<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11758
DEAN WITTER, DISCOVER & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-3145972
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
TWO WORLD TRADE CENTER 10048
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-2222
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of April 18, 1997 there were 325,116,118 shares of Registrant's Common
Stock, par value $.01 per share, outstanding.
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<PAGE>
DEAN WITTER, DISCOVER & CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income--Three Months Ended March 31, 1997
and 1996 (unaudited)................................................. 1
Consolidated Balance Sheets--March 31, 1997 (unaudited) and December
31, 1996............................................................. 2
Consolidated Statements of Cash Flows--Three Months Ended March 31,
1997 and 1996 (unaudited)............................................ 3
Notes to Consolidated Financial Statements (unaudited)................ 4
Independent Accountants' Report....................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... 20
Item 6. Exhibits and Reports on Form 8-K................................ 20
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Merchant and cardmember fees............................... $ 405.3 $ 320.5
Commissions................................................ 305.6 300.7
Asset management and administration fees................... 311.6 274.9
Servicing fees............................................. 208.6 200.3
Principal transactions..................................... 118.0 118.9
Investment banking......................................... 79.5 64.7
Other...................................................... 28.6 24.8
--------- ---------
Total non-interest revenues.............................. 1,457.2 1,304.8
--------- ---------
Interest revenue........................................... 986.5 861.4
Interest expense........................................... 414.9 390.7
--------- ---------
Net interest income...................................... 571.6 470.7
Provision for losses on receivables........................ 378.4 228.0
--------- ---------
Net credit income........................................ 193.2 242.7
--------- ---------
Net operating revenues................................... 1,650.4 1,547.5
--------- ---------
Employee compensation and benefits......................... 616.3 570.3
Marketing and business development......................... 186.7 191.9
Information processing and communications.................. 192.5 182.1
Facilities and equipment................................... 64.0 61.2
Other...................................................... 136.4 141.6
--------- ---------
Total non-interest expenses.............................. 1,195.9 1,147.1
--------- ---------
Income before income taxes................................. 454.5 400.4
Income tax expense......................................... 178.2 154.6
--------- ---------
Net income................................................. $ 276.3 $ 245.8
========= =========
Earnings per common share (1)..............................
Primary.................................................. $ 0.81 $ 0.71
========= =========
Fully diluted............................................ $ 0.81 $ 0.70
========= =========
Average common shares outstanding (1)......................
Primary.................................................. 339.4 348.3
========= =========
Fully diluted............................................ 339.4 349.6
========= =========
</TABLE>
- --------
(1) Prior period share and per share data have been restated to reflect the
Company's two-for-one stock split.
See notes to the consolidated financial statements.
1
<PAGE>
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 1,184.9 $ 1,999.2
Cash and securities segregated under federal and other
regulations.......................................... 2,151.3 2,044.5
Receivables
Consumer loans (net of allowances of $818.8 in 1997
and $815.3 in 1996)................................. 21,147.6 22,372.9
Securities clients (net of allowances of $12.7 in
1997 and $15.3 in 1996)............................. 2,880.5 2,839.1
Other................................................ 828.2 804.5
Amounts due from asset securitizations................ 871.3 869.2
Securities borrowed................................... 4,731.4 3,866.3
Securities purchased under agreements to resell....... 3,896.9 3,563.6
Securities owned, at market value..................... 2,318.7 1,913.6
Deferred income taxes................................. 776.1 820.3
Office facilities, at cost (less accumulated
depreciation and amortization of
$466.1 in 1997 and $446.0 in 1996)................... 380.6 379.7
Other assets.......................................... 1,092.5 940.7
--------- ---------
Total assets........................................ $42,260.0 $42,413.6
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Commercial paper..................................... $ 3,929.3 $ 4,736.8
Other short-term borrowings.......................... 451.5 1,128.2
Deposits............................................. 7,138.1 7,212.6
Payables
Securities clients.................................. 3,175.2 3,433.3
Drafts.............................................. 404.7 616.1
Income taxes........................................ 256.2 156.8
Securities loaned.................................... 4,854.9 3,932.1
