnified person has any liability therefor that is outside
the scope of the indemnity) without the indemnifying party's consent, such
consent not to be unreasonably withheld or delayed, and (v) the indemnified
person shall cooperate with the indemnifying party in resisting and defending
any action or proceeding
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which arises with respect to a matter for which the indemnified person has been
indemnified provided the indemnified person does not incur thereby any
liabilities or costs or expenses, unless the indemnifying party agrees to
reimburse the indemnified person for same, including reasonable attorneys' fees
and disbursements, in which event such reimbursement, if made to Landlord, shall
be deemed rent for all purposes of this Lease.
Section 7.05. Landlord, at its expense, shall obtain and maintain at all
times during the Term of this Lease, (a) insurance with respect to the Building
against loss or damage by fire, lightning and other risks from time to time
included under "all-risk" coverage endorsements, in amounts equal to the highest
available percentage (but not less than ninety percent (90%)) of the full
replacement value of the Building (exclusive of the cost of foundations and
excavations), but in any event in amounts sufficient to prevent Landlord from
becoming a coinsurer under the applicable policies; in no event shall any such
policies contain "deductibles" which when aggregated shall exceed $250,000, (b)
rent insurance in an amount equal to one year's then current fixed rents and
escalations, payable by tenants of the Building (including Tenant) and (c)
comprehensive general liability insurance in respect of the Real Property with
limits of not less than $25,000,000 combined single limit, and, if any vehicles
owned, leased or operated by Landlord are located on the Real Property at any
time, comprehensive automobile liability coverage (including bodily injury and
property damage) for such vehicles in an amount not less than $2,000,000
combined single limit, to protect against any and all claims for bodily injury
(or death) and property damage liability in any occurrence. Such insurance may
be maintained as part of a blanket policy of insurance covering the Building
which shall provide the same protections to the insured as would be provided by
policies individually applicable to the Building. Landlord agrees to furnish
Tenant with certificates or copies of its insurance policies, and to notify
Tenant promptly of any cancellation or change of the terms of any such policy.
Section 7.06. Tenant, at its expense, shall obtain and maintain at all
times during the Term of this Lease, at its expense, (a) insurance against loss
or damage by fire, and such other risks and hazards as are from time to time
insurable under "all-risk" forms of insurance policies covering Tenant's
Property for at least ninety percent (90%) of the replacement cost thereof, (b)
Commercial General Liability Insurance to afford protection in an amount of not
less than $5,000,000 combined single limit and if any vehicles owned, leased or
operated by Tenant are located on the Real Property at any time, Comprehensive
automobile liability coverage (including bodily injury and property damage) for
owned, non-owned and hired vehicles on the Real
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Property in an amount not less than $2,000,000 combined single limit, for injury
or death arising out of any one occurrence and for damage to property in respect
of any one occurrence, such insurance required by this clause (b) protecting
Landlord, Landlord's agents, any lessor or mortgagee permitted by Article 31
hereof, and Tenant as insureds; except that Original Tenant may self-insure,
provided that it complies with the provisions of Section 7.12 hereof. On the
Commencement Date the original insurance policies or appropriate certificates
shall be deposited with Landlord. Any renewals, replacements or endorsements
thereto or certificates therefor shall also be so deposited, and in the case of
such renewals or replacements such deposit shall be made prior to expiration of
the existing policy. Each such policy of such insurance shall contain
provisions, if and to the extent available, that it will not be canceled except
upon at least ten (10) days' prior notice to Landlord and that the act or
omission of Landlord will not invalidate the policy. Such insurance coverage may
be part of a blanket policy which shall provide the same protections to the
insured as would be provided by policies individually applicable to Tenant's
Property. In no event shall any such policies contain "deductibles" which when
aggregated shall exceed $250,000 except as provided in Section 7.12 hereof as to
Original Tenant. The minimum amounts of liability insurance coverage or the
deductible may from time to time, but not more frequently than once every
thirty-six (36) months, be reasonably modified at Landlord's request, so that
the amount thereof adequately protects Landlord's interest; provided, however,
that the amount of such insurance and deductible shall in no event materially
vary from the amounts customarily required of tenants of space the permitted
uses of which are similar to the uses permitted herein in first class office
buildings in midtown Manhattan of similar age and construction. Any dispute as
to whether Landlord's judgment as to the required amount of Tenant's insurance
or the deductible was correct shall be resolved by Expedited Arbitration
commenced within sixty (60) days after Tenant received notice of Landlord's
determination, but pending the resolution of such dispute and as a condition
precedent to Tenant's right to invoke such arbitration process, Tenant shall
carry insurance based upon Landlord's determination, without prejudice to
Tenant's position. If it is resolved in such arbitration that the insurance
required by Landlord was unreasonably excessive, any overpayment of premiums by
Tenant shall be credited by Landlord against Rents next due under this Lease
with interest thereon at the Interest Rate from the date paid by Tenant.
Section 7.07. Each party hereto agrees to use its best efforts to include
in each of its fire and extended coverage insurance policies insuring the
Building and Landlord's property therein and rental value thereof, in the case
of
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Landlord, and insuring Tenant's Property, in the case of Tenant, against loss,
damage or destruction by fire or other casualty (i) a waiver of the insurer's
right of subrogation against the other party or (ii) 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 (iii) any other form of permission for the release of the other
party. If such waiver or permission shall not be, or shall cease to be,
obtainable without additional charge or at all, the insured party shall so
notify the other party promptly after learning thereof. In such case, if the
other party shall so elect and shall pay the insurer's additional charge
therefor, such waiver or permission shall be included in the policy, or the
other party shall be named as an additional assured in the policy. Each such
policy which shall so name a party hereto as an additional assured shall
contain, if obtainable, agreements by the insurer that the policy will not be
canceled without at least ten (10) days' prior notice to both assureds and that
the act or omission of one assured will not invalidate the policy as to the
other assured. Either party so named as an additional assured shall promptly
endorse to the order of the other party, without recourse, any instrument for
the payment of money under or with respect to the policy of which the other
party is the owner or original or primary assured, and shall have no right in or
to such payment or to participate in the settlement of any claim under such
policy.
Section 7.08. Each party hereby releases the other party with respect to
any claim (including a claim for carelessness or negligence) which it might
otherwise have against the other party for loss, damage or destruction with
respect to its property (including rental value or business interest) occurring
during the Term of this Lease and with respect and to the extent to which it is
insured under a policy or policies containing a waiver of subrogation or
permission to release liability or naming the other party as an additional
assured, as provided in Section 7.07. If, notwithstanding the recovery of
insurance proceeds by either party for loss, damage or destruction of its
property (or rental value or business interest), the other party is liable to
the first party with respect thereto or is obligated under this Lease to make
replacement, repair or restoration or payment, then provided the first party's
right of full recovery under its insurance policies is not thereby prejudiced or
otherwise adversely affected, the amount of the net proceeds of the first
party's insurance applied to or against such loss, damage or destruction shall
be offset against the other party's liability to the first party therefor, or
shall be made available to the other party to pay for replacement, repair or
restoration, as the case may be.
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Section 7.09. The waiver of subrogation or permission for release referred
to in Section 7.07 shall extend to the agents of each party and its and their
employees and, in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Demised Premises, or any part thereof, in
accordance with the terms of this Lease, including subtenants, but only if and
to the extent that such waiver or permission can be obtained without additional
charge, unless such party shall pay such charge. The releases provided for in
Section 7.08 shall likewise extend to such agents, employees and other persons
and entities, if and to the extent that such waiver or permission is effective
to them. Nothing contained in Section 7.08 shall be deemed to relieve either
party of any duty imposed elsewhere in the Lease to repair, restore or rebuild
or to nullify any abatement of rents provided for elsewhere in this Lease. Each
party shall advise the other, upon request, from time to time (but not more
often than twice a year) of all of the policies of insurance of any of the kinds
referred to in Sections 7.05 and 7.06 it is carrying, and if it shall
discontinue any such policy or allow it to lapse, shall notify the other party
thereof with reasonable promptness.
Section 7.10. Upon failure of either party to procure, maintain and place
such insurance and pay all premiums and charges therefor, the other party may do
so (but shall not be obligated) and in such event the party failing to procure
such insurance agrees to pay the amount so expended to the other party on
demand, together with interest at the Interest Rate on the amount of such
payment, from the date of notice of such payment to the date the party failing
to procure such insurance makes the required repayment to the other party.
Section 7.11. All insurance policies referred to in this Article 7 which
are carried by either party shall be maintained with insurance companies of
recognized standing, admitted to do business in the State of New York and
otherwise reasonably satisfactory to the other party hereto. Any such insurance
company, having and maintaining a rating by Best's Insurance Reports or any
successor publication of comparable standing (selected by Landlord) of "A-VII"
or better or the then equivalent of such rating, shall be deemed reasonably
satisfactory.
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Section 7.12. Tenant may, in lieu of maintaining liability or fire
insurance, self-insure and assume the risks of, and shall pay from its general
assets the cost of or related to, all casualty to the Real Property which is the
responsibility of Tenant under this Lease and with respect to which Tenant has
self-insured, all liability claims that may be asserted against Tenant and all
liability claims which may be asserted against Landlord for which Tenant is
responsible pursuant to this Lease and with respect to which Tenant has
self-insured. Therefore, anything elsewhere in this Lease to the contrary
notwithstanding, Tenant, if it elects to so self-insure, need not satisfy any of
the conditions and covenants of this Lease that call for Tenant to obtain and
maintain insurance against any specified risks, provided that Tenant shall have
furnished its certification, in form and substance reasonably satisfactory to
Landlord and its counsel, that Tenant does not maintain insurance against fire,
casualty, and "all risk" and liability claims and assumes responsibility for
these risks. Tenant shall promptly notify Landlord in the event it ceases its
practice of self insurance. As a self-insurer Tenant shall be responsible for
any and all obligations of Tenant to indemnify and hold Landlord harmless from
and against any matters referred to in Section 7.02 of this Lease or which
otherwise would have been included within the coverage of any insurance policy
required by Tenant to be obtained or to otherwise satisfy Tenant's obligations
under any provision of this Lease. Further, Tenant, if it elects to so
self-insure, hereby waives any right of subrogation against Landlord with
respect to any losses that would have been payable under policies of insurance
to be obtained by Tenant under this Lease, if they had been obtained, with the
same force and effect as if Tenant had obtained each such policy and caused
Landlord to be named as one of the assureds thereunder in accordance with
Sections 7.07 and 7.08 hereof. In the event that (i) the net worth of Tenant,
determined in accordance with generally accepted accounting principles, shall
fall below $500,000,000 or (ii) upon notice that Tenant has ceased its practice
of self-insurance, then promptly thereafter Tenant shall obtain and keep in full
force and effect during the Term of this Lease the insurance otherwise required
by this Lease. Reference in this Section 7.12 to the "Tenant" means only the
Original Tenant.
ARTICLE 8
DESTRUCTION -- FIRE OR OTHER CAUSE
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Section 8.01. If the Building or the Demised Premises shall be partially
or totally damaged or destroyed by fire, casualty or other cause insurable from
time to time under "all-risk" insurance, then, whether or not the damage or
destruction shall have resulted from the fault or neglect of Tenant or its
employees, agents, visitors or licensees (and if this Lease shall not have been
canceled as hereinafter provided in this Article), Landlord will repair the
damage, and restore, replace and rebuild the Building and the Demised Premises
(including the Building Systems and base building fixtures therein), at its
expense, promptly and expeditiously and with reasonable continuity after notice
to it of the damage or destruction to the same or better condition as it was in
prior to such casualty and in such a manner as is otherwise consistent with this
Lease and Tenant's uses of the Demised Premises (subject, however, to building
codes and zoning, environmental and other governmental laws then in existence);
provided, however, that Landlord shall not be required to repair or replace any
of Tenant's Property and the leasehold improvements and trade fixtures in the
Demised Premises. If the Demised Premises shall be made partially untenantable
(including, without limitation, if access or Building Services thereto is
materially adversely affected as to a portion thereof), by reason of any such
damage or destruction to the Building or Demised Premises, the Fixed Rent and
additional rent payable hereunder shall be abated, in the proportion that the
untenantable rentable area of the Demised Premises bears to the total rentable
area of the Demised Premises for the period from the date of such damage or
destruction to the date that the damage shall be so repaired or restored. If the
Demised Premises shall be totally or substantially untenantable or destroyed or
rendered completely or substantially untenantable (including, without
limitation, access or Building Services thereto is materially adversely affected
as to all or substantially all thereof), the Fixed Rent and additional rent
shall completely abate from the date of the damage or destruction to the date
that is twenty (20) days after the later of the date the damage shall be so
repaired or restored and Tenant is notified of completion of such repair and
restoration. Notwithstanding the foregoing, if by reason of any such condition,
(i) twenty-five percent (25%) or more of any one (1) or more floors of the
Demised Premises are rendered untenantable for the conduct of Tenant's business
(including, without limitation, if access or Building Services thereto is
materially adversely affected as to such portion thereof) or (ii) one (1) or
more floors of the Demised Premises is rendered completely untenantable for the
conduct of Tenant's business (including, without limitation, if access or
Building Services thereto is materially adversely affected as to such portion
thereof), and if it was not reasonably practicable to conduct Tenant's business
and Tenant discontinues the conduct of its business in the remainder of the (x)
entire
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such floor, in the case of (i) above or (y) the entire Demised Premises (in the
case of (ii) above) (other than the continued presence of Tenant's security
personnel therein for the purposes of preservation of Tenant's property), then
Fixed Rent and additional rent shall abate for all of (A) the entire such floor
(in the case of (i) above) or (B) the entire Demised Premises (in the case of
(ii) above). The abatement provided for in the three preceding sentences shall
continue after Landlord shall repair, restore, replace and rebuild the Demised
Premises to the extent required by this Article for an additional period which
would be required for Tenant to repair, replace and/or restore its leasehold
improvements so damaged or destroyed to substantially the same condition as
prior to such damage or destruction if Tenant proceeds with reasonable diligence
to perform such work, but in no event to exceed one hundred eighty (180) days,
but as to such additional period such abatement shall apply only to the extent
that such Rents are not insured by any insurance Tenant may carry, such as
business interruption insurance. However, if any of the days on which Rents
would have been abated for the Additional Demised Premises, in whole or in part,
pursuant to the four preceding sentences, shall occur prior to the Additional
Demised Premises Rent Commencement Date, so that an abatement will not be
effective, Tenant shall, in lieu thereof, be entitled to a credit against Fixed
Rent for the Additional Demised Premises in the amount of that Fixed Rent for
the Additional Demised Premises which would have otherwise been abated on such
days (calculated at the annual rate initially payable under the Lease for the
Additional Demised Premises) which credit shall be applied to Fixed Rents for
the Additional Demised Premises first accruing under this Lease. Notwithstanding
the foregoing, should Tenant reoccupy a portion of the Demised Premises as to
which Rents have been abated prior to the date the same is made completely
tenantable for the purpose of conducting business, other than on an emergency
basis, and other than for the purpose of repairing, replacing and/or restoring
its leasehold improvements or installing Tenant's Property therein, Fixed Rent
and additional rent allocable to such reoccupied space, based upon the
proportion which the rentable area of the reoccupied portion of the Demised
Premises bears the total rentable area of the Demised Premises, shall be payable
by Tenant from the date of such reoccupancy.
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Section 8.02. In case the Demised Premises shall be substantially damaged
or destroyed by fire or other cause at any time during the last six (6) months
of the Term of this Lease (calculated without regard to unexercised renewal
options), then Landlord or Tenant may cancel this Lease upon written notice to
the other given within sixty (60) days after such damage or destruction
provided, however, that for the purposes of calculating the time remaining in
the Term, Tenant, within thirty (30) days after its receipt of such a notice of
termination from Landlord, may elect to then exercise any renewal option which
would have thereafter been exercisable by Tenant in accordance with the
provisions of Article 24 hereof. For the purposes of this Section 8.02, the
phrase "substantially damaged" or similar phrases when used with respect to the
Demised Premises shall mean that twenty-five (25%) percent or more of the
Demised Premises shall be damaged or destroyed by fire or other cause.
Section 8.03. (a) If the Building shall be damaged or destroyed or access
or Building Services to the Demised Premises affected by fire or other cause,
and such has not been repaired or rebuilt within twelve (12) months of such
damage or destruction, subject only to Force Majeure Events not to exceed in the
aggregate three (3) months, then, if this Lease has not otherwise been canceled,
Tenant may cancel this Lease upon written notice to Landlord within thirty (30)
days after the expiration of such twelve (12) month period as extended by the
maximum permitted period of time lost by Force Majeure Events and thereupon the
Term of this Lease shall terminate upon the thirtieth (30th) day after such
notice is given.
(b) If the Building shall be damaged or destroyed or access or
Building Services to the Demised Premises affected by fire or other cause,
unless Landlord has duly elected to terminate this Lease, within thirty (30)
days after the occurrence of any such damage or destruction Landlord shall give
Tenant notice of the date that, in the good faith judgment of a reputable
contractor or architect designated by Landlord and reasonably approved by
Tenant, it is estimated that Landlord shall be able to substantially complete
the required repairs and restorations to the Building and/or Demised Premises
(the "Anticipated Completion Date") subject only to Force Majeure Events. If the
Anticipated Completion Date shall be after the date which is twelve (12) months
after the date of such damage or destruction, Tenant shall have the right,
within thirty (30) days after the notice of the Anticipated Completion Date is
given, to terminate this Lease by giving ten (10) days' notice of such
termination to Landlord, and on the date occurring ten (10) days after the
giving of such notice, this Lease will terminate as if such date were the date
specified herein for the Term of this Lease to expire. If
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Tenant does not give such termination notice within said thirty (30) day period,
then the expiration of the twelve (12) months restoration and repair period
provided for herein shall automatically be deemed extended to the date which is
thirty (30) days (or such shorter of period of time within which Tenant may have
notified Landlord that is does not so intend to cancel this Lease) following the
Anticipated Completion Date.
(c) Within thirty (30) days after completing any insurance
adjustment made with respect to such damage or destruction, Landlord shall give
Tenant notice thereof. In the event Landlord shall not commence to repair the
damage or destruction and restore, replace and rebuild within sixty (60) days
after the date of the insurance adjustment, subject only to the Force Majeure
Events, and thereafter proceed with reasonable dispatch to do the required work:
(i) Tenant may elect to terminate this Lease by giving
Landlord thirty (30) days' notice of intention to do so; and upon the
expiration of said thirty (30) days if such work shall not have been
commenced or if commenced shall not be proceeding with reasonable dispatch
so that it is reasonably anticipated such work will be completed by the
Anticipated Completion Date subject to existing Force Majeure Events (not
to exceed in the aggregate three (3) months), as the case may be, Tenant
may give Landlord a second notice of intention to end the Term of this
Lease specifying a date not less than five (5) days thereafter and, upon
the giving of the second notice, this Lease and the Term hereby granted
shall expire and terminate upon the day so specified in the second notice
as if such date were the date specified herein for the Term of this Lease
to expire; or
(ii) Tenant may, by notice to Landlord, elect to proceed
on such date as Tenant shall designate in accordance with Section 16.02
hereof to repair the damage or destruction and restore, replace and
rebuild the Building and the Demised Premises as Landlord is obligated to
do under this Article.
(d) The provisions of this Section 8.03 shall not be construed
to limit Landlord's obligations under Section 8.01 to promptly and expeditiously
and with reasonable dispatch and continuity repair, restore, replace and rebuild
the Building and the Demised Premises.
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Section 8.04. Notwithstanding the provisions of Section 8.01 above, if the
Building is so damaged or destroyed by fire or other casualty (whether or not
the Demised Premises is damaged or destroyed) that its repair or restoration
requires the expenditure (as estimated by a reputable contractor or architect
designated by Landlord and reasonably approved by Tenant) of more than fifty
(50%) percent of the full insurable value of the Building immediately prior to
the fire or other casualty, then in either such case Landlord may terminate this
Lease by giving Tenant notice to such effect within sixty (60) days after the
date of the fire or other casualty, provided, in such case, all of the leases
covering the rentable space in the Building are canceled effective on dates no
later than the termination date of this Lease, which notice shall specify the
date for the termination of this Lease, which date shall not be less than sixty
(60) days nor more than ninety (90) days after the giving of such notice of
termination. Upon the date specified in such notice of termination, the Term of
this Lease shall end and Tenant shall forthwith quit, surrender and vacate the
Demised Premises.
Section 8.05. Unless Landlord shall serve a termination notice as provided
for in Sections 8.02 or 8.04, Landlord shall repair the damage and restore,
replace and rebuild, at Landlord's expense, as provided for in Section 8.01 and
Tenant shall have the rights and elections provided for pursuant to Sections
8.02 and 8.03. In the event of the termination of this Lease pursuant to the
provisions of this Article, this Lease shall expire as fully and completely on
the date fixed in such notice of termination as if that were the date definitely
fixed for the expiration of the Term of this Lease, and Tenant shall vacate the
Demised Premises and surrender the same to Landlord but Fixed Rent and
additional rent shall be apportioned and paid up to and including the date of
such damage or destruction, and any prepaid rent refunded to Tenant.
Section 8.06. Subject to Landlord's performance of its obligations under
Section 8.01, in the event of fire or other casualty or risk covered by Tenant's
"all-risk" insurance, affecting the Demised Premises, Tenant agrees to
reasonably promptly repair and restore the leasehold improvements in the Demised
Premises or the portion thereof which is so damaged or destroyed to a condition
at least equal in utility to the condition prior thereto, provided that Tenant
shall not have been notified by Landlord that this Lease has been terminated
pursuant to the provisions of this Article 8, or Tenant shall not have elected
to exercise its right of termination of this Lease pursuant to this Article 8.
Notwithstanding anything to the contrary contained in this Section 8.06, in case
the Demised Premises shall be materially damaged or destroyed by fire or other
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cause at any time during the last year of the Term of this Lease, Tenant shall
have no obligations under this Section other than to put its leasehold
improvements in safe and orderly condition in compliance with Requirements
applicable thereto to the extent feasible prior to the Expiration Date.
Section 8.07. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of the Building,
provided that Landlord shall use reasonable efforts to effect such repair or
restoration promptly and in accordance with the provisions of this Article 8,
without regard to the adequacy of insurance or other proceeds, and in such
manner as to minimize, to the extent practicable, interference with Tenant's use
and enjoyment of the Demised Premises or any part thereof.
Section 8.08. The provisions of this Article shall be considered an
express agreement governing any case of damage to or destruction of the Building
or the Demised Premises by fire or other casualty and Section 227 of the Real
Property Law of the State of New York, and any other law of like import now or
hereafter in force providing for such contingency, shall have no application.
Section 8.09. Tenant shall give Landlord notice in case of a fire or other
casualty in the Demised Premises promptly after Tenant is aware of such event.
Section 8.10. Any dispute which may arise between the parties with respect
to the meaning or application of any of the provisions of this Article shall be
determined by Expedited Arbitration in the manner provided in Section 27.02.
ARTICLE 9
EMINENT DOMAIN
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Section 9.01. In the event that the whole of the Real Property, Building
or Demised Premises shall be lawfully condemned or taken in any manner for any
public or quasi-public use , this Lease and the term and estate hereby granted
shall forthwith cease and terminate as of the date of vesting of title. In the
event that only a part of the Real Property and not the entire Demised Premises
shall be so condemned or taken, then, (a) except as hereinafter provided in this
Section 9.01, this Lease and the Term shall continue in full force and effect
but, if a part of the Demised Premises is included in the part of the Real
Property so condemned or taken, then, effective as of the date of vesting of
title, the Fixed Rent and additional rent hereunder shall be abated in an amount
thereof apportioned according to the area of the Demised Premises so condemned
or taken; (b) whether or not the Demised Premises shall be affected thereby, if
such condemnation or taking shall be of twenty-five percent (25%) or more of the
Building and if Landlord's operation of the Building is materially impaired,
Landlord may, at Landlord's option, terminate this Lease and the Term and estate
hereby granted as of the date of such vesting of title by notifying Tenant in
writing of such termination within sixty (60) days following the date on which
Landlord shall have received notice of vesting of title, provided, however, that
Landlord shall not make the election described in (b) above unless all of the
leases in the Building are canceled effective on dates no later than the
termination date of this Lease (inclusive of this Lease), or (c) if such
condemnation or taking shall be of a substantial part of the Demised Premises
(as such term is defined in Section 9.07), Tenant may, at Tenant's option, by
delivery of notice in writing to Landlord within sixty (60) days following the
date on which Tenant shall have received notice of vesting of title, terminate
this Lease and the Term and estate hereby granted as of the date of vesting of
title. If neither Landlord nor Tenant elects to terminate this Lease as
aforesaid, this Lease shall be and remain unaffected by such condemnation or
taking, except that the Fixed Rent and additional rent shall be abated to the
extent, if any, hereinabove provided in this Article. In the event that only a
part of the Demised Premises shall be so condemned or taken and this Lease and
the Term and estate hereby granted are not terminated as hereinbefore provided,
Landlord will, with reasonable diligence and at its expense, restore the
remaining portion of the Demised Premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking (but in all respects
subject to building codes and zoning, environmental and other governmental laws
then in existence), provided that Landlord shall not be required to repair or
replace any of Tenant's leasehold improvements, Tenant's Alterations or Tenant's
Property in the Demised Premises or elsewhere.
Section 9.02. In the event of the termination of this
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Lease in any of the cases provided in this Article, this Lease and the Term and
estate hereby granted shall expire as of the date of such termination with the
same effect as if that were the date hereinbefore set for the expiration of the
Term of this Lease, and the Rents shall be apportioned as of such date.
Section 9.03. Except as expressly otherwise provided in any of the
following Sections of this Article, Landlord shall be entitled to receive the
award in any proceeding with respect to any taking provided for in this Article,
including any award made for the value of any estate vested in Tenant by this
Lease and Tenant hereby expressly assigns to Landlord any and all right, title
and interest of Tenant now or hereafter arising in or to any such award or any
part thereof, and Tenant shall receive no part of such Landlord's award.
Notwithstanding the foregoing provisions of this Article, Tenant shall be
entitled to appear, claim, prove and receive in the proceedings relating to any
taking mentioned in the preceding Sections of this Article, a separate award for
the then value of Tenant's Property and for moving expenses, but Tenant may
participate in such proceeding and recover a separate award for the value of
Tenant's Property and for moving expenses only to the extent that Tenant's
participation and such separate award does not reduce the amount of the award
payable to Landlord in such proceeding.
Section 9.04. If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the Term of this Lease,
Tenant shall be entitled, except as hereinafter set forth, to receive only that
portion of the award for such taking which represents compensation for the use
and occupancy of the Demised Premises, for the taking of Tenant's Property and
for moving expenses, and Landlord shall be entitled to receive the entire
balance of the award, including that portion which represents reimbursement for
the cost of restoration of the Demised Premises. This Lease and the Term of this
Lease shall be and remain unaffected by such condemnation or taking and Tenant
shall continue responsible for all of its obligations hereunder (except to the
extent Tenant shall be prevented from doing so by reason of such condemnation or
taking) and in any case, Tenant shall notwithstanding such temporary taking
continue to pay in full the Fixed Rent and additional rents when due. If the
period of temporary use or occupancy shall extend beyond the Expiration Date of
the Term of this Lease, that part of the award which represents compensation for
the use or occupancy of the Demised Premises (or a part thereof) shall be
divided between Landlord and Tenant so that Tenant shall be entitled to so much
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thereof as represents the period prior to such Expiration Date and Landlord
shall be entitled to so much thereof as represents the period subsequent to such
Expiration Date. All moneys that Tenant may be entitled to as, or as part of, an
award for temporary use and occupancy for a period beyond the date to which
Fixed Rent and additional rents hereunder have been paid by Tenant shall be
received by Landlord, to be held and applied to it as a trust fund for payment
of Fixed Rent and additional rents falling due hereunder.
Section 9.05. If such temporary use or occupancy exceeds one (1) year and
the conditions set forth in Section 9.01(c) have been met, then Tenant may
thereafter terminate this Lease by giving written notice to such effect. If the
temporary use or occupancy of all or any substantial part of the Demised
Premises shall be so taken at any time during the last six (6) months of the
Term of this Lease (calculated without regard to unexercised renewal options),
Tenant may terminate this Lease by giving Landlord written notice to such effect
within sixty (60) days after such taking. In the event of either such a
termination, this Lease shall then expire on the date stated in such notice by
the Tenant as if that were the Expiration Date of the Term and the Fixed Rent
and additional rents shall be prorated and adjusted as of the date of such
taking. Except as expressly provided in Section 9.04, an award in any proceeding
with respect to any temporary taking provided for in this Article shall be
applied, and Tenant may appear, claim, prove and receive in the proceedings a
separate award, in accordance with the provisions of Section 9.03 hereof.
Section 9.06. In the event of any taking of the Building which does not
result in a termination of this Lease, or in the event of a taking for a
temporary use or occupancy of all or any part of the Demised Premises which does
not result in a termination of this Lease, Landlord, at its expense, shall
proceed with reasonable diligence to repair, alter and restore the remaining
part of the Building and the Demised Premises to substantially their former
condition to the extent that the same may be feasible, whether or not the award
received by Landlord (net of costs of collection, including attorneys' and
appraiser's fees and disbursements) may be sufficient therefor, so as to
constitute a complete and tenantable Building and Demised Premises which shall
be substantially comparable in quality and service to the Building and Demised
Premises as they existed prior to such taking, but in all respects subject to
building codes and zoning, environmental and other governmental laws then in
existence.
Section 9.07. For the purposes of this Article 9, a substantial part of
the Demised Premises or similar phrases shall mean that the remaining undamaged
or untaken portion of the Demised Premises shall be insufficient to permit
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Tenant's occupancy of the remaining undamaged or untaken portion of the Demised
Premises as a workable or usable unit for the proper conduct of Tenant's
business or that the access or Building Services to the Demised Premises has
been so damaged or taken that the remaining usable access or Building Services
shall not be adequate for the proper conduct of Tenant's business in its
reasonable judgment.
Section 9.08. The provisions of Sections 8.03 shall apply, mutatis
mutandis, to Article 9.
Section 9.09. Any dispute which may arise between the parties with respect
to the meaning or application of any of the provisions of this Article shall be
determined by Expedited Arbitration in the manner provided in Section 27.02.
ARTICLE 10
ASSIGNMENT, SUBLETTING
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Section 10.01. (a) Except as otherwise herein expressly permitted, Tenant
covenants that it shall not, by operation of law or otherwise, assign, mortgage
or encumber this Lease, nor underlet, or suffer or permit the Demised Premises
or any part thereof to be used by others, except as permitted by Section 3.04
hereof. If this Lease be assigned, whether or not in violation of the provisions
of this Lease, Landlord may collect rent from the assignee. If the Demised
Premises or any part thereof be sublet or be used or occupied by anybody other
than Tenant, whether or not in violation of the provisions of this Lease,
Landlord may, after default by Tenant and the expiration of Tenant's time to
cure such default, collect rent from the undertenant or occupant. In either
event, Landlord will apply the net amount collected to the Fixed Rent and
additional rents herein reserved, but no such assignment, underletting,
occupancy or collection shall be deemed a waiver of any of the provisions of
this Article 10, or the acceptance of the assignee, undertenant or occupant as a
tenant, or a release of Tenant from the further performance by Tenant of
Tenant's covenants and obligations under this Lease. The consent by Landlord to
assignment, mortgaging, underletting or use or occupancy by others shall not in
any wise be considered to relieve Tenant from obtaining the express written
consent of Landlord to any other or further assignment, mortgaging or
underletting or use or occupancy by others not expressly permitted by this
Article. Any person accepting an assignment of this Lease shall be deemed to
have assumed, all covenants and obligations of Tenant hereunder to be performed,
or arising or accruing, on or after the effective date of such assignment and
shall be and remain liable jointly and severally with Tenant for the payment of
Fixed Rent, additional rent and other charges, and for the due performance of
all the terms, covenants, conditions and agreement herein contained on Tenant's
part to be performed for the balance of the Term of this Lease. No assignment of
this Lease shall release Tenant or any assignee of Tenant of its continuing
liability under this Lease. For purposes of this Article 10, (i) the issuance of
fifty percent (50%) in interests in Tenant (whether stock, partnership interest
or otherwise) to any person or group of related persons, in a single transaction
or a series of related transactions over a period of six (6) months, so that
after such issuance, such person or group shall have control of Tenant, shall be
deemed an assignment of this Lease, (ii) a transfer of fifty percent (50%) or
more in interest of Tenant (whether stock, partnership interest or otherwise) by
any party or parties in interest in a single transaction over a period of six
(6) months, such that such transferee shall have control of Tenant shall be
deemed an assignment of this Lease ("Controlling Equity Transfer").
Notwithstanding the foregoing, for purposes of this Section 10.01, the issuance
or transfer of shares or other interests of Tenant shall not include (x) a sale
of the stock or other interests of Tenant
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pursuant to a public offering registered with the Securities Exchange Commission
or (y) the trading of the shares of stock or other interests of Tenant on a
nationally recognized exchange or "over the counter market" or (z) the transfer
of or issuance of stock or other interests to employees of Tenant as part of a
compensation or similar arrangement.
(b) Tenant may, upon prior notice or prompt notice after the
fact to Landlord, but without Landlord's prior written consent:
(i) Assign this Lease to a corporation or other business
entity (herein sometimes called a "successor") into or with which Tenant
shall be merged, or consolidated, or to which substantially all of
Tenant's assets may be transferred, provided that the successor shall have
assumed, among other obligations and liabilities, all of Tenant's
obligations and liabilities under this Lease, by operation of law or
appropriate instruments of merger, consolidation or transfer, or be deemed
to have assigned this Lease pursuant to a Controlling Equity Transfer,
provided that the principal purpose of any such assignment is not the
acquisition of Tenant's interest in this Lease. In case of an assignment
by merger or consolidation, a true copy of the instrument of merger or
consolidation containing the successor's assumption of Tenant's
obligations and liabilities, including Tenant's liabilities under this
Lease, shall be acceptable to Landlord in lieu of the agreement mentioned
in the first sentence of paragraph (i) of this Article.
(ii) Assign this Lease to an Affiliate to use the
Demised Premises for any of the purposes permitted to Tenant provided that
such assignment is made for a valid corporate business purpose.
(iii) Sublet or license to an Affiliate to use and
occupy the Demised Premises, or any part or parts thereof, for any of the
purposes permitted to Tenant, subject to the terms and provisions of this
Lease; however, such sublet or license shall not be deemed to vest in any
such Affiliate any right or interest in this Lease except as expressly set
forth herein.
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(iv) Assign this entire Lease, or sublet the Demised
Premises or any part or parts thereof, to a corporation or other business
entity to which substantially all of the assets of one or more divisions
or businesses of Tenant conducted in part or in whole from the Demised
Premises have been transferred, provided that such corporation or other
business entity shall have assumed substantially all of the obligations
and liabilities of such division(s) by appropriate instruments. A true
copy of the instrument(s) transferring such assets and such corporation's
or other business entity's assumption of substantially all of the
obligations and liabilities of such division(s) shall be delivered to
Landlord together with the counterpart of the assignment or sublease as
required by paragraph (i) of this Article.
(c) (i) If Tenant shall desire to assign this entire Lease or
sublet the Demised Premises in whole or in part, other than in accordance with
subparagraph (b) of this Section 10.01, Tenant shall submit to Landlord a
written request for Landlord's consent to such assignment or subletting, which
request shall contain or be accompanied by the following information: (A) the
name and address of the proposed assignee or subtenant; (B) a description
identifying the space to be sublet; (C) the basic terms and conditions of the
proposed assignment or subletting; (D) the nature and character of the business
of the proposed assignee or subtenant and of its proposed use of the Demised
Premises or part thereof; (E) the most recent financial information as to the
proposed assignee or subtenant, if reasonably available to Tenant, and (F) any
other information Landlord may reasonably request with respect to the proposed
assignee or subtenant, if reasonably available to Tenant, within five (5)
Business Days following receipt of Tenant's request for consent. Even though
Landlord shall be entitled to receive financial information with respect to the
proposed assignee or subtenant, if reasonably available to Tenant, it is the
intent of the parties that the assignee's or subtenant's financial condition is
not to be a factor which Landlord is to consider in determining whether it is to
consent to any assignment or subletting.
