Securities Purchase Agreement - Morgan Stanley and Best Investment Corp.
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AGREED AND ACCEPTED:
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Name of Investor: Best Investment Corporation, a limited liability company incorporated in Beijing under the Chinese laws | ||||
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Morgan Stanley,
a Delaware corporation
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| By: | /s/ T.C. Kelleher | By: | /s/ Gao Xiqing | ||
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Name:
Title:
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T.C. Kelleher
Chief Financial Officer
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Name:
Title:
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Mr. Gao Xiqing
Executive Director and President
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Address: Suite 936, No. 2 Building, No. 1 Complex, Nao Shi Kou Da Jie, Xicheng District, Beijing, P.R. China
Contact Name: Mr. Gao Xiqing
Telephone: (86-10) 5836 5880
Email Address: xqg@china-inv.cn
Copies to:
Contact Name: Hong Zhang
Telephone: (86-10) 5836 5903
Email Address: zhanghong@china-inv.cn
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By:
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/s/ Lou Jiwei
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| Name: | Mr. Lou Jiwei | |
| Title: | Chairman and CEO |
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1.
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Authorization and Sale of Securities. The Company is proposing to sell a stated amount of Securities determined as provided in Section 2.1 below.
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2.1.
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Upon the terms and subject to the conditions hereinafter set forth, at the Closing (as defined in Section 3), the Company will sell to the Investor, and the Investor will purchase from the Company, at the Purchase Price, a stated amount of Securities calculated promptly after the Maximum Settlement Rate is determined (as contemplated in the Offering Memorandum) so that the Ownership Percentage for the Investor and China Investment Corporation (the “Guarantor”) as of the Closing Date will equal 9.90%. The term “Ownership Percentage” means a fraction (i) the numerator of which is the sum of (a) the Maximum Settlement Rate multiplied by the aggregate stated amount of Securities to be purchased by the Investor divided by $1,000 and (b) all other shares of Common Stock (including any shares of Common Stock underlying any securities convertible into or exchangeable for Common Stock) then held by the Investor and the Guarantor and any of their respective Controlled Affiliates, and (ii) the denominator of which is the sum of (c) the numerator (excluding any shares that are already outstanding and therefore covered by the following clause (d)) and (d) the total shares outstanding of the Company’s Common Stock on November 30, 2007.
Notwithstanding the foregoing, if on the Closing Date, the Investor and the Guarantor, and any of their respective Controlled Affiliates, directly or indirectly own any shares of Common Stock or any securities convertible into or exchangeable for Common Stock (any such shares or securities, “Other Securities”), then the Investor and the Guarantor shall take such actions necessary to reduce the amount of Other Securities directly or indirectly owned by the Investor, the Guarantor and their Controlled Affiliates on or before January 31, 2008, which date shall constitute an additional Closing Date hereunder on which the Investor shall purchase, and the Company shall sell, an additional amount of Securities at the aggregate Purchase Price therefor (plus accrued and unpaid contract adjustment payments and distributions on the trust preferred securities from the initial Closing Date), such that the Ownership Percentage for the Investor and the Guarantor as of that additional Closing Date is 9.9% and the Ownership Percentage Underlying The PEPS is at least 9.75%. The term “Ownership Percentage Underlying The PEPS” means a fraction (i) the numerator of which is the Maximum Settlement Rate multiplied by the aggregate stated amount of Securities to be purchased by the Investor divided by $1,000 and (ii) the denominator of which is the sum of the numerator and the total shares outstanding of the Company’s Common Stock on November 30, 2007 or such later date as the Company determines is practicable.
At the additional Closing Date as contemplated in the preceding paragraph, the condition referred to in Section 3.3(d) shall be deemed to read:
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2.2.
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The Company and the Investor agree for United States tax purposes (in the absence of an administrative pronouncement or judicial ruling to the contrary):
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(i)
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to treat the acquisition of a Security as an acquisition of the trust preferred security and the stock purchase contract constituting such Security;
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(ii)
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to allocate 100% of the purchase price of a Security to the trust preferred security;
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(iii)
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to treat the junior subordinated debentures as indebtedness of the Company for U.S. federal income tax purposes which is not subject to the contingent payment debt regulations; and
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(iv)
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to treat the Investor as the beneficial owner of (a) the junior subordinated debenture or applicable ownership interest in the treasury portfolio that is part of a Corporate Unit owned by the Investor or (b) the qualifying treasury security that is a part of a Treasury Unit owned by the Investor.
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3.1
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The completion of the purchase and sale of the Securities (the “Closing”) shall occur on December 28, 2007 (the “Closing Date”), or as soon thereafter as the conditions to Closing can be satisfied, at the offices of the Company’s counsel. At the Closing, (i) the Company shall cause the Stock Purchase Contract Agent to deliver to the Investor the stated amount of Securities computed as set forth in Section 2.1, and (ii) the Purchase Price for such Securities shall be delivered by or on behalf of the Investor to the Company.
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3.2
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Payment by the Investor for the Securities shall be made by wire transfer of immediately available funds to the Company and the Company shall instruct the Stock Purchase Contract Agent to release the corresponding Securities to the Investor.
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3.3
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The obligation of the Investor to pay the Purchase Price pursuant to this Agreement shall be subject to the performance by the Company of its obligations hereunder and to the following additional conditions:
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a.
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The Investor shall have received an opinion, dated the Closing Date, of Davis Polk & Wardwell, counsel for the Company, substantially in the form set forth in Exhibit
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A-1 to this Agreement, an opinion of Richards, Layton & Finger, substantially in the form set forth in Exhibit A-2 to this Agreement, and an opinion from internal counsel at the Company, in a form customary for transactions of this nature, to the effect that the transactions contemplated hereby do not contravene other agreements binding on the Company and its subsidiaries.
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b.
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On the Closing Date, the Investor shall have received a registration rights agreement (the “Registration Rights Agreement”), including customary representations, warranties, covenants, black-outs and expense and indemnification provisions, relating to the resale of the Securities and any Common Stock issuable upon settlement of the Securities executed by the Company, in form and substance reasonably satisfactory to the Investor.
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c.
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The shares of Common Stock issuable upon settlement of the Stock Purchase Contracts shall have been duly authorized for listing, subject to official notice of issuance, on the New York Stock Exchange.
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d.
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The representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and the Investor shall have received a certificate of a senior officer of the Company, dated as of the Closing Date, certifying to that fact.
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e.
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Any approvals or authorizations of, filings and registrations with, and notifications to, all governmental or regulatory authorities (collectively, “Governmental Entities”) required for the Closing shall have been obtained or made and shall be in full force and effect and all waiting periods required by law shall have expired; and no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the Closing, and no Governmental Entity shall have instituted an investigation or proceeding that could result in such a judgment, injunction, order or decree.
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f.
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Insofar as the Offering Memorandum and the Term Sheet describe the Securities Issuance Agreements (as defined below), such agreements accurately reflect, in all material respects, such description and are, to the extent not so described, in form and substance reasonably satisfactory to the Investor.
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3.4
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The Company’s obligation to issue and sell Securities to the Investor shall be subject to the following conditions, any one or more of which may be waived by the Company: (a) the accuracy of the representations and warranties made by the Investor and the fulfillment of those undertakings of the Investor to be fulfilled prior to the Closing and (b) any approvals or authorizations of, filings and registrations with, and notifications to, all Governmental Entities required for the Closing shall have been obtained or made and shall be in full force and effect and all waiting periods required by law shall have expired; and no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the Closing, and no Governmental Entity shall have instituted an investigation or proceeding that could result in such a judgment, injunction, order or decree.
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3.5
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The Investor shall remit by wire transfer the amount of funds equal to the Purchase Price for the Securities being purchased by such Investor to an account designated by the Company prior to the Closing Date.
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4.1
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Organization, Authority and Significant Subsidiaries. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as currently conducted, and, except as would not be reasonably likely to have a Material Adverse Effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification; each subsidiary of the Company that is a “significant subsidiary” within the meaning of Rule 1-01(w) of Regulation S-X under the Securities Act (individually a “Significant Subsidiary” and collectively the “Significant Subsidiaries”) has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization.
