JOINTVENTURE CONTRIBUTION AND FORMATION AGREEMENT by andbetween CITIGROUPINC. and MORGANSTANLEY Dated asof January 13, 2009 TABLE OF CONTENTS

 

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ARTICLE 1	DEFINITIONS	1
Section 1.1	Defined Terms	1
ARTICLE 2	FORMATION OF VENTURE; CLOSING; RELATED
	TRANSACTIONS	25
Section 2.1	Formation of Company	25
Section 2.2	Transactions Prior to the Closing	25
Section 2.3	Time and Place of the Closing	27
Section 2.4	Deliveries and Other Actions at the Closing	27
Section 2.5	Post-Closing Adjustments	29
ARTICLE 3	REPRESENTATIONS AND WARRANTIES	31
Section 3.1	Representations and Warranties of Citigroup	31
Section 3.2	Representations and Warranties of Morgan Stanley	36
ARTICLE 4	CERTAIN INTERIM AND OTHER COVENANTS	41
Section 4.1	Conduct of Business Prior to Closing	41
Section 4.2	Access to Information	45
Section 4.3	Consents; Conditions; Further Assurances	46
Section 4.4	Sufficiency of Assets	49
Section 4.5	Tax Matters	50
Section 4.6	Real Estate Matters	55
Section 4.7	Transaction Documents	55
Section 4.8	Actions by Subsidiaries	56
Section 4.9	Negotiations with Others	56
Section 4.10	Termination of Agreements	56
ARTICLE 5	CONDITIONS TO CLOSING	57
Section 5.1	Conditions to Citigroup’s Obligations	57
Section 5.2	Conditions to Morgan Stanley’s Obligations	58
ARTICLE 6	INDEMNIFICATION	59
Section 6.1	Survival of Representations and Warranties	59
Section 6.2	Indemnification	60
Section 6.3	Limitations on Amounts	61
Section 6.4	Other Indemnification Provisions	61
Section 6.5	Procedures	63
Section 6.6	Procedures for Non-Party Claims other than Ordinary Course
	Customer Claims	63
Section 6.7	Ordinary Course Customer Claims	65
Section 6.8	Mutual Assistance	66
ARTICLE 7	FURTHER AGREEMENTS	66

Section 7.1	No Commitments	66
Section 7.2	Further Assurances	66
ARTICLE 8	TERM AND TERMINATION	67
Section 8.1	Termination Prior to Closing	67
Section 8.2	Termination After Closing	68
Section 8.3	Effect of Termination	68
ARTICLE 9	MISCELLANEOUS	68
Section 9.1	Expenses	68
Section 9.2	Publicity	68
Section 9.3	Amendment or Modification	69
Section 9.4	Waiver	69
Section 9.5	Entire Agreement	69
Section 9.6	Third-Party Beneficiaries	69
Section 9.7	Non-Assignability; Binding Effect	69
Section 9.8	Severability	69
Section 9.9	Injunctive Relief	70
Section 9.10	GOVERNING LAW	70
Section 9.11	Submission to Jurisdiction	70
Section 9.12	WAIVER OF JURY TRIAL	70
Section 9.13	Notices	71
Section 9.14	Counterparts	72
Section 9.15	Interpretation	72
Section 9.16	Schedules	72

Schedule		Description
Schedule 1.1(a)(1)		Citigroup Contributed Assets
Schedule 1.1(b)(1)		Citigroup Contributed Subsidiaries
Schedule 1.1(b)(2)		Morgan Stanley Contributed Subsidiaries
Schedule 1.1(c)(1)		Citigroup Excluded Assets
Schedule 1.1(c)(2)		Morgan Stanley Excluded Assets
Schedule 1.1(d)(1)		Citigroup Contributed Leased Real Property
Schedule 1.1(d)(2)		Morgan Stanley Contributed Leased Real Property
Schedule 1.1(e)(1)		Citigroup Contributed Real Property
Schedule 1.1(f)(1)		Financial Statements of the Citigroup Contributed Business
Schedule 1.1(f)(2)		Financial Statements of the Morgan Stanley Contributed Business
Schedule 3.1(e)		Citigroup Governmental Approvals and Third Party Approvals
Schedule 3.2(e)		Morgan Stanley Governmental Approvals and Third Party Approvals
Schedule 3.1(f)		Financial Statements, Undisclosed Liabilities, No Material Adverse Effect
Schedule 4.1(1)		Citigroup Conduct of Business Prior to Closing
Schedule 4.10(c)(1)		Citigroup Intercompany Agreements
Schedule 4.10(c)(2)		Morgan Stanley Intercompany Agreements
Schedule 5.1(d)		Governmental Approvals Required for Closing
Schedule 6		Employee Matters Covenants

 

Exhibit		Description
Exhibit A		Terms of Deposit Sweep Agreement
Exhibit B		Terms of Distribution Agreements
Exhibit C		Terms of Employee Matters Agreement
Exhibit D		Terms of General Transition Services Agreements
Exhibit E		Terms of Limited Liability Company Agreement
Exhibit F		Terms of Order Flow Agreements
Exhibit G		Terms of Research Agreements

THIS JOINT VENTURE CONTRIBUTION AND FORMATION AGREEMENT (this “Agreement”) is made as of January 13, 2009, by and between Citigroup Inc., a Delaware corporation (“Citigroup”), and Morgan Stanley, a Delaware corporation (“Morgan Stanley”) (hereinafter, each of which may be called a “Party” and may collectively be called the “Parties”).

A. Citigroup, through Subsidiaries (defined terms used in these recitals have the meanings given to them in Section 1.1) and otherwise, is engaged in the Citigroup Contributed Business, and Morgan Stanley, through Subsidiaries and otherwise, is engaged in the Morgan Stanley Contributed Business.

B. The Parties desire to contribute their respective Contributed Businesses to a Delaware limited liability company to be formed pursuant to Section 2.1 (such entity and any successor thereof, the “Company”).

C. The Parties desire to enter into this Agreement to set forth the terms and conditions for the formation of the Company.

Section 1.1 Defined Terms. In this Agreement, except where the context otherwise requires:

“Accounts Payable” means all accounts and notes payable to the extent related to the Contributed Businesses, including those of the type reflected on the balance sheet included in either the Financial Statements of the Citigroup Contributed Business or the Financial Statements of the Morgan Stanley Contributed Business, as applicable, as payable to customers, vendors or others.

“Accounts Receivable” means all accounts and notes receivable to the extent related to the Contributed Businesses, including those of the type reflected on the balance sheet included in either the Financial Statements of the Citigroup Contributed Business or the Financial Statements of the Morgan Stanley Contributed Business, as applicable, as due from customers, brokers, dealers, clearing organizations or others.

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder.

“Affiliate” means with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such other Person, including but not limited to such Person’s Subsidiaries; and “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power

 

to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. Unless otherwise specifically stated, the term “Affiliate” does not include: (x) the Company Entities when used with respect to any Party, any Citigroup Entity or any Morgan Stanley Entity, and (y) the Citigroup Entities or the Morgan Stanley Entities when used with respect to any Company Entity. “Affiliated” and “Affiliation” shall have correlative meanings.

“Agreement” has the meaning set forth in the preamble hereto.

“Applicable Taxes” means (i) entity-level Taxes imposed on the Company Entities with respect to a Contributed Business and (ii) if a Contributed Asset is transferred to the Company other than through a transfer of Citigroup Contributed Equity Interests or Morgan Stanley Contributed Equity Interests, as the case may be, non-income Taxes (other than Transfer Taxes) with respect to such Contributed Asset.

“Benefit Plan” shall mean, as applicable, (i) a Citigroup Contributed Business Benefit Plan or Citigroup Contributed Subsidiary Benefit Plan, and (ii) a Morgan Stanley Contributed Business Benefit Plan or Morgan Stanley Contributed Subsidiary Benefit Plan.

“Business Day” means a day ending at 11:59 p.m. (Eastern Time), other than a Saturday, a Sunday or other day on which commercial banks in New York, New York are authorized or obligated by Law or executive order to close.

“Certificate of Formation” means the Certificate of Formation of the Company to be filed prior to Closing with the Secretary of State of the State of Delaware in order to create the Company in form and substance reasonably acceptable to each of Morgan Stanley and Citigroup.

“Change of Control” means, with respect to any Person, (i) any merger, consolidation or business combination of such Person as a result of which both (x) holders of the voting securities of such Person immediately prior to the consummation of the transaction hold, directly or indirectly, immediately following the consummation of the transaction, securities or other equity interests in the ultimate parent of the surviving entity in such transaction possessing less than a majority of the outstanding equity and voting power of the ultimate parent of the surviving entity and (y) individuals who constituted the board of directors of such Person immediately prior to the execution and delivery of definitive documentation with respect to the transaction cease to represent at least a majority of the board of directors of the ultimate parent entity of the surviving entity of such transaction; (ii) any other transaction, including the sale by such Person of new shares of capital stock or new equity interests or a transfer of existing shares of capital stock or existing equity interests of such Person, the result of which is that any Person or group of related persons directly or indirectly acquires (a) beneficial ownership (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of securities or other equity interests representing a majority of the outstanding voting power or (b) a majority of the assets of the relevant entity or (iii)

 

the bankruptcy, insolvency, dissolution, winding-up, general assignment for the benefit of creditors or receivership of such Person or other similar proceeding or event.

“Citigroup” has the meaning set forth in the preamble hereto.

“Citigroup Contributed Assets” means all assets (real, personal, mixed, tangible or intangible) of Citigroup or any of its Subsidiaries, in each case that are utilized, or held for use, primarily in the conduct of the Citigroup Contributed Business, other than any such asset the use of which is expressly being provided after the Closing pursuant to a Transaction Document, which shall include, in any event, the following:

(i) all assets (real, personal, mixed, tangible or intangible) reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business;

(iv) Citigroup’s Contributed Real Property Leases, including any security deposits paid thereunder;

(vi) all furniture, fixtures, equipment (including but not limited to telephones, telephone numbers, switches, servers, computers, printers, scanners, and data processing equipment), machinery, automobiles, office supply inventories, and other tangible personal property utilized primarily in the Citigroup Contributed Business;

(vii) all contracts and agreements between Citigroup or one of its Subsidiaries, on the one hand, and any customer of the Citigroup Contributed Business, on the other, pursuant to which services of the Citigroup Contributed Business are to be delivered to such customer, including any assets or rights (including any funds or securities and any commodity positions) of customers that are held by Citigroup and its Subsidiaries pursuant to any such contract or agreement, including for distribution or payment or as collateral;

(viii) all margin and other customer debit balances of Citigroup and its Subsidiaries related to the Citigroup Contributed Business to the extent reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business;

(x) copies of all of the books and records in any form or medium of Citigroup and its Subsidiaries to the extent related to the Citigroup Contributed Business (including personnel records, customer records, transaction histories, correspondence files and other records relating to dealings with customers of the Citigroup Contributed Business), other than (A) books and records (or copies thereof) to the extent they relate to the Citigroup Excluded Businesses (it being understood that books and records that relate both to the

 

Citigroup Contributed Business and the Citigroup Excluded Businesses shall be copied and a copy thereof shall be included within the Citigroup Contributed Assets) and (B) any income Tax Returns of any Citigroup Entity or any group of entities that includes a Citigroup Entity;

(xi) all rights, claims, credits, causes of action, rights of recovery and rights of set-off of any kind to the extent relating to the Citigroup Contributed Assets, including any unliquidated rights under manufacturers’ and vendors’ warranties;

(xii) all Accounts Receivable to the extent reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business, including but not limited to employee loans;

(xiii) all customer accounts of the Citigroup Contributed Business and the customer relationships and goodwill relating thereto;

(xiv) all federal, state, municipal, foreign and other Permits held or used by Citigroup and any of its Affiliates primarily in connection with the Citigroup Contributed Business, to the extent transferable;

(xv) Citigroup Transferred Plans and the assets set aside in respect thereof (whether in separate funding vehicles or denominated for the funding of benefits thereof on the books and records of Citigroup or any of its Subsidiaries), assets related to Citigroup Contributed Subsidiary Benefit Plans in addition to those held by Citigroup Contributed Subsidiaries or pursuant to trusts, insurance policies or other funding vehicles which are transferred to, or assumed by, the Company or one of the Company Entities by virtue of the contribution to the Company of the Citigroup Contributed Subsidiaries, and those contracts and agreements of Citigroup or its Subsidiaries primarily relating to any Citigroup Transferred Plan (but only if the Company has expressly agreed to administer such Citigroup Transferred Plan pursuant to the terms of any Transaction Document);

(xvi) all securities held for investment or resale in connection with the Citigroup Contributed Business;

(xvii) all customer lists and prospective customer lists, customer information, finding broker lists, databases, trading models, and policies and procedures, in each case primarily utilized or prepared in connection with the Citigroup Contributed Business;

(xviii) all credits, prepaid expenses, deferred charges, advance payments, security deposits and prepaid items to the extent that the underlying assets related thereto are Citigroup Contributed Assets;

(xix) all cash, bank accounts and deposits with clearing organizations, depositories and similar organizations which primarily relate to the Citigroup Contributed Business;

(xx) manuals and marketing materials (in any form or medium), including, without limitation, advertising matter, brochures, catalogues, price lists, mailing lists, distribution lists, photographs, production data, and sales and promotional materials which primarily relate to or were prepared primarily in connection with the Citigroup Contributed Business;

(xxi) all rights, privileges and claims to the extent relating to any of the other Citigroup Contributed Assets or the Citigroup Contributed Business;

provided, however, that the Citigroup Contributed Assets shall in each case exclude all Citigroup Excluded Assets.

