m43920_13da1apr30.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
13D
Under the
Securities Exchange Act of 1934
(Amendment
No. 1)*
Mitel
Networks Corporation
(Name of
Issuer)
Common
Shares, without par value
(Title of
Class of Securities)
Amy
Kim
Morgan
Stanley
1585
Broadway
New
York, NY 10036
(Name,
Address and Telephone Number of Person
Authorized
to Receive Notices and Communications)
Stephen
E. Older, Esq.
Seth
T. Goldsamt, Esq.
McDermott
Will & Emery LLP
340
Madison Avenue
New
York, NY 10173
(Date of
Event Which Requires Filing of this Statement)
If the
filing person has previously filed a statement on Schedule 13G to report the
acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. o
Note:
Schedules filed in paper format shall include a signed original and five copies
of the schedule, including all exhibits. See §240.13d-7 for other parties to
whom copies are to be sent.
* The
remainder of this cover page shall be filled out for a reporting person’s
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The
information required on the remainder of this cover page shall not be deemed to
be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934
(“Exchange Act”) or otherwise subject to the liabilities of that section of the
Exchange Act but shall be subject to all other provisions of the Exchange Act
(however, see the Notes).
CUSIP No.
60671Q104
1. Names
of Reporting Persons.
I.R.S. Identification Nos. of
above persons (entities only)
Morgan Stanley
36-3145972
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2. Check
the Appropriate Box if a Member of a Group (See Instructions) (a) o
(b) x
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3. SEC
Use Only
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4. Source
of Funds (See Instructions)
OO
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5. Check
if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or
2(e)x
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6. Citizenship
or Place of Organization
Delaware
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Number
of Shares Beneficially Owned by Each Reporting Person With
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7. Sole
Voting Power
-0-
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8. Shared
Voting Power
4,236,404*
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9. Sole
Dispositive Power
-0-
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10. Shared
Dispositive Power
4,236,404*
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11. Aggregate
Amount Beneficially Owned by Each Reporting Person
4,236,404* (see Item
5)
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12. Check
if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) ¨
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13. Percent
of Class Represented by Amount in Row (11)
7.9%† (see Item
5)
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14. Type
of Reporting Person (See Instructions)
HC, CO
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* Consists
of: (a) common shares, without par value (“Common Shares”), of
Mitel Networks Corporation (the “Company”), issued
upon conversion of the Class 1 Convertible Preferred Shares (the “Class 1
Preferred”) of the Company in connection with the initial public offering
by the Company of its Common Shares and the termination of the Shareholders
Agreement dated as of August 16, 2007 (the “Shareholders
Agreement”), among the Company, Morgan Stanley Principal Investments,
Inc., Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l., Edgestone Capital
Equity Fund II-B GP, Inc., as agent for EdgeStone Capital Equity Fund II-A, L.P.
and its parallel investors and Edgestone Capital Equity Fund II Nominee, Inc.,
as nominee for EdgeStone Capital Equity Fund II-A, L.P. and its parallel
investors, Power Technology Investment Corporation, Terence H. Matthews, Wesley
Clover Corporation and Celtic Tech Jet Limited; and (b) Common Shares
issuable upon exercise of warrants held by Morgan Stanley Principal Investments,
Inc. The number of Common Shares disclosed herein reflects a reverse
split of Common Shares conducted by the Company in April 2010 of its outstanding
Common Shares on the basis of a ratio of one post-split Common Share for every
fifteen pre-split Common Shares. See Item 5.
† This
percentage is calculated pursuant to Rule 13d-3(d)(1)(i) and assumes that
none of the outstanding warrants or other convertible securities (other than
those held by the Reporting Persons) have been exercised for, or converted into,
Common Shares, and is calculated based on 53,075,754 Common Shares, which is the
sum of (a) 52,803,159 Common Shares outstanding upon completion of the
Company’s initial public offering, as reported in the Company’s final prospectus
dated April 21, 2010 and (b) 272,595 Common Shares issuable upon
exercise of warrants held by Morgan Stanley Principal Investments,
Inc. See Item 5.