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4.2
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Capitalization. As of August 31, 2007: (1) the Company has 3,500,000,000 authorized shares of Common Stock; (2) the Company has 1,062,450,986 issued and outstanding shares of Common Stock; (3) all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and (4) all of the issued shares of capital stock of each Significant Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. As of November 30, 2007, the Company has 1,056,289,659 issued and outstanding shares of Common Stock.
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4.3
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Authorization, Enforceability of Securities Issuance Agreements and Transaction Documents. The Company has the power and authority to enter into the Securities Issuance Agreements and Transaction Documents and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of the Securities Issuance Agreements and Transaction Documents by the Company and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company.
As of the date of execution of the Securities Issuance Agreements and the Transaction Documents, as the case may be, neither the execution, delivery and performance by the Company hereof and thereof, nor the consummation of the transactions contemplated
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hereby and thereby, nor compliance by the Company with any of the provisions thereof, will (1) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Significant Subsidiary under any of the terms, conditions or provisions of (A) its certificate of incorporation or by-laws or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Significant Subsidiary is a party or by which it may be bound, or to which the Company or any Significant Subsidiary or any of the properties or assets of the Company or any Significant Subsidiary may be subject, or (C) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Significant Subsidiary or any of their respective properties or assets except, in the case of clauses (B) and (C), for those occurrences that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws of the various states, to the best knowledge of the Company, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is necessary for the consummation of the transactions contemplated by the Transaction Documents.
As used herein, (a) the term “Securities Issuance Agreements” refers collectively to (i) the trust agreement that will govern the Trusts, (ii) the indentures, and supplements thereto, that will govern each series of the Company’s junior subordinated debt securities held by the Trusts, (iii) the junior subordinated debentures, (iv) the Stock Purchase Contracts pursuant to which the Company will sell the Common Stock to the Investor and (v) the purchase contract and pledge agreements pursuant to which the Trust Preferred Securities will be held as collateral in favor of the Company and (b) the term “Transaction Documents” refers collectively to this Agreement and the Registration Rights Agreement.
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4.4
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Company Financial Statements. The consolidated financial statements of the Company and its consolidated subsidiaries included or incorporated by reference in the SEC Reports present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated therein and the consolidated results of their operations for the periods specified therein; and except as stated therein, such financial statements were prepared in conformity with GAAP applied on a consistent basis (except as may be noted therein).
Deloitte & Touche LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission.
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| The Company and its subsidiaries do not have any liabilities or obligations (accrued, absolute, contingent or otherwise), other than liabilities or obligations (i) reflected on, reserved against, or disclosed in the notes to, the Company’s consolidated balance sheet included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2007, (ii) disclosed in the Company’s Current Reports on Form 8-K filed on November 8, 2007 and November 9, 2007 or in the press release and related financial supplement referred to in Section 17 below or (iii) that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. |
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4.5
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No Material Adverse Effect. Since August 31, 2007 and except as described in the SEC Reports and the press release being issued on the date hereof as contemplated by Section 17 hereof, no event or circumstance has occurred that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.
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4.6
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Proceedings. Except as disclosed in the SEC Reports, there are no litigation or similar proceedings pending or, to the Company’s knowledge, threatened to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
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4.7
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Compliance with Laws; Permits. The Company and each of its Significant Subsidiaries have conducted their businesses in compliance with all applicable federal, state and foreign laws, regulations and applicable stock exchange requirements, except where (i) the failure to be in compliance could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (ii) the necessity of compliance, or the failure to comply, therewith is being contested in good faith by appropriate proceedings.
The Company and each of its Significant Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, any Governmental Entities that are required in order to carry on their business as presently conducted, except where the failure to have such permits, licenses, authorizations, orders and approvals or the failure to make such filings, applications and registrations, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of the Company, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current, except where such absence, suspension or cancellation, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
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4.8
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Authorization of Stock Purchase Contracts and Common Stock. As of the Closing Date, the Stock Purchase Contracts will be duly authorized by all necessary corporate action on the part of the Company and will be valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and
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general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity (“Bankruptcy Exceptions”).
The issuance of the shares of the Common Stock underlying the Stock Purchase Contracts has been duly authorized by all necessary corporate action on the part of the Company and upon the issuance of the Common Stock underlying the Stock Purchase Contracts, such shares of Common Stock will (A) be duly authorized by all necessary corporate action on the part of the Company, (B) be validly issued, fully paid and nonassessable, (C) not have been issued in violation of any preemptive or other similar right, and (D) if such shares are treasury shares, be free of any adverse claim.
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4.9
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Authorization of the Securities. As of the Closing Date, the Securities will be duly authorized by all necessary corporate action on the part of the issuing parties; and when executed and delivered by the issuing parties, will constitute the valid and binding obligations of the issuing parties, enforceable against each of the issuing parties in accordance with their terms, except as the enforcement thereof may be limited by the Bankruptcy Exceptions.
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4.10
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The Trusts. As of the Closing Date:
(1) Each of the Trusts will be duly created as a statutory trust and will be validly existing in good standing under the laws of the State of Delaware; each Trust will be classified as a grantor trust and will not be classified as an association taxable as a corporation for United States federal income tax purposes; each Trust will have the power and authority necessary to own or hold its properties and to conduct the businesses in which such Trust is engaged.
(2) The trust agreement for each Trust will have been duly authorized by the Company and will have been duly executed and delivered by the Company, as sponsor and depositor, and, assuming due authorization, execution and delivery of each trust agreement by the applicable trustees, each trust agreement will be a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by Bankruptcy Exceptions.
(3) The trust preferred securities of each Trust will have been duly authorized by such Trust and, when issued and delivered against payment of the consideration described in this Agreement, will be validly issued and fully paid and non-assessable undivided beneficial interests in the assets of such Trust, will be entitled to the benefits of each applicable trust agreement and will conform in all material respects to the descriptions thereof contained in the Offering Memorandum; the issuance of the trust preferred securities of each Trust will not be subject to preemptive or other similar rights; and the Investor will be entitled to the same limitation of personal liability under Delaware law as extended to stockholders of private corporations for profit.
(4) The common securities issuable by each Trust to the
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| Company will have been duly authorized by the Trust and, when issued and delivered by each Trust to the Company will be validly issued and (subject to the terms of the relevant trust agreement) fully paid undivided beneficial interests in the assets of each Trust; the issuance by each Trust of common securities is not subject to preemptive or other similar rights; and upon consummation of the Closing all of the issued and outstanding common securities of each Trust will be directly or indirectly owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. |
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4.11
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Authorization of the Junior Subordinated Indentures. As of the Closing Date, each junior subordinated indenture of the Company, and each supplement thereto under which a junior subordinated debt security is delivered to a Trust, will have been duly authorized, executed and delivered by the Company and will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions.
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4.12
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Authorization of Junior Subordinated Debt Securities. As of the Closing Date, each junior subordinated debt security delivered to a Trust will have been duly authorized by the Company and duly executed and delivered by the Company to a Trust, and when authenticated, issued and delivered in the manner provided for in each applicable junior subordinated indenture or supplement thereto, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforcement thereof may be limited by the Bankruptcy Exceptions, and will be in the form contemplated by, and entitled to the benefits of, the applicable indenture or supplement thereto.
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4.13
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Authorization of Guarantee Agreements. As of the Closing Date, each guarantee agreement of the Company with respect to trust preferred securities of a Trust will have been duly authorized by the Company, and will have been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the applicable guarantee trustee, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions.
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4.14
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Authorization of the Purchase Contract and Pledge Agreements. As of the Closing Date, each purchase contract and pledge agreement entered into by the Company with respect to the Stock Purchase Contracts will have been duly authorized by the Company, will be validly executed and delivered by the Company and assuming due authorization, execution and delivery of such purchase contract and pledge agreement by the other parties thereto, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforcement thereof may be limited by the Bankruptcy Exceptions.