“Citigroup Contributed Business” means the business reflected in the Financial Statements of the Citigroup Contributed Business, which includes Citigroup’s retail brokerage and futures business operated under the name “Smith Barney” in the United States and Australia and operated under the name “Quilter” in the United Kingdom, Ireland and the Channel Islands; provided, however, that the Citigroup Contributed Business shall exclude all Citigroup Excluded Assets, Citigroup Excluded Liabilities and the Citigroup Excluded Businesses.

“Citigroup Contributed Business Benefit Plans” means each Employee Benefit Plan, other than a Citigroup Contributed Subsidiary Benefit Plan, that has been sponsored by Citigroup or any of its Subsidiaries and that provides, has provided or will provide benefits or compensation (assuming any vesting, performance or other benefit requirements are met) (i) in respect of any Citigroup Contributed Business Individual or (ii) in respect of which any Company Entity has or may have any present or future liability.

“Citigroup Contributed Business Individuals” means the employees and independent contractors of Citigroup and its Subsidiaries who (i) primarily provide services in connection with the Citigroup Contributed Business or (ii) are individuals that the Parties agree prior to the Closing should be treated as Citigroup Contributed Business Individuals in light of such individuals’ duties and responsibilities.

“Citigroup Contributed Contracts” means any contracts or agreements, other than any Benefit Plan, to which Citigroup or any of its Subsidiaries is a party that relate primarily to the conduct of the Citigroup Contributed Business.

“Citigroup Contributed Equity Interests” means the limited liability company interests, stock or other equity interests of the Citigroup Contributed Subsidiaries.

“Citigroup Contributed IP” means all Intellectual Property that is (i) owned by Citigroup or a Subsidiary of Citigroup (including the Citigroup Contributed Subsidiaries) and (ii) primarily used or held for use with respect to the Citigroup Contributed Business, including in any event the Trademark “Smith Barney” and “Quilter”, but shall not include, in any event, the Trademark “Citigroup”.

“Citigroup Contributed Liabilities” means the following: (i) all free credit and other customer balances of Citigroup and its Subsidiaries related to the Citigroup Contributed Business, including but not limited to amounts withheld on customer transactions and payable to Governmental Authorities, to the extent such free credit and other customer balances are reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business; (ii) all obligations of Citigroup and its Subsidiaries under the Citigroup Contributed Contracts, Citigroup’s Contributed Real Property Leases, Citigroup’s Contributed IP Licenses and the other contracts and agreements constituting part of the Citigroup Contributed Assets, in each case to the extent arising from the operation of the Citigroup Contributed Business or the ownership of the Citigroup Contributed Assets following the Closing; (iii) liabilities to the extent relating to the Citigroup Contributed Business, to the extent they are reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business; (iv) all liabilities of the Citigroup Contributed Subsidiaries arising under the Transaction Documents; (v) those liabilities of Citigroup and/or its Subsidiaries agreed to be assumed or retained by the Company Entities under the Employee Matters Agreement or in respect of the Citigroup Contributed Subsidiary Benefit Plans and all liabilities in respect of other contracts and agreements of Citigroup or its Subsidiaries primarily relating to any Citigroup Transferred Plan; (vi) all Accounts Payable of the Citigroup Contributed Business to the extent they are reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business; and (vii) the obligation to repurchase securities sold under repurchase agreements and not yet repurchased and attributable to the Citigroup Contributed Business to the extent they are reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business.

“Citigroup Contributed Subsidiaries” means as of any date the Subsidiaries of Citigroup listed on Schedule 1.1(b)(1) (to the extent in existence on the date hereof); provided that the term “Citigroup Contributed Subsidiaries” shall in the case of Citigroup Contributed Subsidiaries to be formed after the date of this Agreement, refer to such entities from and after the date of their formation.

“Citigroup Contributed Subsidiary Benefit Plan” means each Employee Benefit Plan that is sponsored by a Citigroup Contributed Subsidiary for the benefit of any current or former employee, officer, director or independent contractor of the Subsidiary or any beneficiary or dependent thereof.

“Citigroup Disclosure Letter” has the meaning set forth in Section 3.1.

 

“Citigroup Employment Agreements” means any Employment Agreement of a Citigroup Contributed Business Individual.

“Citigroup Entities” means Citigroup and its Subsidiaries other than the Citigroup Contributed Subsidiaries and other than the Company Entities.

“Citigroup Equity Awards” means the option, restricted stock and other equity grants made to the Citigroup Transferees prior to the Service Transfer Date.

“Citigroup Excluded Assets” means (i) any asset listed on Schedule 1.1(c)(1), (ii) any asset not utilized, or held for use, primarily in the conduct of the Citigroup Contributed Business that is not otherwise contemplated to be contributed to the Company pursuant to any Transaction Document, (iii) any asset otherwise expressly contemplated by any provision of this Agreement or any Transaction Document not to be contributed to the Company and that is not reflected on the Final Closing Balance Sheet of the Citigroup Contributed Business, and (iv) all membership and trading privileges held or used by Citigroup and any of its Affiliates.

“Citigroup Excluded Businesses” means the businesses, activities and operations of Citigroup and its Subsidiaries other than the Citigroup Contributed Business.

“Citigroup Excluded Employment Liabilities” means those liabilities, obligations and duties intended to be treated as such under the terms of the Employee Matters Agreement and Schedule 6.

“Citigroup Excluded Liabilities” means any liability, obligation or duty of Citigroup or any of its Subsidiaries or Affiliates, whether or not related to the Citigroup Contributed Business, that is not expressly contemplated by this Agreement or any other Transaction Document to be a Citigroup Contributed Liability, including but not limited to Excluded Claims, Citigroup Excluded Employment Liabilities and Citigroup Excluded Taxes.

“Citigroup Excluded Taxes” means any liability, obligation or commitment, whether or not accrued, assessed or currently due and payable: (i) for any Taxes imposed on or payable by the Citigroup Entities or with respect to the Citigroup Excluded Businesses, Citigroup Excluded Assets or Citigroup Excluded Liabilities for any taxable period; (ii) for any Taxes imposed on or payable by the Citigroup Contributed Subsidiaries or with respect to the Citigroup Contributed Business, the Citigroup Contributed Assets or the Citigroup Contributed Liabilities with respect to any Pre- Closing Tax Period; (iii) for any Taxes of or imposed on any of the Citigroup Contributed Subsidiaries as a result of Treasury Regulation Section 1.1502-6(a) (or any similar provision of state, local or foreign Law) as a result of having been a member of any consolidated, combined, unitary or affiliated group prior to the Closing; (iv) for any Taxes resulting from any extraordinary transaction outside the ordinary course of business undertaken by Citigroup or any of its Affiliates in anticipation of the Closing, including (x) Taxes with respect to the Citigroup Reorganization (other than Transfer Taxes required to be borne by Morgan Stanley pursuant to Section 4.5(h)) and (y) Taxes

with respect to the transactions contemplated by Section 4.10(d); (v) for any obligation or other liability of a Citigroup Contributed Subsidiary to indemnify any other Person in respect of or relating to Taxes or to pay an amount pursuant to a Tax sharing or Tax allocation agreement (other than any obligation or liability arising under an agreement entered into by a Citigroup Contributed Subsidiary after the Closing); and (vi) for any Transfer Taxes to the extent required to be borne by Citigroup pursuant to Section 4.5(h).

“Citigroup Key Contributed Business Individual” has the meaning set forth in Section 4.1(b)(v).

“Citigroup Reorganization” has the meaning set forth in Section 2.2(a).

“Citigroup Tangible Book Value” means, as of the Closing Date and based on the respective amounts shown on the Final Closing Balance Sheet of the Citigroup Contributed Business, the total assets minus goodwill and other intangibles (excluding COLI) minus total liabilities of the Citigroup Contributed Business, as determined in accordance with Section 2.5.

“Citigroup Transferees” means all Citigroup Contributed Business Individuals who, as of the Service Transfer Date, become employed by (or become independent contractors of, as the case may be) a Company Entity.

“Citigroup Transferors” means Citigroup and each Subsidiary of Citigroup that owns (or, in the case of Citigroup Contributed Liabilities, is responsible for), as of the date hereof or as of the Closing Date, (i) any equity interest in any Citigroup Contributed Subsidiary, (ii) any Citigroup Contributed Assets or (iii) any Citigroup Contributed Liabilities.

“Citigroup Transferred Plan” means a Citigroup Contributed Business Benefit Plan (or the portion thereof) and the assets relating thereto, pursuant to Section 3.1 of Schedule 6, that are contributed to the Company, or expressly assumed by a Company Entity. Notwithstanding any other provision of this Agreement to the contrary, a Citigroup Employment Agreement shall only be a Citigroup Transferred Plan if the Citigroup Contributed Business Individual covered by the Citigroup Employment Agreement becomes a Citigroup Transferee.

“Claim” means any and all actions, suits, litigation, complaints, demands, claims or counterclaims or legal, administrative or arbitral proceedings, information requests or investigations or Orders.

“Closing” has the meaning and consists of the transactions set forth in Section 2.3.

“Closing Date” has the meaning set forth in Section 2.3.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” has the meaning set forth in the recitals hereto.

“Company Entities” means the Company and, from time to time, its Subsidiaries, giving effect to the Closing.

“Compliance Requirements” has the meaning set forth in Section 4.5(k).

“Compliance Ruling” has the meaning set forth in Section 4.5(k).

“Confidentiality Agreement” means the letter agreement, dated as of December 3, 2008, by and between Citigroup and Morgan Stanley, as it may be amended from time to time.

“Consent” means any consent (including any “negative consent”), approval, authorization, waiver, grant, franchise, concession, agreement, license, exemption or other Permit or Order of, registration, declaration or filing with, or report or notice to, any Person.

“Contributed Assets” means the Citigroup Contributed Assets or the Morgan Stanley Contributed Assets, or both, as the context requires.

“Contributed Business Individuals” means, collectively, the Citigroup Contributed Business Individuals and the Morgan Stanley Contributed Business Individuals.

“Contributed Businesses” means the Citigroup Contributed Business and the Morgan Stanley Contributed Business, or either of them, as the context requires.

“Contributed IP Licenses” means, with respect to a Party, any license, consent, royalty or other agreement concerning any Intellectual Property licensed to such Party or a Subsidiary of such Party and used or held for use primarily with respect to such Party’s Contributed Business.

“Contributed Leased Real Property” means, with respect to Citigroup, the real property occupied or used by Citigroup or one of its Subsidiaries or other Affiliates pursuant to a Contributed Real Property Lease located at the addresses set forth on Schedule 1.1(d)(1) and, with respect to Morgan Stanley, the real property occupied or used by Morgan Stanley or one of its Subsidiaries or other Affiliates pursuant to a Contributed Real Property Lease located at the addresses set forth on Schedule 1.1(d)(2), in each case to the extent set forth on the applicable Schedule.

“Contributed Liabilities” means the Citigroup Contributed Liabilities or the Morgan Stanley Contributed Liabilities, or both, as the context requires.

“Contributed Real Property” means, with respect to Citigroup, the real property owned in fee by Citigroup or one of its Subsidiaries or other Affiliates described on Schedule 1.1(e)(1).

“Contributed Real Property Lease” means any lease or sublease (or allocable portion thereof) by or under which Citigroup or one of its Subsidiaries or other Affiliates

 

or Morgan Stanley or one of its Subsidiaries or other Affiliates holds a leasehold interest or uses or occupies or has the right to use or occupy any Contributed Leased Real Property or any portion thereof or interest therein.

“Contributed Subsidiary” means a Citigroup Contributed Subsidiary or a Morgan Stanley Contributed Subsidiary, as the context requires.

“Controlling Party” has the meaning set forth in Section 6.6(b)(i).