CUSIP No.
60671Q104
1. Names
of Reporting Persons.
I.R.S. Identification Nos. of
above persons (entities only)
Morgan Stanley Principal
Investments, Inc.
20-8595823
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2. Check
the Appropriate Box if a Member of a Group (See Instructions) (a) o
(b) x
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3. SEC
Use Only
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4. Source
of Funds (See Instructions)
OO
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5. Check
if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or
2(e)x
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6. Citizenship
or Place of Organization
Delaware
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Number
of Shares Beneficially Owned by Each Reporting Person With
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7. Sole
Voting Power
-0-
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8. Shared
Voting Power
4,236,404*
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9. Sole
Dispositive Power
-0-
|
10. Shared
Dispositive Power
4,236,404*
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11. Aggregate
Amount Beneficially Owned by Each Reporting Person
4,236,404* (see Item
5)
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12. Check
if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) ¨
|
13. Percent
of Class Represented by Amount in Row (11)
7.9%† (see item
5)
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14. Type
of Reporting Person (See Instructions)
CO
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* Consists
of: (a) Common Shares issued upon conversion of the Class 1 Preferred
of the Company in connection with the initial public offering by the Company of
its Common Shares and the termination of the Shareholders Agreement; and
(b) Common Shares issuable upon exercise of warrants held by Morgan Stanley
Principal Investments, Inc. The number of Common Shares disclosed
herein reflects a reverse split of Common Shares conducted by the Company in
April 2010 of its outstanding Common Shares on the basis of a ratio of one
post-split Common Share for every fifteen pre-split Common
Shares. See Item 5.
† This
percentage is calculated pursuant to Rule 13d-3(d)(1)(i) and assumes that
none of the outstanding warrants or other convertible securities (other than
those held by the Reporting Persons) have been exercised for, or converted into,
Common Shares, and is calculated based on 53,075,754 Common Shares, which is the
sum of (a) 52,803,159 Common Shares outstanding upon completion of the
Company’s initial public offering, as reported in the Company’s final prospectus
dated April 21, 2010 and (b) 272,595 Common Shares issuable upon
exercise of warrants held by Morgan Stanley Principal Investments,
Inc. See Item 5.
This
Amendment No. 1 to Schedule 13D (this “Amendment No. 1”) is
being filed on behalf of Morgan Stanley, a Delaware corporation (“MS”), and Morgan
Stanley Principal Investments, Inc., a Delaware corporation and an indirect
wholly-owned subsidiary of Morgan Stanley (“MSPI” and, together
with MS, the “Reporting Persons”),
in connection with the termination of the Shareholders Agreement dated as of
August 16, 2007 (the “Shareholders
Agreement”), among Mitel Networks Corporation, a Canadian corporation
(the “Company”), MSPI,
Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l., Edgestone Capital
Equity Fund II-B GP, Inc., as agent for EdgeStone Capital Equity Fund II-A, L.P.
and its parallel investors and Edgestone Capital Equity Fund II Nominee, Inc.,
as nominee for EdgeStone Capital Equity Fund II-A, L.P. and its parallel
investors, Power Technology Investment Corporation (“PTIC”), Terence H.
Matthews, Wesley Clover Corporation and Celtic Tech Jet Limited, and the
conversion of all Class 1 Convertible Preferred Shares (the “Class 1
Preferred”) of the Company into Common Shares, that occurred in
connection with the Company’s initial public offering of Common Shares that
closed on April 27, 2010.