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4.15
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Authorization of the Registration Rights Agreement. As of the Closing Date, the Registration Rights Agreement will have been duly authorized by the Company, and will be validly executed and delivered by the Company and assuming due authorization, execution and delivery of such agreement by the other party thereto, will constitute a
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| valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforcement thereof may be limited by the Bankruptcy Exceptions and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. |
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4.16
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Authorization of this Agreement. This Agreement has been duly authorized, validly executed and delivered by the Company, and assuming due authorization, execution and delivery of this Agreement by the Investor, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforcement thereof may be limited by the Bankruptcy Exceptions.
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4.17
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Reports. Since November 30, 2005, the Company has timely filed all documents required to be filed with the Commission pursuant to Sections 13(a), 14(a)or 15(d) of the Exchange Act, except where the failure to so file could not reasonably be expected to have a Material Adverse Effect.
The SEC Reports, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make such statements, in the light of the circumstances in which they were made, not misleading.
Since November 30, 2005, the Company and each subsidiary have filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with any applicable federal or state securities or banking authorities, except where the failure to file any such report, registration or statement, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. As of their respective dates, each of the foregoing reports complied with all applicable rules and regulations promulgated by applicable foreign, federal or state securities or banking authorities, as the case may be, except for any failure that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
The records, systems, controls, data and information of the Company and the subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or the subsidiaries or their accountants (including all means of access thereto and therefrom). The Company (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) to ensure that material information relating to the Company, including its subsidiaries, is made known to the chief executive officer and the chief financial officer of the Company by others within those entities, and (ii) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company’s board of directors (A) any significant deficiencies and material weaknesses in the design or
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| operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that, individually or in the aggregate, could reasonably be expected to adversely affect the Company’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. As of the date hereof, to the knowledge of the Company, there is no reason that its outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due. |
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4.18
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Subprime Exposure. After giving effect to the write downs described in the press release and related financial supplement referred to in Section 17 below, as of November 30, 2007, the aggregate remaining total U.S. ABS CDO/Subprime Net Exposure of the Company and its subsidiaries was $1.8 billion. As used in this paragraph, “Net Exposure” means the potential loss to the Company in the event of a 100% default, assuming zero recovery, over a period of time.
As used in this Article IV, “Material Adverse Effect” means any fact, circumstance, event, change, effect or occurrence that, individually or in the aggregate with all other facts, circumstances, events, changes, effects, or occurrences, has a material adverse effect on (i) the business, assets, liabilities, results of operation or financial condition of the Company and its subsidiaries taken as a whole or (ii) the ability of the Company to consummate the transactions contemplated by this Agreement, other than, in each case, any adverse effect resulting from the announcement of the transactions contemplated by this Agreement.
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5.1.
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(1) It is (a) a QIB and is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, (b) aware that the sale to it is being made in reliance on a private placement exemption from registration under the Securities Act and (c) acquiring the Securities for its own account or for the account of a QIB.
(2) It understands and agrees on behalf of itself and on behalf of any investor account for which it is purchasing Securities, and each subsequent holder of a Security or shares of Common Stock issued upon settlement of the Stock Purchase Contracts by its acceptance thereof will be deemed to agree, that the Securities and Common Stock issuable upon settlement of the Stock Purchase Contracts are being offered in a transaction not involving any public offering within the meaning of the Securities Act, that the Securities and Common Stock issuable upon settlement of the Stock Purchase Contracts have not been and, except as described in the Offering Memorandum or contemplated by the Registration Rights Agreement, will not be registered under the Securities Act and that, unless the Securities are sold in a registered offering under the Securities Act, (a) it may offer, sell, pledge or otherwise transfer any of the Securities only to a person whom the
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seller reasonably believes is a QIB in a transaction not involving a public offering and (b) if prior to the expiration of the applicable holding period specified in Rule 144(k) of the Securities Act (or any successor provision) it decides to offer, resell, pledge or otherwise transfer any of the Common Stock issued upon settlement of the Securities, such Common Stock may be offered, resold, pledged or otherwise transferred only (i) to a person whom the seller reasonably believes is a QIB in a transaction not involving a public offering, (ii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iii) pursuant to an effective registration statement under the Securities Act, or (iv) to the Company or one of its subsidiaries, in each of cases (i) through (iv) in accordance with any applicable securities laws of any State of the United States, and that (c) it will, and each subsequent holder is required to, notify any subsequent purchaser of the Securities or Common Stock from it of the resale restrictions referred to in (a) and (b) above, as applicable, and will provide the Company and the transfer agent such certificates and other information as they may reasonably require to confirm that the transfer by it complies with the foregoing restrictions, if applicable.
(3) It understands that, unless the Securities are registered under the Securities Act, (a) the Securities and (b) until the expiration of the applicable holding period set forth in Rule 144(k) of the Securities Act (or any successor provision), unless sold pursuant to a registration statement that has been declared effective under the Securities Act or in compliance with Rule 144, the Common Stock issued upon settlement of the Securities will bear a legend substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION NOT INVOLVING A PUBLIC OFFERING, (II) PURSUANT TO ANY OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) SUBJECT TO THE ISSUER’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (II) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (IV) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT
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PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
(4) It:
(a) is able to fend for itself in the transactions contemplated by the offering memorandum referred to below;
(b) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Securities; and
(c) has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment.
(5) It has received a copy of the Offering Memorandum and acknowledges that (a) it has conducted its own investigation of the Company and the terms of the Securities, (b) it has had access to the Company’s public filings with the Securities and Exchange Commission and to such financial and other information as it deems necessary to make its decision to purchase the Securities, and (c) has been offered the opportunity to ask questions of the Company and received answers thereto, as it deemed necessary in connection with the decision to purchase the Securities.
(6) It understands that the Company will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements and agrees that if any of the representations and acknowledgements deemed to have been made by it by its purchase of the Securities is no longer accurate, it shall promptly notify the Company. If it is acquiring Securities as a fiduciary or agent for one or more investor accounts, it represents that is has sole investment discretion with respect to each such account and it has full power to make the foregoing representations, acknowledgements and agreements on behalf of such account.
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5.2.
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Each of the Investor and the Guarantor acknowledges that the Common Stock is listed on the New York Stock Exchange and the Company is required to file reports containing certain business and financial information with the Securities and Exchange Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended, and that it is able to obtain copies of such reports.
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5.3.
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Each of the Investor and the Guarantor acknowledges that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Securities, or possession or distribution of offering materials in connection with the issue of the Securities, in any jurisdiction outside the United States where action for that purpose is required. Each such person outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Securities or has in its possession or distributes any offering material, in all cases at its own expense.
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5.4.
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Each of the Investor and the Guarantor has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and
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| has taken all necessary action to authorize the execution, delivery and performance of this Agreement. |
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5.5.
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Each of the Investor and the Guarantor understands that nothing in the Offering Memorandum, this Agreement, the Company’s public filings with the Securities and Exchange Commission or any other materials presented to the Investor in connection with the purchase and sale of the Securities constitutes legal, tax or investment advise. Each of the Investor and the Guarantor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities and has made its own assessment and has satisfied itself concerning the relevant tax and other economic considerations relevant to its investment in the Securities.
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5.6
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To the best of each of its knowledge, after reasonable inquiry, as of the date hereof, neither the Investor nor the Guarantor, nor any of their respective Controlled Affiliates, directly or indirectly owns, controls or has the power to vote any voting securities of the Company or any securities convertible into or exercisable or exchangeable for voting securities of the Company. As of the additional Closing Date, if any, pursuant to Section 2.1, neither the Investor nor the Guarantor, nor any of their respective Controlled Affiliates, will directly or indirectly own, control or have the power to vote any voting securities of the Company or any securities convertible into or exercisable or exchangeable for voting securities of the Company in excess of 0.15% of the total shares outstanding of the Company’s Common Stock on November 30, 2007 or such later date as relevant under Section 2.1, excluding for purposes of this calculation the Securities purchased pursuant to this Agreement. The term “Controlled Affiliate” means, when used with reference to a specified Person, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Person specified or with the power, directly or indirectly, to direct the management or policies of such Person or to vote 25 percent or more of any class of voting securities of such Person, as interpreted by the Federal Deposit Insurance Corporation for purposes of the Change in Bank Control Act, 12 U.S.C. ¤1817(j), or 12 C.F.R. Part 303, Subpart E.