“Controlling Tax Party” has the meaning set forth in Section 4.5(b)(iv).

“CPA Firm” has the meaning set forth in Section 2.5(b).

“Deductible” has the meaning set forth in Section 6.3(a)(ii).

“Delivering Party” has the meaning set forth in Section 4.2(a).

“De Minimis Loss” has the meaning set forth in Section 6.3(a)(i).

“Deposit Sweep Agreement” means the agreement among the Parties and the Company, containing the terms set forth in Exhibit A hereto, to be entered into pursuant to Section 2.4.

“Designated Representatives” has the meaning set forth in Section 4.2(a).

“Distribution Agreements” means agreements among each of the Parties and the Company, containing the terms set forth in Exhibit B hereto, to be entered into pursuant to Section 2.4.

“Employee Benefit Plan” means any employee benefit plan, program, policy or other arrangement providing benefits, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any Employment Agreement, bonus, incentive or deferred compensation, employee loan, severance, termination, retention, change of control, stock option, stock appreciation, stock purchase, phantom stock or other equity- based, performance or other employee or retiree benefit or compensation plan, program, arrangement, agreement or policy.

“Employee Matters Agreement” means the agreement to be entered into among the Parties and the Company, containing the terms set forth in Exhibit C hereto, to be entered into pursuant to Section 2.4.

“Employment Agreement” means a contract, offer letter or agreement of an individual with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant (other than on an at-will basis) pursuant to which the Person or any of its Affiliates has any actual or contingent liability or obligation to

 

provide compensation and/or benefits in consideration for past, present or future services, or in respect of the termination of any such services.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

“Excess Flow-Through Income” shall mean the excess, if any, of (i) the amount of income required to be included by a member with respect to a Contributed Subsidiary that is treated, for federal income tax purposes, as a partnership or as a “controlled foreign corporation” (within the meaning of Section 957(a) of the Code) with respect to a taxable year of such Contributed Subsidiary that includes (but does not end on) the Closing Date, over (ii) the amount of income that would have been required to be included by such member with respect to such Contributed Subsidiary if the taxable year of such Contributed Subsidiary had ended on the Closing Date and the taxable income of such Contributed Subsidiary through the end of the Closing Date had been determined based on a “closing of the books.”

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Excluded Businesses” means the Citigroup Excluded Businesses or the Morgan Stanley Excluded Businesses, or both, as the context requires.

“Excluded Claims” means, with respect to either Party, Losses arising in connection with or relating to a Claim asserted against the other Party, the Company, any of their respective Subsidiaries or Affiliates, any Contributed Subsidiary or with respect to any Contributed Assets or the Contributed Business of that Party, in any case which arise from or in connection with an action, omission to act, condition or event (or series of related actions, omissions, conditions or events) that first occurred at or prior to the Closing, including but not limited to litigation referred to in Section 6.6(g), unless such action, omission, condition or event (or series of related actions, omissions, conditions or events) continues for more than one year after the Closing (in which case such Claim and any Losses arising therefrom shall be an Excluded Claim only to the extent relating to any pre-Closing period).

“Excluded Liabilities” means, in the case of Citigroup, the Citigroup Excluded Liabilities, and, in the case of Morgan Stanley, the Morgan Stanley Excluded Liabilities, or both of them, as the context requires.

“Final Closing Balance Sheet” has the meaning set forth in Section 2.5(b).

“Financial Statements of the Citigroup Contributed Business” means the consolidated unaudited balance sheet of the Citigroup Contributed Business as of November 30, 2008 and the consolidated unaudited statements of income of the Citigroup Contributed Business for the twelve-month period ending on December 31, 2008, which are attached to this Agreement as Schedule 1.1(f)(1).

“Financial Statements of the Morgan Stanley Contributed Business” means the consolidated unaudited balance sheet of the Morgan Stanley Contributed Business as of November 30, 2008 and the consolidated unaudited statements of income of the Morgan Stanley Contributed Business for the twelve-month period ending on December 31, 2008, which are attached to this Agreement as Schedule 1.1(f)(2).

“FINRA” means the Financial Industry Regulatory Authority.

“GAAP” means generally accepted accounting principles as in effect in the United States from time to time.

“General Transition Services Agreement” means the agreements among each of the Parties and the Company, containing the terms set forth on Exhibit D hereto, to be entered into pursuant to Section 2.4.

“Governmental Approval” means any Consent of, with or to any Governmental Authority, and includes any applicable waiting periods associated with any Governmental Approvals.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, body, commission or instrumentality of the United States or foreign nation, or any state or other political subdivision thereof, and any court, tribunal or arbitrator, and any self-regulatory organization (including FINRA or any national securities exchange).

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“Indemnitees” has the meaning set forth in Section 6.2.

“Indemnitor” has the meaning set forth in Section 6.2.

“Infringe” means, with respect to Intellectual Property, to infringe, impair, dilute or otherwise violate. “Infringement” shall have a correlative meaning.

“Initial Citigroup Member” means any directly or indirectly Wholly-Owned Subsidiary of Citigroup to become a member of the Company at the Closing.

“Initial Members” means, in the case of Citigroup, each Initial Citigroup Member, and, in the case of Morgan Stanley, each Initial Morgan Stanley Member, or both the Initial Citigroup Members and the Initial Morgan Stanley Members, as the context requires.

“Initial Morgan Stanley Member” means any directly or indirectly Wholly- Owned Subsidiary of Morgan Stanley to become a member of the Company at the Closing.

“Intellectual Property” means all intellectual property rights under any Law, including, without limitation: (a) (i) inventions, discoveries, processes, designs, techniques, and related improvements, whether or not patented or patentable; (ii) trademarks, trade dress, service marks, service names, trade names, brand names, logos, Internet domain names, business symbols, or other source indicators, and all goodwill associated therewith and all common law rights relating thereto (collectively, “Trademarks”); (iii) copyrights and works of authorship in any media; (iv) know-how, trade secrets, customer lists and confidential or proprietary information and data; and (v) rights of publicity and privacy, “name and likeness” rights and other similar rights; (b) all applications, registrations, patents, certifications, and recordings related thereto; (c) all rights to obtain renewals, extensions, continuations, continuations-in-part, reissues, divisions or similar legal protections related thereto; and (d) all rights to bring an action at law or in equity for the Infringement of the foregoing before the Closing Date, including the right to receive all proceeds and damages therefrom.

“Interests” or “Membership Interests” means the limited liability company interests of the Company as contemplated by the LLC Agreement, and such other equity interests of the Company or any successor to the Company into which such interests may be converted.

“IRS” means the Internal Revenue Service of the United States Department of Treasury.

“Law” means any law (including but not limited to common law), constitution, treaty, statute, code, rule, regulation, ordinance or other pronouncement of a Governmental Authority having a similar effect and any Order.

“LIBOR” means the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars having a maturity of one month at 11:00 a.m. (London time) two Business Days prior to the date of payment.

“Lien” means any lien, security interest, pledge, charge, encumbrance, claim or similar right.

“LLC Agreement” means the Limited Liability Company Agreement among the Parties, each Initial Citigroup Member and each Initial Morgan Stanley Member, to be entered into pursuant to Section 2.4 hereof, containing the terms set forth in Exhibit E hereto.

“Loss” and “Losses” have the meanings set forth in Section 6.2.

“Material Adverse Effect” means (x) with respect to a Person, a material and adverse effect on the business, operations, financial condition or results of operations of

 

such Person and its Subsidiaries, taken as a whole, or (y) with respect to a Contributed Business, a material adverse effect on such Contributed Business or the business, operations, financial condition or results of operations of such Contributed Business, taken as a whole; provided, however, that, in the case of clause (x) or (y), to the extent such change, event, development, condition, occurrence or effect results from any of the following, it shall not in and of itself constitute or be taken into account in determining whether there has been a Material Adverse Effect: (i) changes in the general economy or securities markets of the United States or elsewhere, including but not limited to market price and trading volume fluctuations and changes in interest rates and exchange rates, (ii) changes in the financial services business generally or the portions thereof in which the Contributed Businesses operate generally, (iii) any effects or conditions caused by the announcement or performance of this Agreement, the transactions contemplated by this Agreement or any other Transaction Document and the identity of the Parties or their Affiliates, including, without limitation, the impact thereof on relationships with employees (including financial advisors) and customers of the Contributed Business, (iv) any changes or developments in any political conditions in the United States or elsewhere, including any outbreak of major hostilities in which the United States is involved, any act of terrorism within the United States or elsewhere or any declaration of war, (v) any changes that result from natural disasters, except to the extent directly impacting the assets or properties of the applicable Person or the applicable Contributed Business, (vi) any changes in (A) any Law (including any interpretation or enforcement thereof by any Governmental Authority) or (B) GAAP or regulatory accounting or capital requirements applicable to U.S. banking, brokerage or financial services organizations generally, (vii) any failure of the financial or operating performance of either Party’s Contributed Business to meet any internal projections or budgets or any estimates of revenues or earnings for any period of time prior to, on or after the date of this Agreement, provided that the underlying cause of any failure by such Contributed Business to meet any internal projections or budgets or any estimates of revenues or earnings and its impact on the financial condition, businesses or results of operations of such Contributed Business may be considered in determining whether there has been a Material Adverse Effect (to the extent not otherwise excluded hereunder), and (viii) any effects or conditions caused by or resulting from any action taken or omitted to be taken that (A) is required to be taken or omitted by either Party or its Subsidiaries under this Agreement or (B) is by or at the written request or with the written consent of the other Party (provided, however, that such matters in the case of clauses (i), (ii) and (iv) shall be taken into account in determining whether there has been a Material Adverse Effect to the extent of any disproportionate impact on the applicable Person or applicable Contributed Business, as the case may be, taken as a whole, relative to the other participants operating in the same industries and geographic markets as such Person or Contributed Business, as the case may be). For the avoidance of doubt, no change or development in the business, operations, financial condition, results of operations, or credit, financial strength or other ratings, of a Party or any of its Affiliates (other than the Contributed Business of such Party) (any such event, a “Parent Event”) shall be deemed to constitute a Material Adverse Effect on such Party's Contributed Business, nor shall any such Parent Event be taken into account in determining whether a Material Adverse Effect on such Party's Contributed Business has occurred or is reasonably like to occur, except to the extent that

such Parent Event (or the underlying cause of such Parent Event) directly and adversely affects the business, operations, financial condition or results of operations of such Party's Contributed Business, taken as a whole, subject to the limitations set forth above in this definition.

“Material Contracts” means, with respect to a Party, each of the following to which such Party or any of its Subsidiaries is a party and that relate primarily to its Contributed Business, or by which its Contributed Assets or Contributed Subsidiaries are bound:

(i) agreements with a Third Party (other than distribution, sub-advisory, IT consulting and other similar arrangements entered into in the ordinary course) for the purchase of services, materials, supplies, merchandise or equipment (A) in an aggregate amount for the unexpired term thereof equal to or greater than $10 million or (B) providing for the payment (or potential liability for payment) of a penalty (including but not limited to any early termination fee, prepayment penalty or similar charge), fee or any other amount during or after the unexpired term thereof equal to or greater than $5 million;

(ii) broker’s or finder’s agreements as to which the total fees payable thereunder could reasonably be expected to exceed $1,000,000;

(iii) agreements under which administrative and other services are provided to or on behalf of a Third Party (other than advisory agreements entered into in the ordinary course) and which provide for an aggregate payment for the unexpired term thereof in excess of $10 million;

(iv) reimbursement agreements, non-financial repurchase agreements and equipment leases with a Third Party providing for aggregate payments in excess of $10,000,000;

(v) Contributed Real Property Leases having an unexpired lease term of more than five years and an annual rent in excess of $10,000,000;

(vi) agreements prohibiting or materially restricting the ability of a Party or any of its Subsidiaries or key employees to conduct its Contributed Business, operate its Contributed Business in any geographical area or compete with any Person in its Contributed Business or containing exclusivity, preferred provider, most favored nation, take-or-pay or similar restrictions;

(vii) agreements which require the referral of any business or require such Party’s Contributed Subsidiaries or such Party’s Contributed Business to make available investment or other business opportunities or products or services on a priority, equal or exclusive basis;

(viii) agreements, any of the benefits of which will be reduced, increased, accelerated, delayed or otherwise modified by virtue of the consummation of the

transactions contemplated hereby in any respect material to the Company Entities as a whole; and

(ix) agreements which (or the violation of which) would reasonably be expected to have a Material Adverse Effect on the Company.

“Morgan Stanley” has the meaning set forth in the preamble hereto.