Pursuant
to the Shareholders Agreement, the shareholders of the Company parties thereto,
except for PTIC or any shareholder which, together with its affiliates, held
less than 3% of the Common Shares (on an as-if converted to Common Shares
basis), agreed to vote their respective Common Shares to cause the Company to
act in compliance with the provisions of the Shareholders
Agreement. Pursuant to the Shareholders Agreement, MSPI also agreed
to vote any and all Common Shares held by it in the manner designated by Arsenal
Holdco I, S.a.r.l. and Arsenal Holdco II, S.a.r.l and granted Arsenal Holdco I,
S.a.r.l. and Arsenal Holdco II, S.a.r.l a proxy to vote all Common Shares held
by it.
This
Amendment No. 1 amends and supplements the initial Statement on Schedule
13D, filed with the Securities and Exchange Commission on August 27, 2007
(the “Schedule 13D”),
by the Reporting Persons to reflect the termination of the Shareholders
Agreement and the conversion of Class 1 Preferred into Common
Shares.
Each item
below amends and supplements the information disclosed under the corresponding
item of the Schedule 13D. Capitalized terms defined in the
Schedule 13D are used herein with their defined meaning.
Item
2. Identity and Background.
The
response set forth in Item 2 of the Schedule 13D is hereby amended and
supplemented by the following:
(a) This
Amendment No. 1 is being filed jointly on behalf of Morgan Stanley, a
Delaware corporation (“MS”), and Morgan
Stanley Principal Investments, Inc., a Delaware corporation and an indirect
wholly-owned subsidiary of Morgan Stanley (“MSPI,” together with
MS, the “Reporting
Persons”).
(b) The
name, business address, present principal occupation or employment of each
director and executive officer of MS and MSPI are set forth in Schedule A and
Schedule B,
respectively. The address of the principal business office of each of
the Reporting Persons is 1585 Broadway, New York, New York 10036.
(c) MS
is a leading global financial services firm that maintains significant market
positions in each of its business segments – Institutional Securities, Global
Wealth Management Group and Asset Management. MSPI is an indirect
wholly-owned subsidiary of MS.
(d) and
(e)
During
the last five years, neither of the Reporting Persons, and to the knowledge of
the Reporting Persons, any of the persons listed on Schedule A and
Schedule B, has
(1) been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (2) been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws,
other than, in the case of clause (2), as described in Exhibit A.
(f) The
citizenship of each of the persons set forth in Schedule A and
Schedule B
is provided therein.
Item
3. Source and Amount of Funds or Other Consideration.
The
response set forth in Item 3 of the Schedule 13D is hereby amended and
supplemented by the following:
As
previously reported in the Schedule 13D, on August 16, 2007, under the
terms of a private placement of Class 1 Preferred by the Company, MSPI purchased
43,340 shares of Class 1 Preferred and a warrant to purchase up to 3,284,196
Common Shares of the Company, at an initial exercise price of $1.32 per Common
Share, for an aggregate purchase price of $43,340,000.
On
January 18, 2008, under the terms of a private placement of Class 1
Preferred by the Company, MSPI purchased an additional 1,593 shares of Class 1
Preferred and a warrant to purchase up to 120,714 Common Shares of the Company,
at an initial exercise price of $1.32 per Common Share, for an aggregate
purchase price of $1,647,863.
MSPI
obtained funds for the purchase price for both transactions through internally
generated funds.
Item
5. Interest in Securities of Issuer.*
The
response set forth in Item 5 of the Schedule 13D is hereby amended and
supplemented by the following:
`
(a) and
(b)
The
following disclosure assumes there are 53,075,754 Common Shares of the Company,
which is the sum of (i) 52,803,159 Common Shares outstanding upon
completion of the Company’s initial public offering (which the Company
represented in its final prospectus dated April 21, 2010 to be the number
of Common Shares outstanding following the Company’s initial public offering)
and (ii) 272,595 Common Shares issuable upon exercise of warrants to
purchase Common Shares, at an exercise price of $16.48 per share, held by
MSPI. All calculations of beneficial ownership and of the number of
shares issuable upon the conversion or exercise of any securities are made as of
April 27, 2010 following the completion of the Company’s initial public
offering.