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5.7
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In addition to the transfer restrictions set forth in Section 5.1, (a) the Investor shall not offer, sell, pledge or otherwise transfer any of the Securities or the Common Stock issued upon settlement of the Securities or Hedge its exposure to the Common Stock prior to the first anniversary of the Closing Date and (b) on or after the first anniversary of the Closing Date until the first anniversary of the last date on which the Investor receives Common Stock in settlement of its Securities, the Investor shall not, within any period of three months, offer, sell, pledge or otherwise transfer Securities or Common Stock issued upon settlement of the Securities or Hedge its exposure to Common Stock, in one transaction or a series of transactions involving the Securities or the Common Stock, having an aggregate value exceeding $2.5 billion, in each case, other than (i) to Affiliates controlled by the Investor or the Guarantor that agree to be bound by the provisions of this Agreement or (ii) as may be required by order or decree of any Governmental Entity having jurisdiction over the Investor or in the reasonable discretion of the Investor to comply with any applicable statute, rule or regulation. The
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| Investor shall immediately notify the Company if it engages in any of the transactions referred to in this Section. |
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“Hedge” means, in respect of the Common Stock, to enter into any swap or any other agreement or any transaction that hedges or transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of such Common Stock, whether any such transaction or swap described is to be settled by delivery of securities, in cash or otherwise.
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5.8.
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Neither the Investor nor the Guarantor will, and neither will permit any of its Controlled Affiliates to, purchase or otherwise acquire, or agree or offer to purchase or otherwise acquire, ownership, control or the power to vote any voting securities of the Company or any securities convertible into or exercisable or exchangeable for voting securities of the Company, including without limitation Mandatorily Convertible Securities, if, after giving effect thereto, the Investor and the Guarantor, together with their respective Controlled Affiliates, would, directly or indirectly, own, control or have the power to vote more than 9.90% of all voting securities of the Company. For purposes of this paragraph, the number of shares of Common Stock underlying convertible or exchangeable securities on any date will be determined on a fully converted basis and, for purposes of the Securities, deemed to be the number of shares the Investor would receive upon an early settlement at the Settlement Rate of the Securities as a result of a Cash Merger.
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5.9
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The Investor will remain a Controlled Affiliate of the Guarantor for so long as the Investor owns any Securities.
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(a)
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if to the Company, to:
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Morgan Stanley
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Attention: Chief Financial Officer
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1585 Broadway
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New York, NY 10036
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(b)
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if to the Investor or the Guarantor, at its address on the signature page hereto, or at such other address or addresses as may have been furnished to the Company in writing.
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(a)
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This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
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(b)
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Each of the Investor and the Guarantor irrevocably submits to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in The City of New York over any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated thereby. Each of The Investor and the Guarantor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. To the extent that the Investor or the Guarantor has or hereafter may acquire any immunity (on the grounds of sovereignty or otherwise) from the jurisdiction of any court or from any legal process with respect to itself or its property, it irrevocably waives, to the fullest extent permitted by law, such immunity in respect of any such suit, action or proceeding.
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(a)
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by either the Investor or the Company if the Closing shall not have occurred by the 60th calendar day following the date of this Agreement; provided, however, that the right to terminate this Agreement under this Section shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;
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(b)
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by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or
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(c)
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by the mutual written consent of the Investor and the Company.
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Aggregate Stated Amount of Corporate Units to be issued by Morgan Stanley
and each Morgan Stanley Trust
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On each closing date contemplated in the Securities Purchase Agreement, Morgan Stanley and the Morgan Stanley Trusts will issue three series of Corporate Units. The stated amount of Corporate Units to be issued by Morgan Stanley and each Morgan Stanley Trust will be allocated among the trusts in equal thirds, adjusted as necessary such that the stated amount of Corporate Units issued by Morgan Stanley and each Morgan Stanley Trust will be an integral multiple of $1,000.
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First Issue Date
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December 28, 2007, or as soon as practicable thereafter.
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Second Issue Date
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If there is a second issue date of the Corporate Units, as contemplated by the Securities Purchase Agreement, Morgan Stanley and each Morgan Stanley Trust will issue additional Corporate Units in the amount specified in the Securities Purchase Agreement, with the stated amount of such additional Corporate Units allocated among the trusts in equal thirds, adjusted as necessary so that the stated amount of Corporate Units issued by each trust will be an integral multiple of $1,000.
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Initial Interest Rate on Junior Subordinated Debentures and Initial Distribution Rate of the Related Trust Preferred Securities
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6% per annum.
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Rate of Contract Adjustment Payments
on Stock Purchase Contracts
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3% per annum.
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Distribution Payment Dates
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Distribution payments will accrue from the First Issue Date and be payable quarterly in arrears on each February 17, May 17, August 17 and November 17 occurring prior to and including the date of a successful remarketing, commencing February 17, 2008.
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Remarketing Periods
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Five consecutive business days beginning on the seventh business day prior to each of August 17, 2010, November 17, 2010, February 17, 2011, May 17, 2011 and August 17, 2011.
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Reference Price
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$48.07
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Threshold Appreciation Price
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The “threshold appreciation price” will equal 120% of the reference price.
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Maturity of Junior Subordinated Debentures
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February 17, 2042 (subject to change in connection with a remarketing of the related trust preferred securities or junior subordinated debentures).
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(a)
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a stock purchase contract under which:
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(1)
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you will agree to purchase from us, and we will agree to sell to you, on the stock purchase date, for $1,000 in cash, a number of shares of our common stock equal to the settlement rate described under “Description of the Stock Purchase Contracts—Purchase of Common Stock”, “—Early Settlement” or “—Early Settlement Upon Cash Merger”, as the case may be. The stock purchase date is expected to be August 17, 2010 (or, if such day is not a business day, the next business day), but, unless the stock purchase contract terminates prior to such date as described under “Description of the Stock Purchase Contracts—Termination,” could be (i) moved to an earlier date in the circumstance described below under “Description of the Stock Purchase Contracts—Early Settlement” or “—Early Settlement Upon Cash Merger,” or (ii) deferred for quarterly periods until as late as August 17, 2011 (or, if such day is not a business day, the next business day) if the prior remarketing attempts are not successful, as described below under “Description of the Trust Preferred Securities—Remarketing”;
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(2)
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we will pay to you quarterly contract adjustment payments at an annual rate of 3% of the stated amount of $1,000 per stock purchase contract, subject to our right to defer these payments; and
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(b)
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a remarketable trust preferred security of Morgan Stanley Capital Trust A, Morgan Stanley Capital Trust B or Morgan Stanley Capital Trust C (each a “Morgan Stanley Trust” and collectively, the “Morgan Stanley Trusts) with an initial liquidation amount of $1,000. Each trust preferred security represents an undivided beneficial ownership interest in the assets of the relevant Morgan Stanley Trust. The property trustee of each of the Morgan Stanley Trusts will hold legal title to the assets. The assets of each of the Morgan Stanley Trusts consist solely of one of three separate series (one series per Morgan Stanley Trust) of our junior subordinated debentures due 2042, which we refer to as the “junior subordinated debentures.” Until the remarketing settlement date with respect to a series of trust preferred securities, unless we otherwise defer such payments, we will make quarterly interest payments on each outstanding series of the junior subordinated debentures that relate to the trust preferred securities for which a remarketing settlement date has not occurred, at the annual rate of 6% per year, and each Morgan Stanley Trust will pass through such interest payments when received as distributions on the trust preferred securities. Upon a successful remarketing, interest on the related series of junior subordinated debentures will be reset and will accrue at a Reset Rate as described below.