(ii) Landlord covenants that it shall advise Tenant
within ten (10) Business Days of its receipt of Tenant's notice given
pursuant to subparagraph (c)(i) as to whether it consents to or does not
consent to such subletting or assignment and the reasons therefor and
shall not unreasonably withhold its consent to the proposed assignment or
subletting referred to in Tenant's notice given pursuant to said
subparagraph (c)(i), nor shall any such consent add to or detract from the
provisions of
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this Lease, provided that the following further conditions shall be
fulfilled:
(A) The proposed assignee or subtenant shall be of
a character, be engaged (or propose to be engaged) in a business,
and propose to use the Demised Premises, or the part thereof to be
sublet, in a manner in keeping with the then class and character of
the other tenancies in the Building.
(B) In case of a subletting, it shall be expressly
subject to all of the obligations of Tenant under this Lease and the
further condition and restriction that the sublease shall not be
assigned, encumbered or otherwise transferred or the subleased
premises further sublet by the sublessee, in whole or in part, or
any part thereof suffered or permitted by the sublessee to be used
or occupied by others, (i) without the prior written consent of
Landlord in each instance where Landlord's consent is required with
respect to a subletting or assignment by Tenant, and Landlord
covenants that it shall not unreasonably withhold or delay its
consent and that such consent shall be given or withheld by Landlord
on the same terms and conditions as required by Landlord with
respect to assignments and/or sublets by Tenant under paragraph (c)
of this Article, or (ii) except that the sublease may be assigned
and/or sublet without Landlord's consent in similar circumstances to
those set forth in Section 10.01(b) and (iii) and any profit or any
payment received by Tenant with respect thereto shall be subject to
the provisions of Section 10.01 (l) as if received directly by
Tenant from its subtenant.
(C) In case of a subletting, the portion of the
Demised Premises on any one (1) floor of the Building shall not be
occupied at any time by more than six (6) subtenants and Tenant
(excluding Tenant's Affiliates and Users of the Demised Premises
pursuant to Section 3.04 hereof).
(D) No subletting shall end later than one (1) day
before the Expiration Date of the Term of this Lease, but any
subletting may provide for renewals when, if and as Tenant shall
renew this Lease pursuant to Article 24.
(E) The purposes for which the proposed subtenant
or assignee is to use the Demised Premises are uses permitted by and
not
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prohibited by this Lease or the Rules and Regulations hereto.
(F) Tenant shall not be in default hereunder
beyond any applicable notice and cure periods at the time consent to
such subletting or assignment is requested.
(G) Tenant shall reimburse Landlord for any
reasonable out-of-pocket costs that may be incurred by Landlord in
connection with said sublease or assignment (including but not
limited to legal expense and the costs of making investigations as
to the acceptability of a proposed subtenant or assignee).
(H) The proposed subtenant or assignee shall not
be entitled, directly or indirectly, to diplomatic or sovereign
immunity and shall be subject to the service of process in and the
jurisdiction of the courts of New York State in New York County.
(I) The proposed assignment shall confirm, without
amendment the terms of this Lease, and any proposed sublease shall
be subject to all of the terms and conditions of the Lease.
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(J) The proposed subtenant or assignee is not then
an occupant of any part of the Building (provided comparable space
to that covered by the proposed assignment or subletting is then
available in the Building or shall be coming available for leasing
within six (6) months (such period when such comparable space is or
is coming available, being called "Available Period") or a party who
is then actively negotiating with Landlord or Landlord's agent
(directly or through a broker) with respect to such comparable space
in the Building which is then available or is to come available
within the Available Period; Landlord shall, within five (5)
Business Days after request by Tenant as to an assignment of this
Lease or specifying the space of a proposed subletting, notify
Tenant as to whether Landlord believes it has comparable space in
the Building available within the Available Period and shall provide
Tenant with a list of such comparable space and a statement
identifying all such active negotiations for space in the Building
and the time or commencement of such negotiations, such information
to be kept in strict confidence by Tenant and not disclosed to
anyone without Landlord's written consent and any person not so
identified shall not be covered by the foregoing condition; and,
notwithstanding that Landlord may have such space so available, if
such proposed assignee or subtenant declines in writing to lease the
space offered by Landlord, Tenant shall then be free to assign this
lease or enter into a sublease with such proposed assignee or
subtenant as so proposed by Tenant subject to the other terms and
provisions of this Lease. Notwithstanding the foregoing, if Landlord
has notified Tenant in such statement as to any such active
negotiations, Tenant shall only be free to assign this Lease or
enter a sublease with such parties identified on the list of active
negotiations if as and when such negotiations shall cease to be
active; for purposes hereof, such negotiations shall cease to be
active six (6) months after the time of commencement of such
negotiations as set forth in said statement unless, in such
statement or during such six (6) month period Landlord shall notify
Tenant that a lease has been prepared and sent to the party
identified on such list, in which event, such six (6) month period
shall be extended by three (3) months or, if at any time within such
applicable six (6) or nine (9) month period, negotiations with such
party shall be discontinued (Landlord hereby agreeing that it shall
promptly notify
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Tenant if such negotiations are discontinued).
(d) The Demised Premises, or any part thereof, shall not,
without Landlord's prior written consent, such approval not to be unreasonably
withheld or delayed, be publicly advertised for subletting at a rental rate less
than the rental rate being sought by Landlord for comparable space in the
Building provided that Landlord shall, within ten (10) days after Tenant so
requests, have informed Tenant of the rental rate being sought by Landlord for
such comparable space. All public advertising of the Demised Premises, or any
portion thereof, for subletting shall be approved by Landlord, such approval not
be unreasonably withheld or delayed. It is understood that the term "public
advertising" shall not include a broker's brochure or flyer. Provided that
Tenant's request shall state that the failure to disapprove within five (5)
Business Days shall be deemed to be approval thereof, any such request shall be
deemed approved if Landlord shall fail to disapprove the same within such time
period. The foregoing, however, shall not be deemed to prohibit Tenant from
listing a subletting with brokers or from negotiating or consummating a sublease
at a lower rental rate.
(e) For purposes of paragraph (d) above, promptly upon receipt
of a request from Tenant, Landlord shall notify Tenant as to whether it has any
space in the Building then available or becoming available in the Available
Period and the rental rate then being charged for such space in the Building.
(f) If such proposed assignment or subletting shall require
Landlord's consent and Landlord shall fail to notify Tenant within such ten (10)
Business Day period of Landlord's consent or disapproval of the proposed
assignment or subletting as contemplated by subparagraph (c)(ii) of this Section
10.01, Landlord shall be deemed to have consented to such assignment or
subletting and Tenant shall be free to assign this Lease or sublease that
portion of the Demised Premises (which may be the entire Demised Premises) to
such proposed assignee or subtenant, on substantially the same material terms
and conditions set forth in Tenant's written request therefor, subject to the
terms and conditions of this Lease, if Tenant's notice as to such subletting or
assignment sets forth in bold capital letters the following statement: IF
LANDLORD FAILS TO RESPOND WITHIN TEN (10) BUSINESS DAYS AFTER RECEIPT OF THIS
NOTICE, THEN TENANT SHALL BE ENTITLED TO ENTER INTO SUCH SUBLETTING/ASSIGNMENT
IN ACCORDANCE WITH THIS NOTICE. If Landlord shall be deemed to have consented to
an assignment or subletting, then, upon request therefor by Tenant, Landlord
shall promptly deliver to Tenant a statement in confirmation of that fact. If
Landlord grants its consent to an assignment or sublease and such assignment
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or sublease is not entered into for any reason within six (6) months after the
granting of such consent, or if such assignment or sublease is modified prior to
its being entered into, such that such modifications would have had a material
impact on Landlord's decision on whether or not to consent to such assignment or
subletting, then and in either event, Landlord's consent shall be deemed to have
been withdrawn and Tenant shall not have the right to so assign this Lease or to
sublease all or a portion of the Demised Premises without once again complying
with the provisions of this Article 10 for obtaining Landlord's consent; but if
such modification or amendment would not have had such material impact, Tenant
shall nevertheless provide a copy of such modifications to Landlord prior to
execution of the assignment or sublease. In no event shall Tenant materially
modify or amend any sublease to which Landlord has consented without obtaining
Landlord's prior written consent, not to be unreasonably withheld or delayed (as
if such modification was a proposed sublease), but Tenant shall nevertheless
provide a copy of such modification or amendment (whether material or
non-material) to Landlord prior to execution of the modification or amendment.
(g) If there shall be any dispute between the parties as to
the reasonableness of Landlord withholding such consent or as to the requirement
of obtaining Landlord's consent to any transaction, Tenant may elect to submit
the same to Expedited Arbitration in accordance with the provisions of Section
27.02 hereof.
(h) Every subletting by Tenant is subject to the express
condition, and by accepting a sublease hereunder each subtenant shall be
conclusively deemed to have agreed, that if this Lease should be terminated
prior to its Expiration Date or if Landlord shall succeed to Tenant's estate in
the Demised Premises, then at Landlord's election the subtenant shall attorn to
and recognize Landlord as the subtenant's landlord under the sublease and the
subtenant shall promptly execute and deliver any instrument Landlord may
reasonably request to evidence such attornment.
(i) Tenant shall furnish Landlord with a counterpart (which
may be a conformed or reproduced copy) of each sublease or assignment made by it
within thirty (30) days after the date of its execution and delivery. Tenant
shall (x) remain fully liable for the performance of all of Tenant's obligations
hereunder notwithstanding any assignment or subletting provided for in
subsection 10.01(b) or (c); except that no such assignor Tenant shall be bound
by or liable under any subsequent modification, or amendment of this Lease,
unless entered into by an Affiliate of assignor Tenant, to the extent that the
same increases the assignor Tenant's monetary obligations, materially increases
the assignor Tenant's other obligations or materially and
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adversely affects the rights of the assignor Tenant, unless such assignor Tenant
shall have expressly consented thereto; provided that to the extent any such
subsequent modification or amendment operates to reduce or waive or extend the
time of performance of any obligation of the then Tenant hereunder, such
amendment, modification or waiver shall inure to the benefit of the assignor
Tenant to the same extent as it benefits or benefitted the then Tenant
hereunder, and, (y) shall remain fully responsible and liable to Landlord for
all acts and omissions of any subtenant or anyone claiming under or through any
such subtenant which shall be in violation of any of the obligations of this
Lease and any such violation shall be deemed to be a violation by Tenant.
(j) Notwithstanding anything to the contrary hereinabove set
forth, no assignment of this Lease (other than a Controlling Equity Transfer)
shall be binding upon Landlord unless the assignee shall execute and deliver to
Landlord an agreement, whereby such assignee agrees unconditionally to be
personally bound by and to perform all of the covenants and obligations of
Tenant hereunder to be performed, or arising or accruing, on or after the
effective date of such assignment. A failure or refusal of such assignee to
execute or deliver such an agreement shall not release the assignee from its
liability for the obligations of Tenant hereunder assumed by acceptance of the
assignment of this Lease.
(k) In the event of any assignment of this Lease, Landlord
when giving notice to said assignee or any future assignee in respect of any
default hereunder, shall also serve a copy of such notice upon the Original
Tenant (for purposes of this paragraph 10.01(k), the "Initial Tenant"), at its
last address for notice in accordance with this Lease, which notice shall
indicate the date on which the notice of default was given to the then Tenant,
and no notice of default shall be effective until a copy thereof is so given to
the Initial Tenant. Immediately after said last date upon which the then Tenant
may cure such default, Landlord shall give notice to the Initial Tenant stating
whether or not the default has been cured, and if it has not been cured said
notice shall also state the manner in which the then Tenant shall have failed to
cure its said default, in which event the Initial Tenant shall then have the
option to (i) cure the default and, with respect thereto, the Initial Tenant
shall have the same amount of time, after such notice, within which to cure the
said default, as is provided for under the provisions of this Lease to be given
to Tenant therefor after notice, and should the Initial Tenant so cure such
default, the Initial Tenant may elect that such curing by Initial Tenant of such
default shall be deemed to be the curing thereof only as to Initial Tenant and
not as to the then Tenant hereunder, in which case (x)
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Initial Tenant shall be entitled to enforce, by subrogation or otherwise, any
and all of the rights of Landlord against the then Tenant, including the right
to recover possession of the Demised Premises subject to all terms, covenants
and conditions of this Lease, or (y) request Landlord to terminate this Lease
because of the default of the then Tenant whereupon, if Landlord had not already
done so, Landlord shall promptly and in good faith, at the sole expense of
Initial Tenant, initiate and prosecute to completion summary proceedings to
obtain vacant possession of the Demised Premises, and Landlord and the Initial
Tenant shall enter into a new lease, as "Landlord" and "Tenant", respectively,
for the remainder of the Term, containing the provisions (including the renewal
option, as may then remain), under this Lease, commencing simultaneously with
the termination of this Lease, whereupon the Initial Tenant shall remedy said
condition giving rise to said default and pay all Fixed Rent and additional rent
then due but unpaid. If Landlord and the Initial Tenant shall so enter into a
"new lease", and if Initial Tenant had previously as signed this Lease to an
assignee which had in turn assigned this Lease to the assignee so in default,
Landlord agrees that Initial Tenant may assign such "new lease" to any such
previous assignee other than such assignee so in default subject to and in
accordance with the provisions of this Article, except that when Landlord's
consent is required Landlord may only take into account facts and circumstances
which have changed since the date of the original assignment of this Lease to
such assignee.
(l) Notwithstanding anything to the contrary contained herein,
if Tenant or any Affiliate of Tenant shall either (A) receive any consideration,
directly or indirectly, from its assignee in connection with the assignment of
this Lease, other than pursuant to subparagraph (b) of this Section 10.01.,
including, without limitation, sums paid by the assignee for the purchase of
Tenant's leasehold improvements and fixtures in the Demised Premises (other than
Tenant's trade fixtures, office equipment and furniture), Tenant shall pay over
to Landlord, at the time of Tenant's receipt thereof, fifty percent (50%) of
such consideration, if any, as shall exceed, to the extent actually incurred,
"Transaction Costs" (as hereinafter defined)
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in connection with such particular assignment, or (B) sublet the Demised
Premises, or any portion thereof, to anyone, other than pursuant to subparagraph
(b) of this Section 10.01, for rents or other consideration payable to Tenant or
any Affiliate of Tenant, directly or indirectly, which for any monthly period
shall exceed the Rents payable for the subleased space under this Lease for the
same monthly period, Tenant shall pay Landlord, as additional rent at the time
such payments are received by the Tenant, fifty percent (50%) of such excess
less, to the extent actually incurred, "Transaction Costs" in connection with
such particular subletting. "Transaction Costs" shall mean (i), customary
brokerage commissions, (ii) work allowances paid by Tenant and/or the cost of
improvements or alterations to the Demised Premises made by Tenant expressly for
the purpose of preparing the Demised Premises for such subletting or assignment,
(iii) the unamortized or undepreciated cost of those leasehold improvements to
the Demised Premises (calculated in accordance with generally accepted
accounting principles) paid for by Tenant (whether before or after the date of
this Lease) in their entirety and leased or sold, as the case may be, and used,
by the sublessee (in the portion of Demised Premises being sublet) or assignee
in such subletting or assignment; (iv) advertising expenses; (v) reasonable
attorneys' fees and disbursements, (vi) rent abatements or concessions given to
a subtenant, (vii) lease "takeover" costs actually paid by Tenant to a third
party landlord of other space leased by the sublessee or assignee, to induce it
to enter into the sublease or assignment, less any net rentals received by
Tenant or its Affiliate from the reletting of such other space or the assignment
of the other lease thereof, and (viii) other expenses reasonably incurred by
Tenant for such subletting or assignment. In the case of a subletting such
Transaction Costs shall be amortized over the lesser of (x) the useful life of
such improvements in accordance with the Internal Revenue Code as then
applicable or (y) in all other cases the rent paying term of the sublease with
interest at the same rate per annum as interest on United States Treasury Bonds
or Notes of maturity equal to the amortization period. Tenant shall, at the time
of notice to Landlord of such assignment or sublease, present to Landlord
detailed evidence supporting the computation of the Transaction Costs and any
sums payable to Landlord hereunder.
(m) Notwithstanding anything to the contrary contained in
subsection (h) of this Section 10.01, subject to the satisfaction of the
conditions set forth hereinafter, Landlord agrees to execute and deliver to
Tenant and any subtenant of Tenant under an "Eligible Sublease" (as hereinafter
defined), within thirty (30) days after Tenant's request therefor, a
nondisturbance and attornment agreement in form substantially identical to that
annexed hereto as Exhibit D, provided that:
(i) the rent payable under the Eligible Sublease shall
not be less than the Fixed Rent and additional rent computed at the rate
per rentable square foot for the space being subleased which is set forth
in this Lease, but if such condition is not satisfied by the terms of the
Eligible Sublease, then, in addition to the provisions contained in
Exhibit D, the non-disturbance and attornment agreement shall provide that
if this Lease shall terminate as
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contemplated thereby from time to time, the fixed rent and additional rent
under the Eligible Sublease shall be increased (but not decreased) if
necessary so that it is equal on a rentable square foot basis to the Rents
which would have been payable under this Lease with respect to the Demised
Premises had this Lease not been terminated; and
(ii) Tenant shall have furnished Landlord with such
references and current financial information with respect to the subtenant
under the Sublease that shall evidence a net worth, credit and financial
responsibility of such subtenant which is reasonably satisfactory to
Landlord, given the financial obligations under the Eligible Sublease.
(iii) For purposes of this sub-section (m), an "Eligible
Sublease" shall mean a direct sublease between Tenant and a subtenant
which is not an Affiliate of Tenant, which demises for a sublease term of
not less than five (5) years at least the lesser of (x) an entire floor of
either the East Building or West and Middle Building or (y) 17,000
rentable square feet of the Demised Premises, provided that if such
sublease is of a portion of an entire floor of the Building, such
subtenant's premises have access to a common corridor and to an elevator
lobby and are demised as to otherwise comply with all applicable
Requirements.
ARTICLE 11
PIPES, DUCTS AND CONDUITS,
ACCESS TO DEMISED PREMISES
Section 11.01. Tenant shall permit Landlord to erect, use and maintain
pipes, ducts and conduits in and through the Demised Premises, provided the same
are installed and concealed behind walls and ceilings of the Demised Premises,
and are installed by such methods and/or at such locations as will not
materially interfere with or impair Tenant's layout or use of the Demised
Premises or detract from the appearance thereof, and in no event will any such
additional installations in the aggregate from the date hereof utilize more than
fifty (50) square feet of usable area of any floor included in the Demised
Premises.
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Section 11.02. Landlord or its agents or designees shall have the right,
but only upon prior notice to Tenant or any authorized employee of Tenant at the
Demised Premises, to enter the Demised Premises at reasonable times during
Business Hours, subject to the reasonable security and confidentiality
requirements of Tenant, for the purpose of making such repairs, restorations or
alterations as Landlord shall be required or shall have the right to make in
accordance with the provisions of this Lease and, subject to the foregoing,
shall also have the right, when accompanied by Tenant, to enter the Demised
Premises for the purpose of inspecting them or exhibiting them to prospective
purchasers or lessees of the entire Building or to prospective mortgagees of the
Building or to the holder of any mortgage on the Building or a prospective
assignee of such holder. Such inspections and exhibitions shall be conducted in
such a manner as to cause no disruption to Tenant or the conduct of its business
at the Demised Premises. Landlord shall be allowed to take material into and
upon the Demised Premises that may be required for the repairs, restorations or
alterations above mentioned as the same is reasonably required in accordance
with good construction practice for such purpose without the same constituting
an eviction of Tenant in whole or in part, and the Fixed Rent and additional
rent shall in no wise abate, except as otherwise provided in this Lease, while
such repairs, restorations or alterations are being made, by reason of loss or
interruptions of the business of Tenant because of any such work, provided
Landlord expeditiously proceeds therewith and exercises reasonable diligence so
as to minimize any such disturbance. Any work performed or installations made
pursuant to this Article 11 shall be made in accordance with the provisions of
Section 5.02. Landlord shall promptly repair any damage to the Demised Premises
or Tenant's Property caused by such work or installations for which Landlord is
responsible hereunder.
Section 11.03. Landlord may, during the twelve (12) months prior to the
expiration of the Term of this Lease and upon reasonable notice to Tenant,
subject to the reasonable security and confidentiality requirements of Tenant,
exhibit the Demised Premises to prospective tenants during Business Hours. Such
exhibitions shall be conducted in such a manner as to cause no disruption to
Tenant or the conduct of its business at the Demised Premises. Tenant shall have
the right to be present when Landlord so displays the Demised Premises.
Section 11.04. If Tenant shall not be personally present to open and
permit an entry into the Demised Premises at any time when for any reason an
entry therein shall be urgently necessary by reason of fire or other emergency,
Landlord or Landlord's agents may forcibly enter
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the same without rendering Landlord or such agents liable therefor if, to the
extent possible, Landlord is accompanied by New York City police or fire
personnel, and if during and following such entry Landlord or Landlord's agents
shall accord due care to Tenant's Property, and without in any manner affecting
the obligations and covenants of this Lease, Landlord shall notify Tenant of any
such entry as soon thereafter as practicable.
Section 11.05. Landlord acknowledges that by virtue of the nature of
Tenant's business, Tenant has certain security and confidentiality requirements
such that portions of the Demised Premises are locked and inaccessible to
persons unauthorized by Tenant ("Secured Areas"). Landlord therefore agrees that
except in cases of emergency Landlord shall, notwithstanding anything to the
contrary contained herein, have no right of access to the Secured Areas,
provided that (i) Tenant shall deliver floor plans of the Demised Premises
designating the Secured Areas, (ii) such designation shall be reasonable in
light of Tenant's business, and (iii) Landlord shall have no liability for
providing cleaning or other services to the Secured Areas that requires access
to the Secured Areas unless Tenant shall provide Landlord with such access to
the Secured Areas for purposes of providing cleaning or such other services at
those times that Landlord shall reasonably designate in accordance with
Landlord's ordinary cleaning schedule or, in the case of such other services, at
such times as Landlord shall reasonably designate.
Section 11.06. Except as otherwise expressly provided in this Lease,
Landlord reserves the right, without the same constituting an actual or
constructive eviction and without incurring liability to Tenant therefor, to
change the arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairways, toilets and other public parts of the
Building, as opposed to any part of the Demised Premises as to which Landlord
shall not make any such changes; provided, however, that Landlord agrees not to
exercise such right with respect to the entrances, passageways, lobby and other
hallways, corridors and stairways providing access to or otherwise with respect
to the Demised Premises (a) if access to the Demised Premises would be cut off
or impaired or if there would be obstruction of access to the Demised Premises
or interference with the use or enjoyment thereof or (b) without the consent of
Tenant, such consent not to be unreasonably withheld or delayed.
ARTICLE 12
CERTIFICATE OF OCCUPANCY
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Section 12.01. Tenant will not at any time use or occupy the Demised
Premises in violation of the certificate(s) of occupancy issued for the
Building. Landlord will make no changes in the Building which would result in a
change in the certificate(s) of occupancy the effect of which would prevent
Tenant from using the Demised Premises for the purposes for which they are now
being or could hereafter be used.
ARTICLE 13
BANKRUPTCY
Section 13.01. Subject to the provisions of Section 13.02, if at any time
during the Term of this Lease, (a) there shall be filed by Tenant in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Tenant's property, or if Tenant makes
an assignment for the benefit of creditors, or petitions for or enters into an
arrangement with creditors, or (b) there shall be instituted against Tenant an
involuntary proceeding for bankruptcy, insolvency, reorganization or any other
relief described in this Section 13.01, and except as otherwise provided in this
Section 13.01, Tenant shall not within one hundred twenty (120) days have
vacated or stayed the same, or caused any delinquency in Fixed Rent and
additional rent which shall have become due and payable to have been paid and no
other default to be continuing hereunder beyond any applicable notice and/or
cure period, Landlord may, at Landlord's option, serve upon Tenant or any such
trustee, receiver, or assignee, a notice in writing stating that the Term of
this Lease shall cease and expire on the date specified in said notice, which
date shall not be less than fifteen (15) days after the serving of said notice,
and the Term of this Lease shall then expire on the date so specified as if that
date had originally been fixed in this Lease as the Expiration Date of the Term
of this Lease. Thereupon, neither Tenant nor any person claiming through or
under Tenant by virtue of any statute or of an order of any court shall be
entitled to possession or to remain in possession of the Demised Premises, but
shall forthwith quit and surrender the Demised Premises, and Landlord, in
addition to the other rights and remedies Landlord has by virtue of any other
provision herein or elsewhere in this Lease contained or by virtue of any
statute or rule of law, may retain as part of its damages any rent or other
monies received by it from Tenant or others on behalf of Tenant.
Section 13.02. In the event of the termination of this Lease pursuant to
Section 13.01 hereof, Landlord shall
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forthwith, notwithstanding any other provision of this Lease to the contrary, be
entitled to recover from Tenant as and for liquidated damages an amount equal to
the difference between the Rents reserved hereunder for the unexpired portion of
the Term and the then fair and reasonable rental value of the Demised Premises
for the same period (as determined in the manner described in Section 15.01), if
lower than the Rents reserved hereunder at the time of termination, such
difference being discounted to the then present value at the same rate per annum
as interest on United States Treasury Bonds or Notes of maturity equal to the
unexpired Term immediately before such termination. If the Demised Premises or
any part thereof be re-let by Landlord in a bona fide arms-length transaction
for the unexpired Term of this Lease, or any part thereof, before presentation
of proof of such liquidated damages to any court, commission or tribunal, the
amount of rent reserved upon such re-letting shall be prima facie the fair and
reasonable rental value for the part or the whole of the Demised Premises so
re-let during the term of the re-letting. Nothing herein contained shall limit
or prejudice the right of Landlord to prove for and obtain as liquidated damages
by reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount be greater,
equal to, or less than the amount of the difference referred to above.
Section 13.03. If, at any time, Tenant's interest in this Lease shall have
been assigned other than to an Affiliate, the word "Tenant", as used in this
Article 13, shall be deemed to mean the then Tenant under this Lease.
ARTICLE 14
DEFAULT
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Section 14.01. This Lease and the Term and estate hereby granted are
subject to the limitation that (a) whenever Tenant shall default in the payment
of any installment of Fixed Rent, or in the payment of any additional rent, on
any day upon which the same is herein provided to be paid, and such default
shall continue for thirty (30) days after Landlord shall have given Tenant a
notice specifying such default, and for an additional five (5) days after
Landlord shall have served on Tenant a second written notice given after the
expiration of thirty (30) days from the giving of the first such notice, in each
case specifying such default; or (b) whenever Tenant shall default in performing
any of Tenant's other material obligations under this Lease and such default
shall continue and shall not be remedied by Tenant within forty-five (45) days
after Landlord shall have given Tenant a notice specifying such default, or, in
the event of a default which cannot with due diligence be remedied within such
forty-five (45) day period if Tenant shall not have diligently commenced
(subject to Force Majeure Events) to take action toward remedying such default
within such forty-five (45) day period and shall not thereafter with reasonable
diligence (subject to Force Majeure Events) and in good faith proceed to remedy
such default, then in any of the events set forth in clauses (a) or (b),
Landlord may, if such defaults have not been remedied, serve a written ten (10)
days' notice of cancellation of this Lease upon Tenant, and upon the expiration
of said ten (10) days, this Lease and the Term hereof shall end and expire as
fully and completely as if the date of expiration of such ten (10) day period
were the day herein definitely fixed for the end and expiration of the Term of
this Lease and Tenant shall then quit and surrender the Demised Premises to
Landlord but Tenant shall remain liable as hereinafter provided.
Section 14.02. If the notices provided for in Section 14.01 hereof shall
have been given and such default shall not be remedied within the applicable
cure periods, Landlord may, without notice, reenter the Demised Premises and
dispossess Tenant, the legal representatives of Tenant or other occupants of the
Demised Premises, subject to the provisions of any nondisturbance agreement
which Landlord may have entered into with subtenants of all or any part of the
Demised Premises, by summary proceedings or otherwise, and remove their effects
and hold the Demised Premises as if this Lease had not been made, and Tenant
hereby waives the service of notice of intention to reenter or to institute
legal proceedings to that end.
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Section 14.03. Notwithstanding a termination of this Lease pursuant to the
provisions of this Article 14, Tenant's obligation to pay any and all Fixed Rent
and additional rent under this Lease shall continue to and cover all periods up
to the date (excluding unexercised renewal options) provided in this Lease for
the expiration of the Term hereof.
ARTICLE 15
REMEDIES OF LANDLORD, WAIVER OF REDEMPTION
Section 15.01. (a) In case of any reentry, expiration and/or dispossess by
summary proceedings or otherwise as set forth in Article 14 hereof (i) the Fixed
Rent and additional rent shall become due thereupon and be paid up to the time
of such reentry, dispossess and/or expiration; (ii) Landlord may re-let the
Demised Premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms, which may at Landlord's option be less than or
exceed the period which would otherwise have constituted the balance of the Term
of this Lease and may grant concessions or free rent; and (iii) Tenant shall
also pay Landlord as liquidated damages for the failure of Tenant to observe and
perform Tenant's covenants herein contained, either:
(A) a sum payable on demand which at the time of
such expiration, termination, re-entry and/or dispossess represents
the excess, if any, of (x) the Fixed Rent and additional rent which
would have been payable by Tenant for the period commencing with
such earlier expiration, termination, re-entry and/or dispossess or,
if later, the date through which monthly deficiencies have been paid
in full pursuant to (B) below, and ending with the date of
expiration of the Term of this Lease had this Lease not been so
terminated or had Landlord not so reentered the Demised Premises or
dispossessed Tenant, over (y) the aggregate fair rental value of the
Demised Premises for the same period, such difference being
discounted to the then present value at the same rate per annum as
interest on United States Treasury Bonds or Notes of maturity equal
to the unexpired Term, or
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(B) until such time as Landlord may elect to and
shall recover damages under (A) above, any deficiency between the
Fixed Rent and additional rent hereby reserved and the net amount,
if any, of the rents collected on account of the lease or leases of
the Demised Premises (allocated on a square foot basis if the
Demised Premises or any part thereof shall be relet in combination
with any other space) for each month of the period which would
otherwise have constituted the balance of the Term of this Lease
(without regard to any unexercised renewals thereof). The inability
(but not the unreasonable refusal) of Landlord to relet the Demised
Premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency, but only to the extent
actually incurred, such normal, customary and reasonable expenses as
Landlord may incur in connection with reletting, such as reasonable
attorneys' fees, brokerage commissions and reasonable expenses for
keeping the Demised Premises in good order or for preparing the same
for reletting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent days specified in this Lease and
any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to
collect the deficiency for any subsequent month by a similar
proceeding.
(b) For the purposes of subparagraph (a) of this Section
15.01, (a) additional rent shall be presumed to be the same as payable for the
calendar year immediately preceding such earlier expiration, termination,
re-entry or dispossess; and (b) if the Demised Premises or any part thereof be
re-let by Landlord for the unexpired Term of this Lease, or any part thereof, in
a bona fide, arms length transaction, before exercise by Landlord of its option
under said clause (A) hereof, the amount of rent reserved upon such re-letting
shall be prima facie the aggregate fair rental value of the Demised Premises for
purposes of such clause (A) thereof.
(c) In case of any reentry, expiration and/or dispossess by
summary proceedings or otherwise as set forth in Articles 13 and 14, provided
Tenant shall surrender possession of the Demised Premises to Landlord and
confirm its obligations hereunder, Landlord shall use reasonable efforts to
relet the Demised Premises or any part or parts thereof either in the name of
Landlord or otherwise, for a term or terms that may at Landlord's option be less
than or
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exceed the period which would otherwise constitute the balance of the Term of
this Lease and may grant concessions or free rent. For purposes of this
paragraph (c) and Section 13.02, such refusal to relet shall not be deemed to be
unreasonable if Landlord does not relet for any one or more of the reasons
specified in clause (A) or (C) of subparagraph (c)(ii) of Section 10.01. In no
event shall Landlord be expected to make any effort to relet the Demised
Premises if there is in the Building comparable space which is vacant or will be
vacant within six (6) months from the date of repossession of the Demised
Premises. The inability (but not the unreasonable refusal) of Landlord to relet
the Demised Premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. Tenant's liability for the liquidated damages
described in the preceding paragraph shall include the cost of only those
alterations, repairs, replacements and decorations in the Demised Premises as
Landlord in fact makes and are advisable and reasonably necessary for the
purpose of reletting the Demised Premises and, in no event, shall the cost of
such alterations and decorations for which Tenant shall be liable exceed the
value of Landlord's then standard work letter or allowance; and the making of
such alterations and decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall not be liable, in
the event that the Demised Premises are relet, for inability to collect the rent
under such reletting.
Section 15.02. In the event of a breach or threatened breach by Landlord
or Tenant of any of the covenants or provisions hereof, Landlord, in the case of
a breach or threatened breach by Tenant, and Tenant, in the case of a breach or
threatened breach by Landlord, shall have the right of injunction and the right
to invoke any remedy allowed at law or in equity in addition to any other
remedies herein provided for. Mention in this Lease of any particular remedy
shall not preclude Landlord or Tenant from any other remedy, in law or in
equity.
Section 15.03. Tenant does hereby expressly waive any and all rights, so
far as is permitted by law, which Tenant might otherwise have to (a) redeem the
Demised Premises or any interest therein, (b) re-enter or repossess the Demised
Premises, or (c) restore the operation of this Lease, after Tenant shall have
been dispossessed by a judgment or by a warrant of any court or judge, or after
any termination of this Lease, whether such dispossess, re-entry by Landlord or
termination shall be by operation of law or pursuant to the provisions of this
Lease. The word "reenter", "re-entry" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings.
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ARTICLE 16
FEES AND EXPENSES
Section 16.01. If Tenant shall default in the observance or performance of
any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions of this Lease, Landlord may remedy such
default for the account of Tenant, immediately and without notice in case of
emergency, and in any other case if Tenant shall fail to remedy such default
with all reasonable dispatch after Landlord shall have notified Tenant in
writing of such default and of Landlord's intention or reservation of rights to
remedy the same in accordance with the provisions of this Section, and the
applicable grace period for curing such default shall have expired; and if
Landlord makes any reasonable expenditures or incurs any reasonable obligations
for the payment of money in connection therewith, including, but not limited to,
reasonable attorneys' fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred, with interest at the
Interest Rate from the date incurred, shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Landlord within thirty (30) days of
submission of a bill to Tenant therefor. In no event shall Tenant be responsible
for such expenditures or obligations if any such action or proceeding is
determined in favor of Tenant.
Section 16.02. If Landlord shall default in the observance or performance
of any terms or covenants on Landlord's part to be observed or performed under
or by virtue of any of the terms or provisions of this Lease, and Tenant shall
notify Landlord of the existence of said default and Landlord shall fail to
commence to cure the same within thirty (30) days after said notice and
diligently prosecute any work necessary to cure such default to its completion,
Tenant may then take action to cure the default, and if Tenant makes any
reasonable expenditures or incurs any reasonable obligations for the payment of
money in connection therewith, including, but not limited to, reasonable
attorneys' fees in instituting, prosecuting or defending any action or
proceeding, such sums paid or obligations incurred, with interest at the
Interest Rate from the date incurred, shall be paid by Landlord to Tenant within
thirty (30) days of submission of a bill to Landlord therefor; provided,
however, that in the event that Landlord's default has a material adverse impact
on Tenant's ability to conduct its business or creates an imminent danger to the
health or safety of persons or property, the thirty (30) days first specified
above shall be reduced to ten (10) days or such shorter period of time as may be
required under the circumstances by virtue of the nature of
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the matter involved in the case of an emergency situation, and the notice
specified above in this Section shall not be required. If Landlord shall dispute
Tenant's right to have performed any work hereunder or the cost incurred, the
parties shall resolve such dispute by arbitration in accordance with the
provisions of this Lease, but Tenant shall not have any right of setoff or
offset with respect thereto unless Landlord shall fail to pay any amount
determined in such arbitration to be due to Tenant within thirty (30) days after
Landlord has received notice of such determination, in which event Tenant may
offset such amount with interest thereon at the Interest Rate from the date
incurred, from the next installments of Fixed Rent and additional rent
hereunder. Any action taken by Tenant pursuant to this Section 16.02 shall not
constitute a waiver of any of Tenant's other rights and remedies hereunder.