Securities sold under agreements to repurchase....... 3,979.2 3,566.6
Securities sold but not yet purchased, at market
value............................................... 1,696.2 1,274.1
Other liabilities and accrued expenses............... 3,224.5 3,048.4
Long-term borrowings................................. 7,689.9 8,144.2
--------- ---------
Total liabilities................................... 36,799.7 37,249.2
--------- ---------
Shareholders' Equity
Preferred stock ($0.01 par value, 10.0 shares
authorized, none issued)............................ -- --
Common stock ($0.01 par value, 500.0 shares
authorized, 342.0 shares issued, 324.8 and 319.7
shares outstanding at March 31, 1997 and December
31, 1996)........................................... 3.4 3.4
Paid-in capital...................................... 2,713.4 2,702.5
Retained earnings.................................... 3,203.6 2,972.7
--------- ---------
5,920.4 5,678.6
--------- ---------
Common stock held in treasury, at cost ($.01 par
value, 17.2 and 22.3 shares at March 31, 1997 and
December 31, 1996).................................. (451.7) (598.3)
Stock compensation plans............................. 79.0 141.8
Employee stock benefit trust......................... (77.7) (46.3)
Unearned stock compensation.......................... (9.7) (11.4)
--------- ---------
Total shareholders' equity.......................... 5,460.3 5,164.4
--------- ---------
Total liabilities and shareholders' equity.......... $42,260.0 $42,413.6
========= =========
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows provided by (used in) operating activities
Net income............................................. $ 276.3 $ 245.8
Adjustments to reconcile net income to net cash flows
from operating activities
Depreciation and amortization......................... 22.6 19.6
Provision for losses on receivables................... 378.4 228.0
Deferred income taxes................................. 44.2 (5.9)
Decrease (increase) in operating assets
Cash and securities segregated under federal and other
regulations.......................................... (106.8) (76.9)
Receivables
Securities clients................................... (44.4) 2.4
Other................................................ (23.7) (24.0)
Securities borrowed................................... (865.1) (368.8)
Amounts due from asset securitizations................ (2.1) (124.2)
Matched securities purchased under agreements to
resell, net.......................................... 2.8 (95.7)
Securities owned and securities sold but not yet
purchased, at market value, net...................... 17.0 (3.6)
Other assets.......................................... (144.4) (8.2)
Increase (decrease) in operating liabilities
Payables
Securities clients................................... (258.1) (384.2)
Drafts............................................... (211.4) (88.8)
Income taxes......................................... 99.4 150.4
Securities loaned..................................... 922.8 432.7
Other liabilities and accrued expenses................ 253.2 192.9
--------- ---------
Cash provided by operating activities................. 360.7 91.5
--------- ---------
Cash flows provided by (used in) investing activities
Net principal received (disbursed) on consumer loans... 849.7 (273.3)
Purchases of consumer loans............................ -- (5.1)
Sales of consumer loans................................ -- 2,767.6
Other.................................................. (30.6) (37.3)
--------- ---------
Cash provided by investing activities................. 819.1 2,451.9
--------- ---------
Cash flows provided by (used in) financing activities
Repayments of commercial paper, net.................... (859.1) (2,936.5)
Net decrease in other short-term borrowings............ (676.7) (1,151.7)
Deposits, net.......................................... (74.5) (187.2)
Proceeds from issuance (repayments) of long-term
borrowings, net....................................... (418.1) 1,263.7
Securities sold under agreements to repurchase, net.... 76.3 96.9
Dividends paid......................................... (34.6) (26.9)
Proceeds from issuance of common stock................. 19.7 15.7
Purchase of treasury stock............................. (27.1) (150.6)
--------- ---------
Cash used in financing activities..................... (1,994.1) (3,076.6)
--------- ---------
Decrease in cash and cash equivalents.................... (814.3) (533.2)
Cash and cash equivalents, beginning of period........... 1,999.2 1,464.5
--------- ---------
Cash and cash equivalents, end of period................. $ 1,184.9 $ 931.3
========= =========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTRODUCTION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dean Witter,
Discover & Co. and subsidiaries (the "Company"). The Company is a financial
services organization that provides a broad range of credit and investment
products, with a primary focus on individual customers. Through its wholly-
owned subsidiary NOVUS Credit Services Inc. ("NCSI"), the Company conducts its
credit services business, including the operation of the NOVUS(R) Network, a
proprietary network of merchant and cash access locations, and the issuance of
proprietary general purpose credit cards. The Company's securities business is
conducted primarily through its wholly-owned subsidiaries Dean Witter Reynolds
Inc. ("DWR") and Dean Witter InterCapital Inc.