“Morgan Stanley Contributed Assets” means all assets (real, personal, mixed, tangible or intangible) of Morgan Stanley or any of its Subsidiaries, in each case that are utilized, or held for use, primarily in the conduct of the Morgan Stanley Contributed Business, other than any such asset the use of which is expressly being provided after the Closing pursuant to a Transaction Document, which shall include, in any event, the following:

(i) all assets (real, personal, mixed, tangible or intangible) reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business;

(iv) Morgan Stanley’s Contributed Real Property Leases, including any security deposits paid thereunder;

(v) Morgan Stanley’s Contributed IP Licenses and the Morgan Stanley Contributed IP;

(vi) all furniture, fixtures, equipment (including but not limited to telephones, telephone numbers, switches, servers, computers, printers, scanners, and data processing equipment), machinery, automobiles, office supply inventories, and other tangible personal property utilized primarily in the Morgan Stanley Contributed Business;

(vii) all contracts and agreements between Morgan Stanley or one of its Subsidiaries, on the one hand, and any customer of the Morgan Stanley Contributed Business, on the other, pursuant to which services of the Morgan Stanley Contributed Business are to be delivered to such customer, including any assets or rights (including any funds or securities and any commodity positions) of customers that are held by Morgan Stanley and its Subsidiaries pursuant to any such contract or agreement, including for distribution or payment or as collateral;

(viii) all margin and other customer debit balances of Morgan Stanley and its Subsidiaries related to the Morgan Stanley Contributed Business to the extent reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business;

 

(x) copies of all of the books and records in any form or medium of Morgan Stanley and its Subsidiaries to the extent related to the Morgan Stanley Contributed Business (including personnel records, customer records, transaction histories, correspondence files and other records relating to dealings with customers of the Morgan Stanley Contributed Business), other than (A) books and records (or copies thereof) to the extent they relate to the Morgan Stanley Excluded Businesses (it being understood that books and records that relate both to the Morgan Stanley Contributed Business and the Morgan Stanley Excluded Businesses shall be copied and a copy thereof shall be included within the Morgan Stanley Contributed Assets) and (B) any income Tax Returns of any Morgan Stanley Entity or any group of entities that includes a Morgan Stanley Entity;

(xi) all rights, claims, credits, causes of action, rights of recovery and rights of set-off of any kind to the extent relating to the Morgan Stanley Contributed Assets, including any unliquidated rights under manufacturers’ and vendors’ warranties;

(xii) all Accounts Receivable to the extent reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business, including but not limited to employee loans;

(xiii) all customer accounts of the Morgan Stanley Contributed Business and the customer relationships and goodwill relating thereto;

(xiv) all federal, state, municipal, foreign and other Permits held or used by Morgan Stanley and any of its Affiliates primarily in connection with the Morgan Stanley Contributed Business, to the extent transferable;

(xv) Morgan Stanley Transferred Plans and the assets set aside in respect thereof (whether in separate funding vehicles or denominated for the funding of benefits thereof on the books and records of Morgan Stanley or any of its Subsidiaries), assets related to Morgan Stanley Contributed Subsidiary Benefit Plans in addition to those held by Morgan Stanley Contributed Subsidiaries or pursuant to trusts, insurance policies or other funding vehicles which are transferred to, or assumed by, the Company or one of the Company Entities by virtue of the contribution to the Company of the Morgan Stanley Contributed Subsidiaries, and those contracts and agreements of Morgan Stanley or its Subsidiaries primarily relating to any Morgan Stanley Transferred Plan (but only if the Company has expressly agreed to administer such Morgan Stanley Transferred Plan pursuant to the terms of any Transaction Document);

(xvi) all securities held for investment or resale in connection with the Morgan Stanley Contributed Business;

(xvii) all customer lists and prospective customer lists, customer information, finding broker lists, databases, trading models, and policies and procedures, in each case primarily utilized or prepared in connection with the Morgan Stanley Contributed Business;

(xviii) all credits, prepaid expenses, deferred charges, advance payments, security deposits and prepaid items to the extent that the underlying assets related thereto are Morgan Stanley Contributed Assets;

(xix) all cash, bank accounts and deposits with clearing organizations, depositories and similar organizations which primarily relate to the Morgan Stanley Contributed Business;

(xx) manuals and marketing materials (in any form or medium), including, without limitation, advertising matter, brochures, catalogues, price lists, mailing lists, distribution lists, photographs, production data, and sales and promotional materials which primarily relate to or were prepared primarily in connection with the Morgan Stanley Contributed Business;

(xxi) all rights, privileges and claims to the extent relating to any of the other Morgan Stanley Contributed Assets or the Morgan Stanley Contributed Business; and

provided, however, that the Morgan Stanley Contributed Assets shall in each case exclude all Morgan Stanley Excluded Assets.

“Morgan Stanley Contributed Business” means the business reflected in the Financial Statements of the Morgan Stanley Contributed Business, which includes Morgan Stanley’s global wealth management and private wealth management businesses; provided, however, that the Morgan Stanley Contributed Business shall exclude all Morgan Stanley Excluded Assets, Morgan Stanley Excluded Liabilities and the Morgan Stanley Excluded Businesses.

“Morgan Stanley Contributed Business Benefit Plans” means each Employee Benefit Plan, other than a Morgan Stanley Contributed Subsidiary Benefit Plan, that has been sponsored by Morgan Stanley or any of its Subsidiaries and that provides, has provided or will provide benefits or compensation (assuming any vesting, performance or other benefit requirements are met) (i) in respect of any Morgan Stanley Contributed Business Individual or (ii) in respect of which any Company Entity has or may have any present or future liability.

“Morgan Stanley Contributed Business Individuals” means the employees and independent contractors of Morgan Stanley and its Subsidiaries who (i) primarily provide services in connection with the Morgan Stanley Contributed Business or (ii) are

individuals that the Parties agree prior to the Closing should be treated as Morgan Stanley Contributed Business Individuals in light of such individuals’ duties and responsibilities.

“Morgan Stanley Contributed Contracts” means any contracts or agreements, other than any Benefit Plan, to which Morgan Stanley or any of its Subsidiaries is a party that relate primarily to the conduct of the Morgan Stanley Contributed Business.

“Morgan Stanley Contributed Equity Interests” means the limited liability company interests, stock or other equity interests of the Morgan Stanley Contributed Subsidiaries.

“Morgan Stanley Contributed IP” means all Intellectual Property that is (i) owned by Morgan Stanley or a Subsidiary of Morgan Stanley (including the Morgan Stanley Contributed Subsidiaries) and (ii) primarily used or held for use with respect to the Morgan Stanley Contributed Business including in any event the Trademark “Dean Witter”, but shall not include, in any event, the Trademark “Morgan Stanley”.

“Morgan Stanley Contributed Liabilities” means the following: (i) all free credit and other customer balances of Morgan Stanley and its Subsidiaries related to the Morgan Stanley Contributed Business, including but not limited to amounts withheld on customer transactions and payable to Governmental Authorities, to the extent such free credit and other customer balances are reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business; (ii) all obligations of Morgan Stanley and its Subsidiaries under the Morgan Stanley Contributed Contracts, Morgan Stanley’s Contributed Real Property Leases, Morgan Stanley’s Contributed IP Licenses and the other contracts and agreements constituting part of the Morgan Stanley Contributed Assets, in each case to the extent arising from the operation of the Morgan Stanley Contributed Business or the ownership of the Morgan Stanley Contributed Assets following the Closing; (iii) liabilities to the extent relating to the Morgan Stanley Contributed Business, to the extent they are reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business; (iv) all liabilities of the Morgan Stanley Contributed Subsidiaries arising under the Transaction Documents; (v) those liabilities of Morgan Stanley and/or its Subsidiaries agreed to be assumed or retained by the Company Entities under the Employee Matters Agreement or in respect of the Morgan Stanley Contributed Subsidiary Benefit Plans and all liabilities in respect of other contracts and agreements of Morgan Stanley or its Subsidiaries primarily relating to any Morgan Stanley Transferred Plan; (vi) all Accounts Payable of the Morgan Stanley Contributed Business to the extent they are reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business; and (vii) the obligation to repurchase securities sold under repurchase agreements and not yet repurchased and attributable to the Morgan Stanley Contributed Business to the extent they are reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business.

“Morgan Stanley Contributed Subsidiaries” means as of any date the Subsidiaries of Morgan Stanley listed on Schedule 1.1(b)(2) (to the extent in existence on the date hereof); provided that the term “Morgan Stanley Contributed Subsidiaries” shall in the

 

case of Morgan Stanley Contributed Subsidiaries to be formed after the date of this Agreement, refer to such entities from and after the date of their formation.

“Morgan Stanley Contributed Subsidiary Benefit Plan” means each Employee Benefit Plan that is sponsored by a Morgan Stanley Contributed Subsidiary for the benefit of any current or former employee, officer, director or independent contractor of the Subsidiary or any beneficiary or dependent thereof.

“Morgan Stanley Disclosure Letter” has the meaning set forth in Section 3.2.

“Morgan Stanley Employment Agreements” means any Employment Agreement of a Morgan Stanley Contributed Business Individual.

“Morgan Stanley Entities” means Morgan Stanley and its Subsidiaries other than the Morgan Stanley Contributed Subsidiaries and other than the Company Entities.

“Morgan Stanley Equity Awards” means the option, restricted stock and other equity grants made to the Morgan Stanley Transferees prior to the Service Transfer Date.

“Morgan Stanley Excluded Assets” means (i) any asset listed on Schedule 1.1(c)(2), (ii) any asset not utilized, or held for use, primarily in the conduct of the Morgan Stanley Contributed Business that is not otherwise contemplated to be contributed to the Company pursuant to any Transaction Document, (iii) any asset otherwise expressly contemplated by any provision of this Agreement or any Transaction Document not to be contributed to the Company and that is not reflected on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business and (iv) all membership and trading privileges held or used by Morgan Stanley and any of its Affiliates.

“Morgan Stanley Excluded Businesses” means the businesses, activities and operations of Morgan Stanley and its Subsidiaries other than the Morgan Stanley Contributed Business.

“Morgan Stanley Excluded Employment Liabilities” means those liabilities, obligations and duties intended to be treated as such under the terms of the Employee Matters Agreement and Schedule 6.

“Morgan Stanley Excluded Liabilities” means any liability, obligation or duty of Morgan Stanley or any of its Subsidiaries or Affiliates, whether or not related to the Morgan Stanley Contributed Business, that is not expressly contemplated by this Agreement or any other Transaction Document to be a Morgan Stanley Contributed Liability, including but not limited to Excluded Claims, Morgan Stanley Excluded Employment Liabilities and Morgan Stanley Excluded Taxes.

“Morgan Stanley Excluded Taxes” means any liability, obligation or commitment, whether or not accrued, assessed or currently due and payable: (i) for any Taxes imposed on or payable by the Morgan Stanley Entities or with respect to the Morgan Stanley Excluded Businesses, Morgan Stanley Excluded Assets or Morgan

 

Stanley Excluded Liabilities for any taxable period; (ii) for any Taxes imposed on or payable by the Morgan Stanley Contributed Subsidiaries or with respect to the Morgan Stanley Contributed Business, the Morgan Stanley Contributed Assets or the Morgan Stanley Contributed Liabilities with respect to any Pre-Closing Tax Period; (iii) for any Taxes of or imposed on any of the Morgan Stanley Contributed Subsidiaries as a result of Treasury Regulation Section 1.1502-6(a) (or any similar provision of state, local or foreign Law) as a result of having been a member of any consolidated, combined, unitary or affiliated group prior to the Closing; (iv) for any Taxes resulting from any extraordinary transaction outside the ordinary course of business undertaken by Morgan Stanley or any of its Affiliates in anticipation of the Closing, including (x) Taxes with respect to the Morgan Stanley Reorganization (other than Transfer Taxes required to be borne by Citigroup pursuant to Section 4.5(h)) and (y) Taxes with respect to the transactions contemplated by Section 4.10(d); (v) for any obligation or other liability of a Morgan Stanley Contributed Subsidiary to indemnify any other Person in respect of or relating to Taxes or to pay an amount pursuant to a Tax sharing or Tax allocation agreement (other than any obligation or liability arising under an agreement entered into by a Morgan Stanley Contributed Subsidiary after the Closing); and (vi) for any Transfer Taxes to the extent required to be borne by Morgan Stanley pursuant to Section 4.5(h).

“Morgan Stanley Key Contributed Business Individual” has the meaning set forth in Section 4.1(b)(v).

“Morgan Stanley Reorganization” has the meaning set forth in Section 2.2(b).

“Morgan Stanley Tangible Book Value” means, as of the Closing Date and based on the respective amounts shown on the Final Closing Balance Sheet of the Morgan Stanley Contributed Business, the total assets minus goodwill and other intangibles minus total liabilities of the Morgan Stanley Contributed Business, as determined in accordance with Section 2.5.