Pursuant
to the terms of the warrants issued to MSPI, the exercise price and number of
Common Shares issuable upon exercise thereof were adjusted as a result of the
reverse split of Common Shares conducted by the Company in April 2010 of
its outstanding Common Shares on the basis of a ratio of one post-split Common
Share for every fifteen pre-split Common Shares and anti-dilution
provisions.
On
April 27, 2010, in connection with the Company’s initial public offering
and pursuant to the terms of the Articles of Amendment dated as of
August 16, 2007 to the Company’s Articles of Incorporation establishing the
terms of the Class 1 Preferred, the holders of a majority of the shares of
Class 1 Preferred elected to have the Company convert all of the
outstanding shares of Class 1 Preferred into Common Shares. As a
result of such election, 44,933 shares of Class 1 Preferred held by MSPI were
converted by the Company into 3,963,809 Common Shares.
By virtue
of the relationships described herein, the Reporting Persons may be deemed to
constitute a “group” within the meaning of Rule 13d-5 under the Exchange Act,
and may be deemed to share beneficial ownership of 3,963,809 Common Shares held
by MSPI and the exercise of warrants to purchase up to an aggregate of 272,595
Common Shares held by MSPI, which, based on calculations made in accordance with
Rule 13d-3 of the Exchange Act, would constitute approximately 7.9% of the
outstanding Common Shares. As a member of a group, each Reporting
Person may be deemed to share voting and dispositive power with respect to, and
therefore beneficially own, the shares beneficially owned by members of the
group as a whole. The filing of the
*
In accordance with the Securities
and Exchange Commission Release No. 34-39538 (January 12, 1998) (the
“Release”), this filing reflects the securities
beneficially owned by certain operating units (collectively, the “MS
Reporting Units”) of
Morgan Stanley and its subsidiaries and affiliates (collectively, “MS”). This filing does not
reflect securities, if any, beneficially owned by any operating units of MS
whose ownership of securities is disaggregated from that of the MS Reporting
Units in accordance with the Release.
Schedule 13D
(including this Amendment No. 1) shall not be construed as an admission
that the Reporting Persons beneficially own those shares held by any other
members of the group.
MS is
filing solely in its capacity as parent company of, and indirect beneficial
owner of securities held by, MSPI. The Reporting Persons do not
affirm the existence of a group and are filing this Amendment No. 1 jointly
pursuant to Rule 13d-1(k)(1) promulgated under the Exchange Act, provided that,
as contemplated by Section 13d-1(k)(1)(ii), no Reporting Person shall be
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such Reporting Person knows or has
reason to believe that such information is inaccurate.
By virtue
of the relationship reported under Item 2, each of MS and MSPI may be deemed to
have shared voting and dispositive power with respect to 4,236,404 Common Shares
beneficially owned by MSPI. Neither the filing of the
Schedule 13D (including this Amendment No. 1) nor any of its contents
shall be deemed to constitute an admission by either Reporting Person that it is
the beneficial owner of any of Common Shares referred to herein for purposes of
Section 13(d) of the Exchange Act, or for any other purpose, and such
beneficial ownership is expressly disclaimed.
The
filing of the Schedule 13D (including this Amendment No. 1) shall not
be construed as an admission that either of the Reporting Persons shares
beneficial ownership for purposes of Section 13(d) of the Exchange
Act.
To the
knowledge of the Reporting Persons, none of the persons listed on Schedule A or
Schedule B
beneficially owns any Common Shares.
(c) Neither
of the Reporting Persons nor, to the knowledge of either of the Reporting
Persons, any other person or entity previously reported under Item 2
(including those listed on Schedule A), has
effected any transactions in the Common Shares during the past 60 days, other
than the conversion of the shares of Class 1 Preferred into Common Shares
in connection with the Company’s initial public offering.