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•
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a stock purchase contract; and
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•
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a qualifying treasury security (as defined below).
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•
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the 13-week treasury bill that matures at least one but not more than six business days prior to that quarterly date; or
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•
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if no 13-week treasury bill that matures on at least one but more than six business days prior to that quarterly date is or is scheduled to be outstanding or is available in a sufficient principal amount on the immediately preceding quarterly date, the 26-week treasury bill that matures at least one but not more than six business days prior to that quarterly date; or
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•
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if neither of such treasury bills is or is scheduled to be outstanding or is available in a sufficient principal amount on the immediately preceding quarterly date, any other treasury security (which may be a zero coupon treasury security) that is outstanding on the immediately preceding quarterly date, is highly liquid and matures at least one business day prior to that quarterly date; provided that any treasury security identified pursuant to this clause shall be selected in a manner intended to minimize the cash value of the security selected.
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•
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deposit with the collateral agent U.S. treasury securities that are qualifying treasury securities on the date of deposit, in a principal amount of $1,000, which you must purchase on the open market at your expense unless you already own them;
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•
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transfer the Corporate Units to the stock purchase contract agent, accompanied by a notice stating that you are (1) depositing the appropriate qualifying treasury securities with the collateral agent and (2) requesting the delivery to you of Treasury Units and trust preferred securities.
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•
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deposit with the collateral agent trust preferred securities with a $1,000 liquidation amount, which you must purchase at your expense unless otherwise owned by you; and
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•
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transfer Treasury Unit certificates to the stock purchase contract agent; accompanied by a notice stating that you are (1) depositing trust preferred securities with a $1,000 liquidation amount with the collateral agent in substitution for the pledged treasury securities and (2) requesting the release to you of the pledged treasury security relating to the Treasury Units.
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(1)
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If the applicable market value of our common stock is equal to or greater than the “threshold appreciation price” (as defined below), the settlement rate will be the number of shares of our common stock equal to the stated amount divided by the threshold appreciation price (such settlement rate being referred to as the “minimum settlement rate”).
Accordingly, if the market price for the common stock increases between the date of this offering memorandum and the period during which the applicable market value is measured and the applicable market price is greater than the threshold appreciation price, the aggregate market value of the shares of common stock issued upon settlement of each stock purchase contract will be higher than the stated amount, assuming that the market price of the common stock on the stock purchase date is the same as the applicable market value of the common stock. If the applicable market price is the same as the threshold appreciation price, the aggregate market value of the shares issued upon settlement will be equal to the stated amount, assuming that the market price of the common stock on the stock purchase date is the same as the applicable market value of the common stock.
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(2)
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If the applicable market value of our common stock is less than the threshold appreciation price but greater than the “reference price” (as defined below), the settlement rate will be a number of shares of our common stock equal to $1,000 divided by the applicable market value.
Accordingly, if the market price for the common stock increases between the date of this offering memorandum and the period during which the applicable market value is measured, but the market price does not exceed the threshold appreciation price, the aggregate market value of the shares of common stock issued upon settlement of each stock purchase contract will be equal to the stated amount, assuming that the market price of the common stock on the stock purchase date is the same as the applicable market value of the common stock.
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(3)
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If the applicable market value of our common stock is less than or equal to the reference price, the settlement rate will be the number of shares of our common stock equal to the stated amount divided by the reference price (such settlement rate being referred to as the “maximum settlement rate”).
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á
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are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and
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á
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have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of our common stock.
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á
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a holder has settled early the related stock purchase contracts by delivery of cash to the stock purchase contract agent in the manner described under “—Early Settlement” or “—Early Settlement Upon Cash Merger;”
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á
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a holder of Corporate Units has settled the related stock purchase contracts with separate cash in the manner described under “—Notice to Settle with Cash;” or
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á
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an event described under “—Termination” has occurred,
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á
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in the case of Corporate Units where there has been a successful remarketing, $1,000 per Corporate Unit of the proceeds from such remarketing will automatically be applied to satisfy in full the holder’s obligations to purchase our common stock under the related stock purchase contracts and any excess proceeds will be delivered to the stock purchase contract agent for the benefit of the holders of Corporate Units;
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á
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in the case of Corporate Units where there has not been a successful remarketing in the final remarketing period, unless holders of Corporate Units elect not to exercise their put right described under “Description of the Trust Preferred Securities—Remarketing” by delivering cash to settle their stock purchase contracts, such holders will be deemed to have elected to apply the put price to satisfy in full their obligations to purchase our common stock under the related stock purchase contracts and we will deliver to such holders our common stock pursuant to the related stock purchase contracts. We will issue additional subordinated notes in the amount of any accrued and unpaid interest on the junior subordinated debentures (including deferred interest) as of the stock purchase date for such stock purchase contracts to the Morgan Stanley Trusts, which will in turn distribute such notes to the holders of Corporate Units and any separate trust preferred securities and we will pay the unpaid contract adjustment payment amount in additional subordinated notes that will be delivered to the holders of PEPS Units;
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á
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in the case of Corporate Units where the treasury portfolio has replaced the trust preferred securities as a component of the Corporate Units, proceeds of the appropriate applicable ownership interests in the treasury portfolio when paid at maturity equal to the stated amount of $1,000 per Corporate Unit will automatically be applied to satisfy in full the holder’s obligation to purchase common stock under the related stock purchase contracts and any
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| excess proceeds will be delivered to the stock purchase contract agent for the benefit of the holders of Corporate Units; and |
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á
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in the case of Treasury Units, the net cash proceeds, when paid at maturity, of the qualifying treasury securities forming part of the Treasury Units or their proceeds automatically will be applied to satisfy in full the holder’s obligation to purchase our common stock under the related stock purchase contracts.
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á
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irrevocably appointed the stock purchase contract agent as its attorney-in-fact to enter into and perform the stock purchase contract and the related purchase contract and pledge agreement in the name of and on behalf of such holder; and
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á
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agreed to be bound by the terms and provisions of the Corporate Units and Treasury Units and perform its obligations under the purchase contract and pledge agreement.
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•
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If you hold trust preferred securities as a component of Corporate Units, and unless you elect not to exercise your put right by delivering cash to settle your stock purchase contracts, you will be deemed to have elected to apply the put price to satisfy in full your obligations to purchase our common stock under the related stock purchase contracts;
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•
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We will issue additional subordinated notes in the amount of any accrued and unpaid interest on the junior subordinated debentures (including deferred interest) as of the stock purchase date to Morgan Stanley Trust, which will in turn distribute such notes to the holders of Corporate Units and we will issue additional subordinated notes in the amount of the unpaid contract adjustment payment amount to the stock purchase contract agent for distribution to the holders of the PEPS Units.
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•
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to substitute qualifying treasury securities for trust preferred securities in connection with an exchange of Corporate Units for Treasury Units and trust preferred securities, as provided for under “Description of the PEPS Units—Creating Treasury Units”;
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•
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to substitute trust preferred securities for qualifying treasury securities in connection with an exchange of Treasury Units and trust preferred securities for Corporate Units, as provided for under “Description of the PEPS Units—Recreating Corporate Units”; or
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•
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upon the termination of the stock purchase contracts.
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•
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irrevocably agreed to be bound by the terms and provisions of the related stock purchase contracts and the purchase contract and pledge agreement and to have agreed to perform your obligations thereunder for so long as you remain a holder of the PEPS Units, and
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•
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duly appointed the stock purchase contract agent as your attorney-in-fact to enter into and perform the related stock purchase contracts and pledge agreement on your behalf and in your name.
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•
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to treat the acquisition of a PEPS Unit as an acquisition of the related trust preferred security and the related stock purchase contract constituting such PEPS Unit;
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•
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to allocate 100% of the purchase price of a PEPS Unit to the trust preferred security;
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•
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to treat yourself as the owner of the stock purchase contracts and the related trust preferred securities, applicable ownership interests in the treasury portfolio or the qualifying treasury securities, as the case may be, and
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•
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to treat the junior subordinated debentures as our indebtedness for all U.S. federal income tax purposes, which is not subject to the contingent payment debt regulations.