“Morgan Stanley Transferees” means all Morgan Stanley Contributed Business Individuals who, as of the Service Transfer Date, become employed by (or become independent contractors of, as the case may be) a Company Entity.

“Morgan Stanley Transferors” means Morgan Stanley and each Subsidiary of Morgan Stanley that owns (or, in the case of Morgan Stanley Contributed Liabilities, is responsible for), as of the date hereof or as of the Closing Date, (i) any equity interest in any Morgan Stanley Contributed Subsidiary, (ii) any Morgan Stanley Contributed Assets or (iii) any Morgan Stanley Contributed Liabilities.

“Morgan Stanley Transferred Plan” means a Morgan Stanley Contributed Business Benefit Plan (or the portion thereof) and the assets relating thereto, pursuant to Section 3.1 of Schedule 6, that are contributed to the Company, or expressly assumed by a Company Entity. Notwithstanding any other provision of this Agreement to the contrary, a Morgan Stanley Employment Agreement shall only be a Morgan Stanley Transferred Plan if the Morgan Stanley Contributed Business Individual covered by the Morgan Stanley Employment Agreement becomes a Morgan Stanley Transferee.

“Non-Controlling Tax Party” has the meaning set forth in Section 4.5(b)(iv).

“Non-Party Claim” and “Non-Party Claims” have the meanings set forth in Section 6.6.

“NYSE” means the New York Stock Exchange.

“Objection” has the meaning set forth in Section 2.5(b).

“Order” means any order, writ, judgment, stipulation, decree, injunction, award or decision of, or Consent agreement or similar arrangement with, any Governmental Authority.

“Order Flow Agreements” means the agreements among each of the Parties and the Company, containing the terms set forth in Exhibit F hereto, to be entered into pursuant to Section 2.4.

“Ordinary Course Customer Claim” has the meaning set forth in Section 6.7.

“Party” and “Parties” have the respective meanings set forth in the preamble hereto.

“Permits” means all (x) licenses, permits, orders, consents, approvals, registrations, authorizations, qualifications and filings issued by, and other Governmental Approvals of, any Governmental Authority and (y) memberships in securities exchanges, commodities exchanges, boards of trade, clearing organizations, trade associations and similar organizations offering membership or trading privileges.

“Permitted Liens” means (i) Liens for Taxes or other governmental charges which are not yet due and payable or the amount or validity of which are being contested in good faith by appropriate proceedings and for which adequate reserves have been made on the Financial Statements or the Final Closing Balance Sheet of the Citigroup Contributed Business or the Financial Statements or the Final Closing Balance Sheet of the Morgan Stanley Contributed Business, as the case may be, (ii) Liens of carriers, warehousemen, mechanics, materialmen or other similar Persons or otherwise imposed by Law arising or incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith by appropriate proceedings and for which adequate reserves have been made on the Financial Statements or the Final Closing Balance Sheet of the Citigroup Contributed Business or the Financial Statements or the Final Closing Balance Sheet of the Morgan Stanley Contributed Business, as the case may be, (iii) zoning, entitlement, building, land use and similar governmental restrictions, (iv) covenants, conditions, restrictions, easements, rights-of-way and other matters shown in public records and (v) Liens that, individually and in the aggregate with all other Permitted Liens, do not and will not materially detract from the value of any of the Contributed Assets or materially interfere with the use of any of the Contributed Assets as currently used or contemplated to be used.

“Person” means an individual, corporation, partnership, limited liability company, trust, joint venture, association, unincorporated organization or other entity or a Governmental Authority.

“Pre-Closing Litigation” has the meaning set forth in Section 6.6(g).

“Pre-Closing Tax Period” means any taxable period (or portion thereof) ending on or before the Closing Date.

“Preliminary Citigroup Closing Balance Sheet” has the meaning set forth in Section 2.5(a)(i).

“Preliminary Closing Balance Sheets” has the meaning set forth in Section 2.5(a)(ii).

“Preliminary Morgan Stanley Closing Balance Sheet” has the meaning set forth in Section 2.5(a)(ii).

“Preparing Party” has the meaning set forth in Section 2.5(b).

“Property Taxes” has the meaning set forth in Section 4.5(a)(v).

“Real Property Transfer Documents” means the conveyance deeds and assignments, leases and subleases to be entered into pursuant to Section 4.6, as the same may be amended, supplemented or otherwise modified from time to time.

“Receiving Party” has the meaning set forth in Section 2.5(b).

“Requesting Party” has the meaning set forth in Section 4.2(a).

“Research Agreements” means the agreements among each of the Parties and the Company, containing the terms set forth in Exhibit G hereto, to be entered into pursuant to Section 2.4.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Service Transfer Date” means 12:01 a.m., New York time, as of the date immediately following the Closing Date.

“Straddle Period” means any taxable period ending after the Closing Date that includes the Closing Date.

“Subsidiary” means, with respect to any Person, any corporation fifty percent (50%) or more of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is at the time owned by such Person, directly or indirectly through one or more Subsidiaries, and

 

any other Person, including but not limited to a joint venture, a general or limited partnership or a limited liability company, in which such Person, directly or indirectly through one or more Subsidiaries, at the time owns at least fifty percent (50%) or more of the ownership interests entitled to vote in the election of managing partners, managers or trustees thereof (or other Persons performing such functions) or acts as the general partner, managing member, trustee (or Persons performing similar functions) of such other Person; provided that, notwithstanding the foregoing, the Company Entities shall not be deemed a Subsidiary of any Morgan Stanley Entity or Citigroup Entity on or after the Closing.

“Tax Contest” has the meaning set forth in Section 4.5(b)(i).

“Tax Documentation” means the Citigroup Tax Documentation or the Morgan Stanley Tax Documentation, or both, as the context requires.

“Tax Equivalent Amount” shall mean the product of (i) 35% and (ii) the amount of Excess Flow-Through Income, provided that, if Excess Flow-Through Income is attributable to a Contributed Subsidiary that is a “controlled foreign corporation” (within the meaning of Section 957(a) of the Code) and, with respect to a member, such Excess Flow-Through Income includes the amount determined under Section 78 of the Code, the Tax Equivalent Amount with respect to such member shall be reduced by the foreign income Taxes deemed paid by such member with respect to such Excess Flow-Through Income (determined in accordance with Sections 960(a) and 902(a) of the Code).

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes filed or required to be filed with a Governmental Authority, including any schedule or attachment thereto, and including any amendment thereof.

“Taxes” means any taxes, assessments, duties, imposts, fees, levies or other governmental charges, including, without limitation, all federal, state, local and foreign and other income, franchise, profits, capital gains, capital stock, transfer, sales, use, ad valorem, value added, goods and services, occupation, property, excise, gross receipts, stamp, license, employment, unemployment, withholding, alternative or minimum tax and other taxes of any kind whatsoever, together with any interest, penalties, and additions to tax imposed with respect thereto.

“Third Party” means any Person that is neither a Party or a Company Entity nor an Affiliate of either a Party or a Company Entity.

“Third Party Approval” means any Consent of, with or to any Person other than any Governmental Authority.

“Transaction Documents” means this Agreement, the LLC Agreement, the Distribution Agreements, the Deposit Sweep Agreement, the General Transition Services Agreement, the Order Flow Agreements, the Employee Matters Agreement, the Real Property Transfer Documents and the Research Agreements.

“Transfer Taxes” has the meaning set forth in Section 4.5(h).

“Wholly-Owned Subsidiary” of a Person means a Subsidiary of such Person, all of the issued and outstanding shares (other than directors’ qualifying shares) of the capital stock or other ownership interests, including but not limited to limited liability company interests, of which shall at the time be owned by such Person and/or one or more of such Person’s Wholly-Owned Subsidiaries.

Section 2.1 Formation of Company. Following execution of this Agreement (but in any event prior to the Closing), Morgan Stanley will cause the Company to be formed as a direct or indirect Wholly-Owned Subsidiary by filing the Certificate of Formation with the Secretary of State of the State of Delaware and any other required documents with such other applicable Governmental Authorities as Morgan Stanley shall determine after consultation with Citigroup. Prior to the Closing, Morgan Stanley will cause the Company to take, and following the Closing the Company will take, all actions reasonably requested by a Party to the extent necessary in order to permit such Party to comply with any applicable regulatory or legal requirements, subject to reimbursement by the requesting Party of any costs imposed on the Company (or, prior to the Closing, Morgan Stanley) by such actions.

Section 2.2 Transactions Prior to the Closing. Subject to the terms and conditions hereof, prior to the Closing:

(a) Subject to the receipt of all necessary Governmental Approvals the failure of which to obtain would reasonably be expected to have a Material Adverse Effect on Citigroup or, after the Closing, the Company, Citigroup shall or shall cause its Affiliates to carry out a reorganization (the “Citigroup Reorganization”) such that pursuant thereto and upon completion thereof, subject to Section 4.3(f), the Citigroup Contributed Assets (including the Citigroup Contributed Equity Interests) and the Citigroup Contributed Liabilities shall be transferred to and acquired by the Company; provided that, (i) except for assets or liabilities that may not be extracted, assigned or removed as a matter of Law, and for which, in the case of liabilities, Citigroup would have an obligation to fully indemnify Morgan Stanley, the Company Entities and the other indemnified parties hereunder, the Citigroup Contributed Subsidiaries shall not own or be obligated in respect of any assets or liabilities other than the Citigroup Contributed Assets and the Citigroup Contributed Liabilities and such as may arise pursuant to, or as may be permitted by, this Agreement and the transactions contemplated hereby, (ii) without the prior written consent of Morgan Stanley (not to be unreasonably withheld or delayed), neither Citigroup nor any of its Affiliates shall transfer to the Company, directly or indirectly, (A) any Citigroup Contributed Subsidiary that is characterized, for federal income tax purposes, as a domestic corporation, (B) any entity that, at any time prior to the Closing, was a member of a consolidated federal income tax return group (or any successor to such entity by reason of a conversion or merger of such entity), provided that no consent shall be required with respect to any transfer described in this clause (B) if the aggregate

fair market value of all entities described in this clause (B) does not exceed $50 million, or (C) any entity that is characterized, for federal income tax purposes, as a foreign corporation and conducts a trade or business within the United States.

(b) Subject to the receipt of all necessary Governmental Approvals the failure of which to obtain would reasonably be expected to have a Material Adverse Effect on Morgan Stanley or, after the Closing, the Company, Morgan Stanley shall or shall cause its Affiliates to carry out a reorganization (the “Morgan Stanley Reorganization”) such that pursuant thereto and upon completion thereof, subject to Section 4.3(f), the Morgan Stanley Contributed Assets (including the Morgan Stanley Contributed Equity Interests) and the Morgan Stanley Contributed Liabilities shall be transferred to and acquired by the Company, provided that, (i) except for assets or liabilities that may not be extracted, assigned or removed as a matter of Law, and for which, in the case of liabilities, Morgan Stanley would have an obligation to fully indemnify Citigroup, the Company Entities and the other indemnified parties hereunder, the Morgan Stanley Contributed Subsidiaries shall not own or be obligated in respect of any assets or liabilities other than the Morgan Stanley Contributed Assets and the Morgan Stanley Contributed Liabilities and such as may arise pursuant to, or as may be permitted by, this Agreement and the transactions contemplated hereby, (ii) without the prior written consent of Citigroup (not to be unreasonably withheld), neither Morgan Stanley nor any of its Affiliates shall transfer to the Company, directly or indirectly, (A) any Morgan Stanley Contributed Subsidiary that is characterized, for federal income tax purposes, as a domestic corporation, (B) any entity that, at any time prior to the Closing, was a member of a consolidated federal income tax return group (or any successor to such entity by reason of a conversion or merger of such entity), provided that no consent shall be required with respect to any transfer described in this clause (B) if the aggregate fair market value of all entities described in this clause (B) does not exceed $50 million, and (C) any entity that is characterized, for federal income tax purposes, as a foreign corporation and conducts a trade or business within the United States.

(c) Morgan Stanley shall not take any action that would cause the Company to be treated as a corporation for federal income tax purposes.

(d) Between the date hereof and the Closing, the Parties shall cooperate to evaluate whether it would be beneficial to transfer certain or all of the Contributed Subsidiaries that are organized under the Laws of a jurisdiction other than the United States, any state thereof or the District of Columbia, to a jointly-owned holding company that is treated as a foreign partnership or foreign corporation for federal income tax purposes; provided that, for the avoidance of doubt, this Section 2.2(d) shall not obligate either Party to make any such transfer unless such Party expressly agrees to such a transfer.