(d) By
virtue of the relationship reported under Item 2, MS may be deemed to have
the power to direct the receipt of dividends declared on the securities held by
MSPI and the proceeds from the sale of the securities.
(e) Not
applicable.
Item
6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
The
response set forth in Item 6 of the Schedule 13D is hereby amended and
supplemented by the following:
On
April 27, 2010, the Shareholders Agreement was terminated in accordance
with its terms.
As of
April 29, 2010, Morgan Stanley Bank N.A. and Morgan Stanley Senior Funding,
Inc., affiliates of MSPI, hold in the aggregate approximately $37.0 million
of the Company’s first lien term loan, Morgan Stanley Senior Funding,
Inc. holds approximately $67.8 million of the Company’s second lien
term loan and Morgan Stanley Bank N.A. holds approximately $22.5 million of
the Company’s revolving credit facility.
SIGNATURE
After
reasonable inquiry and to the best of my knowledge and belief, the undersigned
certify that the information set forth in this statement is true, complete and
correct.
Dated: April
30, 2010
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MORGAN STANLEY |
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By:
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/s/ Amy
Y. Kim |
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Name:
Amy Y. Kim |
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Title:
Authorized Signatory |
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MORGAN STANLEY PRINCIPAL
INVESTMENTS, INC. |
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By:
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/s/ David
Bersh |
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Name:
David Bersh |
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Title:
Vice President |
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SCHEDULE
A
EXECUTIVE
OFFICERS AND DIRECTORS
OF
MORGAN
STANLEY
The names
of the directors and the names and titles of the executive officers of Morgan
Stanley (“MS”)
and their principal occupations are set forth below. The business
address of each of the directors or executive officers is that of MS at 1585
Broadway, New York, New York 10036. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to MS and each
individual is a United States citizen.
Name
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Title
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*John
J. Mack
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Chairman
of the Board
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*James
P. Gorman1
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President
and Chief Executive Officer
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*Roy
J. Bostock
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Director
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*Erskine
B. Bowles
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President
of the University of North Carolina
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*Howard
J. Davies2
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Director,
The London School of Economics and Political Science
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*Nobuyuki
Hirano3
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Deputy
President and Director of The Bank of Tokyo-Mitsubishi UFJ,
Ltd.
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*James
H. Hance, Jr.
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Director
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*C.
Robert Kidder
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Chairman
and Chief Executive Officer, 3 Stone Advisors LLC
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*Donald
T. Nicolaisen
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Director
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*Hutham
S. Olayan
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President,
Chief Executive Officer and Director of Olayan America
Corporation
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*Charles
E. Phillips, Jr.
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President
and Director of Oracle Corporation
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*O.
Griffith Sexton
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Adjunct
professor of finance at Columbia Business School
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*Laura
D’Andrea Tyson
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S.
K. and Angela Chan Professor of Global Management at the Walter A. Haas
School of Business at the University of California,
Berkeley
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Ruth
Porat
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Executive
Vice President and Chief Financial Officer
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Thomas
R. Nides
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Executive
Vice President and Chief Operating Officer
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Gary
G. Lynch
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Vice
Chairman and Chief Legal Officer
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Kenneth
M. deRegt
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Chief
Risk Officer
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Gregory
J. Fleming
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Executive
Vice President and Head of Asset Management and
Research
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Colm
Kelleher4
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Executive
Vice President and Co-Head of Institutional Securities
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Paul
J. Taubman
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Executive
Vice President and Co-Head of Institutional Securities
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Charles
D. Johnston
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Executive
Vice President and Head of Morgan Stanley Smith Barney
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Walid
A. Chammah
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Executive
Vice President and Chief Executive Officer of Morgan Stanley
International
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1 Dual
citizenship – Australia and United States
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2 Citizenship
– England
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3 Citizenship
– Japan
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4 Dual
citizenship – England and Ireland
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* Director
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SCHEDULE
B
EXECUTIVE
OFFICERS AND DIRECTORS
OF
MORGAN
STANLEY PRINCIPAL INVESTMENTS, INC
The
names of the directors and the names and titles of the executive officers of
Morgan Stanley Principal Investments, Inc. (“MSPI”) and their
principal occupations are set forth below. The business address of
each of the directors or executive officers is that of MSPI at 1585 Broadway,
New York, NY 10036. Each occupation set forth opposite an individual's name
refers to MSPI and each individual is a United States citizen.