ARTICLE 17
END OF TERM
Section 17.01. Upon the expiration or earlier termination of this Lease,
Tenant shall quit and surrender to Landlord the Demised Premises, broom clean,
in good order and condition, ordinary wear and tear and damage by fire, the
elements or other casualty excepted, and Tenant shall remove Tenant's Property
as herein provided. Tenant's obligation to observe or perform this covenant
shall survive the expiration or earlier termination of this Lease.
ARTICLE 18
QUIET ENJOYMENT
Section 18.01. Landlord covenants and agrees with Tenant that upon Tenant
paying the Fixed Rent and additional rent and observing and performing all the
terms, covenants and conditions on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the Demised Premises, subject,
nevertheless, to the terms and conditions of this Lease. Except for any mortgage
held by a recognized lending institution (as such term is defined in Section
31.01) where Tenant and mortgagee have executed and delivered the nondisturbance
and attornment agreement required by Section 31.03, Landlord covenants and
agrees that this Lease and the estate and rights of Tenant hereunder shall be
prior to the lien of any mortgage or other encumbrance hereafter placed on the
Building and/or the Real Property. Landlord agrees that any such mortgage (other
than any such mortgage held by a recognized lending institution), by its terms,
shall be expressly subordinate to this Lease and the estate and rights of Tenant
hereunder.
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ARTICLE 19
NO WAIVER
Section 19.01. No agreement to accept a surrender of this Lease shall be
valid unless in writing signed by Landlord. No employee or agent of Landlord
shall have any power to accept the keys for the Demised Premises prior to the
termination of this Lease. The failure of Landlord or Tenant to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant, unless such waiver be in writing signed by Landlord or Tenant, as the
case may be. No payment by Tenant or receipt by Landlord of a lesser amount than
the Fixed Rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated Fixed Rent, nor shall any endorsement or statement on
any check or any letter accompanying any payment of rent be deemed an accord and
satisfaction, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
Section 19.02. This Lease contains the entire agreement between the
parties, and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
ARTICLE 20
WAIVER OF TRIAL BY JURY
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Section 20.01. Landlord and Tenant do hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Demised Premises, or any other claims (except claims for
personal injury or property damage), or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for nonpayment of rent, Tenant will not interpose and does hereby
waive the right to interpose any counterclaim of whatever nature or description
in any such proceeding, provided, however, that the foregoing waiver shall not
be binding in any case where Tenant's failure to interpose such counterclaim
would result in a waiver of such counterclaim on Tenant's part.
ARTICLE 21
INABILITY TO PERFORM; FORCE MAJEURE EVENTS; ABATEMENT
Section 21.01. If, by reason of any of the following ("Force Majeure
Events") (i) acts of God, (ii) strike or labor troubles not directly involving a
party hereto, (iii) governmental preemption in connection with a national
emergency, (iv) any rule, order or regulation of any governmental agency, (v)
conditions of supply or demand which are affected by war or other national,
state or municipal emergency, (vi) or any similar cause beyond Landlord's or
Tenant's respective reasonable control, Landlord or Tenant, respectively shall
be unable to fulfill its obligations under this Lease or shall be unable to
supply any service which Landlord is obligated to supply, in the case of
Landlord, this Lease and the other of Landlord's or Tenant's obligations
hereunder and in the case of Tenant its obligation to pay Fixed Rent and
additional rent hereunder shall in no wise be affected, impaired or excused;
provided, however, that as soon as Landlord or Tenant, respectively, shall learn
of the happening of any of the foregoing conditions, Landlord or Tenant,
respectively, shall promptly notify the other of such event and, if
ascertainable, its estimated duration, and will proceed promptly and diligently
with the fulfillment of its obligations as soon as practicably possible, and
provided that nothing in this Section 21.01 shall affect Tenant's express rights
to rent abatements provided in this Lease or Tenant's obligations to pay the
Rents and other fees and charges due to the Landlord hereunder.
Section 21.02. If, for any reason whatsoever, whether or not the result of
the causes set forth in clauses (i) through (vi) of Section 21.01 above or of
the failure of the supplier of utilities to the Building or by reason of any
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Requirement: (a) reasonable access to the Demised Premises is prevented or
substantially obstructed or (b) essential services to the Demised Premises are
interrupted or materially impaired or (c) Landlord fails to make repairs
required under this Lease, or makes such repairs and, in either case more than
two thousand five hundred (2,500) rentable square feet of the Demised Premises
are untenantable, or (d) the Demised Premises or more than two thousand five
hundred (2,500) rentable square feet thereof is untenantable or Tenant's conduct
of its business operations is materially interfered with, and any such condition
described in clauses (a) through (d) above continues for seven (7) or more
consecutive days (but excluding untenantability resulting from a fire or other
casualty, a taking by exercise of right of eminent domain or the intentional
wrongful act or negligence of Tenant or anyone claiming by, through or under
Tenant, or their respective employees, agents, contractors or invitees), and
Tenant shall have given Landlord notice of such condition if no other tenant is
then subject to a similar act, event or circumstance, but if any other tenant is
so affected, no such notice by Tenant shall be required hereby, then, commencing
on the day after the expiration of such seven (7) consecutive day period, if and
so long as Tenant is not conducting business in the affected portion of the
Demised Premises, other than the continued presence of Tenant's security
personnel therein for the purposes of preservation of Tenant's Property, Tenant
shall be entitled to an abatement of Fixed Rent and additional rent for each day
after said seven (7) day period for such portion of the Demised Premises so
affected as above set forth, which abatement shall be in the proportion that the
untenantable rentable area of the Demised Premises bears to the total rentable
area of the Demised Premises. Notwithstanding the foregoing, if by reason of any
such condition, (i) one (1) or more floors of the Demised Premises are rendered
untenantable for the conduct of Tenant's business or (ii) access to one (1) or
more floors of the Demised Premises is materially adversely affected, and if it
was not reasonably practicable to conduct Tenant's business in and Tenant
discontinues the conduct of its business in the remainder of the Demised
Premises, other than the continued presence of Tenant's security personnel
therein for the purposes of preservation of Tenant's Property, then for the
purposes of the preceding sentence all of the Demised Premises shall be deemed
untenantable. No provision of this Section shall limit any other remedy of
Tenant provided for in this Lease or under applicable law. Nothing in this Lease
shall be considered as a waiver by Tenant of its right to assert a constructive
eviction.
Section 21.03. If any dispute shall arise between Landlord and Tenant with
respect to the application of Section 21.02, such dispute shall be submitted to
and
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determined by Expedited Arbitration in accordance with the provisions of Section
27.02 hereof.
ARTICLE 22
NOTICES
Section 22.01. Any notice, demand, statement, consent, authorization,
approval, disapproval, or other communication (herein collectively a "Notice")
required or permitted to be given, rendered or made by either party to the
other, pursuant to this Lease or pursuant to any Requirement, shall be in
writing (whether or not so stated elsewhere in this Lease), and except as
hereinafter provided in this Section 22.01 shall be deemed to have been properly
given, rendered or made, when hand delivered or deposited with a nationally
recognized overnight courier or with the United States post office, by certified
mail, return receipt requested, addressed as follows:
If to the Landlord:
Boston Properties Limited Partnership
c/o Boston Properties, Inc.
8 Arlington Street
Boston, Massachusetts 02116
with a copy of any notice of a default to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110
Attn: Peter Van, Esq.
If to Tenant:
Bankers Trust Company
Real Estate Management Department 22nd Floor
Mail Stop 2221
130 Liberty Street
New York, New York 10006
Attn: Vice President Leasing
with a copy of any notice of a default to:
General Counsel
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Either party may, by Notice as aforesaid, designate a different address or
attention designation for Notices intended for it. Such Notice shall be given,
and shall be
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deemed to have been given and received, when so hand delivered (against a signed
receipt) or three (3) days after such deposit of such Notice by certified mail
enclosed in a securely closed post-paid wrapper, in a United States post office,
or one (1) day after such deposit of such Notice with a nationally recognized
overnight courier; and in the case 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 as indicated on the return receipt or by notice of the
postage department or such nationally recognized courier.
ARTICLE 23
SERVICES
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Section 23.01. (a) Landlord (i) shall provide passenger elevator service
to the Demised Premises by the eight (8) passenger elevators in each of the low
rise and high rise banks of West Building passenger elevators and by the seven
(7) passenger elevators in the low rise bank of East Building passenger
elevators and by the five (5) passenger elevators in the high rise bank of East
Building passenger elevators which service the Demised Premises as of the date
of the execution of this Lease, during the hours of 6:00 a.m. to 9:00 p.m.
Mondays through Fridays on Business Days and (ii) shall have at least four (4)
passenger elevators in each of the low rise and high rise banks of the West
Building and five (5) passenger elevators in the low rise bank of the East
Building and three (3) passenger elevators in the high rise bank of the East
Building subject to call at all other times to the Demised Premises, such
requirements as to the high rise bank of elevators in the East Building to apply
from and after such time as Tenant leases Option Space and such requirements as
to the high rise bank of elevators in the West Building to apply from and after
the time that Tenant leases the Additional Demised Premises (subject to (x) two
(2) such passenger elevators in each such elevator bank not being in service at
any time due to maintenance or upgrades and (y) any such passenger elevators not
being in service due to bona fide repairs being made thereto, which repairs
shall be made promptly, using overtime labor if more than two (2) such passenger
elevators shall be so inoperable at any one time). Landlord shall also provide
passenger elevator service to the Demised Premises by the "vault" elevator
servicing the 1st and 2nd Floors of the Demised Premises at all times that such
portions of the Demised Premises shall be open for business, which elevator
shall be for the exclusive use of Tenant, its subtenants, officers, employees
and invitees, and which elevator shall not be programmed to stop at any floor
not part of the Demised Premises. Upon notice from Tenant given not more than
once in any sixty (60) day period, Landlord shall, as requested by Tenant, cause
one or more passenger elevators to be programmed so that they do not open on
certain floors of the Demised Premises during certain hours specified by Tenant,
provided that in Landlord's reasonable judgment, such reprogramming will not
adversely affect the elevator service given or required to be given to other
tenants and occupants of the Building. At Landlord's option, the passenger
elevators shall be operated by automatic control or by manual control, or by a
combination of both of such methods. Tenant shall have the nonexclusive right to
use the passenger elevators for the distribution to Tenant's directors,
partners, officers, shareholders and employees of (i) mail and other written
material via mail carts, (ii) files via file carts and (iii) food and beverages
via Tenant's food carts. Landlord will provide at least two (2) passenger
elevator starters properly uniformed, during Business Hours; provided that
Landlord may
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utilize other appropriate personnel, properly uniformed, to perform this
function, so long as the level of security to be provided to Tenant pursuant to
subsection (b) of this Section 23.01 is not adversely affected thereby. The
escalators serving the East portion of the lobby shall be operated 24 hours per
day, seven 7 days per week, and the escalators serving the West portion of the
lobby shall be operated during Business Hours and at all other times that the
West Building entrance to the Building shall be open in accordance with the
provisions of this Lease.
(b) Landlord shall also provide at least one (1) freight
elevator serving the Demised Premises during Business Hours on a "first come,
first served basis" and during other hours upon not more than twenty-four (24)
hours advance notice from Tenant on a reservation, "first come, first served"
basis in accordance with Landlord's reasonable rules and regulations therefor,
provided, however, that if Tenant shall elect to perform cleaning in the Demised
Premises, special arrangements shall be made by Landlord to facilitate Tenant's
use of the freight elevator for Tenant's cleaning activities (subject to such
freight elevator not being in service due to bona fide repairs being made
thereto, which repairs shall be made promptly, using overtime labor, if
necessary). If Landlord shall furnish any such freight elevator facilities on
other than Business Hours, Tenant shall pay to Landlord within thirty (30) days
after demand therefor (detailing such charges) an amount equal to the lesser of
(i) $75 per hour, subject to CPI Adjustment or (ii) such amount as Landlord
shall establish as customary in the Building. Such charge shall include the use
of the loading dock and the cost of the freight elevator operator and security
guard, if any, posted at the loading dock by Landlord. If more than one tenant
has requested freight elevator services for the same times during other than
Business Hours, which services can be provided by one elevator, the charges to
Tenant shall be prorated based on the duration of each tenant's usage. Tenant
shall have such use of the freight cars and loading dock, without limitation,
for delivery of supplies and equipment to the Demised Premises for the
transportation of contractors and workmen engaged by Tenant, for food and
beverage delivery, for Tenant's food carts serving the Demised Premises, and for
reasonable access to the Cellar space for the uses thereof permitted by this
Lease. If reasonably required by Tenant, Tenant shall have the right to utilize
the West Building freight dock for such deliveries and to transport such
deliveries to the East Building passenger and freight elevators through the
third floor crossover in the Middle Building, and thereby access the Demised
Premises.
(c) Tenant shall have the right to the non-exclusive use of
the private elevator located in the private drive-through servicing the Building
for access to the
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Demised Premises on a 24 hour per day, 7 day per week basis (x) for use by
senior employees of Tenant designated from time to time by Tenant in writing
delivered to Landlord and (y) for those handicapped employees or business
invitees of Tenant requiring the use of such elevator because their handicap
prevents them from using any other means of ingress and egress to the Demised
Premises; provided Tenant complies with access controls or restrictions which
Landlord may reasonably require from time to time. Landlord may at its election
require such employees and invitees to identify themselves to the Building
employee stationed at or operating the private elevator. At Landlord's option,
the private elevator shall be operated by automatic control or by manual
control, or by a combination of both methods.
(d) Landlord agrees to maintain a full service passenger
elevator and escalator maintenance contract for all passenger elevator cars
servicing the Demised Premises, in accordance with practices of other
first-class office buildings in Manhattan having elevators of comparable age and
quality to those in the Building, or if Landlord's employees have the capacity
and qualifications to provide such services, Landlord may utilize its employees
to do so instead of the contractor. The elevators shall have the specifications
set forth in Exhibit F annexed hereto and shall, either under the maintenance
contract referred to above or otherwise, be maintained to operate in accordance
with Exhibit F.
(e) Landlord agrees that no passenger elevator cars currently
in the elevator banks servicing the Demised Premises shall be dedicated to the
use of any other tenant in the Building except to the extent that any such
dedication of use is presently contained in an existing lease with another
tenant of the Building.
Section 23.02. (a) The Building will be open to Tenant, its employees and
invitees on a twenty-four (24) hour per day, seven (7) days per week, basis. The
West Building entrances to the Building shall be open on Business Days from 6:00
A.M. to 6:00 P.M. Monday through Friday and from 8:00 A.M. to 1:00 P.M. on
Saturdays and shall be closed other than during such hours. Landlord agrees to
operate a "Building pass system" on all days other than during Business Hours
and on Business Days, as is in keeping with the operation of other first-class
office buildings in the midtown Park Avenue area of the Borough of Manhattan,
and Tenant agrees to cooperate fully with Landlord in maintaining that system.
During such times, entry by Tenant's officers, employees and invitees shall be
permitted on presentation of individual identification cards issued by Tenant to
its officers, employees and invitees.
(b) Landlord shall provide security for the
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Building consistent with other first class office buildings in the midtown Park
Avenue area of the Borough of Manhattan on a 24 hour per day, 7 per day per week
basis. The foregoing will include a desk in the East entrance lobby of the
Building, at which an attendant employed by the Building shall be present
twenty-four (24) hours per day, seven (7) days per week throughout the year.
(i) Landlord agrees that Tenant, at its cost, may
station an employee of Tenant at the desk in the East entrance lobby for
the purposes of identifying the guests and invitees of Tenant and issuing
passes to such persons in order to enter the elevators to the Demised
Premises; and Tenant may place a removable sign on such desk indicating
the purpose of such employee, such sign to be of a size, design,
lettering, material and color reasonably satisfactory to Landlord. Tenant
shall be responsible for the acts or omissions of such employee and at all
times such employee shall be neatly and properly attired in a uniform
reasonably approved by Landlord which may, in any event, be adorned with
the logo of Tenant and such employee shall have the appearance and conduct
himself or herself in a manner consistent with a lobby desk attendant in a
first class office building such as the Building; and
(ii) Landlord agrees to provide at its cost a Building
employee who shall be stationed during Business Hours at the elevator
banks servicing the Demised Premises located on the South side of the East
Building elevator lobby, who shall use reasonable efforts to limit access
to the elevator bank to employees and invitees of Tenant and Tenant's
subtenants (or their Affiliates) exhibiting a pass issued by Tenant or
Tenant's subtenants and to employees and invitees of other tenants and
occupants of space serviced by such elevator bank. Tenant shall be
responsible for identifying to the Building personnel those employees and
invitees of Tenant and Tenant's subtenants (or their Affiliates) who are
to be granted access to the elevator bank in accordance with Landlord's
reasonable requirements, including, if required by Landlord, in the case
of the employees of Tenant and Tenant's subtenants (or their Affiliates),
the presentation of appropriate identification cards.
(iii) At Tenant's option, in addition to arrangements
referred to in (i) and (ii) above of this subparagraph (b), Tenant may
maintain an employee at a desk or other station at the elevator banks
servicing the Demised Premises located on the North side of the East
Building elevator lobby, who shall use reasonable efforts to limit access
to such elevator banks by
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employees and invitees of Tenant (or its Affiliates) only after stopping
at or passing by such desk or other station. Tenant may place a sign at
such desk or other station for such purpose, such sign to be of a size,
design, lettering, material and color reasonably satisfactory to Landlord.
Tenant shall be responsible for the acts or omissions of such employee and
at all times such employee shall be neatly and properly attired in a
uniform reasonably approved by Landlord which may, in any event, be
adorned with a logo of Tenant, and such employee shall have the appearance
and conduct himself or herself in such a manner consistent with a lobby
desk attendant in a first class office building such as the Building.
Landlord shall cooperate with Tenant in causing employees and invitees of
Tenant (or its Affiliates) to be directed to the desk or other station
maintained by Tenant for such purpose, which cooperation shall include,
without limitation, placing a sign on the desk or other station maintained
by the Landlord by its building employee at the elevator banks servicing
the Demised Premises in the South side of the East Building elevator lobby
pursuant to clause (ii) above, limiting access to such elevator banks by
persons other than employees and invitees of Tenant (or its Affiliates)
only after stopping or passing by such desk or other station maintained by
Landlord.
(iv) Landlord shall not, without Tenant's prior written
consent, restrict access to the elevator banks servicing the Demised
Premises during Business Hours either at the East entrance lobby or West
entrance lobbies, including, without limitation at the desk referred to in
clause (i) of this subparagraph (b), provided that such access may be
restricted as provided in clauses (ii) and (ii) of this subparagraph (b).
(c) Landlord shall maintain a messenger center in the Building
and shall direct messenger deliveries for Tenant to the messenger center, other
than those which Landlord determines are too heavy or bulky and must be
delivered directly to the Demised Premises on the freight elevator. Reasonably
after the time of any delivery to the messenger center, Landlord shall cause its
employees at the messenger center to contact a representative of Tenant at the
number designated by Tenant and Tenant shall have the right to either retrieve
any delivery personally at the messenger center or request that the delivery be
brought to Tenant, in which event Landlord shall so arrange within a reasonable
period of time thereafter, or according to a periodic pickup schedule to be
reasonably established by Landlord which shall likewise provide for collection
of outgoing deliveries from the Demised Premises for
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transmittal to the messenger center, where messengers retained by Tenant may
pick up such delivery. If at the time of any delivery (whether incoming or
outgoing), the messenger establishes to Landlord's reasonable satisfaction that
he or she is an employee of a reputable messenger service and such messenger is
attired in a messenger uniform, then, at Landlord's election, Landlord will
permit the messenger to proceed directly to Tenant's reception area. If
Landlord's employee is unable to contact the representative of Tenant, then the
delivery shall remain at the messenger center until Landlord's next regular
distribution or pickup of deliveries to or from the Demised Premises. Landlord
may alter the location of and procedures to be followed with respect to the
messenger center so long as Landlord provides substantially equivalent services.
(d) Subject to applicable Requirements and Landlord's
reasonable rules and regulations, Landlord shall reserve for Tenant the
exclusive right to use, free of charge, one parking space for one standard sized
(or smaller) automobile by senior employees of Tenant designated from time to
time by Tenant in writing delivered to Landlord, such space to be located in the
drive through servicing the Building, at a location to be designated from time
to time by Landlord. It is understood that Landlord's rules and regulations
shall not prevent a vehicle not exceeding a limousine of average size from
entering the drive through to discharge its passengers. Except for Landlord's
gross negligence or willful misconduct, Landlord assumes no responsibility or
liability for injury to person or property, or for loss of or damage to any
vehicle parked in such parking space (or its contents) for any reason
whatsoever. Landlord shall provide no services with respect thereto. Tenant
shall deliver evidence of liability insurance for any vehicle parked at the
parking space as required by Section 7.06 hereof. Landlord shall cooperate,
without cost to Landlord (unless due to Landlord's fault), with Tenant in
removing any unauthorized vehicle from the parking space provided that parking
of unauthorized vehicles will in no event be a breach of this Lease by Landlord.
The parking space shall be available for use during Business Hours and at all
other times that the drive through is open. Tenant acknowledges and agrees that
if Landlord elects, in its sole discretion, to discontinue all use of the drive
through for vehicles or all use of the drive through for vehicular parking,
Tenant's rights hereunder shall likewise be discontinued. Landlord agrees that
such discontinuances shall be on a non-discriminatory basis as to all tenants of
the Building, so that Landlord shall terminate Tenant's right to the use of such
space only for so long as Landlord terminates the use of all spaces along the
drive by other tenants or by Landlord.
Section 23.03. (a) Subject to Section 11.05 hereof
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with respect to Secured Areas, Landlord shall provide cleaning and janitorial
services for the Building and Demised Premises on Business Days except
Saturdays, other than any space in the Demised Premises used for the preparation
or consumption of food, for retail stores, private bathrooms (i.e. not core
bathrooms), showrooms or athletic facilities and other than the Cellar Space, in
accordance with Landlord's Cleaning Standards for the Building and Demised
Premises provided in Exhibit G annexed hereto. Landlord, its cleaning contractor
and their employees shall have access outside of Business Hours to the Demised
Premises, subject to the limitations on Secured Areas expressly set forth
herein, and the use (at Tenant's expense) of light, power and water in the
Demised Premises as reasonably required for the purpose of cleaning the Demised
Premises in accordance with Landlord's obligations hereunder. Tenant shall pay
to Landlord or Landlord's contractor within thirty (30) days after demand, a
reasonable charge for the removal from the Demised Premises of refuse and
rubbish of Tenant's eating facilities requiring special handling (known as wet
garbage). If Tenant does have a separate area for the preparation or consumption
of food in the Demised Premises, Tenant shall provide a refrigerated garbage
storage room (the plans and specifications for any new or replacement room to be
approved by Landlord, such approval not to be unreasonably withheld or delayed)
or, at Tenant's option, other means of disposing of garbage reasonably
satisfactory to Landlord. Tenant shall comply with any recycling program and/or
refuse disposal program (including, without limitation, any program related to
the recycling, separation or other disposal of paper, glass or metals) which
Landlord shall impose and which shall be required pursuant to any Requirements.
Tenant may at its option, contract directly with the contractor engaged from
time to time by Landlord for cleaning in the Building, for any "extra" services
not provided in Exhibit G, and Tenant shall pay directly to such cleaning
contractor the charges of such contractor therefor. Tenant's contract shall
provide that it is terminable by Tenant in the event such contractor is no
longer engaged by Landlord to clean the Building and, if Landlord shall notify
Tenant that Landlord's contract with such contractor will be terminated, Tenant
shall likewise terminate its contract with such contractor. Landlord shall use
reasonable commercial efforts to request Landlord's contractor to provide such
"extra" services to Tenant at rates and at a quality level competitive to those
charged to other tenants for such "extra" services by contractors in other first
class office buildings in the vicinity of the Building, provided that if the
rates or quality level are non-competitive Tenant shall have the right to use an
alternative contractor if in Landlord's reasonable judgment such contractor is
reputable, would not create a risk of damage to the Building or the Building
Systems or a risk of vandalism or theft and does
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not cause a labor conflict. In lieu of Tenant contracting with a contractor for
the "extra" cleaning services referred to in this Section 23.03(a), Tenant may
at its option, arrange for such "extra" cleaning by its own employees during
Business Hours, if in Landlord's reasonable judgment such arrangement would not
create a risk of damage to the Building or the Building Systems or a risk of
vandalism or theft and does not cause a labor conflict.
(b) Notwithstanding the foregoing provisions of Section 23.03(a),
Tenant shall have the right, from time to time during the Term upon ninety (90)
days' prior notice to Landlord, to direct Landlord to cease cleaning the Demised
Premises so that Tenant may contract directly for its own cleaning service at
the Demised Premises provided that Tenant shall be prohibited from using any
cleaning service which shall result in a strike, work stoppage or other labor
disharmony involving personnel employed by Landlord or any contractor or
subcontractor of Landlord in the operation of the Building. Tenant may likewise
notify Landlord that Tenant shall not continue its cleaning of the Demised
Premises whereupon, on the date set forth in Tenant's notice, which shall not be
less than ninety (90) days thereafter, Landlord shall resume cleaning the
Demised Premises. During the period that Landlord shall have ceased cleaning
services in the Demised Premises pursuant to this paragraph 23.03(b), there
shall be excluded from Fixed Rent an amount equal to Landlord's cost of
performing the cleaning services of the Demised Premises provided in Exhibit G
annexed hereto (whether by payment to Landlord's cleaning contractor or
otherwise) as of the date that Landlord shall have ceased cleaning services of
the Demised Premises. In the event any dispute shall arise between Landlord and
Tenant with respect to the exclusion from Fixed Rent provided in the immediately
proceeding sentence, such dispute shall be submitted to and determined by
Expedited Arbitration in accordance with the provisions of Section 27.02 hereof
but pending such determination, the exclusion from Fixed Rent shall be in the
amount requested by Landlord, and within thirty (30) days after such
determination, Landlord and Tenant will pay any required overpayment or
underpayment, with interest at the Interest Rate from the date initially paid to
the date of such adjustment. If Landlord shall resume cleaning the Demised
Premises pursuant to the preceding provisions, Fixed Rent shall thereupon be
increased by the amount it was then most recently reduced pursuant to this
paragraph (b).
(c) Without limiting the foregoing, Landlord shall, at its sole cost
and expense, maintain and repair all sidewalks, curbs, entrances, passageways
and vaults adjoining and/or appurtenant to the Building in clean and orderly
condition, free of dirt, rubbish, snow, ice and other accumulations and unlawful
instructions consistent
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with those similar services provided at first-class office buildings in the
midtown Park Avenue area of the Borough of Manhattan. Landlord shall complete
snow and ice removal from the public sidewalks adjoining the Building and
outside common areas of the Building as soon as reasonably practicable after
ending of snowfall or ice accumulation (including salting of walks or any other
prudent safety measures for the protection of Tenant, Tenant's customers and
employees).
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Section 23.04. (a) Landlord shall, through the air conditioning system of
the Building (including, without limitation, air handlers, perimeter heating and
cooling units and radiators) furnish to the Demised Premises, on an all
year-round basis, air conditioning, ventilation and heating during Business
Hours. The air conditioning system will provide fresh air in a quantity not less
than 0.40 cubic feet per minute per square foot of usable floor area, but in no
event containing less than twenty percent (20%) outside air. The air
conditioning, ventilation and heating system shall be maintained and operated to
provide interior conditions of 75 degree dry bulb and 50% relative humidity when
outside conditions are 95 degree dry bulb and 75 degree wet bulb and winter
conditions of 70 degrees interior with outside conditions of 0 degrees
Fahrenheit. Tenant recognizes that the Building's past practice has been to
drain its cooling towers during the winter, but nothing in this sentence shall
be deemed to limit Landlord's obligations pursuant to the provisions of the
previous sentence. The Building heating, ventilating and air-conditioning system
shall provide air quantity within the interior conditioned non-core Tenant
occupied Demised Premises of at least one (1) CFM per conditioned square foot
(which excludes space up to fifteen (15) feet from the window lines and the core
areas) and, provided that the average occupancy of the Demised Premises does not
exceed one (1) person for each one hundred fifty (150) square feet of usable
area, shall provide twenty (20) CFM per person of outside air (such usable area
of the Demised Premises to be determined pursuant to Exhibit C attached hereto).
Landlord further agrees to operate the heating, ventilating and air conditioning
equipment in accordance with their design criteria unless a recognized energy
conservation program, guidelines, regulations or recommendations promulgated by
any Governmental Authority shall require any reduction in operations causing
less favorable conditions than those provided under said design criteria in
which case such equipment may be operated so as to provide reduced service in
accordance with such Requirements; and Tenant agrees that Landlord's operation
of such equipment in accordance with such Requirements shall not be deemed a
partial or other eviction, or disturbance of Tenant's use, enjoyment, or
possession of the Demised Premises, and such operation shall not render Landlord
liable for damages, or entitle Tenant to any abatement of any Rents except as
may be provided in Section 21.02. Tenant shall have the right, at Tenant's
expense, to rebalance the air supply system to the Demised Premises from time to
time by adjustment of the VAV boxes as may be installed in the Demised Premises
in accordance with the provisions of this Lease, provided such rebalancing shall
be done so as not to materially affect any part of the Building outside of the
Demised Premises.
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(b) Landlord will maintain the ventilating, air conditioning
and heating system in a manner befitting a first class office building and will
use all reasonable care to keep the same in proper and efficient operating
condition. Tenant agrees to cooperate with Landlord and to abide by all the
regulations and requirements which Landlord may reasonably prescribe for the
proper functioning and protection of the air conditioning system, provided they
are consistent with the operation of a first-class office building, and are
necessary for compliance with the ambient conditions in the Demised Premises
specified in Section 23.04(a).
(c) Landlord will not be responsible for the failure of the
air conditioning system to meet the requirements hereinbefore specified if such
failure results from the occupancy of the Demised Premises with more than an
average of one (1) person for each one hundred fifty (150) square feet of usable
area or if Tenant installs and operates machines and appliances (including
office lighting but excluding air conditioning equipment) the total connected
electrical load of which exceeds four and one-half (4-1/2) watts in the Middle
or West Building or five (5) watts in the East Building per square foot of
usable area (usable area as used in this Section being deemed to be 78% of the
rentable area as listed on Exhibit C annexed hereto), or because of any
rearrangement of partitioning or other alterations, additions or improvements
made or performed by or on behalf of Tenant, or any person claiming through or
under Tenant which result in a material increase in the ventilation,
air-conditioning or heating requirements of the Demised Premises.
(d) Landlord shall not be obligated to meet the temperature
requirements of the ventilating, air conditioning, and heating system after or
before Business Hours; except that Landlord will provide Tenant with
ventilation, air conditioning, or heating at times other than during Business
Hours, provided Tenant shall give written notice (which may be by facsimile
transmission) prior to 3:00 P.M. in the case of such service on Business Days
and prior to 1:00 P.M. on Friday and Saturday in the case of such service on
Saturday or Sunday, respectively, provided, however that Tenant's notice may be
oral if Tenant shall confirm any such oral request by written notice (which may
be facsimile transmission) on the next Business Day and Landlord shall not be
required to furnish or distribute any such service without prior written notice
if Tenant has not theretofore or contemporaneously with any later oral or
written request, confirmed in writing any theretofore unconfirmed prior oral
request for such service previously provided by Landlord. If Landlord shall
furnish any air conditioning, ventilation or heating to the Demised Premises at
the request of Tenant other than during Business Hours,
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Tenant shall pay Landlord additional rent for such services in an amount equal
to $325.00 per hour as adjusted by CPI, but in no event to exceed the charges
which Landlord shall establish from time to time as customary for the Building.
If Tenant or any one or more other tenants or occupants of the Building shall
utilize such services at the same time or times, Landlord's charges shall be
appropriately prorated among Tenant and any such other tenant(s) or occupant(s)
(in accordance with the rentable areas of the spaces in question). Landlord
shall provide an itemized statement to Tenant showing the calculation of such
charges and such charges shall be paid by Tenant, as additional rent, within
thirty (30) days after Tenant's receipt of such statement.
(e) Tenant shall be entitled to install a supplementary air
conditioning system or systems of up to one hundred fifty (150) ton capacity in
the aggregate to service the Demised Premises in accordance with this Section
23.04(e). Such installation by Tenant shall be subject to the provisions of
Article 4. In connection with each such supplementary air conditioning system,
Tenant may, without charge, tap into the existing condenser water supply of the
Building by connecting Tenant's supplementary air conditioning systems to valved
outlets on each floor of the Demised Premises. Landlord shall provide condenser
water from the Building water tower 24 hours a day on a year-round basis for
Tenant's supplementary systems in a capacity of up to one hundred fifty (150)
tons of demand. Such condenser water will be a maximum of 88 degrees Fahrenheit
at the cooling tower when the outdoor conditions are 91 degrees Fahrenheit Dry
Bulb and 76 degrees Fahrenheit Wet Bulb. Tenant, at Tenant's expense, shall
install, operate, maintain, repair and replace the supplementary air
conditioning system. For this purpose, Tenant shall maintain in full force and
effect a maintenance agreement for the periodic maintenance of the supplemental
air conditioning system on customary terms with a contractor reasonably
acceptable to Landlord, and deliver a copy of such agreement and all extensions
thereof to Landlord within twenty (20) days after demand. If for any reason
Tenant shall fail to comply with such use or maintenance or replacement
requirements and such failure is in Landlord's reasonable judgment, creating an
emergency or materially and adversely affecting the Building or any of the
Building Systems, Landlord may, upon such notice (if any) to Tenant as shall be
reasonably practicable under the circumstances, withhold the supply, without
notice, of all condenser water to Tenant until such time as Tenant furnishes
Landlord with proof satisfactory to Landlord that such impermissible use or
maintenance shall not continue. Any installations required to connect Tenant's
supplementary air conditioning system to the condenser water supply shall be
made by Tenant in accordance with Landlord's reasonable design specifications
and criteria, which shall include a
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totalizing run time flow meter for a compressor to measure the time that
condenser water is flowing through the system. Tenant shall install automatic
valved in-line pumps on all future supplemental installations. Tenant shall also
pay Landlord for the supply of condenser water, as additional rent within thirty
(30) days after rendition of a bill therefor (not more often than monthly), a
fee equal to ten ($.10) cents per connected ton per hour of usage (determined on
a unit by unit basis), subject to CPI Adjustment. Landlord shall not be liable
to Tenant for any failure or defect in the supply or character of condenser
water supplied to Tenant by reason of any Requirement, act or omission of the
public service company serving the Building or for any other reason not
attributable to the acts or omission of Landlord, its agents, contractors or
employees.