(e) Except with respect to Bank Morgan Stanley AG or as otherwise agreed in connection with a structure to be implemented pursuant to Section 2.2(d), the Parties shall use commercially reasonable efforts to effect the transfer of each Contributed Subsidiary that is organized under the Laws of a jurisdiction other than the United States, any state thereof or the District of Columbia, such that, immediately after the transfer of

such Contributed Subsidiary to the Company, such Contributed Subsidiary is treated as a “disregarded entity” for federal income tax purposes.

Section 2.3 Time and Place of the Closing. Subject to the provisions of Article 5, the closing (the “Closing”) of the transactions contemplated hereby shall take place at the offices of Wachtell, Lipton, Rosen & Katz, at 10:00 a.m., New York time, on the second-to-last Business Day of the calendar month that is not less than three Business Days following the date on which the conditions set forth in Article 5 have been satisfied or waived, excluding conditions that by their terms are to be satisfied on the Closing Date, or such other place, time and/or date as is mutually agreed upon by the Parties. The date on which the Closing occurs is herein called the “Closing Date.” The Closing shall be effective as of 11:59 p.m., New York time, on the Closing Date.

Section 2.4      Deliveries and Other Actions at the Closing.

(a) At the Closing, each Party shall execute and deliver, and cause its Initial Members to execute and deliver, the LLC Agreement;

(b) At the Closing, Citigroup shall, and shall cause each of the Citigroup Transferors to, transfer, assign and deliver to the Company, as a capital contribution to the Company, all of their respective right, title and interest in and to the Citigroup Contributed Assets, free and clear of all Liens, other than Permitted Liens and Liens created pursuant to the Transaction Documents, and in consideration therefor, the Company shall issue Membership Interests to the Initial Citigroup Member(s);

(c) At the Closing, Morgan Stanley shall, and shall cause each of the Morgan Stanley Transferors to, transfer, assign and deliver to the Company, as a capital contribution to the Company, all of their respective right, title and interest in and to the Morgan Stanley Contributed Assets, free and clear of all Liens, other than Permitted Liens and Liens created pursuant to the Transaction Documents, and in consideration therefor, the Company shall issue Membership Interests to the Initial Morgan Stanley Member(s);

(d) On the day following the Closing, which shall in any event be the last Business Day of a calendar month, Morgan Stanley shall pay to Citigroup, by wire transfer of immediately available funds to an account of Citigroup identified to Morgan Stanley at least three Business Days prior to Closing, the amount of $2.7 billion, and Citigroup shall transfer in exchange for such payment a number of Membership Interests such that following such transfer Morgan Stanley shall own aggregate Membership Interests representing an aggregate ownership percentage of the Company equal to fifty- one percent (51%) and Citigroup shall own an aggregate ownership percentage of the Company equal to forty-nine percent (49%);

(e) At the Closing, Citigroup, Morgan Stanley and the Company and each of their Subsidiaries that are a party thereto, if any, shall execute and deliver each of the Transaction Documents (it being agreed that if the full terms and conditions of any Transaction Documents cannot be agreed prior to Closing, the terms set forth in the

applicable Exhibit associated with any such Transaction Document shall be deemed to be the full terms and conditions of such Transaction Document and shall be binding from and after the Closing unless and until superseded by a full agreement mutually agreed by the Parties with respect to such Transaction Document). The Transaction Documents shall reflect the terms set forth on the applicable Exhibits, shall be in form and substance reasonably satisfactory to each Party and shall not contain any terms not contemplated by the applicable Exhibit which would materially impact or alter the rights or obligations of any of the parties thereunder;

(f) At the Closing, the Parties and the Company shall, and shall cause their respective applicable Subsidiaries to, execute and deliver such additional instruments of assignment and conveyance as are necessary and appropriate to convey the Citigroup Contributed Assets and the Morgan Stanley Contributed Assets;

(g) At the Closing, the Parties shall execute and deliver, on behalf of themselves and their respective Affiliates, mutually acceptable releases providing for the release of any Claims relating to their respective Contributed Businesses, except as may arise in connection with this Agreement and the other Transaction Documents;

(h) At the Closing, the Parties and the Company shall execute and deliver such additional assignments and instruments of assumption as may be appropriate for the assumption by the Company of all of the Citigroup Contributed Liabilities and all of the Morgan Stanley Contributed Liabilities;

(i) On the Closing Date, Citigroup shall deliver to both the Company and Morgan Stanley a duly executed certificate of non-foreign status of Citigroup, substantially in the form of the sample certification contained in Treasury Regulation Section 1.1445-2(b)(2)(iv)(B);

(j) The Parties shall execute and deliver any other agreement mutually agreed by the Parties to be executed on the Closing Date; and

(k) At the Closing, Morgan Stanley shall cause the Company to execute and deliver a written agreement (which shall be in form and substance reasonably satisfactory to Citigroup) to be bound by the terms and conditions of this Agreement that are applicable to the Company and thereafter the Company shall be deemed a “Party” for purposes of this Agreement.

Notwithstanding the foregoing, for purposes of this Section 2.4, with respect to Citigroup Contributed Assets, Morgan Stanley Contributed Assets, Citigroup Contributed Liabilities and Morgan Stanley Contributed Liabilities relating to any Citigroup Transferred Plan, Morgan Stanley Transferred Plan, Citigroup Contributed Subsidiary Benefit Plan or Morgan Stanley Contributed Subsidiary Benefit Plan, as the case may be, “Closing” shall mean “Service Transfer Date.”

Section 2.5      Post-Closing Adjustments.

(a) Within 90 days after the Closing Date: (i) Citigroup shall prepare and deliver (or cause to be prepared and delivered) to Morgan Stanley and the Company an audited balance sheet for the Citigroup Contributed Business as of the Closing Date (immediately prior to giving effect to the Closing) (the “Preliminary Citigroup Closing Balance Sheet”), which shall be prepared in accordance with GAAP applied on a basis consistent in all respects (except that the Preliminary Citigroup Closing Balance Sheet shall exclude income tax assets and liabilities (including deferred income tax assets and liabilities)) with the preparation of the Financial Statements of the Citigroup Contributed Business, and shall be accompanied by the auditors’ report thereon from Citigroup’s accountants, and (ii) Morgan Stanley shall prepare and deliver (or cause to be prepared and delivered) to Citigroup and the Company an audited balance sheet for the Morgan Stanley Contributed Business as of the Closing Date (immediately prior to giving effect to the Closing) (the “Preliminary Morgan Stanley Closing Balance Sheet” and collectively with the Preliminary Citigroup Closing Balance Sheet, the “Preliminary Closing Balance Sheets”), which shall be prepared in accordance with GAAP applied on a basis consistent in all respects (except that the Preliminary Morgan Stanley Closing Balance Sheet shall exclude income tax assets and liabilities (including deferred income tax assets and liabilities)) with the preparation of the Financial Statements of the Morgan Stanley Contributed Business, and shall be accompanied by the auditors’ report thereon from Morgan Stanley’s accountants. For the avoidance of doubt, (i) the Preliminary Closing Balance Sheets and the Final Closing Balance Sheets shall reflect only the respective Contributed Businesses and shall not reflect any businesses or any categories of assets or liabilities that were excluded from the Financial Statements of the Citigroup Contributed Business or the Financial Statements of the Morgan Stanley Contributed Business, as applicable, and (ii) the Financial Statements of the Citigroup Contributed Business and the Financial Statements of the Morgan Stanley Contributed Business shall be deemed to have been prepared in accordance with GAAP, and neither Party (nor any representative thereof) shall make any claim to the contrary, nor shall the CPA Firm be entitled to make any finding to the contrary, for any purpose of this Section 2.5(a). Each of the Parties shall pay the fees and disbursements of its accountants. The Company and the Parties shall make reasonably available to each other and to their respective accountants all relevant books and records, any work papers (including accountants’ work papers) and other supporting documentation relating to the Preliminary Closing Balance Sheets.

(b) In the event that, within 60 days after delivery by one Party (the “Preparing Party”) to the other Party (the “Receiving Party”) and the Company of the Preparing Party’s Preliminary Closing Balance Sheet, such Receiving Party determines that the Preliminary Closing Balance Sheet so received has not been prepared on a basis consistent with the requirements of Section 2.5(a), the Receiving Party shall have the right (but not the obligation) to, on or before the last day of such 60-day period, deliver a written objection (an “Objection”) to the Company and the Preparing Party, setting forth, in reasonable detail, the basis of the Objection and the adjustments to such Preliminary Closing Balance Sheet which the Receiving Party believes should be made, and the Receiving Party shall be deemed to have accepted any items not specifically disputed in the Objection; provided that, for a period of 15 days following a Receiving Party’s receipt of an Objection to such Receiving Party’s Preliminary Closing Balance Sheet, the Receiving Party shall have the right (but not the obligation) to deliver to the Company and the Preparing Party additional objections to the Preparing Party’s Preliminary

Closing Balance Sheet that are based on similar arguments and are of the same type as the objections that were made by the Preparing Party to the Receiving Party’s Preliminary Closing Balance Sheet. Failure to notify the Company and the Preparing Party of an Objection shall constitute acceptance and approval of such Preliminary Closing Balance Sheet. The Parties shall then have 30 days following the date the Preparing Party receives any Objection (including, if later, any additional objection made pursuant to the proviso of the second preceding sentence) to review and respond to such Objection. If the Parties do not resolve all of their disagreements with respect to the foregoing by the 30th day following the Preparing Party’s receipt of an Objection (including, if later, any additional objection made pursuant to the proviso of the third preceding sentence), they shall refer their remaining differences to a nationally recognized firm of independent public accountants as to which the Parties shall mutually agree (the “CPA Firm”), who shall, acting as experts in accounting and not as arbitrators, determine on a basis consistent with the requirements of Section 2.5(a), and only with respect to the specific remaining accounting-related differences set forth in the applicable Objection and so submitted to the CPA Firm, whether and to what extent, if any, the relevant Preliminary Closing Balance Sheet(s) require(s) adjustment in order to comply with the provisions of Section 2.5(a). In the event that Objections are pending with respect to both Preliminary Closing Balance Sheets, the Parties shall submit all such Objections to the same CPA Firm to be considered and resolved at the same time. The Parties shall request the CPA Firm to use its best efforts to render its determination within 45 days of its engagement. The CPA Firm’s determination shall be conclusive and binding upon the Company and the Parties. The Company and the Parties shall make reasonably available to the CPA Firm and to each other all relevant books and records, any work papers (including those of the Parties’ respective accountants) and supporting documentation relating to the Preliminary Closing Balance Sheets and all other items reasonably requested by the CPA Firm or the other Party in connection herewith. The “Final Closing Balance Sheet” of the Citigroup Contributed Business or the Morgan Stanley Contributed Business, as the case may be, shall be (i) the applicable Preliminary Closing Balance Sheet if (x) no Objection is delivered during the initial 60-day period (or, if applicable, the subsequent 15 day period) specified above or (y) the Parties so agree, (ii) the applicable Preliminary Closing Balance Sheet, adjusted in accordance with the Objection, in the event that (x) the Preparing Party does not respond to the Objection during the 30-day period specified above following receipt of the Objection or (y) the Parties so agree, or (iii) the applicable Preliminary Closing Balance Sheet, as adjusted pursuant to the agreement of the Parties or as adjusted by the CPA Firm as provided above. All fees and disbursements of the CPA Firm shall be shared equally by the Parties.

(c) If the Citigroup Tangible Book Value reflected in the Final Closing Balance Sheet of the Citigroup Contributed Business is less than $5.35 billion, then Citigroup shall pay such deficiency, plus interest thereon at a rate equal to LIBOR plus 60 basis points during the period from the Closing Date to the date of such payment, to the Company in immediately available funds within three Business Days after the ultimate determination of such Final Closing Balance Sheet. If the Citigroup Tangible Book Value reflected in the Final Closing Balance Sheet of the Citigroup Contributed Business is more than $5.35 billion, the Company shall pay (without any contribution from Morgan Stanley or Citigroup) an amount equal to such excess, plus interest thereon at a rate equal to LIBOR plus 60 basis points during the period from the Closing Date to the date of such payment, to Citigroup in immediately available funds within three Business Days after the ultimate determination of such Final Closing Balance Sheet. If the Morgan Stanley Tangible Book Value reflected in the Final Closing

 

Balance Sheet of the Morgan Stanley Contributed Business is less than $3.98 billion, then Morgan Stanley shall pay such deficiency, plus interest thereon at a rate equal to LIBOR plus 60 basis points during the period from the Closing Date to the date of such payment, to the Company in immediately available funds within three Business Days after the ultimate determination of such Final Closing Balance Sheet. If the Morgan Stanley Tangible Book Value reflected in the Final Closing Balance Sheet of the Morgan Stanley Contributed Business is more than $3.98 billion, the Company shall pay (without any contribution from Morgan Stanley or Citigroup) an amount equal to such excess, plus interest thereon at a rate equal to LIBOR plus 60 basis points during the period from the Closing Date to the date of such payment, to Morgan Stanley in immediately available funds within three Business Days after the ultimate determination of such Final Closing Balance Sheet. Any such payments shall be treated as capital contributions or adjustments necessary for consistency with the agreed-upon capital allocation of the Parties’ initial ownership percentages of the Company set forth in Sections 2.4(b) and (c) and shall not change such allocation in any way. Any payment required to be made to a Party pursuant to this Section 2.5(c) shall, to the extent possible, be effected in a manner that does not result in the recognition of income or gain to that Party or its Subsidiaries for federal income tax purposes.