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á
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each fixed settlement rate by
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á
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a fraction of which the numerator shall be the number of shares of our common stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution.
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á
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each fixed settlement rate by
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á
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a fraction, the numerator of which shall be the number of shares of our common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of our common stock which the aggregate consideration expected to be received by us upon the exercise, or exchange of such rights, options or warrants would purchase at such current market price and the denominator of which shall be the number of shares of our common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of our common stock so offered for subscription or purchase, either directly or indirectly.
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á
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each fixed settlement rate by
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á
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a fraction, the numerator of which shall be the current market price on the date fixed for such determination less the then fair market value of the portion of the assets or evidences of indebtedness so distributed applicable to one share of our common stock and the denominator of which shall be such current market price.
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á
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each fixed settlement rate by
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á
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a fraction, the numerator of which is the average VWAP over the 10 trading days from and including the third trading day after the date on which “ex-distribution trading” commences for such dividend or distribution on the NYSE or such other national or regional exchange or market on which our common stock is then listed or quoted, except as described below, and the denominator of which is such average VWAP plus the fair market value, determined as described below, of those shares of capital stock or similar equity interests so distributed applicable to one share of common stock.
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á
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the close of business on the 10th trading day after the third trading day after the date on which “ex-distribution trading” commences for such dividend or distribution on the NYSE or such other national or regional exchange or market on which our common stock is then listed or quoted; and
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á
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the date of the securities being offered in the initial public offering of the spin-off, if that initial public offering is effected simultaneously with the spin-off.
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á
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each fixed settlement rate by
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á
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a fraction, the numerator of which shall be equal to the current market price on the date fixed for such determination less the per share amount of the distribution and the denominator of which shall be equal to such current market price minus the reference dividend.
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á
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each fixed settlement rate immediately prior to the close of business on the date of the expiration time by
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á
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a fraction (A) the numerator of which shall be equal to (x) the product of (i) the current market price on the date of the expiration time and (ii) the number of shares of common stock outstanding (including any tendered or exchanged shares) on the date of the expiration time less (y) the amount of cash consideration plus the fair market value of the aggregate non-cash consideration payable to stockholders pursuant to the tender offer or exchange offer (assuming the acceptance, up to any maximum specified in the terms of the tender offer or exchange offer, of purchased shares), and (B) the denominator of which shall be equal to the product of (x) the current market price on the date of the expiration time and (y) the result of (i) the number of shares of our common stock outstanding (including any tendered or exchanged shares) on the date of the expiration time less (ii) the number of all shares validly tendered, not withdrawn and accepted for payment on the date of the expiration time (such validly tendered or exchanged shares, up to any such maximum, being referred to as the “purchased shares”).
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á
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any consolidation or merger of Morgan Stanley with or into another person or of another person with or into Morgan Stanley; or
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á
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any sale, transfer, lease or conveyance to another person of the property of Morgan Stanley as an entirety or substantially as an entirety; or
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á
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any statutory share exchange of Morgan Stanley with another person (other than in connection with a merger or acquisition); or
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á
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any liquidation, dissolution or termination of Morgan Stanley
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á
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upon the issuance of any shares of our common stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional amounts in shares of our common stock under any plan;
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á
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upon the issuance of any shares of our common stock or options or rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan or program of or assumed by us or any of our subsidiaries;
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á
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upon the issuance of any shares of our common stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the PEPS Units were first issued;
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á
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for a change in the par value or no par value of the common stock; or
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á
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for accumulated and unpaid dividends.
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•
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we will be the continuing corporation; or
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•
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the successor corporation or person that acquires all or substantially all of our assets:
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¼
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will be a corporation organized under the laws of the United States, a state of the United States or the District of Columbia; and
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¼
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will expressly assume all of our obligations under the stock purchase contracts, the purchase contract and pledge agreement, the trust agreement, the junior subordinated indenture, the junior subordinated debentures, the guarantee and the remarketing agreement; and
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•
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immediately after the merger, consolidation, sale, lease or conveyance, we, that person or that successor corporation will not be in default in the performance of the covenants and conditions applicable to us under the stock purchase contracts, the purchase contract and pledge agreement, the trust agreement, the junior subordinated indenture, the junior subordinated debentures, the guarantee or the remarketing agreement.
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•
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to evidence the succession of another person to our obligations,
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•
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to add to the covenants for the benefit of holders or to surrender any of our rights or powers under those agreements,
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•
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to evidence and provide for the acceptance of appointment of a successor stock purchase contract agent or a successor collateral agent or securities intermediary,
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•
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to cure any ambiguity or to correct or supplement any provisions that may be inconsistent, and
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•
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to make any other modifications that do not adversely affect the interest of the holders in any material respect.
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•
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change any distribution date,
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•
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change the amount or type of pledged securities related to the stock purchase contract, impair the right of the holder of any pledged securities to receive distributions on the pledged securities or otherwise adversely affect the holder's rights in or to the pledged securities,
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•
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reduce any contract adjustment payments or change the place or currency of payment,
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•
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impair the right to institute suit for the enforcement of the stock purchase contract or payment of any contract adjustment payments,
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•
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reduce the number of shares of our common stock purchasable under the stock purchase contract, increase the price to purchase shares of our common stock upon settlement of the stock purchase contract or change the stock purchase date (except as contemplated by the purchase contract and pledge agreement), or
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•
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reduce the above-stated percentage of outstanding stock purchase contracts the consent of the holders of which is required for the modification or amendment of the provisions of the stock purchase contracts or the purchase contract and pledge agreement.
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•
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issue and sell their common securities to Morgan Stanley;
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•
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issue and sell their trust preferred securities as part of this offering;
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•
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use the proceeds from the sale of their common securities and trust preferred securities to purchase junior subordinated debentures from Morgan Stanley; and
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•
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engage in other activities that are necessary, convenient or incidental to these purposes.
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á
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in whole or in part, on one or more occasions, at any time on or after the date (the “first optional redemption date” that is the later of (a) August 17, 2012 if the relevant stock purchase date is on August 17, 2010 (or if such day is not a business day, the next succeeding business day) and the third anniversary of the relevant stock purchase date if such date is after August 17, 2010 (or if such day is not a business day, the next succeeding business day) and (b) if we are deferring interest on the related junior subordinated debentures on the applicable stock purchase date, the date that is five years after the beginning of the relevant deferral period; and
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á
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in whole, but not in part, at any time prior to the remarketing settlement date for the related series of trust preferred securities:
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á
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within 90 days following the occurrence and continuation of a tax event, accounting event or an investment company event, each as defined below,
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á
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following the occurrence and continuation of a regulatory event, rating agency event or property trustee event, each as defined below.
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á
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any amendment to, or change, including any announced prospective change, in the laws, or any regulations thereunder, of the United States or any political subdivision thereof or taxing authority therein affecting taxation which is effective on or after the date of this offering memorandum;
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á
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any official or administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations which is announced on or after the date of this offering memorandum; or
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á
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any threatened challenge asserted in connection with an audit of a Morgan Stanley Trust, Morgan Stanley or Morgan Stanley’s subsidiaries, or a threatened challenge asserted in writing against any other taxpayer that has raised capital through the issuance of securities that are substantially similar to the junior subordinated debentures or the PEPS Units, which challenge becomes publicly known or otherwise becomes widely known to tax practitioners on or after the date of this offering memorandum;
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(1)
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a Morgan Stanley Trust is, or will be within 90 days of the delivery of the opinion of counsel, subject to U.S. federal income tax with respect to income received or accrued on the junior subordinated debentures;
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(2)
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interest payable by Morgan Stanley on the junior subordinated debentures is not, or will not be within 90 days of the delivery of the opinion of counsel, deductible by Morgan Stanley, in whole or in part, for U.S. federal income tax purposes; or
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(3)
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a Morgan Stanley Trust is, or will be within 90 days of the delivery of the opinion of counsel, subject to more than a de minimis amount of taxes, duties or other governmental charges.