Section 23.05. (a) Landlord shall furnish the electric energy consumed in
the Demised Premises through submetering thereof. Meters required to measure
Tenant's electric energy consumption (Kwh) and demand (Kw) shall be purchased,
installed and maintained by Tenant, at Tenant's expense. Tenant shall pay as
additional rent Tenant's costs for such electric energy, which shall be
determined by applying the on and off-peak Kwh and the cost per Kw as derived
from the meter(s) to the prevailing Con Edison SC-4 II Time-of-Day rate schedule
or the supplier's subsequent rate schedule or other rate schedule applicable to
the Building from time to time (but if the charges for providing electrical
energy become deregulated and Landlord shall obtain electricity at a higher cost
than it would have had electricity been obtained by Landlord from Con Edison,
then not in excess of the cost determined using the Con Edison rate schedule
which would then have otherwise been so applicable to the Building) and
multiplying the result by 105%. Tenant's meter(s) shall be capable of
registering both on and off peak Kwh and Kw. When more than one meter measures
the service of Tenant, the service rendered through each meter shall be
aggregated (through use of a totalizer) and billed in accordance with the rates
herein. Statements rendered by Landlord to Tenant as the result of meter
readings shall be paid by Tenant, as additional rent, within thirty (30) days of
rendition, but such statements shall not be rendered more frequently than
monthly. Each such statement shall be accompanied by a copy of the most recent
bill from the supplier of electricity to the Building and a copy of the most
recent reading of the submeters for the Demised Premises, which reading shall be
for substantially the same billing period as that covered by the bill from the
supplier.
(b) Notwithstanding the provisions of this Section 23.05(a),
until the date meters are installed by Tenant to measure Tenant's consumption of
electricity in the Demised Premises, Tenant shall pay as additional rent for
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the use of electricity an amount (on a per diem basis) equal to twenty cents
($.20) per month per rentable square foot of the Demised Premises (other than
the Cellar Space) occupied by Tenant not so metered.
(c) Landlord reserves the right to discontinue furnishing
electric energy to Tenant if Landlord discontinues furnishing electric energy to
fifty percent (50%) or more of the other tenants in the Building (excluding
Landlord or other tenants or occupants of the Building which are Affiliates of
Landlord), if (i) required by any Requirement, or (ii) Landlord reasonably
determines that such discontinuance shall provide an economic or other physical
benefit to Landlord and Landlord so discontinues to the other tenants of the
Building in reasonably comparable circumstances, or (iii) by reason of Force
Majeure Events, provided that Landlord shall give Tenant ninety (90) days'
written notice to Tenant or such lesser period if required by any Requirement,
and from and after the effective date of such termination, Landlord shall no
longer be obligated to furnish Tenant with electric energy; provided, however
that such termination date shall be extended for a time reasonably necessary for
Tenant to make arrangements to obtain electric service directly from the public
utility company servicing the Building, unless such termination is required by
any Requirement. If Landlord discontinues providing electric energy, this Lease
shall remain unaffected thereby and shall continue in full force and effect; and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building. Commencing with the date
when Tenant receives such direct service and as long as Tenant shall continue to
receive such service, the Tenant shall no longer be obligated to pay the
additional rent set forth in Section 23.05(a). Landlord shall, at Landlord's
expense in the case of discontinuance pursuant to any of the above provisions,
purchase and install at locations in the Building selected by the Landlord and
maintain any necessary transformers, electrical meter equipment, panel boards,
feeders, risers, wiring and other conductors and equipment which may be required
by Tenant to obtain electrical energy directly from the public utility supplying
the same.
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(d) Subject to the other provisions hereof, the parties hereto
agree that Tenant will have the right to use electricity for standard equipment
in the conduct of Tenant's business, including photocopying equipment, video
monitors and communication equipment, computers, word processing equipment and
lighting ("Ordinary Equipment"). In order that the personal safety and property
of the tenants, occupants and owner of the Building may not be imperilled by the
overtaxing of the capacity of the existing electrical distribution system,
Tenant agrees not to connect any electrical equipment of any type other than
Ordinary Equipment without Landlord's prior written consent, which shall not be
unreasonably withheld or delayed, nor to connect any load in excess of (x) seven
and one-half (7.5) and (y) six (6) watts of connected load per square foot of
rentable area in the Demised Premises respectively, in the (x) East and Middle
Building and (y) West Building, respectively, exclusive of electrical energy
necessary to operate the Building's heating, ventilation and air conditioning
system (the "Maximum Demand Load"). Landlord agrees to provide electric energy
up to the Maximum Demand Load in the Demised Premises.
(e) If, during the Term hereof, Tenant shall establish to
Landlord's reasonable satisfaction that Tenant requires electrical capacity of
more than that obtained under subsection (d) above, Landlord agrees that if, in
Landlord's reasonable judgment, sufficient electrical capacity is available from
the Building's then existing supply, after a reasonable allowance for the
potential needs of present and future tenants of the Building and of the
Building itself, and if, in Landlord's reasonable judgment, the same are
necessary and will not cause permanent damage or injury to the Building or the
Demised Premises or cause or create a dangerous or hazardous condition or
interfere with or disturb other tenants or occupants, Landlord shall make
available to Tenant the additional electrical capacity needed by Tenant and
Tenant shall pay Landlord's reasonable out-of-pocket costs for any additional
riser or risers and other necessary equipment (and the installation thereof) in
order to furnish such additional electricity to the Demised Premises from either
Landlord's main low-voltage switchboard room or any riser closer to the Demised
Premises with electricity available, that Landlord may designate in its
reasonable discretion.
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(f) If, during the Term hereof, Tenant's electrical
requirements exceed the capacity available to Tenant under the above provisions
of subsection (c) and (d) above, as such capacity may have been increased
theretofore pursuant thereto, Landlord shall, promptly following Tenant's
request therefor (which request by Tenant shall be limited to a reasonable
estimate of Tenant's present and future needs), apply to the public utility
company supplying electricity to the Building for at least the greater of (i)
the additional electrical capacity requested by Tenant to be provided to the
Building, as the same may be increased in Landlord's sole judgment by Landlord's
reasonable estimate of the additional capacity that may be required in the
future to operate the Building Systems and to satisfy the requirements of other
tenants, or (ii) the minimum amount of additional electricity for which such
application can be made (such amount so applied for, "Additional Capacity").
Tenant shall cooperate with Landlord and reimburse Landlord for its reasonable
out-of-pocket costs in connection with any such application (pro-rated if
Landlord has applied for additional electrical capacity in excess of the greater
of the amount requested by Tenant or the amount in (ii) above), including
providing all necessary information to demonstrate to such public utility
company the necessity for Tenant's requested additional capacity. If applicable,
Landlord shall also provide all necessary information to demonstrate to such
public utility company the necessity for Landlord's requested capacity. If the
public utility company shall deny in whole any application for the Additional
Capacity, then Landlord shall have no obligation to furnish the Additional
Electrical Capacity. If any such application is granted, the additional capacity
requested by Tenant shall be made available to the Demised Premises. Tenant
shall pay to Landlord all reasonable out-of-pocket costs incurred by Landlord
and not theretofore reimbursed to Landlord of bringing electricity which is
available for use by Tenant (above that available on the date hereof) and as
supplemented as provided in subparagraph (e) of this Section) (i) to the
Building and (ii) to Landlord's switchboard room (including the reasonable
out-of-pocket cost of any additional transformers, switchgear and other
necessary equipment and the installation thereof) and (iii) from the switchboard
room to the Demised Premises (including any riser, risers and other necessary
equipment and the installation thereof), prorated, however, by a fraction, the
numerator of which is the additional electrical power so made available to the
Demised Premises and the denominator of which is the total of such additional
power, which shall be multiplied by another fraction, the numerator of which is
the years (or portion thereof) remaining in the Terms and the denominator of
which is the useful life of such equipment, such payment to be made within
twenty (20) days after rendition of a bill or bills therefor which shall be
multiplied by another fraction, the numerator of which is
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the years (or portion thereof) remaining in the Term and the denominator of
which is the useful life of such equipment.
(g) Tenant shall be entitled to use up to 300 KVA of the power
of the emergency generator (the "Emergency Generator") located on the roof of
the East Building solely to serve the Demised Premises, and to connect such
Emergency Generator to the electrical closets in the Demised Premises by risers,
conduits or cables in shafts or riser space reasonably made available therefor
by Landlord. Landlord, at its sole expense, shall operate the Emergency
Generator immediately upon the event of and during the continuance of cessation
of delivery of electrical power to the Demised Premises. Landlord shall
maintain, repair and replace the Emergency Generator as necessary to put and
keep the same in good operating order and condition and to comply with all
Requirements. Tenant is hereby granted a license to enter upon such roof area
and such shafts or riser space for the purpose of installing, maintaining and/or
replacing such rises, conduits or cables to be installed by Tenant pursuant to
this subparagraph(g).
(h) Subject to the provisions of Section 21.02 and to the
extent permitted by applicable Requirements, Landlord shall not in any way be
liable or responsible to Tenant for any loss or damage or expense which Tenant
may sustain or incur by reason of any change, failure, inadequacy or defect in
the supply or character of the electrical energy furnished to the Demised
Premises or if the quantity or character of the electrical energy is no longer
available or suitable for Tenant's requirements, except for any liability which
Landlord may have for any actual (but not consequential) damage suffered by
Tenant by reason of any such failure, inadequacy or defect caused by (i)
Landlord's willful acts, or (ii) Landlord's failure to pay its utility bills, or
(iii) Landlord's failure to maintain or repair the electrical systems of the
Building which are Building Systems.
(i) Tenant may, at any time while this Lease is in full force
and effect, elect to obtain electricity for the Demised Premises, or any portion
thereof, directly from the public utility serving the Building, provided that
such direct service is then available to it from the public utility, and that
vault space, basement wall or closet space and shaft space are available for the
switches, meters, panel boards, cables and other electrical conductors and
equipment
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required to provide such service independently of, and with no material adverse
affect upon the capacity or efficiency of, the Building electrical system or
Landlord's electricity service to other tenants. If direct electricity service
is feasible, Landlord shall, at Tenant's request and expense, furnish and
install all feeders, risers, meters, panel boards and other electrical
conductors and equipment required to provide such direct electricity service to
the Demised Premises, or portion thereof, independently of and without any
material adverse effect upon, or upon the service provided by, the Building
electrical system serving other tenant space and the Building service equipment
and lighting, including but not limited to Building heating and air conditioning
equipment and lighting located on the various floors of the Demised Premises.
Any existing Building system electrical conductors and equipment may be utilized
by Tenant to the extent that they are available, suitable and safe for such use
without any of the adverse effects above mentioned. Tenant shall pay to Landlord
all of the direct costs and expenses reasonably and actually incurred by
Landlord in furnishing and installing the electrical conductors and equipment
and making alterations and performing any other work required to provide such
direct electricity service to the Demised Premises or portion thereof
(collectively, the "Electrical Work"). Such payment shall be made, as additional
rent, in monthly installments during the progress of Electrical Work, upon
receipt of Landlord's requisition therefor accompanied by Landlord's or its
contractors' certification of due incurrence or payment by Landlord of
Landlord's actual and reasonable costs and expenses of performance of the
Electrical Work to date. Any dispute which may arise between the parties with
respect to the cost of any of the Electrical Work shown on any requisition shall
be resolved by arbitration pursuant to Article 27; provided, however, Tenant
shall not withhold any payment by reason of the existence of such a dispute, but
shall be entitled to refund of, or to setoff against the next Rents coming due
hereunder, any amount so determined to have been overpaid by Tenant. The
Electrical Work shall not be undertaken until plans and specifications therefor
(i) have been prepared by an electrical engineer approved by Landlord who shall
be retained and paid by Tenant, and (ii) have been approved by Landlord, which
approvals shall not be unreasonably withheld or delayed by Landlord, and also
until Landlord shall have submitted, and Tenant shall have approved, an estimate
of the costs of the Electrical Work. When the Electrical Work is completed, or
sufficiently completed to permit the receipt of direct electricity service in
the Demised Premises, or portion thereof, from the public utility, Landlord
shall discontinue Landlord's service of electricity to the Demised Premises, or
portion thereof, and the charge for electric current for such portion of the
Demised Premises under Section 23.05(a) shall terminate and be eliminated from
the additional rent payable under this Lease. Landlord shall then have no
further obligation to furnish electricity to the portion of the Demised Premises
so directly receiving electric current.
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Section 23.06. Subject to the provisions of Section 21.02 and Section
23.01, Landlord reserves the right to stop services on the air conditioning,
elevator, plumbing and electric systems when necessary by reason of accident or
emergency or for repairs, alterations, replacements or improvements, provided
that except in case of emergency, Landlord will notify Tenant in advance, if
possible, of any such stoppage and, if ascertainable, its estimated duration,
and will proceed diligently with the work necessary to resume such service as
promptly as possible and in a manner so as to minimize interference with
Tenant's use and enjoyment of the Demised Premises and access to the Demised
Premises. Nothing contained in this Section 23.01 sentence shall be deemed to
impose upon Landlord any obligation to employ contractors or labor at so-called
overtime or other premium pay rates; provided, that in cases where there is or
will be a material interference with Tenant's business or access to the Demised
Premises, or the health or safety of the occupants of the Demised Premises is or
will be adversely affected, Landlord shall employ contractors or labor at
overtime or other premium pay rates. In all other cases, at Tenant's request and
expense, Landlord shall employ contractors or labor at so-called overtime or
other premium pay rates and incur any other overtime costs or expenses in making
any repairs, alterations, additions or improvements in and to the Demised
Premises, provided that Tenant shall reimburse Landlord for the reasonable
overtime or premium cost incurred by Landlord within twenty (20) days after
written demand thereto.
Section 23.07. Landlord shall maintain and repair, at its expense, a
"sprinkler system" in the Building which has a present sprinkler tank reserve
capacity of 20 minutes, and which shall comply with all applicable present and
future Requirements, and to which Tenant may connect its sprinkler distribution
system, provided that if such system or any of its appliances shall be damaged
or injured or not in proper working order by reason of the negligence or
intentional wrongful act of Tenant, Tenant's agents, servants, employees,
licensees or visitors, such repair shall be made at Tenant's own reasonable
expense; and if Requirements shall require that any changes, modifications,
alterations or additional sprinkler heads or other equipment Landlord shall
promptly comply with such requirements at Landlord's sole cost and expense
unless such changes, modifications, alterations or additional sprinkler heads or
other equipment is required by such Requirements to be made or supplied by
reason of Tenant's particular business, or the particular location of the
partitions, trade fixtures, or other contents of the Demised Premises, in which
case Tenant shall, at Tenant's expense, promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
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Section 23.08. Landlord will supply Tenant with an adequate quantity of
hot and cold water for lavatory, cleaning and drinking purposes and for
cafeteria, dining and cooking facilities as generally utilized by Tenant as of
the Commencement Date. If Tenant requires water for any additional purpose,
Tenant shall pay the cost imposed by the supplier thereof, plus the sewer rent
charge, at the cost to Landlord as the same is measured by a meter to be
installed and maintained at Tenant's expense.
Section 23.09. Subject to Landlord's supervision (the reasonable cost of
Landlord's contractor to be borne by Tenant) and Article 4 hereof, Tenant shall
have the right to install emergency speakers, horns, strobe lights and similar
devices in the Demised Premises at Tenant's own cost and expense and to connect
such systems to the Building's class "E" system. Landlord shall provide six (6)
"points" for connection of such devices per floor of the Demised Premises in the
East Building and six (6) points for connection of such devices per floor of the
Demised Premises in the Middle and West Building, at such points where such
class "E" system enters the Demised Premises. Tenant acknowledges that Landlord
is making no warranty that the Building's class "E" system shall at any
particular time actually perform its design function, and Tenant agrees that
Landlord shall not be liable for any damage or injury caused to Tenant as a
result of a failure of the Building's class "E" system, unless caused by the
breach of this Lease by Landlord or by the negligence or intentional wrongful
act of Landlord, its employees, agents, contractors or invitees.
Section 23.10. Subject to availability to the Building from such public
utilities, the Landlord shall make gas and steam available to the Building and
to Tenant (subject to Tenant making any necessary connections) in the gas meter
room or the steam room, as the case may be. The Landlord shall not be liable in
any way to Tenant for any failure or defect in the supply or character of such
gas or steam by reason of any Requirement, act or omission of the utility
serving the Building or for any other reason not attributable to the negligence
or willful misconduct of the Landlord. Tenant shall have the right, subject, as
to specific location and manner of installation, to the terms of Article 4, to
(i) connect into the Building's steam system to obtain steam for Tenant's
kitchen provided that Tenant shall install and maintain a submeter measuring
Tenant's consumption of steam, and shall pay costs, based on readings provided
by such meter, for providing steam to Tenant and (ii) to the extent feasible, to
make any and all necessary arrangements with the public utility company which
supplies gas to the Building so that Tenant's consumption of gas shall be
directly metered by such public utility company; and provided, further that if
gas consumption by
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Tenant is not separately metered, Tenant shall pay the Landlord's out-of-pocket
cost, as reasonably determined by the Landlord, for providing gas to Tenant.
Section 23.11. Landlord shall maintain a building directory in the lobby
of both the East Building and West Building and Tenant shall have the right to
designate at least one (1) name per 2000 rentable square feet of the Demised
Premises (but not more than Tenant's proportional share of the capacity of such
directory) to be placed on such directory provided such names are of Tenant, any
"successor" or "Affiliate", any subtenant under a sublease, any User, or any
officer or employee of Tenant, any "successor" or "related Affiliate", or any
such subtenant or User. Landlord will from time to time make such changes to the
Building lobby directories as Tenant may reasonably require.
Section 23.12. Tenant may select, subject to the reasonable approval of
Landlord, any one or more persons, firms or corporations to sell, deliver or
furnish food or beverages, either personally or through the use of vending
machines, for consumption within the Demised Premises, as well as other supplies
to the Demised Premises. It is understood that Tenant or regular office
employees of Tenant who are not employed by any supplier of such food or
beverages or by any person, firm or corporation engaged in the business of
purveying such food or beverages, may personally bring food or beverages into
the Building for consumption within the Demised Premises by employees of Tenant,
but not for resale to or for consumption by any other tenant, or the employees
or guests of any other tenant.
Section 23.13. Tenant may select an office maintenance contractor or other
contractor for all waxing, polishing, cleaning (other than those cleaning
services Landlord is obligated to furnish), light bulb and lamp replacement, and
maintenance work in the Demised Premises, the supply of linen, towels and other
similar supplies, bottled water and products customarily dispensed by vending
machines (which Tenant may install in the Demised Premises); provided that
Tenant shall be prohibited from using any contractors which shall result in a
strike, work stoppage or other labor disharmony involving personnel employed by
Landlord or any contractor or subcontractor of Landlord in the operation of the
Building.
Section 23.14. Notwithstanding anything in this Article 23 to the
contrary, none of the services set forth herein shall be provided to the Cellar
Space except as follows:
(a) freight elevator service as set forth in Section 23.01;
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(b) ventilation and air conditioning as and to the extent
consistent with other space in the cellar and subcellar of the Building which is
presently or which may in the future be provided with such service; and
(c) electric energy sufficient to power the existing lighting
in the Cellar Space.
Section 23.15. Landlord shall manage and maintain the Building as a first
class office building. All services required to be provided to Tenant by
Landlord shall be without cost or expense to Tenant, except as expressly
provided in this Lease. Subject to the specific provisions of this Lease, the
services which Landlord has expressly agreed to provide pursuant to this Lease
shall be of quality consistent with those similar services provided at
first-class office buildings in the midtown Park Avenue area of the Borough of
Manhattan; provided, however, this provision shall not be deemed to modify any
of the other express provisions of this Lease.
ARTICLE 24
RENEWAL TERMS
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Section 24.01. (a) If this Lease is then in full force and effect, Tenant
shall have the right and option to extend the Initial Term of this Lease for two
(2) successive periods of five (5) years each (each a "Renewal Term") to cover
all or such part of the Demised Premises as Tenant may designate in its notice
of election to extend (the "Designated Premises"), provided that Tenant shall
have no right to designate less space on a floor of the Demised Premises than is
let to Tenant at the time of its exercise of its right to renew as provided
herein, and provided, further that Tenant shall have no right to designate less
than all of the Demised Premises then contained in floors 3 through 17 of the
Building (the "Base Building") at the time of the giving of Tenant's notice of
renewal unless Tenant shall designate the entire portion of the Demised Premises
on the floor (or contiguous floors) included in the then Demised Premises in the
Base Building which is (or are) the floor or floors which are located among the
lowest or the highest floors of the floors comprising the then Demised Premises
in the Base Building (i.e., not any floor or floors located in the middle of the
block of floors comprising the then Demised Premises). Tenant shall have the
right to exercise an option simultaneously for more than one such successive
Renewal Term. Tenant shall give Landlord notice of its election to extend for
each Renewal Term no later than twelve (12) months prior to the then Expiration
Date of the current Term of the Lease. Upon the giving of such notice under such
circumstances, this Lease shall be automatically extended as to the Designated
Premises for the Renewal Term therein specified with the same effect as if such
Renewal Term had originally been included in the Term of this Lease, and all of
the terms, covenants and conditions of this Lease, except such as are
inapplicable or inappropriate to such Renewal Term or are inconsistent with the
express further provisions of this Article, shall continue in full force and
effect for such Renewal Term. The Lease shall be deemed to have expired as of
the Expiration Date of the current Term of the Lease with respect to any part of
the Demised Premises not designated as the Designated Premises by Tenant during
a Renewal Term.
(b) Each Renewal Term shall be upon the same terms, covenants
and conditions of this Lease as shall be in effect immediately prior to such
renewal, except that (i) the amount of Fixed Rent payable for the Designated
Premises during an elected Renewal Term or Renewal Terms (simultaneously so
elected by Tenant) shall be an amount equal to eighty-five percent (85%) of the
fair rental value of the Designated Premises on the commencement date of such
Renewal Term or Renewal Terms (the "valuation date"), (ii) the Fixed Rent shall
be subject to adjustment as herein provided, on the basis of changes in Real
Estate Taxes and Wage Rate set forth in Sections 2.02 and 2.03, provided,
however, that the "Base Tax Period" shall mean the Tax Year
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in which the Renewal Term or Renewal Terms (simultaneously so elected by Tenant)
commences, the "Base Real Estate Taxes" shall mean the Real Estate Taxes for the
Base Tax Period, and the "Base Wage Rate" shall mean the Wage Rate in effect on
December 31 of the calendar year in which the Renewal Term or Renewal Terms
(simultaneously so elected by Tenant) commences. Fair rental value shall be
determined for a term equal to the Renewal Term or renewal Terms (simultaneously
so elected by Tenant) as if the Designated Premises were subject to the then
executory provisions of this Lease except the provisions as expressly noted
herein, vacant, and unimproved and based upon the further assumptions that
standard brokerage commissions and then existing market work allowances will be
payable by Landlord in respect of such Renewal Term or Renewal Terms as if for a
new lease, that a reasonable time under then existing conditions is allowed for
downtime or marketing, that the Tenant would be receiving the benefit of any
then existing market free rent or other pecuniary concessions in respect of such
Renewal Term or Renewal Terms as if for a new lease, and that the Base Wage Rate
and the Base Real Estate Taxes are as set forth above. The matters set forth in
the previous sentence shall be taken into consideration even though Landlord is
not providing such work allowance or concessions or paying such brokerage
commissions, and the space need not be marketed, it being acknowledged that the
same were taken into consideration in setting the new Fixed Rent at eighty-five
percent (85%) of fair rental value. The Fixed Rent payable by Tenant during each
Renewal Term shall be allocated to the portions thereof and payable for the
Office Space, Banking Space and Cellar Space as shall then be part of the
Designated Premises.
(c) If the parties are unable to agree upon the fair rental
value of the Designated Premises for a Renewal Term or Renewal Terms by a date
five (5) months prior to the commencement date of such Renewal Term, then the
determination of such fair rental value shall be determined by appraisal as
hereinafter provided. Either party may give notice to the other party
designating, by name and address, a person to act as appraiser on its behalf.
Within ten (10) days after receipt of such notice, the other party shall give
notice to the first party designating, by name and address, a person to act as
appraiser on its behalf. If the second party fails to notify the first party of
the appointment of its appraiser within or by the time specified, then the
appointment of the second appraiser shall be made in the same manner as
hereinafter provided for the appointment of a third appraiser in a case where
the two appraisers appointed hereunder and the parties are unable to agree upon
the appointment of a third appraiser. The appraisers so chosen shall meet within
ten (10) days after the second appraiser is appointed, at which time Landlord's
designated appraiser and Tenant's designated
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appraiser shall notify each other and the parties hereto, in writing, of their
respective valuations of fair rental value, and if, within thirty (30) days
after such first meeting, said two appraisers shall be unable to agree upon the
fair rental value in issue, they, themselves, shall appoint a third appraiser;
and in the event of their being unable to agree upon such appointment within
five (5) days after the time aforesaid the third appraiser shall be selected by
the parties themselves, if they can agree thereon within a further period of ten
(10) days. If the parties do not so agree, then either party may apply to the
Presiding Justice of the Appellate Division (First Department) of the Supreme
Court, New York County, for the appointment of such third appraiser and the
other party shall not raise any question as to the Court's full power and
jurisdiction to entertain the application and make the appointment. In the event
of the failure, refusal or inability of any appraiser to act, his successor
shall be appointed within ten (10) days by the party who originally appointed
him but in case of the third appraiser his successor shall be appointed as
hereinbefore provided.
(i) Each appraiser appointed hereunder shall be a person
who shall have at least ten (10) years experience in the leasing or
management of "Class A" office space in the "Midtown" office market in the
Borough of Manhattan or in the business of appraising or managing real
estate or acting as real estate agents or brokers in the Borough of
Manhattan.
(ii) The third appraiser shall determine the fair rental
value (which shall not be higher than the determination of fair rental
value made by Landlord's appraiser, nor lower than the determination of
fair rental value made by Tenant's appraiser) within sixty (60) days of
the appointment of the third appraiser.
(iii) Each party shall pay its fee and expenses of the
appraiser designated by or on behalf of it and both shall share the fee
and expenses of the third appraiser, if any. The fees and expenses of
counsel for the respective parties and of witnesses shall be paid by the
respective parties engaging such counsel or calling such witnesses.
(d) In the event that Tenant duly exercises an option for a
Renewal Term or Renewal Terms, the term "Term of this Lease" as defined in
Section 1.01 shall mean the Original Term as extended for any prior Renewal Term
or Renewal Terms as to which Tenant duly exercised any such option and by such
Renewal Term or Renewal Terms and the term "Expiration Date" shall mean the last
day of the Term of this Lease as so extended.
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(e) At the request of either party made after the
determination of the Fixed Rent for a Renewal Term, the parties shall enter into
a supplementary agreement expressly confirming the extension of this Lease for
the Renewal Term, redefining the term "Demised Premises" to be the "Designated
Premises" and fixing the amount of Fixed Rent payable during the Renewal Term or
Renewal Terms ( simultaneously so elected by Tenant), provided, however, such
extension and the terms thereof shall be effective notwithstanding the failure
of either or both parties to request to execute and deliver such supplemental
agreement.
(f) Prior to the determination of the appraisers, Tenant
shall, if the Renewal Term shall have commenced and subject to the provisions of
paragraph (g) of this Section 24.01, pay as the Fixed Rent it is obligated to
pay under this Lease eighty-five percent (85%) of the Fixed Rent established by
the Landlord's appraiser and in the event the appraisers determine that the
Fixed Rent payable pursuant to this Section 24.01 is less than the amount of
Fixed Rent so paid by Tenant for such period, then Landlord shall refund to
Tenant the amount of such overpayment with interest at the Interest Rate from
the date of such overpayment to the date of such refund, and in the event such
appraisers determine that the Fixed Rent payable pursuant to this Section 24.01
is more than the amount of Fixed Rent so paid by Tenant for such period, then
Tenant shall pay to Landlord the amount of such deficiency with interest at the
Interest Rate from the date of such underpayment to the date of such payment.
(g) Notwithstanding anything to the contrary contained in this
Section 24.01, in the event that the appraisers shall determine that the Fixed
Rent payable pursuant to this Section 24.01 is one hundred ten percent (110%) or
more of the amount of Fixed Rent based on Tenant's designated appraiser's
valuation of fair rental value, then in such event Tenant shall have the option,
within sixty (60) days from the date of Tenant's receipt of a copy of the
appraiser's award (the "Receipt Date"), to terminate this Lease as of the date
(the "Short-Term Expiration Date") which is the later of: (i) one (1) year after
the Receipt Date, or (ii) one (1) year after the commencement of the Renewal
Term. Tenant shall exercise the foregoing option by giving written notice (the
"Short-Term Notice") to Landlord on or before the date occurring sixty (60) days
after the Receipt Date. if Tenant shall timely give Landlord the Short-Term
Notice, this Lease and the estate hereby granted shall terminate as of the
Short-Term Expiration Date as if such date were the Expiration Date.
(h) The termination, cancellation or surrender of this Lease
shall terminate any right of renewal
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not yet exercised as to the portion of the Demised Premises affected by such
termination, cancellation or surrender.
ARTICLE 25
OPTION SPACE
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Section 25.01. Subject only to the rights, if any, presently granted to
tenants in leases in existence and as in effect on the Commencement Date, in the
event that, at any time and from time to time during the Term of this Lease,
space in the East Building ("Option Space") becomes available or is to become
available, whether by reason of the termination of a lease of such space,
recapture or entry by Landlord or its designee or nominee into a sublease or
otherwise, Tenant is hereby granted a right of first offer (the "Right of First
Offer to Lease") with respect to the leasing of such Option Space on the terms
and conditions hereinafter provided, however, as to any such Option Space which
is now vacant, which is described on Exhibit M, Landlord shall not be obligated
to so offer such Option Space to Tenant until the expiration or earlier
termination of the term (including any exercised renewal options) of an initial
lease thereof ("Initial Lease") to a tenant other than Landlord or an Affiliate
of Landlord. Landlord, before offering such Option Space, or any part thereof,
to a third party shall offer Tenant the right to lease such Option Space on the
terms and conditions hereinafter provided. Landlord shall advise Tenant in
writing ("Landlord's Notification") of the Option Space which is available and
the time and term for which it will be available. Landlord shall advise Tenant,
at its request from time to time, of the availability dates of the option Space,
and shall notify Tenant within fifteen (15) days after Landlord first knows that
such Option Space will be available earlier than normal lease expiration. As to
Option Space which comes available on the lease Expiration Date, Landlord shall
give Landlord's Notification not more than twelve (12) months and not less than
six (6) months prior to such Expiration Date (unless an existing lease shall
terminate prior to the scheduled Expiration Date thereof, in which case such
notice shall be given as above provided, and which offer shall specify (i) the
Option Space (with a floor plan cross-hatched to show the location thereof and
the exact rentable square footage thereof, determined by Landlord in accordance
with the standards for measurement of rentable square footage in the Building
utilized in determining the rentable square feet in the Original Demised
Premises, and (ii) the date (the "Anticipated Option Space Inclusion Date") on
which it is anticipated by Landlord that the Option Space shall be available and
the term for which the Option Space shall be available. Tenant shall have the
right by notice ("Tenant's Option Space Notice") given within thirty (30)
Business Days after Landlord's Notification to elect to lease the Option Space
upon the same terms and conditions as are contained in this Lease, subject to
the terms and conditions specified in this Article 25, except that:
(a) If the term specified in Landlord's Notification for which
the Option Space is available shall (i) expire prior to the then Expiration Date
of the then
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current Term of this Lease, excluding Renewal Terms as to which Tenant's renewal
option has not been exercised, Tenant shall have the right to lease such Option
Space for the term for which it is available, or (ii) extend beyond the then
Expiration Date of the then current Term of this Lease, excluding Renewal Terms
as to which Tenant's renewal option has not been exercised, Tenant shall have
the option to lease such Option Space for a term to expire on such then
Expiration Date of the then current Term of this Lease; provided, however, that
if such Option Space is available, Tenant shall have the right to include the
Option Space as part of the "Designated Premises" for the purposes of Article 24
of this Lease and as a consequence of such designation the Option Space may
become a part of the Demised Premises under this Lease for any subsequent
Renewal Terms.
(b) In the event that the Option Space specified in Landlord's
Notification comprises more than one (1) floor of the Building, Tenant shall
have the option to lease the whole of such Option Space or the entire portion of
the Option Space on one or more contiguous floors within such Option Space;
provided, however, in the event Tenant elects to lease less than the entire
Option Space as provided in this subparagraph (b), then Tenant shall only have
the option to lease the entire portion of the Option Space on the floor (or
contiguous floors) included in the Option Space which is (or are) the floor or
floors which are located among the lowest or the highest floors of the floors
comprising the option Space (i.e., not any floor or floors located in the middle
of the block of floors comprising the Option Space). In the event that the
Option Space specified in Landlord's Notification comprises, in whole or in
part, less than an entire floor of the Building, Tenant shall not have the
option to lease Option Space on such floor which is less than the full amount of
such Option Space on such floor. Subject to the provisions of the immediately
preceding sentence, Tenant shall identify the space it elects to lease in the
relevant election to lease the Option Space. Tenant shall make any such election
in Tenant's Option Space Notice.
(c) The term of this Lease as to the Option Space shall begin
(the "Option Space Inclusion Date") on the later of (i) sixty days after the
exercise by Tenant of its option as to such Option Space; or (ii) the date of
delivery of such Option Space to Tenant vacant, free of occupants and "as is".
(d) The rental rate for the Option Space shall be eighty-five
percent (85%) of the "fair rental value" of the Option Space. The fair rental
value of the Option Space shall be the fair rental value on the date of the
exercise by Tenant of its option to lease the Option
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Space (the "valuation date") and be determined for a term equal to the term of
letting of the Option Space based upon the further assumptions that standard
brokerage commissions and then existing market work allowances will be payable
by Landlord as if for a new lease, that a reasonable time under then existing
conditions is allowed for downtime or marketing, that the Tenant would be
receiving the benefit of any then existing market free rent or other pecuniary
concessions in respect of such Option Space as if for a new lease, and that the
Base Wage Rate and the Base Real Estate Taxes are as set forth in Article 2
hereof or, if the valuation date shall occur during a Renewal Term, as set forth
in Article 24, hereof. The matters set forth in the previous sentence shall be
taken into consideration even though Landlord is not providing such work
allowance or concessions or paying such brokerage commissions, and the space
need not be marketed, it being acknowledged that the same were taken into
consideration in setting the new Fixed Rent at eighty-five percent (85%) of fair
rental value. If the parties are unable to agree on such fair rental value
within thirty (30) days of Tenant's Option Space Notice, then such fair rental
value shall be determined in accordance with the procedures set forth in Section
24.01(c).
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Section 25.02. Upon the Option Space Inclusion Date, Landlord agrees to
lease to Tenant and Tenant agrees to lease from Landlord for the then remaining
Term of this Lease (subject to the provisions of Section 25.01(a)) the Option
Space designated in the Tenant's Option Space Notice. Upon the occurrence of the
Option Space Inclusion Date (a) the term "Demised Premises" shall be deemed to
include the Option Space designated in the Tenant's Option Space Notice, (b) the
number of rentable square feet in the Demised Premises shall be increased by the
number of rentable square feet within each such Option Space in question, as
specified in the Landlord's Notice, (c) "Tenant's Percentage" shall be increased
by the fraction, expressed as a percentage, the numerator of which shall be the
number of rentable square feet included within the Option Space as so
determined, and the denominator of which shall be 1,178,042, (d) unless Landlord
and Tenant otherwise agree in writing, the Fixed Rent shall be increased
determined in accordance with Section 25.01 hereof (hereinafter called the
"Option Space Fixed Rent"), (provided, however, if the Option Space is part of
the Demised Premises at the commencement of a Renewal Term the Fixed Rent for
the entire Demised Premises shall be adjusted in accordance with Article 24),
which Fixed Rent for the Option Space shall be payable from and after the Option
Space Inclusion Date in equal monthly installments in advance on the first day
of each calendar month, in the same manner as the Fixed Rent applicable to the
Original Demised Premises, (e) the Option Space Fixed Rent shall be subject to
adjustment as provided in Article 2 hereof, (f) all other items of additional
rent shall thereafter be computed on the basis of the inclusion of the Option
Space in question into the Demised Premises and (g) Tenant shall be entitled to
additional tonnage for its supplementary air-conditioning system referred to in
Section 23.04(e) of .75 tons for each 1,000 rentable square feet of Option Space
(or portion thereof). If the Option Space Inclusion Date shall not be the first
day of a month, Rent shall be appropriately adjusted.