The interim consolidated financial statements as of March 31, 1997, and for
the three months ended March 31, 1997 and 1996 are unaudited; however, in the
opinion of management, all adjustments, consisting only of normal recurring
accruals necessary for fair presentation, have been reflected. All material
intercompany balances and transactions have been eliminated. The preparation
of the consolidated financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts in the financial statements. Actual results
could differ from these estimates.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1996 incorporated by reference in the Company's 1996 Annual
Report on Form 10-K filed by the Company under the Securities Exchange Act of
1934. The results of operations for interim periods are not necessarily
indicative of results for the entire year. Certain reclassifications have been
made to prior period amounts to conform to the current presentation.
The calculations of earnings per common share were based on the weighted
average number of common shares outstanding during the three month periods
ended March 31, 1997 and 1996 adjusted for the dilutive effects of stock
options and unissued stock awards under deferred compensation plans. Effective
December 26, 1996, the Company declared a two-for-one stock split, which was
effected in the form of a dividend, distributable on January 14, 1997. All
prior period per share, share outstanding and shareholders' equity data has
been restated to reflect this split.
2. RECENT EVENTS
On February 5, 1997, the Company and Morgan Stanley Group Inc. ("Morgan
Stanley") announced a definitive agreement to merge. Under the terms of the
merger agreement unanimously approved by the Boards of Directors of both
companies, each of Morgan Stanley's common shares will be exchanged for 1.65
common shares of the Company. Morgan Stanley preferred shares outstanding at
the date of the merger will be exchanged for preferred shares of the Company
having substantially identical terms. The transaction, which is expected to be
completed in mid-1997, is intended to be a tax free exchange and accounted for
as a pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of shareholders of
both companies. The Company has formally rescinded its remaining stock
repurchase authorizations. The Company and Morgan Stanley are holding
shareholders' meetings on May 28, 1997, at which time the shareholders of each
company will vote on the merger.
4
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which is effective for
transfers of financial assets made after December 31, 1996, except for certain
financial assets for which the effective date has been delayed for one year.
SFAS No. 125 provides financial reporting standards for the derecognition and
recognition of financial assets, including the distinction between transfers
of financial assets which should be recorded as sales and those which should
be recorded as secured borrowings. The adoption of SFAS No. 125 had no
material effect on the Company's financial position or results of operations.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
per Share" ("EPS"), effective for periods ending after December 15, 1997, with
restatement required for all prior periods. SFAS No. 128 replaces the current
EPS categories of primary and fully diluted with "basic", which reflects no
dilution from common stock equivalents, and "diluted", which reflects dilution
from common stock equivalents based on the average price per share of the
Company's common stock during the period. For the three months ended March 31,
1997, basic EPS would have been $0.86, while diluted EPS would have been
$0.81. For the three months ended March 31, 1996, basic EPS would have been
$0.73, while diluted EPS would have been $0.71.
4. CONSUMER LOANS
Consumer loans, classified as to type, were as follows (in millions).
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C> <C>
Credit card....................................... $20,803.1 $22,062.0
Real estate-secured and other consumer
installment...................................... 1,234.1 1,203.8
--------- ---------
Total............................................. 22,037.2 23,265.8
Less
Unearned finance charges and unamortized loan
discounts and fees............................. 70.8 77.6
Allowance for loan losses....................... 818.8 815.3
--------- ---------
Consumer loans, net............................... $21,147.6 $22,372.9
========= =========
Activity in the allowance for consumer loan losses was as follows (in
millions).