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á
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any amendment to, clarification of or change (including any announced prospective change) in applicable laws or regulations or official interpretations thereof or policies with respect thereto, or
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á
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any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations,
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•
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irrevocably deposit with DTC funds sufficient to pay the applicable redemption price; and
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give DTC irrevocable instructions and authority to pay the redemption price to the holders of the related series of trust preferred securities.
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irrevocably deposit with the paying agent funds sufficient to pay the applicable redemption price; and
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give the paying agent irrevocable instructions and authority to pay the redemption price to the holders of trust preferred securities upon surrender of their certificates evidencing the trust preferred securities.
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(1)
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the bankruptcy, dissolution or liquidation of Morgan Stanley;
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(2)
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written direction by Morgan Stanley to the property trustee to dissolve a Morgan Stanley Trust and distribute the related series of junior subordinated debentures to the holders of the related series of trust preferred securities, which direction, subject to the foregoing restrictions, is optional and wholly within the discretion of Morgan Stanley;
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(3)
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the redemption of all the trust preferred securities of a series in connection with the redemption of all the junior subordinated debentures of such series or the maturity of such series of junior subordinated debentures; or
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(4)
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the entry of an order for the dissolution of a Morgan Stanley Trust by a court of competent jurisdiction.
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•
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junior subordinated debentures of such series having a principal amount equal to the liquidation amount of the related series of trust preferred securities and related series of common securities of the holders; or, if this is not practical,
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a cash amount equal to, in the case of holders of such series of trust preferred securities, the aggregate liquidation amount plus accumulated but unpaid distributions to but excluding the date of payment.
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the related series of trust preferred securities and the related series of common securities will no longer be deemed to be outstanding;
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DTC or its nominee, as the registered holder of the related series of trust preferred securities, will receive a registered global certificate or certificates representing such series of junior subordinated debentures to be delivered upon distribution with respect to the related series of trust preferred securities held by DTC or its nominee; and
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any certificates representing the related series of trust preferred securities not held by DTC or its nominee will be deemed to represent junior subordinated debentures having an aggregate principal amount equal to the liquidation amount of the trust preferred securities, and bearing accrued but unpaid interest equal to accumulated but unpaid distributions on such trust preferred securities, until the holder of those certificates presents them to the securities registrar for the trust preferred securities for transfer or reissuance.
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the occurrence of a default with respect to the junior subordinated debentures in which the proceeds from the sale of the common securities and trust preferred securities have been invested;
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default by a Morgan Stanley Trust or the property trustee in the payment of any distribution on the related series of trust preferred securities when it becomes due and payable, and continuation of the default for a period of 30 days;
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default by a Morgan Stanley Trust or the property trustee in the payment of any redemption price of any common security or trust preferred security issued pursuant to its trust agreement when it becomes due and payable;
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default in the performance, or breach, in any material respect, of any covenant or warranty of the applicable property trustee and Delaware trustee (other than a covenant or warranty described above dealing with default in the payment of any distribution or redemption price) and continuation of such default or breach for a period of 60 days after written notice has been given, by registered or certified mail, to the applicable property trustee and Delaware trustee and us by the holders of at least 25% in
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| aggregate liquidation amount of the related series of trust preferred securities outstanding, which notice must specify the default or breach, demand it be remedied and state that it is a Notice of Default under the applicable trust agreement; or |
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the occurrence of certain events of bankruptcy or insolvency with respect to the property trustee or all or substantially all of its property if a successor property trustee has not been appointed within 90 days of the event.
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removal of the property trustee or the Delaware trustee:
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¼
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when there is a default under the related series of junior subordinated debentures; or
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¼
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when holders of a majority in liquidation value of the outstanding trust preferred securities of such series decide to remove either of the trustees for cause;
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•
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certain modifications to the terms of such series of trust preferred securities and the guarantee that would adversely affect the rights of the holders of such trust preferred securities; and
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the exercise of rights as holder of the junior subordinated debentures by the Morgan Stanley Trust that corresponds to your trust preferred securities.
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the aggregate stated liquidation amount of the PEPS Units issued by the relevant Morgan Stanley Trust; and
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the amount of capital contributed by Morgan Stanley to the relevant Morgan Stanley Trust in exchange for the common securities.
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the next interest payment date; and
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the date Morgan Stanley is required to give notice to holders of the junior subordinated debentures of the record or payment date for the related interest payment.
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declare or pay any dividends or any distributions on, or redeem, purchase, acquire or make a liquidation payment on, any shares of Morgan Stanley’s capital stock;
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make any payment of principal of, or interest or premium, if any, on, or repay, repurchase or redeem debt securities of Morgan Stanley that rank equal or junior to the junior subordinated debentures, other than (i) any payment of current or deferred interest on securities that rank equally with the junior subordinated debentures that is made pro rata to the amounts due on such securities (including the junior subordinated debt securities), and (ii) any payments that, if not made, would cause us to violate the terms of the instrument governing such debt securities; or
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make any guarantee payments on any guarantee of debt securities of any of Morgan Stanley’s subsidiaries if the guarantee ranks equal or junior to the junior subordinated debentures,
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•
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repurchases, redemptions or other acquisitions of shares of capital stock of Morgan Stanley in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, (2) a dividend reinvestment or stockholder stock purchase plan, or (3) the issuance of capital stock of Morgan
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| Stanley, or securities convertible into or exercisable for such capital stock, as consideration in an acquisition transaction entered into prior to the deferral period; |
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an exchange, redemption, reclassification or conversion of any class or series of Morgan Stanley’s capital stock, or any capital stock of a subsidiary of Morgan Stanley, for any class or series of Morgan Stanley’s capital stock, or of any class or series of Morgan Stanley’s indebtedness for any class or series of Morgan Stanley’s capital stock;
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the purchase of fractional interests in shares of Morgan Stanley’s capital stock under the conversion or exchange provisions of the capital stock or the security being converted or exchanged;
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any declaration of a dividend in connection with any stockholders’ rights plan, or the issuance of rights, stock or other property under any stockholders’ rights plan, or the redemption or repurchase of rights pursuant to the plan;
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any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equal or junior to that stock;
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payments by Morgan Stanley under the guarantee of the trust preferred securities; or
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the ability of Morgan Stanley & Co. Incorporated, or any of our other affiliates, to engage in any market-making transactions in our securities or the securities of any of our affiliates.
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to continue to hold, directly or indirectly, 100% of the common securities of such Morgan Stanley Trust, provided that certain successors that are permitted under the junior subordinated indenture may succeed to Morgan Stanley’s ownership of the common securities;
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as holder of the common securities, not to voluntarily dissolve, windup or liquidate such Morgan Stanley Trust, other than (1) as part of the distribution of the junior subordinated debentures to the holders of the Corporate Units or separate trust preferred securities in accordance with the terms of the Corporate Units or trust agreement, as the case may be, or (2) as part of a merger, consolidation or amalgamation which is permitted under the trust agreement; and
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to use its reasonable efforts, consistent with the terms and provisions of the trust agreement, to cause the trust to continue not to be taxable as a corporation for United States federal income tax purposes.
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of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings involving us or a substantial part of our property;
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that (a) a default has occurred in the payment of principal, any premium, interest or other monetary amounts due and payable on any senior indebtedness or (b) there has occurred any other event of default concerning senior indebtedness, that permits the holder or holders of the senior indebtedness to accelerate the maturity of the senior indebtedness, with notice or passage of time, or both, and that event of default has continued beyond the applicable grace period, if any, and that default or event of default has not been cured or waived or has not ceased to exist; or
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that the principal of and accrued interest on any junior subordinated debentures has been declared due and payable upon an event of default under the junior subordinated indenture and that declaration has not been rescinded and annulled as provided under that junior subordinated indenture.
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to change the date after which each series of junior subordinated debentures will be redeemable at our option to any date on or after the first optional redemption date and to change the redemption price, provided that no redemption price may be less than the principal plus accrued and unpaid interest, including deferred interest (if any), on such junior subordinated debentures; and/or
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to change the maturity date of each series of junior subordinated debentures, but not earlier than the first optional redemption date nor later than the original maturity date.