Section 25.03. Prior to the agreement of Landlord and Tenant, or the
determination of the appraisers, Tenant shall, if the term of the lease of the
Option Space shall have commenced, pay as the Option Space Fixed Rent under this
Lease eighty-five percent (85%) of the Fixed Rent established by the Landlord's
appraiser and in the event the appraisers determine that the Fixed Rent payable
pursuant to Section 25.01 is less than the amount of Fixed Rent so paid by
Tenant for such period, then Landlord shall promptly refund to Tenant the amount
of such overpayment or credit the same against the next payments of Fixed Rent
and additional rent for the Demised Premises, in either case with interest at
the Interest Rate from the date of such overpayment to the date of such refund
or credit, and in the
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event such appraisers determine that the Fixed Rent payable pursuant to Section
25.01 is more than the amount of Fixed Rent for the Option Space so paid by
Tenant for such period, then Tenant shall immediately pay to Landlord the amount
of such deficiency with interest at the Interest Rate from the date of such
underpayment to the date of such payment.
Section 25.04. Tenant agrees to accept the Option Space in question "as
is" in its condition and state of repair existing on the Option Space Inclusion
Date and understands that Landlord makes no representations, express or implied,
as to the condition of the Option Space in question, the building equipment and
systems serving the Option Space in question or as to any other thing or fact
related thereto, and that no work, decoration, repair, alteration or improvement
is to be performed by Landlord to prepare the Option Space in question for
Tenant's occupancy. At Tenant's request, Landlord shall enforce any provision of
a lease to the tenant then in possession of the Option Space requiring the
tenant to remove or restore any alterations or installations from the Option
Space upon the expiration of its lease, provided that Landlord shall not be
obligated by reason of this provision to commence any litigation or incur any
material expenses of enforcement. Landlord shall not be subject to any liability
for failure to give possession of the Option Space in question, and the validity
of this Lease shall not be impaired under such circumstances, nor shall the same
be construed in any wise to extend the Term of this Lease, but the Rents payable
hereunder with respect to the Option Space shall be abated until the Option
Space Inclusion Date. However, Landlord, at Landlord's cost and expense, shall
proceed with reasonable diligence to dispossess any tenant holding over or
retaining possession of such space, including the institution of summary
dispossess proceedings, and shall not consent to any stay or extension which is
inconsistent with Tenant's rights under this Article. The provisions of this
Article are intended to constitute "an express provision to the contrary" within
the meaning of Section 223-a of the New York Real Property Law or any successor
law or ordinance.
Section 25.05. If Tenant so elects to lease the Option Space, and fair
rental value is agreed to by Landlord and Tenant or by any appraisal in
accordance with the procedures set forth in section 24.01(c), Landlord shall
deliver to Tenant a lease amendment covering the relevant Option Space
(hereinafter called the "Option Lease Amendment") incorporating such fair rental
value, and otherwise on the terms and conditions of this Lease and the parties
hereto shall promptly execute and exchange the Option Lease Amendment, provided,
however, such option exercise and the terms thereof shall be effective
notwithstanding the failure of either or both parties to request or to execute
and deliver such Option Lease Amendment.
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Section 25.06. If Tenant does not deliver the Tenant's Option Space Notice
within said sixty (60) Business Day period, then Landlord may enter into a lease
of the Option Space included in Landlord's Notice with a bona fide third party.
If Landlord shall fail to enter into a lease with a bona fide third party within
six (6) months after the date Landlord's Notification is given, Tenant's right
to lease such Option Space in accordance with this Article 25 shall
automatically be reinstated and the provisions of this Article must again be
complied with by Landlord. Upon the expiration or earlier termination of any
such lease, the provisions of this Article 25 shall again prevail and the Option
Space so leased will not be relet without prior notice to Tenant and the
opportunity for Tenant to lease such Option Space in accordance with the terms
of this Article 25. Nothing herein shall be deemed to limit Landlord's right to
freely discuss and negotiate with third parties for the leasing of any space and
Tenant's sole right will be to make the election to enter into a lease with
Landlord after Landlord's Notification as described above.
Section 25.07. The termination of this Lease shall also terminate and
render void all of Tenant's options or elections under this Article 25 whether
or not the same shall have been exercised; and nothing contained in this Article
shall prevent Landlord from exercising any right or action granted to or
reserved by Landlord in this Lease to terminate this Lease. None of Tenant's
options or elections set forth in this Article 25 may be severed from this Lease
or separately sold, assigned or transferred.
Section 25.08. The right of first offering granted pursuant to this
Article shall be subject and subordinate to any option, renewal option,
additional space option, expansion option, right of first offer, right of first
refusal, or other right to lease or occupy the Option Space, or portions hereof,
granted by Landlord to any tenant as to any Option Space in the Building or any
entity whatsoever other than Tenant in any now existing lease (including,
without limitation, the existing leases with the National Football League and
Furman Selz LLC) or Initial Lease, but shall not be subject and subordinate to
any renewal or extension of any such existing lease or Initial Lease beyond the
term of years as may have been initially provided for therein or as to any
extension thereof not initially provided for therein.
ARTICLE 26
TENANT'S SIGNAGE
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Section 26.01. For as long as the Original Tenant or any Affiliate thereof
is the Tenant under this Lease, the Original Tenant shall have the right to
install a sign or signs identifying the name and/or logo or other identifying
symbols of Original Tenant or any Affiliate thereof in (i) any lobby of or
entrance to the Building if Landlord shall place another identifying sign or
logo other than of Landlord in such lobby or entrance, other than in an elevator
bank area, and (ii) at the entrance to each of the elevator banks serving the
Demised Premises, the location, size, design, lettering, color and material of
each such sign to be subject to the approval of the Landlord, not to be
unreasonably withheld or delayed, and which approval shall be granted if the
same is consistent with the class and character of the Building and is not
inconsistent with the rights of another tenant of the Building under the present
provisions of its lease existing as of the date hereof, it being understood that
the corporate style and/or logo of Original Tenant is approved ("Lobby
Signage"). For so long as the Original Tenant or any Affiliate thereof is the
Tenant under this Lease, (a) the present exterior signage at the marble exterior
wall on the 49th Street side of the Building near the Park Avenue side of the
Building and (b) the present exterior signage on the marble exterior wall on the
Park Avenue side of the Building south of the entrance to the Building and (c)
the present exterior signage on the exterior wall at the entrance to the
Building at 48th Street, and (d) the Lobby Signage and (e) so long as any
flagpole is standing outside the Premises and any flag is flown by the Landlord
and a flagpole is available which is not used by a single American Flag or
single flag of the Landlord, and so long as Original Tenant or its Affiliates is
the occupant of at least 100,000 rentable square feet of space in the Premises,
the present flag of Original Tenant ("Original Tenant Signage") shall not be
changed or replaced by Landlord except as follows. At the request of Tenant in
writing such signage shall be replaced by replacement Original Tenant Signage at
the same locations containing the then name or names of Original Tenant or any
Affiliate thereof (and/or at Tenant's election with its or their identifying
symbol or logo) of similar prominence and consistent with the class and
character of present Original Tenant Signage. Such removal and installation
shall be performed by Landlord within a thirty (30) day period except by reason
of delay caused by Tenant. Landlord shall install such replacement Original
Tenant Signage, promptly and diligently at Tenant's sole reasonable cost and
expense. Any such replacement Original Tenant Signage shall likewise be deemed
Original Tenant Signage for purposes hereof. Landlord shall maintain and repair
all such Original Tenant Signage and keep it in good order and repair at
Landlord's sole cost and expense. At the request of Tenant in writing, some or
all of such signage shall be permanently removed by Landlord within thirty (30)
days after Tenant's notification
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thereof to Landlord. Landlord shall not permit the exterior wall of the Building
where the Original Tenant Signage referred to in clause (b) in the definition of
such term is located to be other than a stone wall so long as said Original
Tenant Signage shall be required hereby to be located on said wall.
Notwithstanding the foregoing, Landlord may remove the Original Tenant Signage
referred to in clause (c) in the definition of such term if Landlord shall
construct a retail space with an entrance or a glass show window at the present
location of such Original Tenant Signage and, if Landlord shall not, in
connection therewith, close the 48th Street entrance to the Building where such
Original Tenant Signage was located, Landlord shall promptly thereafter relocate
such Original Tenant Signage to a position comparable in prominence and in
similar proximity to the 48th Street entrance to the Building.
Section 26.02. For as long as the Original Tenant or any Affiliate thereof
is the Tenant under this Lease the name "Bankers Trust Company" (a) presently
placed on the window at the South side of the second floor portion of the
Demised Premises in the West Building, and (b) and a similar sign or signs which
if approved by Landlord may be hereafter placed on the windows at the South and
North side of the second floor portion of the Demised Premises in the East
Building, may remain or be replaced by Tenant with similar Signage subject to
obtaining Landlord's consent not to be unreasonably withheld.
Section 26.03. Notwithstanding anything to the contrary herein contained,
Landlord shall be in breach hereunder if it shall fail to observe or perform any
of the terms and provisions of this Article 26, and such failure shall continue
for seven (7) days after receipt of notice of such failure from Original Tenant.
Without limiting any of Original Tenant's other rights and remedies, before or
after such seven (7) day period Original Tenant shall be entitled to specific
performance, injunctive or other equitable relief in the event of failure or
breach by Landlord of Landlord's obligations under this Article 26.
ARTICLE 27
ARBITRATION
Section 27.01. (a) Disputes under this Lease are not to be generally
arbitrated, but when arbitration is specifically provided for in this Lease,
such arbitration shall be the sole method of resolving such dispute and such
dispute shall be determined in the manner provided for in this Lease, by
arbitration in accordance with the provision of this Article.
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(b) If the arbitration concerns the determination of a dispute
generally regarding the operation or maintenance of the Building, the
arbitrators shall have at least ten (10) years of current experience in the
management and operation of first class office buildings in the Borough of
Manhattan. If the arbitration concerns the determination of a dispute regarding
Alterations, the arbitrators shall be registered architects or licensed
professional engineers having at least ten (10) years of current experience in
the design of first class office buildings in the Borough of Manhattan. If the
arbitration concerns any other dispute under this Lease which must be resolved
by arbitration, each arbitrator shall be an attorney admitted to practice in the
State of New York with a minimum of ten (10) years' current experience with
leases in first class office buildings in the Borough of Manhattan and a partner
in a law firm having its main offices in the Borough of Manhattan and having a
minimum of ten (10) partners.
(c) Whenever any provision of this Lease provides that a
matter shall be determined by arbitration in accordance with this Article and
either party notifies the other that such matter be so determined, then each
party shall, within thirty (30) days thereafter, appoint an arbitrator and each
party shall notify the other party of the name and address of the arbitrator so
appointed; if either party shall fail to make such appointment and to serve
notice thereof within the time prescribed, then the appointment of an arbitrator
on behalf of such party shall be made in the same manner as provided below for
the appointment of a third arbitrator in the case where the two arbitrators
shall fail to agree upon such third arbitrator.
(d) If the arbitrators so appointed shall within fifteen (15)
days after the date of notification of appointment of the one of them who is
last appointed, be unable to agree upon the determination of the matter or
dispute, then such two arbitrators shall appoint a third and impartial person to
act as a third arbitrator. If they shall fail to appoint such third arbitrator
within such period of fifteen (15) days then, on written application by either
party, such third arbitrator shall be appointed by the New York City Chapter of
the American Arbitration Association and the person so appointed as third
arbitrator shall serve and act together with the first two arbitrators so
appointed for the purpose of such arbitration. If any person appointed as
arbitrator by or on behalf of either party shall die, fail to act, resign, or
become disqualified, the party by or on behalf of whom such appointment was made
shall, within fifteen (15) days after such death, failure to act, resignation,
or disqualification, appoint some other person as a substitute arbitrator, and,
if appointment is not made within such
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fifteen (15) day period, upon application of the party not in default, the New
York Chapter of the American Arbitration Association may appoint a substitute
arbitrator. If the third arbitrator shall die, fail to act, resign, or become
disqualified, a substitute arbitrator shall be appointed in the same manner as
is hereinbefore provided for the appointment of the third arbitrator. In the
event that any substitute arbitrator or arbitrators shall be appointed, the
period within which the third arbitrator shall be appointed (if not previously
appointed), and the period within which the decision of the arbitrators shall be
made, shall be deemed extended for a reasonable time after the appointment of
such substitute arbitrator or arbitrators. In the event that for any reason
whatsoever an arbitrator or arbitrators shall not be appointed as is provided in
this Section 27.01, then such arbitrator or arbitrators shall be named or
appointed in accordance with the then prevailing provisions of the laws of the
State of New York relating to arbitration. The arbitrators shall hold one or
more hearings on the question, matter or dispute which is the subject of the
arbitration and shall furnish Landlord and Tenant with the opportunity to be
present and fully heard thereat by counsel, expert witnesses or otherwise and to
cross examine. The determination by the arbitrators of such question, matter or
dispute shall be made in writing and signed and concurred in by a majority of
the arbitrators, within thirty (30) days after the appointment of the last
arbitrator (or such longer period as the parties involved shall agree upon in
writing), but if such determination shall not have been made within such period,
then the third arbitrator shall make such determination within five (5) days
thereafter, and in either such case, a signed copy thereof shall be delivered to
each of the parties involved. Such determination shall set forth the reasons
therefor and shall define the performance, if any, required of either party.
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Section 27.02. In case such dispute is required to be resolved by
Expedited Arbitration provided for in this Lease, such dispute shall be settled
and finally determined by arbitration in the City of New York in accordance with
the following provisions of this Section. It is of the utmost importance to have
such dispute settled within twenty-five (25) days. Accordingly, within the six
(6) days next following the giving of any notice by Tenant or Landlord stating
that it wishes such dispute to be so determined, Landlord and Tenant shall each
give notice to the other setting forth the name and address of an arbitrator
designated by the party giving such notice, and Landlord and Tenant shall
instruct the arbitrator so selected by such party to select a third arbitrator
as hereinafter set forth. If either party shall fail to give notice of such
designation within said six (6) days, then the other party shall give notice
thereof to the second party and if within three (3) Business Days after receipt
of such notice the second party shall still fail to appoint such arbitrator,
then the arbitrator chosen by the other party shall make the determination
alone. Within five (5) days after designation of the second arbitrator, the two
arbitrators shall attempt to agree upon a third arbitrator. If the two
arbitrators shall fail to agree upon the designation of a third arbitrator
within such five (5) day period then either party may apply to the American
Arbitration Association located in the City of New York for the designation of
such arbitrator and if the American Arbitration Association is unable or refuses
to act within ten (10) Business Days then either party may apply to the Supreme
Court in New York County or to any other court having jurisdiction for the
designation of such arbitrator. The three arbitrators shall conduct such
hearings as they deem appropriate, making their determination in writing and
giving notice to Landlord and Tenant of their determination as soon as
practicable, and, if possible, within five (5) days, but no later than ten (10)
days, after the designation of the third arbitrator; the concurrence of two of
the arbitrators or, in the event no two of the arbitrators shall render a
concurrent determination, then the determination of the third arbitrator
designated, shall be binding upon Landlord and Tenant.
Section 27.03. The determination so made by such arbitrators or third
arbitrator, as the case may be, shall be final, binding, and conclusive on all
parties, and judgment may be rendered thereon by any court having jurisdiction,
upon application of either Landlord or Tenant. The sole issues to be determined
by the arbitrators in any dispute shall be those specified in this Lease and no
others. If the arbitrators or third arbitrator, as the case may be, shall fail
to make such determination as above provided, then either party shall have the
right to institute such action or proceeding in such court as shall
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be appropriate in the circumstances. Landlord and Tenant shall each pay the
expense of the arbitrator or substitute arbitrator appointed by or for such
party and the other necessary expenses and costs of any arbitration shall be
borne equally by the parties hereto, except that each party shall bear the costs
and expenses of its own witnesses, experts and counsel.
ARTICLE 28
MEMORANDUM OF LEASE
Section 28.01. Upon the execution and delivery hereof, Landlord and Tenant
shall execute and deliver a memorandum of lease for the purpose of recording,
and said memorandum of lease shall not, in any circumstances, be deemed to
modify or change any of the provisions of this Lease, which provisions shall, in
all instances, prevail.
ARTICLE 29
BUILDING MANAGEMENT
Section 29.01. This Lease is entered into in connection with the
consummation of a certain agreement dated August ___, 1997 between Bankers Trust
Company and Boston Properties Limited Partnership ("Purchaser") to which Boston
Properties, Inc. is a party (the "Sale Agreement") pursuant to which the
Purchaser has agreed that upon the consummation of the sale of the Real Property
to the Purchaser, the Purchaser and its successors and assigns shall be bound by
certain restrictions upon (a) the use of the name "Bankers Trust Company" by the
Purchaser, its successors and assigns and certain tenants under leases of space
in the Real Property, (b) the use of a distinctive name of the Real Property by
the Purchaser, its successors and assigns, (c) restrictions upon placing certain
signs, symbols or identifying or distinctive materials containing a name, logo
or other identification in certain portions of the Real Property and (d) the
leasing by Purchaser, its successors and assigns, to certain competitors of
Bankers Trust Company, its successors and assigns, or consenting by the
Purchaser its successor and assigns, to certain subletting of space under or
assignments of lease pursuant to certain leases at the Real Property, to certain
competitors of Bankers Trust Company, which restrictions are contained in
Section 1.4 of the Sale Agreement, as such restrictions may be modified from
time to time by written agreement between Bankers Trust Company, its successors
and assigns and Purchaser, its successors and assigns.
Section 29.02. The Building shall be managed by (i) a
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single reputable managing agent, selected by Landlord and having at least ten
(10) years experience managing a building similar to the Building or (ii) the
Landlord, provided it has prior experience in the management of first-class
office buildings comparable to the Building in the Borough of Manhattan or other
large metropolitan area in the United States.
Section 29.03. So long as this Lease is in force and effect and Tenant or
any successor or any Affiliate are separately or collectively occupying space in
the Building, no part of the Building lobby shall be leased to or otherwise be
permitted by Landlord to be used or occupied by anyone for any commercial
purpose whatsoever which is not in keeping with the class and character of a
first-class office building in the midtown Park Avenue area of the Borough of
Manhattan. Without limiting the generality of the foregoing, Landlord shall not
permit any portion of the Building to be used for any of the following purposes:
(i) the sale of merchandise, goods or property of any kind at auction, (ii) fast
food restaurants or stores, (iii) discount stores (including discount camera,
electronic and clothing stores), (iv) tourist shops, (v) carpet or rug stores,
(vi) record, music, video, compact disc or tape stores, (vii) commercial sex
establishments, including obscene, nude or semi-nude modeling, "rap sessions",
"rubber goods" shops, sex clubs, "massage parlors", or the sale of any obscene
material as defined in New York State Penal Law ' 235.00, (viii) cinemas or
theaters, or (ix) any purpose which emits into the Demised Premises or the
common areas of the Building any objectionable noise, fumes, vapors, odors or
other type of nuisance.
Section 29.04. Tenant, at its sole cost and expense, may implement
whatever reasonable security or building pass programs it desires to limit
access to the Demised Premises to authorized personnel provided such programs
are in keeping with the then class and character of the Building and do not
result in labor union interference between any labor union employees of Landlord
or any agreement between Landlord and such labor union and may, in connection
therewith, post up to an aggregate of two (2) properly uniformed security
personnel in the lobby of the Building at the access ways to the elevator bank
serving the Office Space or Banking Space.
Section 29.05. Landlord shall at all times operate and maintain the
Building as a first-class office building in the midtown Park Avenue area of the
Borough of Manhattan.
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Section 29.06. Landlord shall either: (i) maintain a building staff which
shall at all times be sufficient in qualifications, numbers and experience to
operate and maintain the Building as a first-class office building in the
midtown Park Avenue area of the Borough of Manhattan and in any event comparable
in qualifications, numbers and experience to the building staffs of other such
comparable first class office buildings; or (ii) enter into service contract(s)
in lieu of in-house staff, or in substitution for service contract(s) in force
at the time of the execution of this Lease, provided that such contract(s) will
achieve the same maintenance and quality service provided either by in-house
staff or the contract(s) existing on the date hereof.
Section 29.07. Landlord shall, at least twice in each calendar year,
perform an analysis of the domestic water in the Building by a licensed and
recognized laboratory indicating the contents of such water and whether there
are any substances therein which could affect the health or safety of the
occupants of the Building, and Landlord shall make available for review by
Tenant a copy of such report within twenty (20) days after Landlord's receipt of
the same. In the event that such report shall indicate that the contents of such
water may have an adverse affect upon the health or safety of any occupants of
the Building, Landlord shall promptly take such action as is reasonably required
in order to correct such condition and prevent such adverse effect to health or
safety from occurring.
Section 29.08. Landlord shall, at least twice in each calendar year,
perform an analysis of the condenser water in the Building by a licensed and
recognized laboratory indicating the contents of such condenser water and
whether there are any substances therein which could adversely affect the
Tenant's supplemental air-conditioning system, and Landlord shall make available
for review by Tenant a copy of such report within twenty (20) days after
Landlord's receipt of the same. In the event that such report shall indicate
that the contents of such condenser water may have an adverse affect upon
Tenant's supplemental air-conditioning system, Landlord shall promptly take such
action as is reasonably required in order to correct such condition and prevent
such adverse affect to Tenant's supplemental air-conditioning system from
occurring.
ARTICLE 30
LIMITED RECOURSE
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Section 30.01. Tenant shall neither assert nor seek to enforce any claim
against any of Landlord's assets other than Landlord's estate and interest in
the Real Property, and Tenant shall look solely to Landlord's estate and
interest in the Real Property for the satisfaction of any right of Tenant for
the collection of a judgment or other judicial process or arbitration award
requiring the payment of money by Landlord (including casualty insurance
proceeds and condemnation awards, but excluding the proceeds of any financing or
refinancing). In the case of any sale, conveyance or transfer of Landlord's
entire interest in the Real Property (except in any instance in which the
successor Landlord shall have assumed the obligations of Landlord under this
Lease ab initio), such estate and property of the selling, granting or
transferring Landlord shall mean any net proceeds from such sale, conveyance or
transfer (after payment of the costs of such sale and any mortgages, judgments
or other liens then existing) to the extent of any specific monetary obligation
which Landlord owed to Tenant as of the date of such transfer. No other property
or assets of Landlord, Landlord's agents, incorporators, shareholders, officers,
directors, partners, principals (disclosed or undisclosed) or affiliates shall
be subject to levy, lien, execution, attachment, or other enforcement procedure
for the satisfaction of Tenant's rights and remedies under or with respect to
this Lease, the relationship of Landlord and Tenant hereunder or under law, or
Tenant's use and occupancy of the Demised Premises or any other liability of
Landlord to Tenant with respect hereto.
Section 30.02. If Tenant shall be an individual, joint venture, tenancy in
common, Partnership Tenant, limited liability company, unincorporated
association or other unincorporated aggregate of individuals and/or entities or
a corporation, Landlord shall look solely to Tenant and its assets (or the
proceeds thereof) for the satisfaction of any monetary claims hereunder or the
collection of any adjustment (or other judicial process) based thereon, and no
property or assets of any partner, employee, officer, member, director,
shareholder or beneficiary of or with Tenant, disclosed or undisclosed, shall be
subject to levy, execution or other judgment (or other judicial process);
provided, however, that the foregoing shall not limit such rights, if any, as
Landlord may have to injunctive relief or specific performance of the
obligations of Tenant hereunder.
ARTICLE 31
SUBORDINATION AND MORTGAGES
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Section 31.01. For so long as the Original Tenant is the Tenant under this
Lease, Landlord covenants and agrees not to mortgage or otherwise encumber the
Real Property, or any part thereof, and not to assign the rents and profits
therefrom, prior to the expiration or earlier termination of the Term of this
Lease other than in connection with the granting of mortgage liens on the Real
Property or any assignment of the rents and profits therefrom or upon any
permitted ground lease of the Real Property to one or more recognized lending
institutions. The term "recognized lending institution" shall mean a savings
bank, a commercial bank or trust company, an insurance company, a nationally
recognized investment banking company, or Affiliates of the foregoing, an
educational institution or a state, municipal or similar public employees'
welfare pension or retirement fund or system (whether acting individually or in
any fiduciary capacity), or any pension fund having any such bank, trust
company, insurance company or investment banking company as its advisor, or any
pension fund for the sole benefit of employees of a corporation listed on any
national stock exchange or recognized "over-the-counter" market, or any pension
fund for the benefit of employees of the government of any State or any
subdivision or agency thereof or any trust or other entity established or
managed by any of the foregoing to make mortgage loans; or any "real estate
investment trust "whose securities are listed on any national stock exchange or
recognized "over the counter" market, or any REMIC, trust or other entity
twenty-five percent (25%) or more of the interests in which are rated as
"investment grade" by a nationally recognized mortgage rating agency; provided
such institution shall be subject to the jurisdiction of the courts of the State
of New York in any action or to the supervision of the Comptroller of the
Currency of the United States of America or other United States bank or
securities regulatory agencies or of the insurance or banking department of the
State of New York, or of the state of incorporation of such institution or of
the insurance or banking department thereof, or of the Board of Regents of the
University of the State of New York as applicable, which in each case is not an
Affiliate of Landlord. Any such mortgage made to a recognized lending
institution or to an Affiliate of a recognized lending institution is herein
referred to as an "Institutional Mortgage". Notwithstanding the foregoing, the
mortgage upon the Real Property initially entered into in connection with the
acquisition of the Real Property from the Landlord originally named in this
Lease shall initially be held by a recognized lending institution, but
thereafter, such mortgage as the same may be renewed, modified, increased,
consolidated, spread, replaced and extended (the "First Institutional
Mortgage"), may if and so long as an event of default (beyond any applicable
notice and cure period) under the First Institutional Mortgage on the part of
the mortgagor has occurred and is continuing, and in the case of
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a non-monetary event of default if the holder of the First Institutional
Mortgage has declared the indebtedness secured thereby to be immediately due and
payable, while such event of default or declaration (in the case of a
non-monetary default) has not been cured, revoked or rescinded, be assigned to
and thereafter may be held by other than by a recognized lending institution,
and such First Institutional Mortgage shall nevertheless for purposes of this
Article 31 and of a subordination, non-disturbance and attornment agreement
entered into between the Original Tenant hereunder and the holder of the First
Institutional Mortgage, be deemed to be held by a "recognized lending
institution" (except for purposes of the provisions of Section 31.09 with
respect to mortgages other than the First Institutional Mortgage) and shall be
deemed to be an "Institutional Mortgage". If the Tenant under this Lease is not
the Original Tenant, the restrictions set forth in this Section 31.01 shall be
entirely inapplicable, and any mortgage as may be granted by Landlord upon the
Real Property, or any part thereof, shall for purposes of this Article 31 be
deemed to be an "Institutional Mortgage" whether or not entered into with a
"recognized lending institution".
Section 31.02. If and when the provisions of Section 31.03 or 31.04, as
the case may be, shall have first been satisfied by the holders of the ground or
underlying lease referred to in Section 31.03 or of any Institutional Mortgage,
respectively, this Lease shall be subject and subordinate to all ground or
underlying leases and to any Institutional Mortgage, respectively, which may now
or hereafter affect such leases or the real property of which the Demised
Premises form a part, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
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Section 31.03. This subordination provision with respect to ground and
underlying leases is subject to the express condition that the landlord under
such ground or underlying lease shall have entered into a nondisturbance and
attornment agreement with Tenant in recordable form and binding upon the said
landlord and on its successors and assigns, to the effect that in the event of
any termination of such ground or underlying lease by reentry, notice, summary
proceedings or other action or proceeding or if such ground or underlying lease
shall otherwise terminate or expire before the expiration of the Term of this
Lease, then, so long as Tenant is not as of such termination or Expiration Date
in default in the performance of Tenant's obligations under this Lease for
longer than the periods after notice provided in this Lease for the curing of
defaults and such default is continuing, Tenant shall not be made a party in any
action or proceeding to remove or evict Tenant or to disturb its possession and
this Lease shall continue in full force and effect as a direct lease between
Tenant and the then owner of the fee or the landlord of the ground or underlying
lease, as the case may be, upon all of the terms, covenants, conditions and
agreements as are set forth in this Lease, and, upon the written request of such
owner or landlord, Tenant will execute an instrument whereby Tenant will attorn
to such owner or landlord, as the case may be, upon all of the terms, covenants,
conditions and agreements as are set forth in this Lease, and such then owner
and holder of this Lease shall agree to accept such attornment.
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Section 31.04. This subordination provision with respect to any
Institutional Mortgage shall be subject to the express condition that the
holder(s) of such mortgage shall have entered into a nondisturbance and
attornment agreement with Tenant in recordable form and binding upon its or
their successors and assigns, to the effect that so long as Tenant is not in
default in the performance of Tenant's obligations under this Lease for longer
than the periods after notice provided in this Lease for the curing of defaults
and such default is continuing, Tenant will not be named or joined in any action
or proceeding to foreclose any such mortgage, that any action or proceeding will
not result in a cancellation or termination of this Lease, that in the event the
holder of any mortgage or its nominee or designee or purchaser at a foreclosure
sale or transferee in lieu thereof becomes the owner of the fee in the event of
the sale of the land and/or Building as a result of any action or proceeding to
foreclose any such mortgage, deed or assignment in lieu of foreclosure or
otherwise, or the assignee of any ground or underlying lease or the lessee of
any other lease given in substitution therefor, this Lease shall continue in
full force and effect as a direct lease between Tenant and the then owner of the
fee or the purchaser of the land and/or Building, or the then lessee of the
ground or underlying lease or of any other lease given in substitution therefor,
as the case may be, upon all of the terms, covenants and conditions of this
Lease. Upon the written request of such owner, purchaser or lessee, Tenant will
either (a) execute an instrument whereby Tenant will attorn to such owner,
purchaser, or lessee, as the case may be, upon all of the terms, covenants,
conditions and agreements as are set forth in this Lease or (b) enter into a new
lease with it for the remaining Term of this Lease and otherwise on the same
terms and conditions and with the same options, if any, then remaining.
Section 31.05. Any lease to which this Lease is subject and subordinate is
sometimes herein called a "Superior Lease," and the lessor of a Superior Lease
is sometimes herein called a "Superior Lessor". Any Institutional Mortgage to
which this Lease is subject and subordinate is sometimes herein called a
"Superior Mortgage" and the holder of a Superior Mortgage is sometimes herein
called a "Superior Mortgagee".
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Section 31.06. At the option of the Superior Mortgagee or Superior Lessor,
the Superior Mortgage or Superior Lease may contain provisions substantially to
the same effect as those of the non-disturbance agreements referred to above in
satisfaction of any condition to execute and deliver a non-disturbance
agreement.
Section 31.07. If any nondisturbance agreement is disaffirmed by such
Superior Mortgagee or Superior Lessor, or its trustee, in any proceeding under
the bankruptcy laws, this Lease shall no longer be subordinate to the Superior
Mortgage or Superior Lease in question.
Section 31.08. The holder of every interest to which this Lease is
subordinate pursuant to Section 31.04 shall not (a) be liable for any act or
omission of Landlord accruing prior to the date when such holder shall succeed
to the position of Landlord under this Lease, except to the extent, if any, that
such condition continues on or after the effective date of such succession, (b)
be subject to any offsets or counterclaims which Tenant might be entitled to
assert against Landlord accruing prior to the date when such holder shall
succeed to the position of Landlord under this Lease (except those specifically
provided for in this Lease and of which Tenant will at the request of such
holder give notice to any such holder), (c) be bound by any payment of rent or
additional rent made by Tenant to Landlord for more than one month in advance or
for more than the applicable period set forth in this Lease, where such rent
payments are payable at intervals of more than one month, or (d) bound by any
modification, amendment or abridgment of the Lease, or any cancellation or
surrender of this Lease made without the consent or knowledge of such holder or
the predecessor in interest of such holder while such predecessor was holder of
such mortgage or lease of which Tenant was given notice in writing. The
provisions set forth in clauses (a) through (d) above shall not apply if
Landlord or an Affiliate of Landlord is the successor.
Section 31.09. Any nondisturbance and attornment agreement entered into
pursuant to this Article 31 shall be either (x) in the standard form of any
Superior Mortgagee or Superior Lessor which is a recognized lending institution,
provided such standard form contains all of the provisions set forth in this
Article 31 and no other substantive provision which may adversely affect the
rights of Tenant under this Lease, or (y) in form reasonably satisfactory to
Tenant, but shall nevertheless contain provisions substantially as follows
(modified appropriately in the case of a Superior Lease):
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(a) "The Mortgagee further covenants and agrees that if the
Mortgagee, or any successor or assignee of the Mortgagee, shall succeed to the
estate of the Mortgagor in the Building and/or Real Property by foreclosure of
this Mortgage or by deed in lieu of foreclosure or otherwise, the person so
succeeding to the estate of the Mortgagor shall be bound by all of the terms,
covenants and conditions of the Lease, including, without limitation the
obligations of the Landlord under Articles 26, 27, 29 and 31 of the Lease. The
foregoing assumption shall be self-operative and no further instrument of
assumption shall be required by the Mortgagee. The person so succeeding to the
estate of the Mortgagor shall execute an instrument confirming such assumption
at Tenant's request."
(b) "The Mortgagee agrees that if it shall become entitled to
accelerate payment of the indebtedness secured by this Mortgage upon the
occurrence of a default by the Mortgagor and such default shall be a default in
the payment of a sum of money or a default which can be cured by the Tenant, the
Mortgagee will, before accelerating such indebtedness, give the Tenant notice
specifying such default and stating that it remains unremedied, and the Tenant
shall have the right to remedy any such default within a period of thirty (30)
days after the service of such notice, or if the default as to which such notice
is given shall be of such a nature that the same cannot be completely remedied
within such thirty (30) day period and if Tenant shall have delivered to the
Mortgagee a written undertaking to remedy such default and shall have diligently
commenced to take action toward remedying such default within such thirty (30)
day period and shall thereafter with reasonable diligence and in good faith
proceed to remedy such default, the Mortgagee shall not be entitled to
accelerate the indebtedness secured by this Mortgage as a result of such
default. The Mortgagee agrees to accept performance by the Tenant of the
Mortgagor's obligations under this Mortgage with the same force and effect as if
performed by the Mortgagor."
(c) "In the event of a judicial or private sale of the
Building and/or Real Property in exercise of the Mortgagee's remedies hereunder,
the Mortgagor and the Mortgagee agree, to the extent legally permissible, to fix
as one of the terms of such a sale, the delivery by any purchaser at such a sale
of an instrument in favor of Tenant pursuant to which such purchaser assumes and
agrees to be bound by all of the terms, covenants and conditions of the Lease,
including without limitation, the obligations of the Landlord under Articles 26,
27, 29 and 31 of the Lease."
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(d) "For so long as the Original Tenant is the Tenant under
this Lease, Mortgagee covenants and agrees not to sell, assign or otherwise
transfer this Mortgage to anyone other than a recognized lending institution (as
defined in Section 31.01 of the Lease), without the prior written consent of the
Tenant."
(e) "Mortgagee shall not require the use of any fire insurance
proceeds or condemnation award in a manner inconsistent with the provisions of
this Lease."
Section 31.10. In the event that the mortgagor under any Mortgage shall
fail to pay any installment of principal or interest becoming due thereunder or
any other sum therein provided to be paid by the mortgagor, or if the mortgagor
is otherwise in default under such Mortgage, Tenant shall have the right
forthwith, but not the obligation, to pay such principal, interest or other
sums, and to cure any such default of the mortgagor, and to deduct the amounts
of any such payments and the costs and expenses incurred by Tenant in curing the
mortgagor's default, with interest thereon at the Interest Rate from the date of
any such payment until paid, from the successive installments of Fixed Rent and
additional rent then due and thereafter coming due, until Tenant shall have been
fully reimbursed for any and all such payments, costs, expenses and interest.