Name
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Title
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David
Bersh
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Vice
President
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*Thomas
E. Doster
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Vice
President
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Edgar
Legaspi
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Vice
President
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Louis
A. Palladino, Jr.
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Vice
President
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*Edgar
A. Sabounghi
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Vice
President
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Bruce
R. Sandberg
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Vice
President
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Martin
M. Cohen
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Secretary
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Margaret
T. Dugan
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Assistant
Secretary
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Charlene
R. Herzer
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Assistant
Secretary
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Susan
M. Krause
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Assistant
Secretary
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Anita
Rios
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Treasurer
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* Director
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EXHIBIT
A
Unless the context otherwise requires,
the term “Morgan Stanley” means Morgan Stanley and its consolidated
subsidiaries. On April 1, 2007, Morgan Stanley merged Morgan Stanley
DW Inc. (“MSDWI”) into Morgan
Stanley & Co. Incorporated (“MS&Co.”), and
MS&Co., the surviving entity, became Morgan Stanley’s principal U.S.
broker-dealer.
(a) In
January 2005, the Securities and Exchange Commission (“SEC”), announced a
settlement with MS&Co. and Goldman Sachs & Co. resolving the SEC’s
investigation relating to initial public offering (“IPO”) allocation
practices. The SEC filed a settled civil injunction action in the United States
District Court for the District of Columbia against MS&Co. relating to the
allocation of stock to institutional customers in IPOs underwritten during 1999
and 2000. Under the terms of the settlement, Morgan Stanley agreed, without
admitting or denying the allegations, to the entry of a judgment enjoining it
from violating Rule 101 of Regulation M and the payment of a $40 million civil
penalty. The court approved the settlement on February 4, 2005. The complaint
alleges that MS&Co. violated Rule 101 of Regulation M by attempting to
induce certain customers who received allocations of IPOs to place purchase
orders for additional shares in the aftermarket.
(b) In
May 2006, MS&Co. reached a settlement with the SEC, the New York Stock
Exchange (“NYSE”) and the
National Association of Securities Dealers, Inc. (“NASD”) relating to
its production of email in the research analyst and IPO investigations from
December 2000 through at least July 2005. The complaint alleges that Morgan
Stanley did not timely produce emails in response to requests in those matters
because it did not diligently search for back-up tapes containing responsive
emails until 2005, and because it over-wrote back-up tapes potentially
containing responsive email until at least December 2002. Without admitting or
denying the allegations of the complaint, Morgan Stanley consented to (1) a
permanent injunction barring future violations of §17(b) of the Securities
Exchange Act of 1934, as amended (“Exchange Act”) (which
requires, among other things, that Morgan Stanley respond promptly to SEC
subpoenas and requests) and the relevant regulations promulgated thereunder and
(2) the payment of a $15 million civil penalty, $5 million of which will be paid
to NASD and the NYSE.
(c) In
May 2007, MS&Co. consented, without admitting or denying the findings, to a
censure, the entry of an order (the “Order”) that resolved
the SEC’s investigation into violations of MS&Co.’s duty to obtain the best
price possible for certain retail orders for over-the-counter securities
processed by Morgan Stanley’s computerized market-making system from October 24,
2001 through December 8, 2004. Pursuant to the Order, Morgan Stanley was ordered
to (1) cease and desist from committing any violations and any future violations
of Section 15(c)(1)(A) of the Exchange Act, which prohibits broker-dealers from
using manipulative, deceptive or fraudulent devices or contrivances to effect
securities transactions, (2) pay disgorgement of $5,949,222 and pre-judgment
interest thereon of $507,978 and (3) pay a civil money penalty of $1.5 million.