(d) If the Parties are unable to agree on a nationally recognized firm of independent public accountants to act as the CPA Firm within five Business Days following the 30th day following the Preparing Party’s response to the Objection, the Parties shall select a nationally recognized firm of independent public accountants to act as the CPA Firm as follows: on such fifth Business Day, each Party shall deliver to the other Party a list with three such accounting firms that currently audit NYSE-listed companies for purposes of their annual reports filed on Form 10-K with the SEC, none of which shall have been retained by such Party within the prior two-year period. Each Party shall cross off two of such accounting firms from the list it receives from the other Party. The CPA Firm shall be selected from the remaining two firms by lot.

Section 3.1 Representations and Warranties of Citigroup. Citigroup, on behalf of itself and the other Citigroup Transferors, represents and warrants to Morgan Stanley and the Company that, except as set forth in the Disclosure Letter delivered as of the date hereof by Citigroup to Morgan Stanley (the “Citigroup Disclosure Letter”) or in the most recent Form ADV Part I, Form ADV Part II (or brochure in lieu thereof) or Form BD filed (or in the case of Form ADV Part II, prepared) by Citigroup Subsidiaries and provided to Morgan Stanley prior to the date hereof, and except to the extent that any of the representations and warranties set forth below relate to or apply to the Citigroup Excluded Assets, the Citigroup Excluded Liabilities or the Citigroup Excluded Businesses and do not impact the Citigroup Contributed Assets, Citigroup Contributed Business, Citigroup Contributed Subsidiaries or Citigroup Contributed Liabilities:

(a) Organization, Standing and Power of Citigroup and Subsidiaries. Citigroup is a corporation duly organized, validly existing and in good standing under the

 

Laws of the State of Delaware. Citigroup has all requisite corporate power and authority to execute and deliver this Agreement and any other Transaction Document to which it will be a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Each other Citigroup Transferor is duly organized, validly existing and (except to the extent inapplicable to foreign Subsidiaries) in good standing under the Laws of its jurisdiction of organization and will at the Closing have all requisite corporate or comparable power and authority to perform the obligations applicable to such Citigroup Transferor hereunder and under the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. Each Subsidiary of Citigroup to become a party to a Transaction Document will have at the Closing all requisite corporate or comparable power and authority to execute and deliver each Transaction Document to be executed and delivered by it, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Each Citigroup Transferor has all requisite corporate or comparable power and authority to own and operate the Citigroup Contributed Assets and the Citigroup Contributed Liabilities and to operate the Citigroup Contributed Business as currently conducted and is duly qualified to do business and in good standing as a foreign entity authorized to transact business in each jurisdiction where the ownership of such assets and liabilities or the operation of such business requires such qualification or license, except where failure to obtain such qualification or license would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Citigroup Contributed Business.

(b) Citigroup Contributed Subsidiaries. Each Citigroup Contributed Subsidiary is (or in the case of Citigroup Contributed Subsidiaries formed after the date hereof, will be by Closing) an entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization. Each Citigroup Contributed Subsidiary has (or in the case of Citigroup Contributed Subsidiaries formed after the date hereof, will have by Closing) all requisite corporate or comparable power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted or as proposed to be conducted from and after the Closing. Each Citigroup Contributed Subsidiary will have at the Closing all requisite limited liability company or comparable power and authority to own, lease and operate the Citigroup Contributed Assets and to carry on the Citigroup Contributed Business. Each Citigroup Contributed Subsidiary is (or in the case of Citigroup Contributed Subsidiaries formed after the date hereof, will be) duly qualified and (except to the extent not applicable to foreign Subsidiaries) in good standing as a foreign entity authorized to transact business in each jurisdiction where the conduct of its business or the ownership of its properties requires such qualification, other than in jurisdictions where the failure to be so qualified, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on the Citigroup Contributed Business.

(c) Authority and Validity. The execution and delivery of this Agreement and each other Transaction Document to be executed and delivered by Citigroup or any of its Subsidiaries, the performance of their respective obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been, or in the case of Transaction Documents not yet executed and delivered on the date hereof,

 

will be by the Closing, duly and validly authorized by all necessary corporate or comparable action on the part of such Person. This Agreement and each other Transaction Document to be executed and delivered by Citigroup or any of its Subsidiaries have been, or in the case of Transaction Documents not yet executed on the date hereof will be by the Closing, duly executed and delivered and are (or will be by Closing) valid and binding obligations of Citigroup or such Subsidiary, as applicable, that is a party thereto, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).

(d) No Conflicts. Subject to obtaining the Governmental Approvals and Third Party Approvals contemplated in Section 3.1(e)(i), the execution and delivery of this Agreement and each other Transaction Document intended to be executed by Citigroup and its Subsidiaries, and the performance of their respective obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby (including the contribution of the Citigroup Contributed Assets and the Citigroup Contributed Business to the Company Entities) do not (i) conflict with or result in a breach of any provision of any of their respective articles of incorporation or bylaws or comparable organizational documents, (ii) conflict with, result in a breach of any provision of, constitute a default (or an event which with notice or lapse of time or both would become a default) or give to any Third Party any right of termination, cancellation, amendment or acceleration under, or result in the creation of a Lien on any of their respective properties under, or the loss or deferral of any right or the creation or acceleration of any obligation under, any of the terms, conditions or provisions of any note, bond, debenture, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which any of them is a party, or by which any of them or any of their respective properties may be bound or subject, or (iii) violate or conflict with any Law applicable to such Person or any of its properties, except, in the cases of clauses (ii) and (iii), as would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect on the Citigroup Contributed Business.

(e) Governmental and Third Party Approvals. No Governmental Approval or Third Party Approval is required in connection with the execution and delivery by Citigroup and its Subsidiaries of this Agreement and the other Transaction Documents or the performance of their respective obligations hereunder and thereunder or the consummation by Citigroup and its Subsidiaries of the transactions contemplated hereby and thereby, except for (i) the Governmental Approvals and Third Party Approvals identified on Schedule 3.1(e), (ii) approvals from clients with respect to the transfer of their brokerage and advisory accounts in connection with the Closing and (iii) any other Governmental Approval or Third Party Approval the failure of which to be obtained would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect on the Citigroup Contributed Business. As of the date hereof, no Governmental Authority or Third Party, with respect to which a Governmental Approval or Third Party Approval is required to be obtained or made in connection with the transactions contemplated by this Agreement, has indicated to Citigroup or any of its Affiliates an intent to (x) take any action or fail to take any action that is reasonably

 

likely to prohibit, materially delay or materially impair the consummation of the transactions contemplated by this Agreement, or (y) impose any obligation or condition in connection with such Governmental Approval or Third Party Approval that is reasonably likely to result in, individually or in the aggregate, a material liability (other than ordinary course liabilities, obligations and conditions incurred in connection with obtaining any such Governmental Approvals) of the Company or any of its Subsidiaries after the Closing.

(f) Financial Statements; Undisclosed Liabilities; No Material Adverse Effect.

(i) The Financial Statements of the Citigroup Contributed Business present fairly, in all material respects, the financial position and results of operations of the Citigroup Contributed Business, in accordance with GAAP applied on a consistent basis, as of the dates or for the periods presented. The Financial Statements of the Citigroup Contributed Business have been derived from the accounting books and records of Citigroup and its Subsidiaries.

(ii) The balance sheet as of November 30, 2008 included in the Financial Statements of the Citigroup Contributed Business does not include any assets or liabilities not constituting a part of the Citigroup Contributed Business. The statements of income included in the Financial Statements of the Citigroup Contributed Business do not reflect the operations of any Person or business not constituting a part of the Citigroup Contributed Business.

(iii) Except for the Citigroup Excluded Liabilities, the Citigroup Contributed Business has no liabilities or obligations, whether known, absolute, accrued, contingent or otherwise and whether due or to become due, except for liabilities or obligations (x) reflected on, accrued or reserved against in the balance sheet contained in the Financial Statements of the Citigroup Contributed Business (in each case, to the extent so reflected, accrued or reserved), (y) incurred after the date of such balance sheet in the ordinary course of business consistent with past practice, or (z) which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Citigroup Contributed Business.

(iv) Since January 1, 2008, there has occurred no Material Adverse Effect on the Citigroup Contributed Business and no event or occurrence which would reasonably be expected to result in a Material Adverse Effect on the Citigroup Contributed Business. Since January 1, 2008 to the date hereof, the Citigroup Contributed Business has been conducted in all material respects in the ordinary course of business consistent with past practices.

(g) Capitalization. All outstanding shares of capital stock of the Citigroup Contributed Subsidiaries (other than Citigroup Contributed Subsidiaries to be formed after the date hereof) are duly authorized, validly issued, fully paid and nonassessable, are subject to no preemptive or similar rights, and were not issued in violation of any preemptive or similar rights. As of the Closing, all outstanding equity interests of the

Citigroup Contributed Subsidiaries will be duly authorized and validly issued limited liability company interests or comparable equity interests of the Citigroup Contributed Subsidiaries, will be fully paid and nonassessable, will not have been issued in violation of any preemptive or similar rights and, except as contemplated by the Transaction Documents, will be subject to no preemptive or similar rights. Upon contribution by Citigroup (or any of its Subsidiaries) to the Company, the Company will acquire one hundred percent (100%) of the equity interests of the Citigroup Contributed Subsidiaries free and clear of any Liens, except for Permitted Liens and Liens created pursuant to the Transaction Documents. Except as contemplated by this Agreement or the other Transaction Documents, (A) no capital stock, limited liability company interests or other equity securities (including but not limited to any options, warrants or rights or other security convertible into or exercisable or exchangeable for any capital stock, limited liability company interest or other equity security) of any Citigroup Contributed Subsidiary are or may become required to be issued (other than to a Company Entity) by reason of any security, contract or other obligation, (B) there are no contracts, commitments or other obligations by which any Citigroup Contributed Subsidiary or other Person is or may be bound to sell or otherwise transfer or repurchase, redeem or otherwise acquire or register any capital stock, limited liability company interests or other equity securities of such Citigroup Contributed Subsidiary (other than to or from a Company Entity), and (C) there are no contracts, commitments or other obligations relating to the right to vote or dispose of any capital stock, limited liability company interest or other equity security of any Citigroup Contributed Subsidiary.

(h) Assets; Services; Title. The assets (real, personal, mixed, tangible or intangible) constituting the Citigroup Contributed Assets, and the benefits, services and intercompany arrangements to be provided under the other Transaction Documents, constitute all of the assets, benefits, services and intercompany arrangements used in, necessary in any material respect for the conduct of, or otherwise material (individually or in the aggregate) to, the Citigroup Contributed Business as presently conducted and as conducted in generating the Financial Statements of the Citigroup Contributed Business. Immediately after the Closing, taking into account the benefits, services and intercompany arrangements to be provided under the other Transaction Documents, the Company Entities will have good and marketable title to, or have good title pursuant to a valid leasehold interest in or have a valid right to use or occupy, all of the assets (real, personal, mixed, tangible or intangible), and will have valid rights to demand and receive all benefits, services and intercompany arrangements (on substantially the same terms), used in, necessary for the conduct of, or otherwise material to, the Citigroup Contributed Business as presently conducted and as conducted in generating the Financial Statements of the Citigroup Contributed Business, including the assets shown on the Financial Statements of the Citigroup Contributed Business and all of the Contributed Real Property of Citigroup, free and clear of any Liens, except for Permitted Liens or as would not reasonably be expected to result in a Material Adverse Effect on the Citigroup Contributed Business.

(i) Compliance with Laws. Each Citigroup Contributed Subsidiary and each Citigroup Transferor is conducting and has since January 1, 2008 conducted the Citigroup Contributed Business and is using and operating and has since January 1, 2008

used and operated the Citigroup Contributed Assets in compliance with all Laws applicable to it, in each case except as would not reasonably be expected to have a Material Adverse Effect on the Citigroup Contributed Business.