Reference to this Section 31.10 to the "Tenant" means only the Original Tenant.
Section 31.11. Upon any assignment by Landlord of Landlord's interest in
this Lease, or the rents payable hereunder, conditional in nature or otherwise,
which assignment is made to the Superior Mortgagee, Tenant agrees that the
execution thereof by Landlord, and the acceptance thereof by the Superior
Mortgagee shall not be treated as an assumption by such Superior Mortgagee of
any of the obligations of Landlord hereunder unless such Superior Mortgagee
shall, by agreement with or notice sent to Tenant, that specifically otherwise
elects, except that such Superior Mortgagee shall be treated as having assumed
Landlord's obligations hereunder only upon foreclosure of the Superior Mortgage
or the taking of possession of the Building or as otherwise provided by law.
Section 31.12. After receiving notice from any Superior Lessor or Superior
Mortgagee that it holds a Superior Lease or a Superior Mortgage, as the case may
be, (a) no notice from Tenant to Landlord shall be effective unless and until a
copy of such notice is given to such Superior Lessor or Superior Mortgagee,
which may be given simultaneously with Tenant's notice to Landlord (provided
Tenant shall have been furnished with the name and address of such Superior
Lessor or Superior Mortgagee) and (b) Tenant shall not exercise any
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right to terminate this Lease by reason of Landlord's acts or omissions until
(i) it has given written notice of such act or omission to the Superior
Mortgagee at its address so furnished and (ii) a reasonable period for remedying
such act or omission shall have elapsed following such giving of notice (which
shall in no event be less than the period to which Landlord would be entitled
under this Lease to effect such remedy) provided the Superior Mortgagee shall,
with reasonable diligence, give Tenant notice of intention to, and commence and
continue to, remedy such act or omission or to cause the same to be remedied.
Such reasonable period of time shall not exceed twenty (20) days in the case of
a monetary default or sixty (60) days in the case of a non-monetary default,
except that in the case of a non-monetary default which cannot reasonably be
cured within such sixty (60) day period, if such Superior Mortgagee shall have
commenced to remedy such act or omission within such sixty (60) day period and
shall thereafter proceed with reasonable diligence subject to Force Majeure
Events to remedy such act or omission, then such sixty (60) day period shall be
extended until such act or omission is remedied (it being understood that if
Tenant shall duly give the notice required by clause (i) but the Superior
Mortgagee shall not with reasonable diligence give Tenant notice of intention
to, and commence and continue to, remedy such act or omission or cause the same
to be remedied as above provided, Tenant may exercise all of its rights and
remedies under this Lease and/or at law by reason of such act or omission of
Landlord).
Section 31.13. Landlord represents and warrants to Tenant that on the date
hereof there are no Superior Leases and no Superior Mortgages. If a mortgage is
placed on the Real Property, or any part thereof, Landlord promptly thereafter
shall deliver to Tenant an executed counterpart of such mortgage.
ARTICLE 32
COMMUNICATION EQUIPMENT AND ANTENNAE
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Section 32.01. Tenant shall have the right to install, at its sole cost
and expense, communication equipment and antennae (including a microwave dish
and/or radio equipment on the roof rack and/or other similar equipment) on the
roof of the Building in the area designated on Exhibit K annexed hereto, and to
run and maintain lines, wires and cables therefrom through the Building and into
the Demised Premises, provided Landlord approves the plans and specifications
for such installation, such approval not to be unreasonably withheld or delayed
in accordance with Article 4 hereof, and with respect to the construction and
operation thereof, Tenant hereby covenants and agrees that: (a) such
installations shall be performed in accordance with all Requirements and such
plans and specifications; (b) Tenant shall indemnify and hold Landlord harmless
from any liability, cost or expense in connection therewith of any nature
whatsoever but not for consequential damages or for any liability, cost or
expense arising out of Landlord's negligence or willful acts; (c) Tenant shall
promptly repair any damage caused to the roof of the Building by reason of such
installations, including without limitation, any repairs, restorations,
maintenance, renewals or replacement of the roof of the Building to the extent
necessitated or caused by such installations, and (d) Tenant shall obtain any
additional insurance coverage for the benefit of Landlord in such amount and of
such type as Landlord may reasonably require in connection with such
installation.
Section 32.02. Tenant acknowledges that its right to use the roofs of the
Building for the purposes herein specified is subject to Landlord having the
right to use, and to permit other tenants of the Building to use, the remainder
of the roof of the Building for similar or other uses. Tenant's use of its
communications equipment and antennae on the roofs of the Building in the areas
so designated shall only be incidental to the normal conduct of Tenant's
business operations in the Demised Premises, and Tenant agrees to cooperate with
Landlord in an effort to mitigate any disturbance or interference with the use
of communications equipment and antennae on the remainder of the roof by
Landlord and other tenants of the Building. Landlord agrees, on behalf of itself
and other tenants of the Building, that its and their use of the remainder of
the roofs of the Building shall not unreasonably interfere with Tenant's use of
the roofs of the Building. Landlord agrees that, in respect of Leases entered
into by Landlord after the date hereof, the use by the other tenants of the
Building of the remainder of the roofs shall be subject to restrictions similar
to those provided in this Section 32.02 and Landlord shall use reasonable
efforts to enforce the same. Landlord agrees that it will not enforce against
Tenant any of the foregoing restrictions, conditions or limitations which
Landlord shall not consistently be enforcing against all other tenants of the
Building.
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Notwithstanding the foregoing, if, despite such cooperation by Tenant, its
installations shall disturb or interfere with the use of other communications
equipment or antennae installed after the date of installation of the Tenant's
interfering communications equipment and/or antennae, such disturbance or
interference shall in no way affect the rights of Tenant as set forth in this
Section 32, which rights, with respect to the use of communication equipment and
antennae, shall be superior to those of the communications equipment and
antennae so subsequently installed.
Section 32.03. Tenant shall have the right, in common with others, of
reasonable access to the roof area and to Building telephone closets for the
installation, operation, maintenance, repair, replacement and removal of the
equipment and related wires and cables and any related pipes, ducts or conduits
installed by Tenant and for the partial or complete replacement of the
foregoing, subject to the provisions of this Lease and to such other reasonable
conditions imposed by Landlord.
Section 32.04. The roof equipment, all related wires or cables and any
related pipes, ducts or conduits installed by Tenant, shall be considered
Tenant's Property for all of the purposes of this Lease.
ARTICLE 33
AS IS
Section 33.01. Tenant has examined and agrees to accept the Demised
Premises "as is" in their condition and state of repair existing on the
Commencement Date and understands that Landlord make no representations, express
or implied, as to the condition of the Demised Premises, the building equipment
and systems serving the Demised Premises or as to any other thing or fact
related thereto, and that no work, decoration, repair, alteration or improvement
is to be performed by Landlord to prepare the Demised Premises for Tenant's
occupancy. Landlord shall not be subject to any liability for failure to give
possession of the Demised Premises on the Commencement Date and the validity of
the Lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this Lease. The provisions of this
article are intended to constitute "an express provision to the contrary" within
the meaning of Section 223-a of the New York Real Property Law or any successor
law or ordinance.
Section 33.02. Tenant shall have the right to construct, at Tenant's sole
cost and expense, bathrooms on the 23rd Floor of the Demised Premises in the
West Building
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substantially in accordance with plans and specifications therefor previously
approved by Landlord. Landlord hereby grants a license to Tenant for the purpose
of allowing Tenant to perform such work.
ARTICLE 34
BROKER
Section 34.01. Tenant and Landlord represent and warrant to the other that
in the negotiation of this Lease it dealt with no advisors other than BT
Securities Corporation (the "Advisor") and with no brokers or finders other than
Insigna/Edward S. Gordon Co., Inc. (the "Broker"). Landlord and Tenant
understand that, pursuant to separate agreements, no separate commission or
other compensation is to be paid to the Advisor or the Broker in connection with
this Lease. Each of Landlord and Tenant hereby indemnify and agree to hold the
other harmless against liability, loss, cost and/or expense, including, without
limitation, reasonable attorneys' fees and disbursements, arising out of any
inaccuracy or alleged inaccuracy of the above representation and warranty made
by such indemnifying party. Landlord shall have no liability for brokerage
commissions arising out of any subletting of the Demised Premises or assignment
of this Lease hereafter made by Tenant, and Tenant shall and does hereby
indemnify Landlord and hold it harmless from and against all liability for
brokerage commissions arising out of any such subletting or assignment. This
indemnity shall survive the termination of this Lease.
ARTICLE 35
ADDITIONAL DEMISED PREMISES
Section 35.01. (a) Tenant shall have the option (the "Additional Demised
Premises Option") to add to the Demised Premises the additional space described
in either clause (i), (ii) or (iii) below, as selected by Tenant in its
Additional Demised Premises Notice (the "Additional Demised Premises"):
(i) (x) the additional space located on the 26th Floor
of the West Building to be comprised of between 5,700 and 11,700 rentable
square feet in Tenant's sole discretion, at a contiguous location to be
designated by Tenant by cross-hatching on the floor plan attached hereto
as Exhibit H, subject to Landlord's approval as to such cross-hatching, as
hereinafter provided for, and (y) the additional space comprising the
entire 25th Floor of the West Building as shown by cross-hatching attached
as hereto as
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Exhibit H-1, or
(ii) (x) the additional space comprising the entire 26th
Floor of the West Building as shown by cross-hatching on the floor plan
attached hereto as Exhibit H-2 and (y) the additional space located on the
25th Floor of the West Building as shown by cross-hatching on the floor
plan attached hereto as Exhibit H-3 or as H-4, as elected by Tenant in its
sole discretion; or
(iii) the additional space referred to in clause
(a)(i)(y) and (a)(ii)(x).
(b) Tenant shall notify Landlord ("Tenant's Additional Demised
Premises Notice") of Tenant's exercise of its Additional Demised Premises Option
not later than forty-five (45) days after the date of this Lease.
(c) The term "Additional Demised Premises Commencement Date"
shall mean the date on which Landlord's Work listed on Exhibit I attached hereto
is substantially completed in the Additional Demised Premises.
(d) The term "Additional Demised Premises Rent Commencement
Date" shall mean nine (9) months after the Additional Demised Premises
Commencement Date, subject, however, to the provisions of Sections 35.03(d) and
(e).
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35.02. Upon the exercise of Tenant's Additional Demised Premises
Option, (a) the term "Demised Premises" shall be deemed to include the
Additional Demised Premises on the 25th Floor of the West Building as shown or
to be shown by cross-hatching on Exhibit H-1, H-3 or H-4, as the case may be,
included in Tenant's Additional Demised Premises Notice, and on the 26th Floor
of the West Building shown or to be shown by cross-hatching on Exhibit H or H-2,
as the case may be, included in Tenant's Additional Demised Premises Notice
(unless, if clause (a)(i)(x) shall be applicable, Landlord shall reasonably
object thereto on the basis of layout and design within five (5) Business Days
after receipt of Tenant's Additional Demised Premises Notice, in which event
such dispute shall be settled by Expedited Arbitration in accordance with
Section 27.02), in each case which shall be deemed added to this Lease as a part
of Exhibit B annexed hereto, (b) the number of rentable square feet in the
Demised Premises shall be increased by 17,299 rentable square feet on the 25th
Floor of the West Building if Exhibit H-1 and clause (a)(i)(y) shall be
applicable; or if Exhibit H-3 and clause (a)(ii)(y) or if Exhibit H-4 and clause
(a)(ii)(y), shall be applicable, based proportionately on the total usable
square footage included in Exhibit H-3 or H-4, as the case may be, to the total
usable square footage of the entire 25th Floor of the West Building (measured in
a consistent manner) and that result then being applied to the total of 17,299
rentable square feet; or 18,839 rentable square feet on the 26th Floor of the
West Building if Exhibit H-2 and clause (a)(ii)(x) shall be applicable; or by
the number of rentable square feet of the Additional Demised Premises on the
26th Floor of the West Building to be shown by cross-hatching in Tenant's
Additional Demised Premises Notice which the parties shall mutually determine if
Exhibit H and clause (a)(i)(x) shall be applicable (or, in the case of a
dispute, by Expedited Arbitration, as aforesaid), based proportionately on
approved or arbitrated total usable square footage included within the space
covered by clause (a)(i)(x) total usable square footage of the entire 26th Floor
of the West Building (measured in a consistent manner) and that result then
being applied to the total of 18,839 rentable square feet, (c) "Tenant's
Percentage" shall be increased, as applicable, by the fraction, expressed as a
percentage, the numerator of which shall be the number of rentable square feet
included within the Additional Demised Premises, and the denominator of which
shall be 1,178,042, (d) the Fixed Rent shall be increased by the following
amounts: (A) at an annual rate of Forty Dollars ($40.00) for each such rentable
square foot of the Additional Demised Premises for the period commencing on the
Additional Demised Premises Rent Commencement Date through and including the
last day of the month in which the fifth (5th) anniversary of the Commencement
Date occurs, and (B) at the annual rate of Forty-five Dollars ($45.00) for each
such rentable square
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foot of the Additional Demised Premises for the period commencing on the first
day of the month next succeeding the month in which the fifth (5th) anniversary
of the Commencement Date occurs through and including the last day of the month
in which the tenth (10th) anniversary of the Commencement Date occurs, and (C)
at the annual rate of Fifty Dollars ($50.00) for each such rentable square foot
of the Additional Demised Premises for the period commencing on the first day of
the month next succeeding the month in which the tenth (10th) anniversary of the
Commencement Date occurs through and including the Expiration Date (provided,
however, if the Additional Demised Premises is part of the Demised Premises at
the commencement of a Renewal Term the Fixed Rent for the entire Demised
Premises shall be adjusted in accordance with Article 24), which Fixed Rent for
the Additional Demised Premises shall be payable from and after the Additional
Demised Premises Rent Commencement Date in equal monthly installments in advance
on the first day of each calendar month, in the same manner as the Fixed Rent
applicable to the Original Demised Premises, (e) the Fixed Rent for the
Additional Demised Premises shall be subject to adjustment as provided in
Article 2 hereof, (f) all other items of additional rent shall thereafter be
computed on the basis of the inclusion of the Additional Demised Premises into
the Demised Premises and (g) Tenant shall be entitled to additional tonnage for
its supplementary air-conditioning system referred to in Section 23.04(e) of .75
tons for each 1,000 rentable square feet of Additional Demised Premises (or
portion thereof).
35.03. (a) Except as otherwise provided in this Section 35.03,
Tenant agrees to accept each Additional Demised Premises "as is" in its
condition and state of repair existing on the Additional Demised Premises
Commencement Date and understands that Landlord makes no representations,
express or implied, as to the condition of the Additional Demised Premises, the
building equipment and systems serving the Additional Demised Premises or as to
any other thing or fact related thereto, and that no work, decoration, repair,
alteration or improvement is to be performed by Landlord to prepare the
Additional Demised Premises for Tenant's occupancy.
(b) If either clause (a)(i)(x) or (a)(ii)(y) of Section 35.01
shall be applicable (the "Partial Floor") (it being understood that if neither
clause (a)(i)(x) nor (a)(ii)(y) of Section 35.01 shall be applicable the further
provisions of this subsection (b) and the provisions of subsections (c) through
(f) of this Section 35.03 shall be of no force or effect), Landlord shall
forthwith upon exercise of Tenant's Additional Demised Premises Option proceed
with diligence to perform the work in the Partial Floor of the Additional
Demised Premises described in Exhibit I hereto. All of such work to be so
performed by
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Landlord is hereinafter called "Landlord's Work." Tenant shall not delay or
unreasonably interfere in any way with Landlord's Work, notwithstanding that
Landlord's Work and Tenant's Initial Construction may be proceeding
simultaneously. In the event Tenant occupies the Partial Floor portion of the
Additional Demised Premises for any reason prior to the completion of Landlord's
Work, Tenant hereby releases Landlord from any loss, cost, claim or damage
suffered by Tenant which would not otherwise have arisen if Tenant had not been
in occupancy of the Partial Floor portion of the Additional Demised Premises
prior to the completion of Landlord's Work. Landlord's Work will not
unreasonably interfere with Tenant's Initial Construction.
(c) Landlord shall substantially complete Landlord's Work by
thirty (30) days after the date of exercise of Tenant's Additional Demised
Premises Option (or in case of a dispute as to the location of the Demised
Premises in the event clause (a)(i)(x) shall be applicable, after the date of
resolution of such dispute by Expedited Arbitration), provided that such date
shall be extended by any delay caused by the acts or omissions of Tenant or by
reason of force majeure occurring after such time as Landlord shall have given
Tenant notice thereof (the "Target Date"). Landlord's Work shall be deemed to
have been substantially completed notwithstanding that (i) minor or
insubstantial details of construction or minor or insubstantial mechanical
adjustments remain to be performed, the non-completion of which does not
materially interfere with Tenant's ability to perform Tenant's Initial
Construction and (ii) portions thereof are incomplete which under good
construction scheduling practice may be done contemporaneously with, or should
be done after the completion of portions of, Tenant's Initial Construction.
Landlord shall diligently complete all such portions of Landlord's Work as soon
as reasonably practicable.
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(d) Landlord shall give Tenant written notice ("Landlord's
Completion Notice") of the date of substantial completion of Landlord's Work
(the "Substantial Completion Date"). The Substantial Completion Date shall
conclusively be deemed to be the date set forth in Landlord's Completion Notice
unless within ten (10) days after the date that Landlord shall so notify Tenant,
Tenant shall give Landlord a written notice (the "Work Completion Notice")
setting forth in detail the portions of the Landlord's Work that Tenant believes
not to be "substantially completed" (the "Incompletions"). In the event that
Tenant timely delivers the Work Completion Notice and Landlord does not dispute
same (or any dispute is resolved in Tenant's favor), then the Fixed Rent for the
Additional Demised Premises shall be abated by deferring the Rent Commencement
Date on a "day for day" basis for each day from the Target Date until all of the
Incompletions shall have been substantially completed, provided that if any act
or omission of Tenant (occurring after such time as Landlord shall have given
Tenant notice thereof) shall delay substantial completion of Landlord's Work,
the Additional Demised Premises Commencement Date shall not be so extended for
such number of days of such delay. Any dispute as to whether Landlord's Work was
substantially completed shall be resolved by Expedited Arbitration pursuant to
Section 27.02, but pending the resolution of such dispute and as a condition
precedent to Tenant's right to invoke such arbitration process, Tenant shall pay
Rents based upon Landlord's determination that the Substantial Completion Date
has occurred, without prejudice to Tenant's position. If it is resolved in such
arbitration that the Substantial Completion Date was not the date so fixed by
Landlord, any overpayment of Rent paid by Tenant to Landlord on the basis of the
Substantial Completion Date so fixed by Landlord shall be credited by Landlord
against amounts next due under this Lease. If the arbitration decision is in
Tenant's favor, then Tenant will be entitled to an appropriate credit against
the Fixed Rents next due. When the dispute has been determined in accordance
with this Section 35.03(d), Tenant shall, at Landlord's request, within ten (10)
days after such request is made, execute a written instrument in form reasonably
satisfactory to Landlord confirming the resolution of such dispute, but no such
instrument shall be necessary to make the determination thereof in accordance
with this Section 35.03(d) effective.
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(e) If Landlord shall fail to substantially complete
Landlord's Work by ninety (90) days after the Target Date as such date shall be
extended by any delay caused by the acts or omissions of Tenant (the "Further
Rent Abatement Date"), as determined in the same manner as provided in Section
35.03(d) with respect to the Target Date, then notwithstanding anything in this
Lease to the contrary, and provided Tenant has not itself completed such
incompletions in accordance with the terms of this Lease, any deferral of the
Additional Demised Premises Commencement Date in effect as of the Further Rent
Abatement Date, shall continue thereafter in accordance with the provisions of
Section 35.03(d) except that the amount of rent abatement shall thereafter be
twice the amount which would otherwise thereafter been in effect.
(f) If Tenant's notice shall set forth incompletions in
Landlord's Work which are not contested by Landlord and which do not affect the
structural or exterior portions of the Building or any Building Systems, then if
Landlord shall not within thirty (30) days commence the performance of such
incompletions and continue such performance with reasonable diligence until
substantially complete, which thirty (30) days and cure period shall be extended
in the event of delay caused by force majeure or Tenant's acts or omissions
occurring after such time as Landlord shall have given Tenant notice thereof,
Tenant shall have the right to perform the work reasonably necessary to complete
such incompletions in accordance with the provisions of Articles 4 and 5 hereof.
Subject to the terms of the balance of this subparagraph (f), Tenant shall have
the right to offset the reasonable costs of completing such incompletions
against the next subsequent Rent payments due under this Lease. If Landlord
shall dispute the reasonableness of any sums so expended by Tenant, the parties
shall submit the reasonableness of the sums so expended to Expedited Arbitration
in accordance with Article 27.02 of this Lease for a determination of the
reasonableness thereof, and pending such arbitration Tenant shall have no right
to offset any of such disputed costs against Rent payments hereunder. Upon
completion of such arbitration and the determination of what portion of said
costs are reasonable Tenant shall have the right to offset that portion of the
costs of such completion which are held by the arbitrators to be reasonable
against the next subsequent Rent payments due under this Lease, together with
interest thereon at the Interest Rate.
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Section 35.04. (a) Provided that no material monetary default of which
Tenant has received notice or a default shall then exist beyond any applicable
notice and/or cure period under this Lease, Landlord agrees to pay in the manner
set forth in Section 35.04(b) and (c) up to Forty-five Dollars ($45.00) for each
such rentable square foot of the Additional Demised Premises ("Landlord's
Commitment") on account of the cost of the Alterations to be made by Tenant of
the Additional Demised Premises to prepare the Additional Demised Premises for
occupancy, plus architectural and engineering fees related thereto (the
"Tenant's Initial Construction"). Landlord's obligation shall be payable in the
manner hereinafter provided.
(b) It shall be a condition precedent to each payment by
Landlord of Landlord's Commitment that the Tenant shall have submitted to
Landlord written requisitions therefor, each in an amount not less than
$100,000.00 (except for the final payment), signed by Tenant (together with a
certificate from Tenant's supervising architect and Tenant's general contractor
or construction manager on AIA forms G702 and G703 in regard to any such work
under their supervision), such requisition by Tenant to state that with respect
to the amount sought by each such requisition:
(i) to the best of their knowledge, all work performed
to the date of such requisition is in compliance with all Requirements,
including, as applicable, without limitation, the New York City Department
of Buildings, and with the plans and specifications therefor as approved
by Landlord,
(ii) such amount represents work actually furnished or
services actually rendered,
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(iii) such amount does not, in whole or in part,
represent work, services or materials for which Tenant has been paid out
of funds obtained on a prior requisition,
(iv) with respect to advances of installments of
Landlord's Commitment following the initial advance thereof or the initial
payment of Tenant's Initial Construction with Tenant's own funds,
whichever is earlier, that with respect to work for which invoices have
previously been submitted and disbursement made by Landlord or such
earlier payment made with Tenants own funds, all contractors,
subcontractors, materialmen or others who have performed work or furnished
services or materials in connection with Tenant's Initial Construction
have been paid by Tenant in full (less, with respect to construction
costs, any retainage) for all work performed and materials or services
furnished up to the date of such previous requisition, attached to which
certificate shall be lien waivers evidencing and acknowledging all such
payments,
and Tenant shall further certify that:
(v) to the best of Tenant's knowledge, there are no
mechanics' liens or orders for the payment of money against the Building
or Demised Premises arising out of Tenant's Initial Construction, (unless
discharged by bonding or otherwise) and
(vi) there is no material monetary default or default
beyond any applicable notice and/or cure period under this Lease of which
to the best of its knowledge, Tenant is aware.
Tenant shall also use all reasonable efforts to furnish to Landlord, upon
Landlord's request therefor, invoices, vouchers, bills, statements and/or
receipts of the person or entities performing the work, furnishing the
materials or rendering the services covered by the requisition, or
photostatic copies thereof with respect to work for which invoices have
previously been submitted and disbursement made by Landlord or such
earlier payment made with Tenant's own funds, no later than the next
requisition following the requisition as to which Landlord has made such
request. Nothing herein shall be construed to require Landlord nor shall
Landlord be required, to disburse or cause to be disbursed to or for the
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account of Tenant for Tenant's Initial Construction an amount greater than
the amount of Landlord's Commitment.
(c) Notwithstanding anything to the contrary contained in
Section 35.04(b):
(i) Landlord shall be under no obligation to make any
payment hereunder if any material monetary default exists of which Tenant
has received notice or default beyond any applicable notice and/or cure
period under this Lease, provided, however, this condition shall be
satisfied upon the cure of such default by Tenant;
(ii) Landlord shall make disbursements of Landlord's
Commitment by check payable directly to Tenant (or, if so notified in
writing by Tenant at or before the date of Landlord's receipt of the
requisition, to Tenant's general contractor or construction manager),
within fifteen (15) Business Days after final receipt of all of the
materials specified in Section 35.04(b), but in no event more frequently
than monthly. Payment to Tenant's general contractor or construction
manager shall be in complete discharge of Landlord's obligation to Tenant
hereunder with respect thereto, and Tenant releases Landlord from all
claims and liabilities by Tenant and indemnifies Landlord from and against
all claims of subcontractors and other persons performing work or services
covered by such requisition, arising out of the manner in which such funds
are utilized by such general contractor or construction manager.
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(iii) Tenant shall deliver to Landlord (A) (unless
previously furnished to Landlord pursuant to Section 35.04(b)) general
releases and final waivers of lien from all contractors, subcontractors
and materialmen involved in the performance of the Tenant's Initial
Construction and the materials furnished in connection therewith, within
ninety (90) days after completion of Tenant's Initial Construction (B)
customary sign-offs of the New York City Department of Buildings to the
effect that after an inspection by the New York City Department of
Buildings that Tenant's Initial Construction complies with the rules and
regulations of the New York City Department of Buildings, within one
hundred fifty (150) days after completion of the Tenant's Initial
Construction, (C) a certificate from Tenant's independent architect
certifying that Tenant's Initial Construction has been completed
substantially in accordance with all Requirements and the plans and
specifications therefor approved by Landlord, within ninety (90) days
after completion of Tenant's Initial Construction and (D) a certificate
from Tenant's general contractor or construction manager certifying that
all contractors, subcontractors and materialmen have been paid for
Tenant's Initial Construction and materials furnished through such date,
within ninety (90) days after completion of Tenant's Initial Construction.
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(d) If Landlord fails to pay any portion of Landlord's
Commitment then due and owing by the date due, then Tenant shall have the right
after ten (10) Business Days notice thereof to Landlord, to pay such amounts,
and subject to the terms of the balance of this Section 35.05(d), Tenant shall
have the right to deduct from and offset against the next subsequent Rents due
under this Lease. If Landlord shall dispute the correctness under the provisions
of this Section 35.04(d) of any sums so expended by Tenant, the parties shall
submit the question to Expedited Arbitration in accordance with Section 27.02 of
this Lease for a determination of the correctness thereof, and pending such
arbitration Tenant shall have no right to deduct from or offset any of such
disputed payments against Rent payments hereunder. Upon completion of such
arbitration and the determination of what portion of said payments were
correctly made by Tenant, Tenant shall have the right to deduct from and offset
that portion of the payments which are held by the arbitrators to be correctly
made by Tenant against the next subsequent Rents next due under this Lease,
together with interest thereon at the Interest Rate from the date Landlord so
failed to make such disbursement and such disbursement was instead paid by
Tenant to the date of such determination.
(e) Upon completion of Tenant's Initial Construction in
accordance herewith, and satisfaction of the conditions set forth in Section
35.04(c)(iii) hereof as to the Additional Demised Premises, and provided that
there is no material monetary default of which Tenant has received notice or
default beyond any applicable notice and/or cure period existing under this
Lease, unless same has been cured by Tenant, any portion of Landlord's
Commitment not advanced by Landlord to Tenant in the performance of Tenant's
Initial Construction shall be applied by Landlord as a credit against subsequent
installments of Rents next due under this Lease.
Section 35.05. If Tenant so elects to lease the Additional Demised
Premises, Landlord shall deliver to Tenant a lease amendment covering the
Additional Demised Premises (hereinafter called the "Additional Demised Premises
Lease Amendment") incorporating the terms and conditions of this Article 35 and
the parties hereto shall promptly execute and exchange the Additional Demised
Premises Lease Amendment, provided, however, such option exercise and the terms
thereof shall be effective notwithstanding the failure of either or both parties
to request or to execute and deliver such Additional Demised Premises Lease
Amendment.
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Section 35.06. The termination of this Lease during the Term of this Lease
shall also terminate and render void all of Tenant's options or rights under
this Article 35 whether or not the same shall have been exercised; and nothing
contained in this Article shall prevent Landlord from exercising any right or
action granted to or reserved by Landlord in this Lease to terminate this Lease.
None of Tenant's options or rights set forth in this Article 35 may be severed
from this Lease or separately sold, assigned or transferred.
ARTICLE 36
CERTIFICATES OF LANDLORD AND TENANT
Section 36.01. Each party hereto shall, without charge, at any time and
from time to time but not more frequently than four (4) times per annum, within
ten (10) days after request by the other deliver a written instrument to the
other or any other person, firm or corporation specified by the other, duly
executed and acknowledged, certifying:
(a) That this Lease is unmodified and in full force and effect
or, if there has been any modification, that the same is in full force and
effect as modified and stating any such modification;
(b) Whether or not to the best knowledge of such party there
are then existing any claims, setoffs or defenses against the enforcement of any
of the agreements, terms, covenants, or conditions of this Lease and any
modification thereof upon the part of the other to be performed or complied
with, and, if so, specifying the same; and
(c) The dates to which the Fixed Rent and additional rent have
been paid.
Section 36.02. Any such statement delivered pursuant hereto may be relied
upon, in the case of a certificate by Tenant, by any prospective purchaser of
the Real Property or any part thereof or of the interest of Landlord in any part
thereof, by any mortgagee or prospective mortgagee thereof, by any lessor or
prospective lessor thereof, by any lessee or prospective lessee thereof, or by
any prospective assignee of any mortgage thereof and, in the case of a
certificate by Landlord, by any assignee or prospective assignee (whether by
operation of law or otherwise) or sublessee or prospective sublessee hereof or
hereunder of all or any part of the Demised Premises.
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ARTICLE 37
MISCELLANEOUS
Section 37.01. The captions and table of contents are inserted only as a
matter of convenience and for reference, and in no way define, limit or describe
the scope of this Lease or the intent of any provision hereof.
Section 37.02. Irrespective of the place of execution or performance, this
Lease shall be governed by and construed in accordance with the laws of the
State of New York.
Section 37.03. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
Section 37.04. If any term, covenant, condition or provision of this Lease
or the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease, or the application
thereof to any circumstances or to any person, firm or corporation other than
those as to which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be effected thereby and each remaining term, covenant,
condition and provision of this Lease shall be valid and shall be enforceable to
the fullest extent permitted by law.
ARTICLE 38
SUCCESSORS AND ASSIGNS
Section 38.01. The covenants, conditions and agreement contained in this
Lease shall run with the land, bind and inure to the benefit of Landlord and
Tenant and their respective successors and, except as otherwise provided in this
Lease, their assigns.
ARTICLE 39
RULES AND REGULATIONS
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Section 39.01. Tenant and Tenant's servants, employees and agents shall
observe faithfully and comply strictly with the Rules and Regulations set forth
in Exhibit J attached hereto and made part hereof entitled "Rules and
Regulations" and such other and further reasonable and nondiscriminatory Rules
and Regulations applicable to the Building in general as Landlord or Landlord's
agents may from time to time adopt ; provided, however, that in case of any
conflict or inconsistency between the provisions of this Lease and of any of the
Rules and Regulations as originally or as hereafter adopted, the provisions of
this Lease shall control. Reasonable written notice of any additional Rules and
Regulations shall be given to Tenant. Any dispute as to the reasonableness of
any further Rules and Regulations adopted by Landlord shall be submitted to
arbitration in accordance with Article 27 hereof.
Section 39.02. Except as hereinafter expressly provided, nothing contained
in this Lease shall be construed to impose upon Landlord any duty or obligation
to enforce the Rules and Regulations or the terms, covenants or conditions in
any other lease, against any other tenant of the Building, and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. Landlord agrees to enforce
all such Rules and Regulations in a nondiscriminatory manner, and if the
violation of any such Rule or Regulation by a tenant of the Building other than
Tenant shall create a nuisance for Tenant or shall materially adversely impact
on Tenant's ability to conduct its business at the Demised Premises, or affect
the health or safety of any occupant of the Building, then Landlord shall use
reasonable efforts to enforce such Rule or Regulation against such other tenant
of the Building (by legal proceedings or otherwise) but Landlord shall have no
obligation to evict the other tenant.
ARTICLE 40
CONSENTS AND APPROVALS
Section 40.01. Whenever Landlord's consent is required pursuant to the
provisions of this Lease, Landlord agrees to respond to Tenant's request for
such consent within a time period that is reasonably prompt in light of the
particular circumstances of the request (unless a particular time period is
required, in which event such time period shall prevail) and to be reasonable in
determining whether to grant or withhold such consent.
Section 40.02. In all cases in this Lease where it is stated or it is
required that the consent or approval of Landlord shall not be unreasonably
withheld, or words of
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like meaning or import, it shall be deemed to mean that Landlord agrees that its
consent shall be in writing and shall not be unreasonably withheld, delayed or
conditioned. In the event that Landlord shall fail to give its consent or
approval after a request for same by Tenant, or in the event that Landlord shall
expressly deny its consent or approval, Landlord shall state in writing, in
reasonable detail, the reasons for such lack of consent or approval.
ARTICLE 41
INTERIM SPACE
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Section 41.01. Tenant presently conducts certain of its operations in a
portion of the 8th Floor of the Building as shown on Exhibit L attached hereto
(the "Interim 8th Floor Space") and expects to remove its employees therefrom no
later than October 1, 1997 (the "Removal Date"). The Interim 8th Floor Space
shall be deemed part of the Demised Premises until such time as Tenant removes
its employees therefrom (the "Interim 8th Floor Space Expiry"), except that (a)
Fixed Rent shall be payable as to the Interim 8th Floor Space from and after the
Removal Date and until the Interim 8th Floor Space Expiry at a monthly rate of
$156,473.21 per month, pro rated on a per diem basis if the Removal Date or
Interim 8th Floor Space Expiry date is not the first or last day of a month; (b)
the provisions of Section 2.01 through 2.03 shall not apply to the Interim 8th
Floor Space; and (c) to the extent that Tenant's delay in vacating the Interim
8th Floor Space by the Removal Date is the direct proximate cause of any
abatement of rents to which the tenant is entitled under the present provisions
of the lease between Bankers Trust Company and Furman Selz LLC dated June 29,
1997 by reason of Tenant's delay in vacating the Interim 8th Floor Space by the
Removal Date, Tenant shall pay as additional rent hereunder an amount equal to
such abated rentals less sums paid by Tenant pursuant to clause (a) above for
the period after the commencement of any such abatement (provided that Tenant
shall have no liability under this clause (c) if or after the tenant under the
Furman Selz lease terminates such lease as to the 8th floor portion of the
Building by reason of the time to which such abatements shall extend), and (d)
to the extent that Tenant's delay in vacating the Interim 8th Floor Space by the
Removal Date is the direct proximate cause of Landlord's incurring any
reasonable additional out-of-pocket expenses in performing the work required
pursuant to the present provisions of the Furman Selz lease to prepare the
premises on the 8th floor of the Building for the initial occupancy of the
tenant under the Furman Selz lease, Tenant will reimburse the Landlord therefor
within thirty (30) days after Tenant's receipt of a statement therefor. Any
dispute between Landlord and Tenant as to the provisions of this Section 41.01
shall be resolved by Expedited Arbitration pursuant to Section 27.02 hereof.