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
--------- ------------
<S> <C> <C> <C>
Balance, beginning of period...................... $815.3 $721.8
Provision for loan losses......................... 375.4 225.0
Less deductions
Charge-offs..................................... 418.3 249.8
Recoveries...................................... (40.4) (33.4)
--------- ---------
Net charge-offs............................... 377.9 216.4
--------- ---------
Other(1).......................................... 6.0 (66.8)
--------- ---------
Balance, end of period............................ $818.8 $663.6
========= =========
</TABLE>
- --------
(1) Primarily reflects net transfers related to asset securitizations.
5
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest accrued on loans subsequently charged-off, recorded as a reduction
of interest revenue, was $79.7 million and $41.5 million in the first quarters
of 1997 and 1996.
The Company received proceeds from asset securitizations of $2,619.9 million
in the first quarter of 1996. The uncollected balances of consumer loans sold
through securitizations were $13,258.6 million and $13,384.6 million at March
31, 1997 and December 31, 1996. The allowance for loan losses related to
securitized loans, included in other liabilities and accrued expenses, was
$443.3 million and $447.3 million at March 31, 1997 and December 31, 1996.
5. BORROWINGS
Short-term borrowings
Short-term borrowings consisted of the following (in millions).
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Commercial paper......................................... $3,929.3 $4,736.8
Other
Bank borrowings........................................ 451.5 410.3
Federal funds purchased................................ -- 458.8
Bank notes............................................. -- 259.1
-------- --------
Total.................................................... $4,380.8 $5,865.0
======== ========
</TABLE>
The weighted average interest rate on short-term borrowings, including the
effects of interest rate contracts, was 5.61% and 5.55% at March 31, 1997 and
December 31, 1996.
Long-term borrowings
Long-term borrowings, which consisted of senior long-term notes, net of
unamortized discount, were as follows (in millions).
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Floating rate notes...................................... $3,839.2 $4,257.1
Fixed rate notes......................................... 3,409.4 3,409.1
Foreign denominated...................................... 441.3 478.0
-------- --------
Total.................................................... $7,689.9 $8,144.2
======== ========
</TABLE>
The weighted average interest rate on long-term borrowings, including the
effects of interest rate contracts, was 5.98% and 6.02% at March 31, 1997 and
December 31, 1996.
In April 1997, the Company renewed its $4.0 billion senior bank credit
facility. The facility expires in April 1998 and contains certain extension
provisions. The Company currently plans to renew or replace this facility
prior to its expiration. This facility contains covenants that require the
Company to maintain minimum net worth requirements and specified financial
ratios. The Company believes that the covenant restrictions will not impair
its ability to pay its current level of dividends. As of March 31, 1997, the
Company had never borrowed from its senior bank credit facility.
6
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
6. REGULATORY CAPITAL REQUIREMENTS
Under regulatory net capital requirements adopted by the Federal Deposit
Insurance Corporation ("FDIC") and other regulatory capital guidelines, FDIC-
insured financial institutions must maintain (a) 3% to 5% of Tier 1 capital,
as defined, to total assets ("leverage ratio") and (b) 8% combined Tier 1 and
Tier 2 capital, as defined, to risk-weighted assets ("risk-weighted capital
ratio"). At March 31, 1997, the leverage ratio and risk-weighted capital ratio
of each of the Company's FDIC-insured financial institutions exceeded these
and all other regulatory minimums.
DWR, the Company's primary broker-dealer, is subject to the Uniform Net
Capital Rule of the Securities and Exchange Commission ("SEC"). Under the
alternative method permitted by this Rule, the required net capital, as
defined, shall not be less than the greater of (a) one million dollars, (b) 2%
of aggregate debit balances arising from client transactions pursuant to SEC
Rule 15c3-3, or (c) 4% of the funds required to be segregated pursuant to the
Commodity Exchange Act. The New York Stock Exchange, Inc. may also require a
member organization to reduce its business if its net capital is less than the
greater of (a) 4% of aggregate debit balances or (b) 6% of the funds required
to be segregated, and may prohibit a member organization from expanding its
business and declaring cash dividends if its net capital is less than the
greater of (a) 5% of aggregate debit balances or (b) 7% of the funds required
to be segregated. At March 31, 1997, DWR's net capital was $640.3 million and
net capital in excess of the minimum required was $521.2 million. DWR's net
capital was 21.4% of aggregate debit balances and 21.5% of funds required to
be segregated.