Morgan Stanley also agreed to retain an independent distribution consultant to
develop and implement a distribution plan for the disgorgement
ordered, and to retain an independent compliance consultant to conduct a
comprehensive review and provide a report on its automated retail order handling
practices.
(d) On
September 27, 2007, the Financial Industry Regulatory Authority (“FINRA”) announced
that MS&Co. entered into a Letter of Acceptance, Waiver and Consent (the
“AWC”) to
resolve charges filed by FINRA on December 19, 2006. In the AWC, FINRA
found that, among other things, Morgan Stanley provided inaccurate information
regarding the existence of pre-September 11, 2001 emails and failed to provide
such emails to arbitration claimants and regulators in response to discovery
obligations and regulatory inquiries, failed adequately to preserve books and
records, and failed to establish and maintain systems and written procedures
reasonably designed to preserve required records and to ensure that it conducted
adequate searches in
response to regulatory inquiries and discovery requests. The AWC also included
findings that Morgan Stanley failed to provide arbitration claimants with
updates to a supervisory manual when called for in discovery. FINRA found that
Morgan Stanley violated Section 17(a) of the Securities Exchange Act of 1934,
Rule 17a-4 thereunder, NASD Conduct Rules 2110, 3010 (a) and (b) and 3110, NASD
Procedural Rule 8210 and Interpretative Material 10100 under the NASD Code of
Arbitration Procedure. In the settlement, Morgan Stanley neither admitted nor
denied these findings. The settlement established a $9.5 million fund for the
benefit of potentially affected arbitration claimants to be administered by a
third party at the expense of Morgan
Stanley.
In addition, Morgan Stanley was censured and agreed to pay a $3 million
regulatory fine and to retain an independent consultant to review its procedures
for complying with discovery requirements in arbitration proceedings relating to
Morgan Stanley’s retail brokerage operations.
(e) Starting
in July 2003, Morgan Stanley received subpoenas and requests for information
from various regulatory and governmental agencies, including the SEC, the NYSE
and various states, in connection with industry-wide investigations of
broker-dealers and mutual fund complexes relating to possible late trading and
market timing of mutual funds. In December 2007, Morgan Stanley settled all
claims with the SEC concerning late trading and market timing of mutual funds in
the retail system over the period from January 2002 to August 2003. Under the
terms of the settlement, Morgan Stanley will, among other things, be censured
and pay a monetary fine.
(f) On
September 30, 2009, Morgan Stanley entered into an administrative settlement
agreement with the U.S. Environmental Protection Agency (“EPA”) to resolve
certain violations of the U.S. environmental laws allegedly committed by Morgan
Stanley during 2005. These alleged violations included: distribution of
approximately 2.7 million gallons of reformulated gasoline that failed to comply
with maximum benzene content limitations; failure to report volume and property
information for each batch of gasoline blendstock imported and reformulated
gasoline produced; failure to conduct an annual attest engagement; and failure
to provide product transfer documents for each transfer of reformulated gasoline
and each batch of previously certified gasoline. Without admitting or denying
the EPA’s allegations, Morgan Stanley agreed to resolve these matters for a
civil penalty of $405,000.
In
addition, MS&Co. and MSDWI have been involved in a number of civil
proceedings which concern matters arising in connection with the conduct of its
business. Certain of such proceedings have resulted in findings of violation of
federal or state securities laws. Each of these proceedings was settled by
MS&Co. and MSDWI consenting to the entry of an order without admitting or
denying the allegations in the complaint. All of such proceedings are reported
and summarized in the MS&Co. Form BD and the MSDWI Form BD filed with the
SEC, which descriptions are hereby incorporated by
reference.