Section 41.02. Tenant presently conducts certain of its operations in a
portion of the 2nd Floor of the Building as shown on Exhibit N attached hereto
(the "Interim 2nd Floor Space") and shall vacate the Interim 2nd Floor Space
when it constructs certain alternate facilities elsewhere in the Demised
Premises. The Interim 2nd Floor Space shall be deemed part of the Demised
Premises until such time as Tenant vacates the Interim 2nd Floor Space in
accordance with the provisions of Section 4.06 and 4.07, constructs a demising
wall to separate the Interim 2nd Floor Space from
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the remainder of the Demised Premises and gives Landlord at least ten (10)
Business Days prior notice of the date of satisfaction and/or completion of the
foregoing (the "2nd Floor Removal Date"), except that (a) Fixed Rent shall be
payable as to the Interim 2nd Floor Space from and after the date hereof and
until the 2nd Floor Removal Date at a monthly rate of $5,395.83, prorated on a
per diem basis if the date hereof or the 2nd Floor Removal Date is not the first
or last day of a month; and (b) the provisions of Sections 2.01 through 2.03
shall not apply to the Interim 2nd Floor Space.
ARTICLE 42
NO MERGERS
Section 42.01. There shall be no merger of this Lease or the leasehold
estate created hereby with the fee or any other lesser estate in the Real
Property, or any part thereof, by reason of the same person acquiring or
holding, directly or indirectly, this Lease or the leasehold estate created
hereby or any interest in this Lease or in such leasehold estate as well as the
fee or any other lesser estate in the Real Property. Without limiting the
foregoing, no such merger shall occur by reason of Bankers Trust Company being
both the Landlord and the Tenant hereunder.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
LANDLORD:
BANKERS TRUST COMPANY
By: /s/ David Wiener
-------------------------
Title: Managing Director
TENANT:
BANKERS TRUST COMPANY
By: /s/ Bruce M. Bloch
-------------------------
Title: Vice President
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SCHEDULE A
DEFINED TERMS SECTION
- ------------- -------
Additional Capacity................................................23.05
Additional Demised Premises........................................35.01
Additional Demised Premises Commencement Date......................35.01
Additional Demised Premises Lease Amendment........................35.05
Additional Demised Premises Option.................................35.01
Additional Demised Premises Rent Commencement Date.................35.01
Advisor[s].........................................................34.01
Affiliate...........................................................1.01
Alterations.........................................................4.01
Anticipated Completion Date......................................8.03(b)
Anticipated Option Space Inclusion Date............................25.01
Assessed Valuation..................................................2.03
Available Period...................................................10.01
Banking Space.......................................................1.01
Base Building......................................................24.01
Base Price Index....................................................1.01
Base Tax Period.....................................................2.02
Base Real Estate Taxes..............................................2.02
Base Wage Rate......................................................2.02
Broker[s]..........................................................34.01
Building............................................................1.01
Building Systems....................................................1.01
Bureau..............................................................1.01
Business Days.......................................................1.01
Business Hours......................................................1.01
Cellar Space........................................................1.01
Commencement Date...................................................1.01
Comparison Price Index..............................................1.01
Computation Date....................................................1.01
control.............................................................1.01
Controlling Equity Transfer.....................................10.01(a)
CPI Adjustment......................................................1.01
Demised Premises....................................................1.01
Designated Premises................................................24.01
Dining Facilities...................................................2.03
East Building.......................................................1.01
Electrical Work....................................................23.05
Eligible Sublease..................................................10.01
Emergency Generator................................................23.05
Expedited Arbitration...............................................1.01
Expiration Date.....................................................1.01
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Fire Stairs.........................................................3.05
Fixed Rent..........................................................1.01
Force Majeure Events...............................................12.01
Further Rent Abatement Date.....................................35.03(e)
Governmental Authority (Authorities)................................1.01
Incompletions...................................................35.03(d)
Initial Lease......................................................25.01
Initial Tax Year....................................................2.01
Initial Tenant.....................................................10.01
Initial Term........................................................1.01
Institutional Mortgage.............................................31.01
Interim 2nd Floor Space............................................41.02
Interim 8th Floor Space............................................41.01
Interim 8th Floor Space Expiry.....................................41.01
Interest Rate.......................................................1.01
Issue...............................................................1.01
Issue Bank..........................................................1.01
Land................................................................1.01
Landlord............................................................1.01
Landlord's Commitment...........................................35.04(a)
Landlord's Completion Notice....................................35.03(d)
Landlord's Notification............................................25.01
Landlord's Work.................................................35.03(b)
Lease...............................................................1.01
Lease Term..........................................................1.01
Lobby Signage......................................................26.01
Maximum Demand Load................................................23.05
Median Percentage Increase..........................................2.03
Median Project......................................................2.03
Middle Building.....................................................1.01
Notice.............................................................22.01
Option Lease Amendment.............................................25.05
Office Space........................................................1.01
Option Space.......................................................25.01
Option Space Fixed Rent............................................25.01
Option Space Inclusion Date........................................25.01
Ordinary Equipment.................................................23.05
Original Demised Premises...........................................1.01
Original Tenant.....................................................1.01
Original Tenant Signage............................................26.04
Other Occupant.....................................................32.01
Other Project Assessed Valuation....................................2.03
Other Project Percentage Increase...................................2.03
Other Projects......................................................2.03
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Partial Floor...................................................35.03(b)
person..............................................................1.01
Pre-Approved Alterations............................................4.01
Price Index.........................................................1.01
Purchaser..........................................................29.01
Rate................................................................2.03
Real Estate Tax Escalation Payment..................................2.01
Real Estate Taxes...................................................2.02
Real Property........................................................1.1
Real Property Percentage Increase...................................2.03
Receipt Date....................................................24.01(a)
Recognized Lending Institution.....................................31.01
Removal Date.......................................................41.01
Removal Notice.....................................................41.06
Renewal Term.......................................................24.01
Rents...............................................................1.01
Requirements........................................................1.01
Right of First Offer to Lease......................................25.01
Rules and Regulations..............................................39.01
Sale Agreement.....................................................29.01
Sale Event..........................................................2.03
Sale Event Date.....................................................2.03
Sale Event Percentage Increase......................................2.03
Sale Event Year.....................................................2.03
2nd Floor Removal Date.............................................41.02
Secured Areas......................................................11.05
Short-Term Expiration Date.........................................24.01
Short-Term Notice..................................................24.01
Substantial Completion Date.....................................35.03(d)
successor .........................................................10.01
Superior Lease.....................................................31.05
Superior Lessor....................................................31.05
Superior Mortgage..................................................31.05
Superior Mortgagee.................................................31.05
Target Date.....................................................35.03(c)
Tax Credit..........................................................2.03
Tax Credit Period...................................................2.03
Tax Credit Statement................................................2.03
Tax Comparative Year................................................2.02
Tax Escalation Payment..............................................2.04
Tax Year............................................................2.02
Tenant..............................................................1.01
Tenant's Additional Demised Premises Notice........................35.01
Tenant's Option Space Notice.......................................25.01
Tenant's Percentage................................................25.01
Tenant's Property.................................................. 4.07
Tenant's Proportionate Share........................................2.02
Term................................................................1.01
Term of this Lease..................................................1.01
Transaction Costs..................................................10.01
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Users...............................................................3.04
valuation date.....................................................24.01
Wage Escalation Payment.............................................2.02
Wage Rate...........................................................2.02
Wage Rate Comparative Year..........................................2.02
West Building.......................................................1.01
Work Completion Notice..........................................35.05(d)
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EXHIBIT A
LEGAL DESCRIPTION
ALL that certain, plot, piece or parcel of land, situate, lying and being in the
borough of Manhattan, County of New York, City and State of New York, bounded
and described as follows:
BEGINNING at the corner formed by the intersection of the northerly line of 48th
Street with the westerly line of Park Avenue;
RUNNING THENCE northerly along the westerly line of Park Avenue, 200 feet 10
inches to the southerly line of 49th Street;
THENCE westerly along the southerly line of 49th Street, 314 feet 0 inches;
THENCE southerly parallel to the westerly line of Park Avenue, 100 feet 5 inches
to the center line of the block;
THENCE easterly along the center line of the block parallel to the southerly
line of 49th Street, 30 feet 8 inches;
THENCE southerly parallel to the westerly line of Park Avenue, 100 feet 5 inches
to the northerly line of 48th Street;
THENCE easterly along the northerly line of 48th Street, 283 feet 4 inches to
the point or place of BEGINNING.
<PAGE>
EXHIBIT B
DEMISED PREMISES
<PAGE>
EXHIBIT C
RENTABLE SQUARE FOOTAGE
Floor Location Rentable
Square Feet
East Building
7 21,309
6 21,395
3 16,824
2 9,688
1 3,665
-------------------------
Subtotal 72,881
West & Middle Buildings
23 17,965
22 17,229
7 24,835
6 24,824
5 24,824
3 15,413
2 10,305
A 1,418
B 200
-------------------------
Subtotal 137,013
Total 209,894
=================================================================
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EXHIBIT D
SUBTENANT'S NONDISTURBANCE AGREEMENT
THIS AGREEMENT made as of the _____ day of ______________ by and
between ______________________, a ________________ having an office at
_____________________ ("Landlord"), and _____________________ a
__________________, having an office at ___________________ ("Subtenant").
W I T N E S S E T H :
WHEREAS, Landlord is the assignee of Landlord's interest under a
certain Agreement of Lease dated ______________, 1997 ([recite amendments, if
any] the "Lease") with BANKERS TRUST COMPANY, a New York banking corporation,
having an office at 280 Park Avenue, New York, New York 10017, as tenant
(Bankers Trust Company, its successors and assigns, the "Tenant"), covering
certain demised premises (the "Demised Premises") located at 280 Park Avenue,
New York, New York (the "Building");
WHEREAS, Tenant, as sublandlord, and Subtenant, as subtenant, have
entered into a certain Sublease dated ________________ (the "Sublease") covering
a portion of the Demised Premises being ________________ (the "Sublet
Premises"); and
WHEREAS, Subtenant desires to be assured of continued occupancy of
the Sublet Premises under the terms of the Sublease and subject and subordinate
to the terms of the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Subtenant agree
as follows:
1. The Sublease is and shall at all times be subject and subordinate
to the Lease, to all of the terms and conditions of the Lease, to the rights of
the Landlord under the Lease and to all renewals, modifications, replacements
and extensions of the Lease.
2. In the event of a termination of the Lease, including, without
limitation, by reason of the default of Tenant or any successor or assignee as
sublandlord, or by reason of the surrender thereof (whether voluntary,
involuntary or by operation of law) prior to the termination of the Sublease (a)
Subtenant shall attorn to and accept
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Landlord as sublandlord under the Sublease and be bound to perform all of the
obligations imposed by the Sublease upon the subtenant thereunder, or at
Landlord's election, shall enter into a new lease with Landlord for the
remaining term of the Sublease and otherwise on the same terms and conditions
thereof, (b) so long as Subtenant is not in default beyond any applicable grace
periods and/or notice and opportunity to cure, in the payment of rent or
additional rent due under the Sublease or in the performance or observance of
any of the other terms or conditions of the Sublease, the Sublease shall
continue in full force and effect as a direct lease between Landlord and
Subtenant, and(c) Landlord will not disturb the possession of Subtenant or any
person claiming by, through or under Subtenant, and will be bound by all of the
sublandlord's obligations under the Sublease and will be bound by and will
perform for the benefit of Subtenant those services and other terms and
conditions of the Lease which Subtenant was entitled to receive the benefit of
pursuant to the Sublease, other than such obligations as are not applicable or
pertinent to the remainder of the term of the Sublease; provided that Landlord
shall not be:
(A) liable for any act or omission of any prior sublandlord
(including, without limitation, a then defaulting sublandlord);
(B) subject to any offsets or defenses which the Subtenant may
have against any prior sublandlord (including, without limitation, a then
defaulting sublandlord);
(C) bound by any payment of rent which the Subtenant might
have made for more than one (1) month in advance to any prior sublandlord
(including, without limitation, a then defaulting sublandlord);
(D) bound by any covenant of any prior landlord (including
without limitation, a then defaulting sublandlord) to undertake or complete any
construction of the Demised Premises or the Sublet Premises;
(E) bound by any obligation to make payment to Subtenant with
respect to construction performed by or on behalf of Subtenant at the Demised
Premises or;
(F) bound by any modification of the Sublease made without the
written consent of Landlord.
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3. Subtenant consents to the foregoing provisions of paragraphs 1
and 2 hereof and agrees to be bound thereby. As long as Subtenant has quiet
enjoyment of the Sublet Premises, Subtenant further agrees (a) to attorn to and
recognize any subsequent purchaser of the Building as the successor to Landlord
hereunder, and (b) upon request, to execute and deliver to said person or entity
any instrument or instruments in recordable form which may be necessary to
effectuate the performance of the agreements herein contained.
4. This Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the parties hereto, and cannot be
changed or terminated orally.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
_________________ Landlord
By:
----------------------
________________ Subtenant
By:
----------------------
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<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this _____ day of __________, before me personally came
______________________, to me known, who, being by me duly sworn, did depose
and say that he resides at __________________________ that he is the __________
of __________________________, the corporation described in and which executed
the above instrument and that he signed his name thereto by order of the board
of directors of said corporation.
-------------------------
Notary Public
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK)
On this _____ day of __________, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he resides at _________________________ that he is the __________ of
the corporation described in and which executed the above instrument and that he
signed his name thereto by order of the board of directors of said corporation.
---------------------------
Notary Public
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<PAGE>
EXHIBIT E
OTHER PROJECTS
200 Park Avenue
237 Park Avenue
245 Park Avenue
270 Park Avenue
55 East 52nd Street
299 Park Avenue
9 West 57th Street
345 Park Avenue
399 Park Avenue
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<PAGE>
EXHIBIT F
INTENTIONALLY OMITTED
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<PAGE>
EXHIBIT G
GENERAL CLEANING SPECIFICATIONS
I. NIGHTLY SERVICES
A. Main Entrance Lobby:
1. Dust sweep flooring with specially treated cloths to insure
dust-free floors.
2. Wash ceramic tile, marble, and terrazzo flooring in building
entrance and foyers.
3. Damp mop and spot clean resilient tile floors.
4. Wax, buff, apply sealer on floor finish as required.
5. Wipe down all metal surfaces in the lobby interior, using
appropriate metal cleaner.
6. Dust lobby decorative motif and clean protection glass, i.e.,
mail depository, mail chute.
7. Clean entrance and lobby glass doors, including mirrors and
directory glass.
8. Damp wipe and clean all cigarette urns. Screen and replace
sand as necessary for sand urns.
9. Wipe clean all monitoring devices.
10. Wash all rubber mats and vacuum wool or nylon runners when
down.
B. Elevator Cabs:
1. Clean saddles, door, and frames of elevators at lobby.
2. Remove all gum, foreign matter and unauthorized writing from
elevators.
3. Clean metal and sides of elevator cabs.
4. Wash and refinish resilient floor in elevator, and if
carpeted, vacuum and spot clean.
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<PAGE>
C. Public Areas: (If multi-tenant floors)
1. Maintain public area walls in clean condition. Public areas
shall also include elevator lobbies on multiple tenant floors.
2. Vacuum clean all carpets in public areas. If flooring, sweep
floors with treated mop to maintain in clean condition
throughout the public areas.
3. Inspect and maintain cleanliness of fire hoses, extinguishers,
and other similar equipment.
4. Remove finger marks from all doors and elevator cabs and spot
clean all walls.
D. Tenant Office Areas:
1. Sweep all uncarpeted flooring, using chemically treated dust
mop to prevent dust dispersion.
2. Carpet sweep carpeted areas and rugs four (4) nights each week
and vacuum once each week, moving light furniture other than
desks, file cabinets, etc.
3. Empty and clean all ashtrays and screen all sand urns.
4. Hand dust and wipe clean with a treated cloth, mitt, or
duster, all furniture, file cabinets, desk lamps, window sills
and convector enclosed tops.
5. Move and dust under all desk equipment and phones, replacing
and dusting said equipment with approved anti-bacterial cloth.
6. Scour and wash clean all water coolers and fountains.
7. Clean all glass furniture tops.
8. Empty and clean all waste basket and disposal receptacles, and
remove waste to designated areas of building. Landlord to
provide plastic waste basket liners.
9. Landlord to remove recylcables to designated area.
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<PAGE>
10. Tilt-up all venetian blinds to reduce sun heat load and
preserve uniform appearance.
E. Lavatories:
1. Scour, wash, and disinfect all basins, bowls and urinals with
approved germicidal detergent solution, using spray tank
method.
2. Wash and disinfect both sides of all toilet seats with
approved germicidal detergent solution.
3. Wash and polish with a non-acid polish all mirrors, powder
shelves, brightwork, and enamel surfaces, etc., including
flushometers, piping, and toilet seat hinges.
4. Hand dust and wash all partitions, dispensers, and
receptacles.
5. Sweep and wash all lavatory flooring with an approved
disinfectant.
6. Empty and clean all paper towels, sanitary disposal
receptacles, transporting waste to the designated location.
7. Fill all toilet tissue holders, paper towel dispensers,
sanitary napkin, and soap dispensers.
II. WEEKLY SERVICES
A. Main Entrances:
1. Dust all lobby walls.
2. Hand dust all louvers and ventilating louvers.
3. Remove all finger marks from all painted surfaces near light
switches, entrance doors, and the like.
4. Polish all brass and chrome saddles.
B. Elevator Cabs:
1. Clean saddles and frames on floors above lobby.
2. Clean lights in cabs.
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<PAGE>
3. Dust elevator doors above lobby.
C. Tenant Office Areas:
1. Dust venetian blinds.
2. Dust surfaces not reached in nightly cleaning.
III. MONTHLY OR QUARTERLY CLEANING
A. Main Entrance:
1. High dust all electrical and air-conditioning ceiling
fixtures.
2. Dust tops of revolving doors.
B. Elevators:
1. Shampoo carpets using extraction vacuum method.
C. Public Areas:
1. Wash and wax all floors in public corridors. Public corridors
shall also include elevator lobbies on multiple-tenant floor.
D. Tenant Office Area:
1. Remove all smudges, fingermarks, and other marks from painted
surfaces on doors, and areas around electrical light wall
switches and door jambs.
2. Hand dust all pictures, frames, charts, graphs, and similar
wall hangings not reached in nightly or weekly cleaning.
3. Dust overhead pipes, air-conditioning louvers and ducts, etc.
E. Lavatories:
1. Machine scrub flooring.
2. Hand dust, clean, and wash all tile walls.
3. High dust lights, walls, grilles, etc.
4. Dust all lighting fixtures.
IV. PEST CONTROL
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<PAGE>
1. Pest Control treatment in all public areas, lavatories on
multi-tenant floors, and service sink rooms will be done once
a month. All service will be rendered by operators licensed by
Board of Health of the City of New York.
V. WINDOW CLEANING
1. Cleaning of windows on the outside and inside from main floor
to the roof will be done quarterly.
VI. DAY PORTERS -- Duties.
1. Police entire lobby area, elevator cabs and mens' lavatories
once daily, filling the toilet tissue, soap and towel
dispensers, as needed.
2. Clean basement corridors and police Landlord's employees'
locker rooms, and all other space occupied by them.
3. Sweep sidewalks, including hosing (weather permitting). Remove
snow in the winter months.
4. Set out rubber mats on rainy days, and keep same in clean
condition.
5. Clean all stairwells and fire tower.
6. Keep the building entrance doors in clean condition.
7. Clear standpipes and sprinkler Siamese connections, etc.
8. Keep exterior metal work, marble, etc. and building entrances
in clean condition at all times.
9. Keep plaza, outdoor seating, railings, lights, etc. clean.
10. Insert plastic liners in outdoor waste disposal cans and empty
cans daily or more often, if necessary.
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<PAGE>
VII. DAY MATRON -- Duties
1. Police women's lavatories once daily, filling the toilet
tissue, soap, tower and sanitary napkin dispensers, as needed.
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<PAGE>
EXHIBIT H
ADDITIONAL DEMISED PREMISES
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<PAGE>
EXHIBIT I
LANDLORD'S WORK
1. Construct a demising wall separating the Demised Premises on the
Partial Floor included in the Additional Demised Premises from the balance of
the Floor with a main entrance door as indicated on Tenant's Additional Demised
Premises Notice (subject to Landlord's approval, to be granted or denied as
provided in Article 4 of this Lease).
2. Construct a common corridor and elevator lobby for the balance of
the 26th Floor.
3. The foregoing shall be constructed in accordance with all
Requirements and consistent with the common corridor and elevator lobby now
existing on the 29th Floor of the West Building.
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<PAGE>
EXHIBIT J
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or walls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than ingress or egress to and from
the Demised Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades, or screens shall be attached
to or hung in, or used in connection with, any window or door of the Demised
Premises, without the prior written consent of the Landlord. Such awnings,
projections, curtains, blinds, shades, screens or other fixtures must be of a
quality, type, design and color, and attached in the manner approved by
Landlord. Landlord may, at its option, install a solar window filing or mylar;
if so installed no partial or total removal of the solar filing or mylar shall
be made without the prior written consent of Landlord.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside the Demised Premises or Building without the prior written consent of
the Landlord, and no such sign, advertisement, notice or other lettering which
is on the inside the Demised Premises and is visible from the elevators or from
outside the Demised Premises shall be so exhibited, inscribed, painted or
affixed without the prior written consent of Landlord, which shall not
unreasonably withheld or delayed. In the event of the violation of the foregoing
by any Tenant, Landlord may remove same without any liability, and may charge
the expense incurred by such removal to the Tenant or Tenants violating this
rule. Directory tables shall be inscribed, painted or affixed for each Tenant by
the Landlord at the expense of such Tenant, and shall be of a size, color and
style acceptable to the Landlord.
4. 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, nor
shall any bottles, parcels, papers, files or other articles be placed on the
peripheral air conditioning enclosures.
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<PAGE>
5. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building,nor placed in the lobbies,
halls, corridors, vestibules or public areas of the Buildings without the prior
written consent of the Landlord.
6. The water and wash closets and other plumbing fixtures shall not
be used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. 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.
7. No Tenant shall in any way deface any part of the Demised
Premises or the Building of which they form a part. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
the Landlord, and as the Landlord may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the Demised Premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
8. No animals (other than so-called seeing eye dogs) shall be
brought into or kept in or about the Building or Demised Premises. No Tenant
shall cause or permit any objectionable odors to emanate from the Demised
Premises.
9. In addition to and not in limitation of the use clause provisions
in the Lease, no space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
10. No Tenant shall make or permit to be made, any disturbing noises
or disturb or interfere with occupants of this or neighboring buildings or
premises or those having business with them whether by the use of any musical
instrument, radio, talking machine, unmusical noise, or in any other way.
11. No Tenant, nor any of Tenant's servants, employees, agents,
visitors or licensees, shall at any time bring or keep upon the Demised Premises
any inflammable, combustible or explosive fluid, chemical or substance beyond
normal office requirements or any radioactive or nuclear material or property.
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<PAGE>
12. All locks installed by Tenant on the access doors to the Demised
Premises shall conform to and be compatible with the Building standard system.
Landlord shall be given access keys or card passes to any other security in
portions of the Demised Premises installed by Tenant. Each Tenant must, upon the
termination of his tenancy, restore to the Landlord all keys of stores, offices
and toilet rooms, either furnished to, or otherwise procured by, such Tenant,
and in the event of the loss of any keys, so furnished, such Tenant shall pay to
the Landlord the cost thereof.
13. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Landlord or its agent may determine from time to time. The Landlord
reserves the right reasonably to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of
these Rules and Regulations or the Lease of which these Rules and Regulations
are a part.
14. No Tenant shall occupy or permit any portion of the Demised
Premises to be occupied as an office for a public stenographer, or for the
possession, storage, manufacture, use, or sale of narcotics or dope in any form,
or any radioactive or nuclear material or property, or the manufacture or sale
of tobacco, or as a barber or manicure shop, or as an employment bureau. Each
Tenant shall comply with the laws, rules and regulations of Governmental
Authorities and the management of the Building relating to smoking at the
Building. No Tenant shall engage or pay any employees on the Demised Premises,
except those actually working for such Tenant on said premises, nor advertise
for laborers giving an address of said premises.
15. The Landlord reserves the right to exclude from the Building
between the hours of 6:00 P.M. and 8:00 A.M. and at all hours on Saturdays,
Sundays and legal holidays all persons who do not present a Building
identification card or pass to the Building signed by the Landlord. The Landlord
will furnish passes to persons for whom any Tenant requests same in writing.
Each Tenant shall be responsible for all persons for whom he requests such pass
and shall be liable to the Landlord for all acts of such persons.
16. Each Tenant shall comply, and cause its officers and employees
to comply, with the reasonable standards and procedures enacted by Landlord from
time to time regarding deliveries and messenger service to and by Tenants in the
Building, both during the Building's business hours and at other times.
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<PAGE>
17. The Demised Premises shall not be used for lodging or sleeping
or for any illegal purpose. This rule shall not be deemed to expand the use
provisions of Article 3.
18. The requirements of Tenants will be attended to only upon
application at the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instructions
from the office of the Landlord.
19. Canvassing, soliciting and peddling in the building is
prohibited and each Tenant shall cooperate to prevent the same.
20. There shall not be used in any space, or in the public halls of
the Building, either by any Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
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<PAGE>
EXHIBIT K
ROOF LOCATIONS OF COMMUNICATIONS EQUIPMENT
<PAGE>
EXHIBIT O
BANKERS TRUST COMPANY
Real Estate Management Department
130 Liberty Street - 22nd Floor
New York, New York 10006
Dated as of _________ __, 1997
- --------------------
- --------------------
- --------------------
- --------------------
Re: 280 Park Avenue, New York, New York
Gentlemen:
This will confirm our agreement with respect to our sublease to you
(the "Sublease") of a portion (the "Subleased Area") of the space leased by us
(the "Premises") in the building (the "Building") known as the West Building of
280 Park Avenue, New York, New York on the following terms and conditions:
1. Subleased Area - The Subleased Area consists of a portion of the
third (3rd) floor in the West Building of 280 Park Avenue indicated by
cross-hatching on Exhibit "A" attached hereto and made a part hereof.
2. Term - The term of this Subleased (the "Term") shall commence on
the date hereof, and shall continue on a month to month basis unless such Term
shall terminate on an earlier date pursuant to any of the terms, conditions or
covenants of this Sublease or pursuant to law. Notwithstanding anything
contained in this Sublease to the contrary, either we or you may terminate this
Sublease on at least sixty (60) days written notice, in which case, this
Sublease shall terminate on the date set forth in said notice and you will
immediately quit and surrender the Subleased Area as required hereby.
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<PAGE>
3. Rent - You will pay to us, in consideration of this sublease of
the Subleased Area, the monthly sum of $5,395.83, inclusive of charges for
furnishing electric energy (the "Fixed Rent"). The monthly installments of the
Fixed Rent shall be payable during the Term in advance on the first (1st) day of
each calendar month by check drawn on a bank or trust company addressed to us at
our address provided herein for notices or at such other place as we may
designate, without any set off, offset, abatement or deduction whatsoever. If
this Sublease shall commence on a day other than the first day of the month, or
expire or be terminated on a day other than the last day of the month, the Fixed
Rent for such month shall be prorated on a per diem basis.
4. No Representations - You acknowledge and agree that the Subleased
Area is being delivered to you, and you will accept the Subleased Area, in its
"as is" condition as of the commencement of the Term. We have not made nor do we
make any representations or promises with respect to the Building or the
Subleased Area and you agree that we do not have any obligation to perform any
work or otherwise prepare the Subleased Area for your use and any work performed
by you to prepare the Subleased Area for your occupancy shall be performed at
your sole cost and expense.
5. Alterations - You will not make or cause to be made any
alterations, installations, improvements, additions or other physical changes
in, on or about the Subleased Area.
6. Repairs - You, at your sole cost and expense, will maintain and
take good care of the Subleased Area including the fixtures and appurtenances
therein, and make all non-structural repairs thereto as and when needed to
preserve them in good working order and condition. Notwithstanding the
foregoing, all damage or injury to the Subleased Area or to any other part of
the Building, or to its fixtures, equipment and appurtenances, whether requiring
structural or non-structural repairs, caused by or resulting from misuse or
negligent conduct or omission of you, your agents, employees or invitees, will
be repaired, at your sole cost and expense, by you to our reasonable
satisfaction. You also will repair all damage to the Building and the Subleased
Area caused by the moving of your property.
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<PAGE>
7. Use - You may use and occupy the Subleased Area as a management
office for 280 Park Avenue and for no other purpose. The use and occupancy of
the Subleased Area and the terms and provisions of this Sublease are upon and
subject to all of the terms, provisions, covenants, conditions and agreements
set forth in, and this Sublease is subordinate to, the Agreement of Lease (the
"Lease") dated ____________________, as amended as of the date hereof, between
Bankers Trust Company, predecessor in interest to you ("Landlord"), as landlord,
and us, as tenant. You covenant and agree that you shall not do anything that
might constitute a default under the Lease or omit to do anything that you are
obligated to do under the terms hereof so as to cause us to be in default under
the Lease.
8. Services - (a) You, as Landlord pursuant to the Lease, will
supply cleaning and janitorial services to the Subleased Area;
(b) You, as Landlord under the Lease, have agreed to provide
heating, ventilation, and air-conditioning services ("HVAC Services") and other
services to the Premises as more specifically provided in Article 23 of the
Lease. It is understood and agreed that, with respect to the Subleased Area, we
shall not be required to (i) provide any of the services that Landlord has
agreed to provide pursuant to the provisions of the Lease (including, without
limitation, the furnishing of HVAC Services) to all or any portion of the
Subleased Area, or (ii) perform any of the repairs or restoration or other
obligations that Landlord has agreed to make pursuant to the provisions of the
Lease, or (iii) comply with any legal requirements, or (iv) take any other
action that Landlord has agreed to take under the Lease. You shall not make any
claim against us for any damage which may arise, nor shall your obligations
hereunder be diminished, by reason of (i) your failure as Landlord to keep,
observe or perform any of its obligations pursuant to the Lease, or (ii) the
acts or omissions of Landlord, its agents, contractors, servants, employees or
invitees. Your failure as Landlord to provide services, perform repairs or
comply with law as required pursuant to the Lease shall not entitle you to any
compensation or relieve you from any of your obligations under this Sublease, or
impose any liability upon us or our agents by reason of inconvenience or
annoyance to you, or injury to or interruption of your business, or otherwise.
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<PAGE>
(c) You, as Landlord under the Lease, shall supply electricity
to the Subleased Area in sufficient quantities to adequately operate the
lighting fixtures located therein and ordinary business equipment (such as
photocopiers and personal computers). You shall not make any electrical
installations, alterations, additions or changes to the electrical equipment or
appliances in the Subleased Area without our prior written consent in each such
instance, which we shall not unreasonably withhold or delay. You covenant and
agree at all times that your use of electricity will not exceed the capacity of
the existing feeders to the Building or the risers or wiring installations
therein and you shall not use any electrical equipment which, in our sole
judgement, will overload such installations in the Building.
(d) Except as expressly set forth in this paragraph 8, we will
have no obligation to supply any other services to the Subleased Area. We shall
not have any responsibility or liability for interruption, curtailment, failure
or defect in the supply or character of electrical service, HVAC service,
plumbing, or other mechanical systems furnished to the Subleased Area when
prevented by delays for any reason not attributable to our gross negligence or
by any requirement of any governmental authority or due to the exercise of
Landlord's right to stop such services as provided in the Lease.
9. Insurance and Indemnity - You will obtain and keep in full force
and effect a policy of comprehensive general public liability and property
damage insurance, with a broad form contractual liability endorsement with you
named as the insured thereunder, and with us, named as additional insured
thereunder. You will furnish to us duplicate original policies or certificates
of worker's compensation (covering all persons to be employed by you) and such
comprehensive general public liability and property damage insurance in such
form, with such companies, for such periods and in such amounts as we may
reasonably approve. You hereby waive all claims for loss and damage against us
which would be covered under your property damage insurance policy and you agree
to include in your property damage insurance policy appropriate clauses where
the insurance company waives all rights of subrogation against us with respect
to losses payable under such policy. You will indemnify and hold us harmless
against (i) all claims of whatever nature against us arising from any act,
omission or negligence by you, your employees, contractors, subcontractors,
invitees and agents, and (ii) all claims against us arising from any accident,
injury or damage to property or persons occurring in or about the Subleased
Area.
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<PAGE>
10. Casualty and Condemnation - If the Subleased Area is damaged by
fire or other Casualty or is taken by eminent domain, we will have the option,
within thirty (30) days of the occurrence of such event, to terminate this
Sublease by giving you a notice of such termination. If we elect to terminate
this Sublease as aforesaid, the Term will expire upon the tenth (10th) day after
such notice and you will vacate the Subleased Area and surrender the same to us
in the condition otherwise required in paragraph 14 hereof. If we do not
exercise our option to terminate this Sublease as aforesaid, we will promptly
repair and restore the Subleased Area to substantially the condition which
existed at the commencement of the Term, to the extent that the same may be
feasible.
11. Extra Services - You shall not request from Landlord any
additional services or materials for which Landlord may charge us under the
Lease, but if any such charges are incurred, you shall reimburse us therefor
within ten (10) days after demand by us.
12. Termination - In addition to any and all other rights or
remedies provided in this Sublease or which we may have at law, in equity, or
otherwise, in the event that you fail to comply with any obligations imposed
upon you hereunder, we will have the right, after ten (10) days written notice
to you of such non-compliance (which will be stated with particularity in such
notice) and your failure to remedy same within such period to terminate this
Sublease on the date specified by us in such notice as if such date were the
date herein fixed for the expiration of the Term of this Sublease and you will
immediately quit and surrender the Subleased Area as required hereby.
13. Assignment/Occupancy - You will not assign your rights or
delegate your duties under this Sublease (whether by operation of law, transfer
of interest in you or otherwise) or permit the Subleased Area or any part
thereof to be occupied or used by any other person or entity except to your
Affiliate (as such term is defined in the Lease) which shall actually be engaged
in the management of the Building.
14. End of Term - Upon the termination of the Term, you will quit
and surrender to us the Subleased Area vacant, broom-clean, in good order and
condition, ordinary wear and tear excepted, and you will remove all of your
property therefrom.
15. Furniture. We further agree that during the Term you may use the
existing furniture and telephone and other equipment now in the Subleased Area
without payment of a fee, subject to the following provisions: (a) You shall
arrange with the telephone company for separate billing
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<PAGE>
directly to you for all use of your telephones, but should any usage be billed
to us, you shall reimburse us therefor within ten (10) days after demand by us,
and (b) such furniture and equipment shall be used "as is" but you shall leave
same in the Subleased Area at the expiration or earlier termination of the Term
in the same condition as on the date hereof reasonable wear and tear and damage
by insurable cause excepted.
16. Non-Recourse. Neither our affiliates, shareholders, directors or
officers, nor the partners, shareholders, directors or officers of any of the
foregoing (collectively, the "Parties") will be liable for the performance of
our obligations under this Sublease. Prior to any such sale, conveyance,
assignment or transfer, our liability for our obligations under this Sublease
will be limited to our interest in the Lease with respect to the Subleased Area
and you will not look to any other property or assets of ours or the property or
assets of any of the Parties in seeking either to enforce our obligations under
this Sublease or to satisfy a judgment for our failure to perform such
obligations.
17. No Broker - You represent and warrant that you have not dealt
with any broker, finder or like agent in connection with this Sublease. You
hereby covenant and agree to indemnify and hold us harmless of and from any and
all loss, cost, damage, liability or expense (including, without limitation,
attorneys' fees and disbursements) incurred by reason of claim of or liability
to any broker, finder or like agent who shall claim to have dealt with you in
connection with this Sublease. The provisions of this paragraph shall survive
the expiration or earlier termination of this Sublease.