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the stock purchase date will be deferred until the next remarketing settlement date;
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the interest rate on the related junior subordinated debentures will not be reset; and
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•
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the remarketing agent will thereafter attempt to establish a new Reset Rate meeting the requirements described above and remarket the trust preferred securities during subsequent remarketing periods, which will begin on the seventh business day immediately preceding each of November 17, 2010, February 17, 2011, May 17, 2011 and August 17, 2011 (or if any such day is not a business day, the immediately succeeding business day).
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On the stock purchase date, holders of all trust preferred securities will have the right to put their trust preferred securities to us for an amount equal to the liquidation amount of their trust preferred securities. A holder of Corporate Units will be deemed to have automatically exercised this put right with respect to the trust preferred securities underlying such Corporate Units unless, prior to 5:00 p.m., New York City time, on the second business day immediately prior to the stock purchase date, the holder provides written notice of an intention to settle the related stock purchase contracts with separate cash and on or prior to the business day immediately preceding the stock purchase date delivers to the collateral agent $1,000 in cash per stock purchase contract. Unless a holder of Corporate Units has settled the related stock purchase contracts with separate cash on or prior to the stock purchase date, the holder will be deemed to have elected to apply the put price against such holder’s obligations to us under the related stock purchase contracts, thereby satisfying such obligations in full, and we will deliver to the holder our common stock pursuant to the related stock purchase contracts.
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The interest rate on the junior subordinated debentures underlying the trust preferred securities will not be reset and they will continue to accrue interest at the interest rate that would otherwise apply. In the event of a final failed remarketing, we may move up the stated maturity of the junior subordinated debentures and, accordingly, the mandatory redemption date of the trust preferred securities, to any date on or after the date that is the later of (a) two years after the remarketing settlement date and (b)
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| if we are deferring interest on the junior subordinated debentures at the time of the remarketing, the date that is five years after the beginning of the relevant deferral period. |
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We will issue additional subordinated notes in the amount of any accrued and unpaid (or deferred) interest on the junior subordinated debentures as of the stock purchase date to each Morgan Stanley Trust, which will in turn distribute such notes to the holders of Corporate Units and any separate trust preferred securities and we will pay any unpaid contract adjustment payment amount in additional subordinated notes that will be delivered to the holders of PEPS Units.
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the beginning and ending dates of the remarketing period and the applicable remarketing settlement date and stock purchase date in the event the remarketing is successful;
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•
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the applicable distribution dates and record dates for cash distributions on the trust preferred securities;
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•
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any change to the stated maturity of the junior subordinated debentures, and, if applicable, the date on and after which each Morgan Stanley Trust will have the right to redeem the trust preferred securities;
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whether the junior subordinated debentures underlying the trust preferred securities, and our guarantee of the trust preferred securities will no longer be subordinated to our senior indebtedness;
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the procedures you must follow if you hold trust preferred securities held as part of Corporate Units to elect not to participate in the remarketing and the date by which such election must be made; and
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the procedures you must follow if you hold trust preferred securities separately to elect to participate in the remarketing as described under “Description of the Trust Preferred Securities—Remarketing” and the date by which such election must be made.
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upon the occurrence and continuation of an event of default, the property trustee or the holders of not less than 25% in aggregate liquidation amount of the trust preferred securities may declare the principal and interest accrued thereon of the junior subordinated debentures of such series due and payable immediately;
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•
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upon the occurrence of a default, there is no right of acceleration except for those defaults that are also events of default; if a default in the payment of principal of, or any interest on, such series of junior subordinated debentures occurs and is continuing and Morgan Stanley fails to pay the full amount
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| then due and payable with respect to the junior subordinated debentures of such series immediately upon the demand of the indenture trustee, the indenture trustee is entitled to institute an action or proceeding to collect the amount due and unpaid; if any default occurs and is continuing, the indenture trustee may pursue legal action to enforce the performance of any provision in the junior subordinated indenture to protect the rights of the indenture trustee and the holders of the junior subordinated debentures of such series; |
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if all defaults have been cured or waived, the consent of the holders of more than 50% in aggregate liquidation amount the of corresponding series of trust preferred securities is required to annul a declaration by the indenture trustee, the applicable Morgan Stanley Trust or the holders of the trust preferred securities of such series that the principal of the junior subordinated debentures is due and payable immediately;
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•
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unless the default is cured, the consent of each holder of trust preferred securities of such series is required to waive a default in the payment of principal, premium or interest with respect to the junior subordinated debentures of such series or a default in respect of a covenant or provision that cannot be modified or amended without the consent of the holder of each outstanding junior subordinated debenture of such series; and
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•
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unless the default is cured, the consent of the holders of more than 50% in aggregate liquidation amount of the trust preferred securities of such series is required to waive any other default.
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no modification may be made to the junior subordinated indenture that materially adversely affects the holders of such PEPS Units;
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no termination of the junior subordinated indenture may occur; and
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•
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no waiver of any event of default or default under the junior subordinated debentures of such series may be effective,
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•
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impair the rights of holders of such PEPS Units to institute a direct action;
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remove any obligation to obtain the consent of holders of such PEPS Units; or
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•
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change the percentage of holders of the PEPS Units of such series required to amend or waive any provision of the junior subordinated indenture.
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•
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we will be the continuing corporation; or
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•
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the successor corporation or person that acquired all or substantially all of our assets;
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¼
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will be a corporation organized under the laws of the United States, a state of the United States or the District of Columbia; and
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¼
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will expressly assume all of our obligations under the junior subordinated indenture and the junior subordinated debentures issued under that junior subordinated indenture; and
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immediately after the merger, consolidation, sale, lease or conveyance, we, that person or that successor corporation will not be in default in the performance of the covenants and conditions of the junior subordinated indenture.
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register the transfer of or exchange junior subordinated debentures during a period beginning 15 calendar days before the first mailing of the notice of redemption; or
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•
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register the transfer of or exchange any junior subordinated debentures selected for redemption, except, in the case of any junior subordinated debentures being redeemed in part, any portion not to be redeemed.
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any accumulated and unpaid distributions required to be paid on the trust preferred securities, to the extent the applicable Morgan Stanley Trust has funds available to make the payment;
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•
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the redemption price for any trust preferred securities called for redemption, if the applicable Morgan Stanley Trust has funds available to make the payment; and
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•
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upon a voluntary or involuntary dissolution, winding-up or liquidation of the applicable Morgan Stanley Trust, other than in connection with a distribution of the applicable junior subordinated debentures to the holders of PEPS Units, the lesser of:
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(1)
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the aggregate of the $1,000 per trust preferred security liquidation amount and all accumulated and unpaid distributions on the relevant series of trust preferred securities to the date of payment, if the relevant Morgan Stanley Trust has funds available to make the payment; and
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(2)
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the amount of assets of the relevant Morgan Stanley Trust remaining available for distribution to holders of the PEPS Units upon liquidation of such Morgan Stanley Trust.
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•
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the aggregate principal amount of the junior subordinated debentures will be equal to the sum of the aggregate liquidation amount of the PEPS Units and the common securities;
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•
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the interest rate and interest and other distribution dates on the junior subordinated debentures will match the distribution rate and distribution and other distribution dates for the PEPS Units;
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•
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Morgan Stanley will, pursuant to an expense agreement, pay for any and all costs, expenses and liabilities of the Morgan Stanley Trusts, except withholding taxes and the Morgan Stanley Trusts’ obligations to holders of the PEPS Units and the common securities; and
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•
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the trust agreements provide that the Morgan Stanley Trusts will not engage in any activity that is not consistent with the limited purposes of the Morgan Stanley Trusts.
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issuing and selling the trust preferred securities and common securities;
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investing the proceeds from the sale of the trust preferred securities and common securities in the junior subordinated debentures; and
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engaging in only those other activities necessary, convenient or incidental to these purposes.
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