(j) Tax. During the past three years, none of the Citigroup Contributed Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify under Section 355(a) of the Code. None of the Citigroup Contributed Subsidiaries has participated in, or acted as a material advisor with respect to, any “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4.

(k) No Broker. Except for Citigroup Global Markets Inc. (whose fees and expenses shall be paid by Citigroup), Citigroup is not, and no Citigroup Contributed Subsidiary or Company Entity at the Closing will be, committed to any liability for any brokers’ or finders’ fees or any similar fees, including but not limited to any bonus payable to any director, officer, employee, agent or representative of or consultant to any Citigroup Contributed Subsidiary, Company Entity or Citigroup Transferor, in connection with the transactions contemplated by this Agreement.

Section 3.2 Representations and Warranties of Morgan Stanley. Morgan Stanley, on behalf of itself and the other Morgan Stanley Transferors, represents and warrants to Citigroup and the Company that, except as set forth in the Disclosure Letter delivered as of the date hereof by Morgan Stanley to Citigroup (the “Morgan Stanley Disclosure Letter”) or in the most recent Form ADV Part I, Form ADV Part II (or brochure in lieu thereof) or Form BD filed (or in the case of Form ADV Part II, prepared) by Morgan Stanley Subsidiaries and provided to Citigroup prior to the date hereof, and except to the extent that any of the representations and warranties set forth below relate to or apply to the Morgan Stanley Excluded Assets, the Morgan Stanley Excluded Liabilities or the Morgan Stanley Excluded Businesses and do not impact the Morgan Stanley Contributed Assets, Morgan Stanley Contributed Business, Morgan Stanley Contributed Subsidiaries or Morgan Stanley Contributed Liabilities:

(a) Organization, Standing and Power of Morgan Stanley and Subsidiaries. Morgan Stanley is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Morgan Stanley has all requisite corporate power and authority to execute and deliver this Agreement and any other Transaction Document to which it will be a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Each other Morgan Stanley Transferor is duly organized, validly existing and (except to the extent inapplicable to foreign Subsidiaries) in good standing under the Laws of its jurisdiction of organization and will at the Closing have all requisite corporate or comparable power and authority to perform the obligations applicable to such Morgan Stanley Transferor hereunder and under the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. Each Subsidiary of Morgan Stanley to become a party to a Transaction Document will have at the Closing all requisite corporate or comparable power and authority to execute and deliver each Transaction Document to be executed and delivered by it, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Each Morgan Stanley Transferor has all requisite corporate or comparable

 

power and authority to own and operate the Morgan Stanley Contributed Assets and the Morgan Stanley Contributed Liabilities and to operate the Morgan Stanley Contributed Business as currently conducted and is duly qualified to do business and in good standing as a foreign entity authorized to transact business in each jurisdiction where the ownership of such assets and liabilities or the operation of such business requires such qualification or license, except where failure to obtain such qualification or license would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Morgan Stanley Contributed Business.

(b) Morgan Stanley Contributed Subsidiaries. Each Morgan Stanley Contributed Subsidiary is (or in the case of Morgan Stanley Contributed Subsidiaries formed after the date hereof, will be by Closing) and the Company will be by Closing an entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization. Each Morgan Stanley Contributed Subsidiary has (or in the case of Morgan Stanley Contributed Subsidiaries formed after the date hereof and the Company, will have by Closing) all requisite corporate or comparable power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted or as proposed to be conducted from and after the Closing. Each Morgan Stanley Contributed Subsidiary and the Company will have at the Closing all requisite limited liability company or comparable power and authority to own, lease and operate the Morgan Stanley Contributed Assets and to carry on the Morgan Stanley Contributed Business. Each Morgan Stanley Contributed Subsidiary is (or in the case of Morgan Stanley Contributed Subsidiaries formed after the date hereof and the Company, will be) duly qualified and (except to the extent not applicable to foreign Subsidiaries) in good standing as a foreign entity authorized to transact business in each jurisdiction where the conduct of its business or the ownership of its properties requires such qualification, other than in jurisdictions where the failure to be so qualified, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on the Morgan Stanley Contributed Business. The Company has not engaged in any activities or incurred any liabilities other than in connection with the transactions contemplated by this Agreement.

(c) Authority and Validity. The execution and delivery of this Agreement and each other Transaction Document to be executed and delivered by Morgan Stanley or any of its Subsidiaries, the performance of their respective obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been, or in the case of Transaction Documents not yet executed and delivered on the date hereof, will be by the Closing, duly and validly authorized by all necessary corporate or comparable action on the part of such Person. This Agreement and each other Transaction Document to be executed and delivered by Morgan Stanley or any of its Subsidiaries have been, or in the case of Transaction Documents not yet executed on the date hereof will be by the Closing, duly executed and delivered and are (or will be by Closing) valid and binding obligations of Morgan Stanley or such Subsidiary, as applicable, that is a party thereto, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).

(d) No Conflicts. Subject to obtaining the Governmental Approvals and Third Party Approvals contemplated in Section 3.2(e)(i), the execution and delivery of this Agreement and each other Transaction Document intended to be executed by Morgan Stanley and its Subsidiaries, and the performance of their respective obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby (including the contribution of the Morgan Stanley Contributed Assets and the Morgan Stanley Contributed Business to the Company Entities) do not (i) conflict with or result in a breach of any provision of any of their respective articles of incorporation or bylaws or comparable organizational documents, or (ii) conflict with, result in a breach of any provision of, constitute a default (or an event which with notice or lapse of time or both would become a default) or give to any Third Party any right of termination, cancellation, amendment or acceleration under, or result in the creation of a Lien on any of their respective properties under, or the loss or deferral of any right or the creation or acceleration of any obligation under, any of the terms, conditions or provisions of any note, bond, debenture, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which any of them is a party, or by which any of them or any of their respective properties may be bound or subject, or (iii) violate or conflict with any Law applicable to such Person or any of its properties, except, in the cases of clauses (ii) and (iii), as would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect on the Morgan Stanley Contributed Business.

(e) Governmental and Third Party Approvals. No Governmental Approval or Third Party Approval is required in connection with the execution and delivery by Morgan Stanley and its Subsidiaries of this Agreement and the other Transaction Documents or the performance of their respective obligations hereunder and thereunder or the consummation by Morgan Stanley and its Subsidiaries of the transactions contemplated hereby and thereby, except for (i) the Governmental Approvals and Third Party Approvals identified on Schedule 3.2(e), (ii) approvals from clients with respect to the transfer of their brokerage and advisory accounts in connection with the Closing and (iii) any other Governmental Approval or Third Party Approval the failure of which to be obtained would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect on the Morgan Stanley Contributed Business. As of the date hereof, no Governmental Authority or Third Party, with respect to which a Governmental Approval or Third Party Approval is required to be obtained or made in connection with the transactions contemplated by this Agreement, has indicated to Morgan Stanley or any of its Affiliates an intent to (x) take any action or fail to take any action that is reasonably likely to prohibit, materially delay or materially impair the consummation of the transactions contemplated by this Agreement, or (y) impose any obligation or condition in connection with such Governmental Approval or Third Party Approval that is reasonably likely to result in, individually or in the aggregate, a material liability (other than ordinary course liabilities, obligations and conditions incurred in connection with obtaining any such Governmental Approvals) of the Company or any of its Subsidiaries after the Closing.

(f) Financial Statements; Undisclosed Liabilities; No Material Adverse Effect.

(i) The Financial Statements of the Morgan Stanley Contributed Business present fairly, in all material respects, the financial position and results of operations of the Morgan Stanley Contributed Business, in accordance with GAAP applied on a consistent basis, as of the dates or for the periods presented. The Financial Statements of the Morgan Stanley Contributed Business have been derived from the accounting books and records of Morgan Stanley and its Subsidiaries.

(ii) The balance sheet as of November 30, 2008 included in the Financial Statements of the Morgan Stanley Contributed Business does not include any assets or liabilities not constituting a part of the Morgan Stanley Contributed Business. The statements of income included in the Financial Statements of the Morgan Stanley Contributed Business do not reflect the operations of any Person or business not constituting a part of the Morgan Stanley Contributed Business.

(iii) Except for the Morgan Stanley Excluded Liabilities, the Morgan Stanley Contributed Business has no liabilities or obligations, whether known, absolute, accrued, contingent or otherwise and whether due or to become due, except for liabilities or obligations (x) reflected on, accrued or reserved against in the balance sheet contained in the Financial Statements of the Morgan Stanley Contributed Business (in each case, to the extent so reflected, accrued or reserved), (y) incurred after the date of such balance sheet in the ordinary course of business consistent with past practice, or (z) which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Morgan Stanley Contributed Business.

(iv) Since January 1, 2008, there has occurred no Material Adverse Effect on the Morgan Stanley Contributed Business and no event or occurrence which would reasonably be expected to result in a Material Adverse Effect on the Morgan Stanley Contributed Business. Since January 1, 2008 to the date hereof, the Morgan Stanley Contributed Business has been conducted in all material respects in the ordinary course of business consistent with past practices.

(g) Capitalization. All outstanding shares of capital stock of the Morgan Stanley Contributed Subsidiaries (other than Morgan Stanley Contributed Subsidiaries to be formed after the date hereof) are duly authorized, validly issued, fully paid and nonassessable, are subject to no preemptive or similar rights, and were not issued in violation of any preemptive or similar rights. As of the Closing, all outstanding equity interests of the Morgan Stanley Contributed Subsidiaries will be duly authorized and validly issued limited liability company interests or comparable equity interests of the Morgan Stanley Contributed Subsidiaries, will be fully paid and nonassessable, will not have been issued in violation of any preemptive or similar rights and, except as contemplated by the Transaction Documents, will be subject to no preemptive or similar rights. Upon contribution by Morgan Stanley (or any of its Subsidiaries) to the Company, the Company will acquire one hundred percent (100%) of the equity interests of the Morgan Stanley Contributed Subsidiaries free and clear of any Liens, except for

Permitted Liens and Liens created pursuant to the Transaction Documents. Except as contemplated by this Agreement or the other Transaction Documents, (A) no capital stock, limited liability company interests or other equity securities (including but not limited to any options, warrants or rights or other security convertible into or exercisable or exchangeable for any capital stock, limited liability company interest or other equity security) of any Morgan Stanley Contributed Subsidiary are or may become required to be issued (other than to a Company Entity) by reason of any security, contract or other obligation, (B) there are no contracts, commitments or other obligations by which any Morgan Stanley Contributed Subsidiary or other Person is or may be bound to sell or otherwise transfer or repurchase, redeem or otherwise acquire or register any capital stock, limited liability company interests or other equity securities of such Morgan Stanley Contributed Subsidiary (other than to or from a Company Entity), and (C) there are no contracts, commitments or other obligations relating to the right to vote or dispose of any capital stock, limited liability company interest or other equity security of any Morgan Stanley Contributed Subsidiary.

(h) Assets; Services; Title. The assets (real, personal, mixed, tangible or intangible) constituting the Morgan Stanley Contributed Assets, and the benefits, services and intercompany arrangements to be provided under the other Transaction Documents, constitute all of the assets, benefits, services and intercompany arrangements used in, necessary in any material respect for the conduct of, or otherwise material (individually or in the aggregate) to, the Morgan Stanley Contributed Business as presently conducted and as conducted in generating the Financial Statements of the Morgan Stanley Contributed Business. Immediately after the Closing, taking into account the benefits, services and intercompany arrangements to be provided under the other Transaction Documents, the Company Entities will have good and marketable title to, or have good title pursuant to a valid leasehold interest in or have a valid right to use or occupy, all of the assets (real, personal, mixed, tangible or intangible), and will have valid rights to demand and receive all benefits, services and intercompany arrangements (on substantially the same terms), used in, necessary for the conduct of, or otherwise material to, the Morgan Stanley Contributed Business as presently conducted and as conducted in generating the Financial Statements of the Morgan Stanley Contributed Business, including the assets shown on the Financial Statements of the Morgan Stanley Contributed Business and all of the Contributed Real Property of Morgan Stanley, free and clear of any Liens, except for Permitted Liens or as would not reasonably be expected to result in a Material Adverse Effect on the Morgan Stanley Contributed Business.

(i) Compliance with Laws. Each Morgan Stanley Contributed Subsidiary and each Morgan Stanley Transferor is conducting and has since January 1, 2008 conducted the Morgan Stanley Contributed Business and is using and operating and has since January 1, 2008 used and operated the Morgan Stanley Contributed Assets in compliance with all Laws applicable to it, in each case except as would not reasonably be expected to have a Material Adverse Effect on the Morgan Stanley Contributed Business.

(j) Tax. During the past three years, none of the Morgan Stanley Contributed Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a