18. Bills and Notices - Except as otherwise in this Sublease
provided, a bill, statement, notice or communication which we may desire or be
required to give you shall be deemed sufficiently given or rendered if, in
writing, delivered to you personally or sent by registered or certified mail
addressed to Boston Properties, Inc. at the Building or at 599 Lexington Avenue,
Suite 3700, New York, New York 10022 Attention: Robert E. Selsam, Senior Vice
President, and the giving of such notice or communication shall be deemed to
have been given and shall be effective on the date of actual receipt. Any notice
by you to us must be served by registered or certified mail addressed to us at
the address first hereinabove given or at such other address as we shall
designate by written notice.
19. Rules and Regulations - You will comply with the rules and
regulations attached to the Lease, and such other and further reasonable rules
and regulations as Landlord may from time to time adopt.
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<PAGE>
Please confirm your agreement with the foregoing by signing the
enclosed copy of this letter.
Very truly yours,
BANKERS TRUST COMPANY
By:
--------------------------
Title:
------------------
Agreed to:
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By:
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Title:
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<PAGE>
EXHIBIT "A"
Subleased Area
-8-
<PAGE>
EXHIBIT P
BANKERS TRUST COMPETITORS
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<PAGE>
EXHIBIT S
So long as Bankers Trust Company or an Affiliate is in actual
occupancy of at least 20,000 rentable square feet of the Building, a subtenant
or assignee shall not be a "Competitor" of Bankers Trust Company. A
"Competitor", shall mean for purposes of this subsection, an entity whose name
is contained on any currently effective list of "Competitors" pursuant to this
subsection, subject to the following provisions hereof. The initial list of
Competitors is attached as Exhibit ____ hereto and such list shall be effective
unless it is replaced with a new list, or modification thereto, provided by
Landlord to Tenant, which may be provided no more often than once in any
eighteen (18) month period, subject to the provisions of this subsection (___),
and which shall then constitute Exhibit ___, which shall contain no more than
sixteen (16) names of Competitors, and each such successive list shall be
effective and be replaced as hereinabove provided. In no event shall the
foregoing restrictions apply to, nor shall Tenant be responsible for, the
addition of any entity to a list of Competitors provided by Landlord after
Tenant has assigned this Lease or sublet all or a portion of the Demised
Premises to such Competitor. An entity shall not hereafter be included on a list
of Competitors constituting Exhibit ____ unless in the reasonable judgment of
Bankers Trust Company it is a competitor of Bankers Trust Company.
For the purposes of this subsection, reference to Bankers Trust
Company shall include a corporation or business entity (herein called a
"successor") into which or with which Bankers Trust Company shall be merged or
consolidated, or to which substantially all or a substantial part of Bankers
Trust Company's assets (which part shall include the name "Bankers Trust
Company") may be transferred, by operation or law or appropriate instruments of
merger, consolidation or transfer, or an Affiliate of Bankers Trust Company.
An "Affiliate" of any entity shall mean any other entity or person
which shall (i) control, (ii) be under the control of or (iii) be under common
control with such entity (the term "control" as used herein shall be deemed to
mean either (A) ownership (direct or indirect) of more than fifty percent (50%)
of the outstanding voting stock of a corporation, or other majority equity and
control interest if such entity is not a corporation), or (B) ownership (direct
or indirect) of not less than twenty-five percent (25%) of such stock or other
equity interest and the power to direct the affairs of such corporation or other
entity by reason of ownership of voting stock or other equity interest, by
contract or otherwise.
-1-
<PAGE>
EXHIBIT T
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT made as of this ______ day of ____________
__________________, 1997 by and between _________________________, a
_____________________________, having an office at ________________________
_____________________________________________ (the "Mortgagee"), and BANKERS
TRUST COMPANY, a New York banking corporation having an office at 130 Liberty
Street, New York, New York 10006 (hereinafter called "Tenant") and BOSTON
PROPERTIES LIMITED PARTNERSHIP, a limited partnership formed under the laws of
the State of Delaware, having an office at c/o Boston Properties, Inc., 8
Arlington Street, Boston, Massachusetts 02116 .
W I T N E S S E T H :
WHEREAS, Tenant entered into an Agreement of Lease dated as of July
1, 1997 between Bankers Trust Company ("BTC"), as landlord, and Tenant, as
tenant, as amended and restated in its entirety by Amended and Restated
Agreement of Lease dated the date hereof, without merger, with respect to
certain space in the building (the "Demised Premises") located at the premises
described in Exhibit A attached hereto (the "Premises") and commonly known as
280 Park Avenue, New York, New York (said lease, as may be further amended or
modified, is hereinafter called the "Lease"); and
-1-
<PAGE>
WHEREAS, the interest of BTC in the Lease has been transferred to
Boston Properties Limited Partnership, a Delaware limited partnership (the
"Landlord"); and
WHEREAS, Landlord has executed and delivered a [Mortgage and
Security Agreement] dated _____________________, 1997 to Mortgagee, as mortgagee
(the "Mortgage"), which Mortgage affects the Premises; and
WHEREAS, Article 31 of the Lease provides that the Lease is subject
and subordinate in all respects to any mortgage to a recognized lending
institution (as that term is defined in the Lease) which is placed on or affects
the Premises and to all renewals, modifications, consolidations, replacements
and extensions thereof and all substitutions therefor, subject to and upon the
conditions set forth in said Article 31; and
NOW, THEREFORE, in consideration of the premises and in accordance
with the provisions of the Lease, the parties agree as follows:
1. In confirmation of the subordination provisions contained in
Article 31 of the Lease, Tenant hereby agrees that the Lease and all of the
terms, covenants and provisions thereof, and all rights and remedies of the
Tenant thereunder are subject and subordinate in all respects to the Mortgage,
and to all sums secured thereunder and to all renewals, modifications,
consolidations, spreaders, replacements and extensions thereof and all
substitutions therefor, the liens thereof, and all of the
-2-
<PAGE>
terms, covenants and provisions thereof, with the same force and effect as if
the Mortgage was executed, delivered and recorded prior to the execution and
delivery of this Lease, all upon and in accordance with the provisions of this
Agreement.
2. Mortgagee hereby agrees that so long as the Lease is in full
force and effect and Tenant is not in default in the performance of Tenant's
obligations under the Lease for longer than the periods after notice provided
for in the Lease for curing such defaults and such default be continuing, (i)
Tenant shall not be named or joined as a party defendant in any action or
proceeding to foreclose the Mortgage which may be instituted or taken by
Mortgagee or the then mortgagee under the Mortgage, unless applicable law
requires the Tenant to be made a party thereto as a condition to proceeding
against the Landlord or protecting such rights and remedies, in which case the
Mortgagee may join the Tenant as a defendant in such action only for such
purposes and not to terminate the Lease, (ii) Tenant shall not be evicted from
the Demised Premises, (iii) Tenant's leasehold estate under the Lease shall not
be terminated, canceled or disturbed, and (iv) subject to the terms, covenants
and provisions of this Agreement, including, without limitation, paragraph 1,
Tenant's rights under the Lease shall not be affected in any way, by reason of
any default under the Mortgage.
3. In the event that Mortgagee or any nominee or
-3-
<PAGE>
designee of the Mortgagee or purchaser at a foreclosure sale or transferee in
lieu thereof becomes the owner of the fee in the event of the sale of the
Premises, or any part or parts of the Premises, as a result of any action or
proceeding to foreclose the Mortgage, deed in lieu of foreclosure or otherwise,
the Lease shall continue in full force and effect as a direct lease between
Tenant and the then owner of the fee or the purchaser of the Premises, upon the
terms, covenants and conditions of the Lease. Upon written request of Mortgagee
or such owner or purchaser, Tenant shall either (a) execute an instrument
whereby Tenant will attorn to such owner or purchaser, as the case may be, upon
all of the terms, covenants, conditions and agreements as are set forth in the
Lease or (b) enter into a new lease with such owner or purchaser, as the case
may be, for the remaining term of the Lease and otherwise on the same terms and
conditions and with the same options, if any, then remaining. Upon such
attornment, the Lease shall continue in full force and effect as a direct lease
between Mortgagee and Tenant upon all of the terms, conditions and covenants as
are set forth in the Lease and which shall be applicable after such attornment
and recognition.
4. The owner or purchaser referred to in paragraph 3 shall, however,
notwithstanding such attornment and recognition, not be:
(a) bound by or liable for any obligations or any act or
omission of any prior landlord (including,
-4-
<PAGE>
without limitation, Landlord) under the Lease accruing prior to the date when
such owner or purchaser shall succeed to the position of landlord under the
Lease (including, without limitation, construction work to be performed by
Landlord under the Lease, repairs required by the Lease and indemnity provisions
of the Lease), except to the extent, if any, that such condition continues on or
after the effective date of such succession;
(b) bound by or subject to any offsets, defenses, claims or
counterclaims which Tenant might be entitled to assert against Landlord accruing
prior to the date when such owner or purchaser shall succeed to the position of
landlord under the Lease (except those specifically provided for in the Lease
and to the extent such condition continues on or after the effective date of
such succession);
(c) bound by any modification, amendment or abridgement of the
Lease, or any cancellation, voluntary termination, merger, or surrender of the
Lease made without the written consent or knowledge of Mortgagee or such owner
or purchaser while such Mortgagee (or its predecessor) or such owner or
purchaser was the holder of such interest of which Tenant was given notice in
writing; or
(d) bound by any payment of rent or additional rent (as set
forth in the Lease) or other sums due under the Lease made by Tenant to Landlord
for more than one month in advance, or where such rent payments (other
-5-
<PAGE>
than fixed rent) are specifically payable under the Lease at intervals of more
than one month, for more than the applicable period set forth in the Lease.
(e) liable for any security deposit, or other sum deposited by
Tenant with Landlord, except to the extent received.
5. Mortgagee covenants and agrees that if Mortgagee, or any
successor or assignee of Mortgagee, shall succeed to the estate of Landlord or
any successor mortgagor (collectively, the "Mortgagor") in the Premises by
foreclosure of the Mortgage or by deed in lieu of foreclosure or otherwise, the
person so succeeding to the estate of Mortgagor shall, subject to Paragraph 14
be bound by all of the terms, covenants and conditions of the Lease, subject to
the terms, covenants and provisions of this Agreement. The foregoing assumption
shall be self-operative and no further instrument of assumption shall be
required by Mortgagee. The person so succeeding to the estate of Mortgagor shall
execute an instrument confirming such assumption at Tenant's request.
-6-
<PAGE>
6. Mortgagee agrees that if it shall become entitled to accelerate
payment of the indebtedness secured by the Mortgage upon the occurrence of a
non-monetary default by Mortgagor which can be cured by Tenant and shall relate
solely to a default by Tenant under the Lease, Mortgagee will, before
accelerating such indebtedness, give Tenant notice specifying such default and
stating that it remains unremedied, and Tenant shall have the right to remedy
any such default within a period of thirty (30) days after the service of such
notice, or if the default as to which such notice is given shall be of such a
nature that the same cannot be completely remedied within such thirty (30) day
period and if Tenant shall have delivered to Mortgagee a written undertaking to
remedy such default and shall have diligently commenced to take action toward
remedying such default within such thirty (30) day period and shall thereafter
with reasonable diligence and in good faith proceed to remedy such default,
Mortgagee shall not be entitled to accelerate the indebtedness secured by the
Mortgage as a result of such default. Mortgagee agrees to accept performance by
Tenant of Mortgagor's obligations under the Mortgage with the same force and
effect as if performed by Mortgagor, with respect to the matters referred to in
this Paragraph 6.
-7-
<PAGE>
7. For so long as Original Tenant (as such term is defined in the
Lease) is Tenant under the Lease, Mortgagee covenants and agrees not to sell,
assign or otherwise transfer the Mortgage to anyone other than a recognized
lending institution (as defined in Section 31.01 of the Lease), without the
prior written consent of Tenant.
8. Notwithstanding anything to the contrary in this Agreement,
Mortgagee shall not require the use of any fire insurance proceeds or
condemnation award in a manner inconsistent with the provisions of the Lease.
9. No notice from Tenant to Landlord shall be effective unless and
until a copy of such notice is given to Mortgagee, which may be given
simultaneously with Tenant's notice to Landlord. Tenant shall not exercise any
right to cancel, surrender or terminate the Lease, or abate or offset against
any rents or other sums due under the Lease, by reason of Landlord's acts or
omissions until (i) it has given written notice of such act or omission to
Mortgagee and (ii) other than with respect to Section 21.02 of the Lease, a
reasonable period for remedying such act or omission shall have elapsed
following such giving of notice (which shall in no event be less than the period
to which Landlord would be entitled under the Lease to effect such remedy)
provided Mortgagee shall, with reasonable diligence, give Tenant notice of
intention to, and commence and continue to take such reasonable actions as may
be required to remedy such act or omission or to cause the same to be
-8-
<PAGE>
remedied. Such reasonable period of time shall not exceed twenty (20) days in
the case of a monetary default or sixty (60) days in the case of a non-monetary
default, except that in the case of a non-monetary default which cannot
reasonably be cured within such sixty (60) day period, if Mortgagee shall have
commenced to take such reasonable actions as may be required to remedy such act
or omission within such sixty (60) day period and shall thereafter proceed with
reasonable diligence subject to Force Majeure Events (as defined in the Lease)
to take such reasonable actions as may be required to remedy such act or
omission, then such sixty (60) day period shall be extended until such act or
omission is remedied (it being understood that if Tenant shall duly give the
notice required by clause (i) but Mortgagee shall not with reasonable diligence
give Tenant notice of intention to, and commence and continue to, take such
reasonable actions as may be required to remedy such act or omission or cause
the same to be remedied as above provided, Tenant may exercise all of its rights
and remedies under the Lease and/or at law by reason of such act or omission of
Landlord). Any right to an abatement to which Tenant may have under Section
21.02 of the Lease as of the date that the Mortgagee or any owner or purchaser
referred to in paragraph 3 hereof becomes the owner of the Premises, as
contemplated by paragraph 3, shall from and after such date be exercised by
Tenant on the basis that it shall be deemed that the condition giving rise to
the abatement first
-9-
<PAGE>
occurred on such date and that Tenant gave notice thereof on such date to the
landlord under the Lease.
10. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that in the event of the assignment or transfer of the interest of Mortgagee,
all obligations and liabilities of Mortgagee under this Agreement shall
terminate, and thereupon all such obligations and liabilities shall be the
responsibility of the party to whom Mortgagee's interest is assigned or
transferred, which assignee shall be deemed to have assumed Mortgagee's
obligations and liabilities hereunder, subject to Paragraph 14.
11. Tenant acknowledges that it has notice that the Lease and the
rent and all other sums due thereunder have been collaterally assigned to
Mortgagee as part of the security for the notes secured by the Mortgage. In the
event that Mortgagee notifies Tenant of a default under the Mortgage and demands
that Tenant pays its rent and all other sums due under the Lease to Mortgagee,
Tenant agrees that it will honor such demand and pay its rent and all other sums
due under the Lease directly to Mortgagee and Landlord hereby indemnifies and
holds Tenant harmless against any such payment of rent by Tenant to Mortgagee.
12. Tenant agrees that this Agreement satisfies any condition in the
Lease relating to the granting of a non-disturbance agreement.
-10-
<PAGE>
13. All notices and other communications hereunder shall be in
writing and shall be delivered or mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to each of the parties at the
addresses listed in the first paragraph of this Agreement or such other address
or addresses as it may therefore have specified by like notice. In the case of
Mortgagee, such notice shall be sent Attention _____________, and a copy sent in
the same manner to _____________________________________________________,
Attention: __________________. In the case of Landlord, such notice shall be
sent Attention ___________________, and a copy sent in the same manner to
_______________________________________________________________________,
Attention: __________________. In the case of Tenant, such notice shall be sent
Attention ___________________, and a copy sent in the same manner to ___________
______________________________________________, Attention: __________________. A
notice mailed in said manner shall be deemed served or given for purposes of
this Agreement on the third business day (excluding Saturdays, Sundays and legal
holidays) after the date so mailed.
14. Anything herein or in the Lease to the contrary notwithstanding,
in the event that the Mortgagee shall acquire title to the Premises, or shall
otherwise become liable for any obligations of the Landlord under the Lease, (a)
the Mortgagee shall have no obligation, nor incur
-11-
<PAGE>
any liability, beyond the Mortgagee's then interest, if any, in the Premises and
the Tenant shall look exclusively to such interest of the Mortgagee, if any, in
the Premises for the payment and discharge of any obligations imposed upon the
Mortgagee under the Lease and the Mortgagee is hereby released or relieved of
any other liability under the Lease, and (b) the Tenant agrees that with respect
to any money judgment which may be obtained or secured by the Tenant against the
Mortgagee, the Tenant shall look solely to the estate or interest of the
Mortgagee in the Premises and the Tenant will not collect or attempt to collect
any such judgment out of any other assets of the Mortgagee.
15. The term "Mortgagee" as used herein shall include the successors
and assigns of the Mortgagee and any person, party or entity which shall become
the owner of the Premises by reason of a foreclosure of the mortgage or the
acceptance of a deed or assignment in lieu of foreclosure or otherwise. The term
"Landlord" as used herein shall mean and include the present landlord under the
Lease and such landlord's predecessors and successors in interest under the
Lease. The term "Premises" as used herein shall mean the Premises, the
improvements now or hereafter located thereon and the estates therein encumbered
by the Mortgage.
16. This Agreement may not be modified in any manner or terminated
except by an instrument in writing executed by the parties hereto.
17. This Agreement shall be governed by and
-12-
<PAGE>
construed under the laws of the State of New York.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
, Mortgagee
------------------
By:
--------------------------
Title:
BANKERS TRUST COMPANY,
as Tenant
By:
--------------------------
Title:
CONSENTED AND AGREED:
BOSTON PROPERTIES LIMITED
PARTNERSHIP, as Landlord
By: Boston Properties, Inc.,
its general partner
By:
-------------------------
Title:
-14-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ______ day of ______________, 1997, before me personally came
____________________, who, being by me duly sworn, did depose and say that s/he
resides at ________________________________ that s/he is the ______________ of
_____________________, the corporation described in and which executed the
foregoing instrument; and that s/he signed her/his name thereto by order of the
board of directors of said corporation.
-------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ______ day of ______________, 1997, before me personally came
_____________________, who, being by me duly sworn, did depose and say that s/he
resides at ____________________________ that s/he is the ________________ of
BANKERS TRUST COMPANY, the corporation described in and which executed the
foregoing instrument; and that s/he signed her/his name thereto by order of the
board of directors of said corporation.
-------------------------
Notary Public
-15-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ____ day of ________________, 1997, before me personally came
_______________________, to me known, who, being by me duly sworn, did depose
and say: that s/he resides at _________________ that s/he is a
____________________ of Boston Properties, Inc.; that said corporation is the
general partner of BOSTON PROPERTIES LIMITED PARTNERSHIP, the partnership
described in and which executed the foregoing instrument; that s/he signed
her/his name thereto by authority of the board of directors of said corporation;
and s/he acknowledged to me that said instrument was executed by said
corporation for and in behalf of said partnership.
-------------------------
Notary Public
-16-
<PAGE>
EXHIBIT A
[Property Description]
-17-
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS, TERM.................................. 1
ARTICLE 2 FIXED RENT, ADJUSTMENT OF FIXED RENT............... 6
ARTICLE 3 USE................................................ 19
ARTICLE 4 ALTERATIONS AND INSTALLATIONS, MECHANICS'
LIENS, OWNERSHIP OF IMPROVEMENTS................... 24
ARTICLE 5 REPAIRS -- FLOOR LOAD.............................. 32
ARTICLE 6 REQUIREMENTS OF LAW, FIRE INSURANCE................ 35
ARTICLE 7 PROPERTY -- LOSS, DAMAGE, REIMBURSEMENT,
INSURANCE WAIVERS OF SUBROGATION................... 38
ARTICLE 8 DESTRUCTION -- FIRE OR OTHER CAUSE................. 45
ARTICLE 9 EMINENT DOMAIN..................................... 51
ARTICLE 10 ASSIGNMENT, SUBLETTING............................. 54
ARTICLE 11 PIPES, DUCTS AND CONDUITS, ACCESS TO DEMISED
PREMISES........................................... 65
ARTICLE 12 CERTIFICATE OF OCCUPANCY........................... 68
ARTICLE 13 BANKRUPTCY......................................... 68
ARTICLE 14 DEFAULT............................................ 69
ARTICLE 15 REMEDIES OF LANDLORD, WAIVER OF REDEMPTION......... 71
ARTICLE 16 FEES AND EXPENSES.................................. 73
ARTICLE 17 END OF TERM........................................ 75
ARTICLE 18 QUIET ENJOYMENT.................................... 75
ARTICLE 19 NO WAIVER.......................................... 75
ARTICLE 20 WAIVER OF TRIAL BY JURY............................ 76
ARTICLE 21 INABILITY TO PERFORM; FORCE MAJEURE
-i-
<PAGE>
Page
----
EVENTS; ABATEMENT.................................. 77
ARTICLE 22 NOTICES............................................ 78
ARTICLE 23 SERVICES........................................... 80
ARTICLE 24 RENEWAL TERMS......................................100
ARTICLE 25 OPTION SPACE.......................................104
ARTICLE 26 TENANT'S SIGNAGE...................................110
ARTICLE 27 ARBITRATION........................................112
ARTICLE 28 MEMORANDUM OF LEASE................................115
ARTICLE 29 BUILDING MANAGEMENT................................115
ARTICLE 30 LIMITED RECOURSE...................................118
ARTICLE 31 SUBORDINATION AND MORTGAGES........................119
ARTICLE 32 COMMUNICATION EQUIPMENT AND ANTENNAE...............125
ARTICLE 33 AS IS..............................................127
ARTICLE 34 BROKER.............................................127
ARTICLE 35 ADDITIONAL DEMISED PREMISES........................128
ARTICLE 36 CERTIFICATES OF LANDLORD AND TENANT................137
ARTICLE 37 MISCELLANEOUS......................................138
ARTICLE 38 SUCCESSORS AND ASSIGNS.............................139
ARTICLE 39 RULES AND REGULATIONS..............................139
ARTICLE 40 CONSENTS AND APPROVALS.............................140
ARTICLE 41 INTERIM SPACE......................................140
ARTICLE 42 NO MERGERS.........................................142
-ii-
<PAGE>
Page
----
EXHIBITS:
EXHIBIT A -- LEGAL DESCRIPTION
EXHIBIT B -- DEMISED PREMISES
EXHIBIT C -- RENTABLE SQUARE FOOTAGE
EXHIBIT D -- SUBTENANT'S NON-DISTURBANCE AGREEMENT
EXHIBIT E -- OTHER PROJECTS
EXHIBIT F -- INTENTIONALLY OMITTED
EXHIBIT G -- CLEANING SPECIFICATIONS
EXHIBIT H -- ADDITIONAL DEMISED PREMISES - PART
OF 26TH FLOOR
EXHIBIT H-1 -- ADDITIONAL DEMISED PREMISES - ALL
OF 25TH FLOOR
EXHIBIT H-2 -- ADDITIONAL DEMISED PREMISES - ALL
OF 26TH FLOOR
EXHIBIT H-3 -- ADDITIONAL DEMISED PREMISES - PART
OF 25TH FLOOR
EXHIBIT H-4 -- ADDITIONAL DEMISED PREMISES - PART OF
25TH FLOOR
EXHIBIT I -- LANDLORD'S WORK
EXHIBIT J -- RULES AND REGULATIONS
EXHIBIT K -- ROOF LOCATIONS OF COMMUNICATIONS EQUIPMENT
EXHIBIT L -- INTERIM SPACE
EXHIBIT M -- VACANT OPTION SPACE
EXHIBIT N -- INTERIM SECOND FLOOR SPACE
-iii-
- --------------------------------------------------------------------------------
EXHIBIT 12(a)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income before income taxes and cumulative effects of
accounting changes $ 1,698 $ 987 $ 469 $ 1,131 $ 1,239
2. Add: Fixed charges excluding capitalized interest (Line 10) 3,168 3,911 5,138 5,483 5,963
3. Less: Equity in undistributed income of unconsolidated
subsidiaries and affiliates 30 45 28 30 (117)
- ------------------------------------------------------------------------------------------------------------------
4. Earnings including interest on deposits 4,836 4,853 5,579 6,584 7,319
5. Less: Interest on deposits 1,013 965 1,360 1,355 2,076
- ------------------------------------------------------------------------------------------------------------------
6. Earnings excluding interest on deposits $ 3,823 $ 3,888 $ 4,219 $ 5,229 $ 5,243
==================================================================================================================
Fixed Charges:
7. Interest expense $ 3,137 $ 3,880 $ 5,105 $ 5,451 $ 5,926
8. Estimated interest component of net rental expense 31 31 33 32 33
9. Amortization of debt issuance expense -- -- -- -- 4
- ------------------------------------------------------------------------------------------------------------------
10. Total fixed charges including interest on deposits and
excluding capitalized interest 3,168 3,911 5,138 5,483 5,963
11. Add: Capitalized interest -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
12. Total fixed charges 3,168 3,911 5,138 5,483 5,963
13. Less: Interest on deposits (Line 5) 1,013 965 1,360 1,355 2,076
- ------------------------------------------------------------------------------------------------------------------
14. Fixed charges excluding interest on deposits $ 2,155 $ 2,946 $ 3,778 $ 4,128 $ 3,887
==================================================================================================================
Consolidated Ratios of Earnings to Fixed Charges:
Including interest on deposits (Line 4/Line 12) 1.53 1.24 1.09 1.20 1.23
==================================================================================================================
Excluding interest on deposits (Line 6/Line 14) 1.77 1.32 1.12 1.27 1.35
==================================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
107
- --------------------------------------------------------------------------------
EXHIBIT 12(b)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income before income taxes and cumulative effects of
accounting changes $ 1,698 $ 987 $ 469 $ 1,131 $ 1,239
2. Add: Fixed charges excluding capitalized interest (Line 13) 3,168 3,911 5,138 5,483 5,963
3. Less: Equity in undistributed income of unconsolidated
subsidiaries and affiliates 30 45 28 30 (117)
- ----------------------------------------------------------------------------------------------------------------------------
4. Earnings including interest on deposits 4,836 4,853 5,579 6,584 7,319
5. Less: Interest on deposits 1,013 965 1,360 1,355 2,076
- ----------------------------------------------------------------------------------------------------------------------------
6. Earnings excluding interest on deposits $ 3,823 $ 3,888 $ 4,219 $ 5,229 $ 5,243
============================================================================================================================
Preferred Stock Dividend Requirements:
7. Preferred stock dividend requirements $ 23 $ 28 $ 51 $ 51 $ 49
8. Ratio of income from continuing operations before income taxes to
income from continuing operations after income taxes 147% 144% 151% 148% 143%
- ----------------------------------------------------------------------------------------------------------------------------
9. Preferred stock dividend requirements on a pretax basis $ 34 $ 40 $ 77 $ 75 70
============================================================================================================================
Fixed Charges:
10. Interest Expense $ 3,137 $ 3,880 $ 5,105 $ 5,451 $ 5,926
11. Estimated interest component of net rental expense 31 31 33 32 33
12. Amortization of debt issuance expense -- -- -- -- 4
- ----------------------------------------------------------------------------------------------------------------------------
13. Total fixed charges including interest on deposits and
excluding capitalized interest 3,168 3,911 5,138 5,483 5,963
14. Add: Capitalized interest -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
15. Total fixed charges 3,168 3,911 5,138 5,483 5,963
16. Add: Preferred stock dividend requirements--pretax (Line 9) 34 40 77 75 70
- ----------------------------------------------------------------------------------------------------------------------------
17. Total combined fixed charges and preferred
stock dividend requirements on a pretax basis 3,202 3,951 5,215 5,558 6,033
18. Less: Interest on deposits (Line 5) 1,013 965 1,360 1,355 2,076
- ----------------------------------------------------------------------------------------------------------------------------
19. Combined fixed charges and preferred stock dividend requirements
on a pretax basis excluding interest on deposits $ 2,189 $ 2,986 $ 3,855 $ 4,203 $ 3,957
============================================================================================================================
Consolidated Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements:
Including interest on deposits (Line 4/Line 17) 1.51 1.23 1.07 1.18 1.21
============================================================================================================================
Excluding interest on deposits (Line 6/Line 19) 1.75 1.30 1.09 1.24 1.32
============================================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
108
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EXHIBIT 21
BANKERS TRUST NEW YORK CORPORATION
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1997
Subsidiary(1) State of Incorporation
------------- ----------------------
Bankers Trust Company New York
BT Alex. Brown Holdings Incorporated Delaware
BT Holdings (NY) Inc. New York
Bankers Trust (Delaware) Delaware
BT (Pacific) Delaware Delaware
All other subsidiaries of the Corporation, in the aggregate, would not
constitute a significant subsidiary, as defined.
(1) Subsidiaries' names listed hereon are names under which such subsidiaries
do business.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
109
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-13278, 33-27498, 33-45699, 33-58340, 33-50395, 33-51615,
33-65301, 333-08549, 333-15089, 333-15089-01 through -04, 333-32909, Form S-4
Nos. 333-22733, 333-22733-01, 333-31061 and Form S-8 Nos. 2-67517, 2-97972,
33-20693, 33-21564, 33-41014, 33-52329, 33-54971, 333-12181, 333-19963,
333-31061, 333-34371 and 333-43959) of: our report dated January 22, 1998, with
respect to the consolidated balance sheet of Bankers Trust New York Corporation
and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended; and, our report dated September 5, 1997 with respect to the
combination of Bankers Trust New York Corporation and Subsidiaries and Alex.
Brown Incorporated as reflected in the consolidated balance sheet as of December
31, 1996 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the two-year period
then ended, after restatement for the 1997 pooling-of-interests.
/S/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
New York, New York
March 5, 1998
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
110
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (Nos. 33-13278, 33-27498, 33-45699, 33-58340, 33-50395, 33-51615,
33-65301, 333-08549, 333-15089, 333-15089-01 through 04 and 333-32909), Form S-4
(Nos. 333-22733, 333-22733-01 and 333-31061), and Form S-8 (Nos. 2-67517,
2-97972, 33-20693, 33-21564, 33-41014, 33-52329, 33-54971, 333-12181, 333-19963,
333-34371, 333-31061 and 333-43959) and in the related Prospectuses of Bankers
Trust New York Corporation of our report dated January 23, 1997, (except for
Note 28, as to which the date is March 6, 1997), with respect to the
consolidated financial statements of Bankers Trust New York Corporation and
Subsidiaries at December 31, 1996 and for each of the two years ended December
31, 1996, prior to their restatement for the 1997 pooling-of-interests with
Alex. Brown Incorporated, included in this Annual Report (Form 10-K) for the
year ended December 31, 1997 filed with the Securities and Exchange Commission.
/S/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
New York, New York
March 5, 1998
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
111
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EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Bankers Trust New York Corporation hereby constitute and appoint
Frank N. Newman, George J. Vojta, Richard H. Daniel, Melvin A. Yellin and James
T. Byrne, Jr., or any one of them, their true and lawful attorney or attorneys
and agent or agents, with the power and authority to sign the names of the
undersigned to the Annual Report for the year 1997 of Bankers Trust New York
Corporation on Form 10-K pursuant to Section 13 of the Securities and Exchange
Act of 1934 and each of the undersigned does hereby ratify and confirm all that
said attorney or attorneys and agent or agents or any one of them shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents.
February 17, 1998 Bankers Trust New York Corporation
By /S/ FRANK N. NEWMAN
---------------------------------
Frank N. Newman
Chairman of the Board
/S/ FRANK N. NEWMAN
-----------------------------------------------
Frank N. Newman
Chairman of the Board, Chief Executive Officer,
President and Director
(Principal Executive Officer)
/S/ RICHARD H. DANIEL
-----------------------------------------------
Richard H. Daniel
Vice Chairman,
Chief Financial Officer and Controller
(Principal Financial Officer)
/S/ RONALD HASSEN
-----------------------------------------------
Ronald Hassen
Senior Vice President and
Acting Principal Accounting Officer
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
112
<PAGE>
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February 17, 1998
/S/ LEE A. AULT III
------------------------------------------------------------
Lee A. Ault III Director
/S/ NEIL R. AUSTRIAN
------------------------------------------------------------
Neil R. Austrian Director
/S/ GEORGE B. BEITZEL
------------------------------------------------------------
George B. Beitzel Director
/S/ PHILLIP A. GRIFFITHS
------------------------------------------------------------
Phillip A. Griffiths Director
/S/ WILLIAM R. HOWELL
------------------------------------------------------------
William R. Howell Director
/S/ VERNON E. JORDAN, JR.
------------------------------------------------------------
Vernon E. Jordan, Jr. Director
/S/ HAMISH MAXWELL
------------------------------------------------------------
Hamish Maxwell Director
/S/ N.J. NICHOLAS JR.
------------------------------------------------------------
N.J. Nicholas Jr. Director
/S/ RUSSELL E. PALMER
------------------------------------------------------------
Russell E. Palmer Director
/S/ DONALD L. STAHELI
------------------------------------------------------------
Donald L. Staheli Director
/S/ PATRICIA C. STEWART
------------------------------------------------------------
Patricia C. Stewart Director
/S/ G. RICHARD THOMAN
------------------------------------------------------------
G. Richard Thoman Director
/S/ GEORGE J. VOJTA
------------------------------------------------------------
George J. Vojta Vice Chairman of the Board and Director
/S/ PAUL A. VOLCKER
------------------------------------------------------------
Paul A. Volcker Director
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------------------
113
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW
YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT
DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,188
<INT-BEARING-DEPOSITS> 4,272
<FED-FUNDS-SOLD> 1,382
<TRADING-ASSETS> 56,572
<INVESTMENTS-HELD-FOR-SALE> 8,081
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19,805
<ALLOWANCE> 699
<TOTAL-ASSETS> 140,102
<DEPOSITS> 42,830
<SHORT-TERM> 37,473<F1>
<LIABILITIES-OTHER> 10,786<F2>
<LONG-TERM> 16,059
0
658
<COMMON> 105
<OTHER-SE> 4,945
<TOTAL-LIABILITIES-AND-EQUITY> 140,102
<INTEREST-LOAN> 1,437
<INTEREST-INVEST> 468
<INTEREST-OTHER> 2,792<F3>
<INTEREST-TOTAL> 7,285
<INTEREST-DEPOSIT> 2,076
<INTEREST-EXPENSE> 5,926
<INTEREST-INCOME-NET> 1,359
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 158
<EXPENSE-OTHER> 4,981
<INCOME-PRETAX> 1,239
<INCOME-PRE-EXTRAORDINARY> 1,239
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 866
<EPS-PRIMARY> 8.15
<EPS-DILUTED> 7.66
<YIELD-ACTUAL> 1.33
<LOANS-NON> 240
<LOANS-PAST> 0
<LOANS-TROUBLED> 25
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 973
<CHARGE-OFFS> 107
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 997<F4>
<ALLOWANCE-DOMESTIC> 105
<ALLOWANCE-FOREIGN> 221
<ALLOWANCE-UNALLOCATED> 373
<FN>
<F1> Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 17,896
Other short-term borrowings 19,577
Total 37,473
<F2> Other liabilities include the following:
Accounts payable and accrued expenses 6,536
Other liabilities 3,617
Acceptances Outstanding 633
Total 10,786
<F3> Other interest income includes the
following:
Interest-bearing deposits with banks 395
Federal funds sold 266
Securities purchased under resale agreements 1,352
Securities borrowed 746
Customer receivables 133
Total 2,892
<F4>The Corporation has allocated its total allowance for credit losses as
follows: 699 as a reduction of loans, 285 as a reduction of trading assets and
13 as other liabilities related to all other credit-related items.
</FN>
</TABLE>