7. CONTINGENT LIABILITIES
In the normal course of business, the Company has been named as a defendant
in various lawsuits. Some of these lawsuits involve claims for substantial
amounts. Although the ultimate outcome of these suits cannot be ascertained at
this time, it is the opinion of management, after consultation with outside
counsel, that the resolution of such suits will not have a material adverse
effect on the consolidated financial condition of the Company, but may be
material to the Company's operating results for any particular period,
depending upon the level of the Company's income for such period.
7
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors and Shareholders of
Dean Witter, Discover & Co.:
We have reviewed the accompanying consolidated balance sheet of Dean Witter,
Discover & Co. and subsidiaries as of March 31, 1997, and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1997 and 1996. These financial statements are the
responsibility of the management of Dean Witter, Discover & Co.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Dean Witter, Discover & Co. and
subsidiaries as of December 31, 1996 (presented herein), and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for the year then ended (not presented herein); and in our report dated
February 21, 1997, we expressed an unqualified opinion on those consolidated
financial statements.
Deloitte & Touche LLP
New York, New York
April 30, 1997
8
<PAGE>
DEAN WITTER, DISCOVER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
RESULTS OF OPERATIONS
The Company achieved record net income of $276.3 million in the first
quarter of 1997, a 12% increase over the first quarter of 1996. Primary
earnings per common share was $0.81 in the first quarter of 1997 compared to
$0.71 in the first quarter of 1996. Fully diluted earnings per common share
was $0.81 in the first quarter of 1997 compared to $0.70 in the first quarter
of 1996.
Net operating revenues increased 7% in the first quarter of 1997 from the
first quarter of 1996 due to the effects of credit card fee and interest
revenue enhancements made during 1996, higher average levels of consumer loans
and higher levels of assets under management. These revenue increases were
partially offset by increased levels of credit losses.
Non-interest expenses increased 4% in the first quarter of 1997 from the
first quarter of 1996 due to higher employee compensation and benefits
expense.
RECENT EVENTS
On February 5, 1997, the Company and Morgan Stanley Group Inc. ("Morgan
Stanley") announced a definitive agreement to merge. Under the terms of the
merger agreement unanimously approved by the Boards of Directors of both
companies, each of Morgan Stanley's common shares will be exchanged for 1.65
common shares of the Company. Morgan Stanley preferred shares outstanding at
the date of the merger will be exchanged for preferred shares of the Company
having substantially identical terms. The transaction, which is expected to be
completed in mid-1997, is intended to be a tax free exchange and accounted for
as a pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of shareholders of
both companies. The Company has formally rescinded its remaining stock
repurchase authorizations. The Company and Morgan Stanley are holding
shareholders' meetings on May 28, 1997, at which time the shareholders of each
company will vote on the merger.
9
<PAGE>
CREDIT SERVICES
STATEMENTS OF INCOME (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Merchant and cardmember fees............................... $ 405.3 $ 320.5
Servicing fees............................................. 208.6 200.3
Other...................................................... 1.6 5.1
--------- ---------
Total non-interest revenues.............................. 615.5 525.9
--------- ---------
Interest revenue........................................... 789.4 675.2
Interest expense........................................... 294.2 275.1
--------- ---------
Net interest income...................................... 495.2 400.1
Provision for loan losses.................................. 375.4 225.0
--------- ---------
Net credit income........................................ 119.8 175.1
--------- ---------
Net operating revenues................................... 735.3 701.0
--------- ---------
Employee compensation and benefits......................... 139.5 124.2
Marketing and business development......................... 157.3 164.4
Information processing and communications.................. 113.2 114.4
Facilities and equipment................................... 14.9 14.8
Other...................................................... 76.5 85.8
--------- ---------
Total non-interest expenses.............................. 501.4 503.6
--------- ---------
Income before income taxes................................. 233.9 197.4
Income tax expense......................................... 87.7 73.1
--------- ---------
Net income................................................. $ 146.2 $ 124.3
========= =========
</TABLE>
Credit Services net income increased 18% to $146.2 million in the first
quarter of 1997 from the first quarter of 1996. The increase resulted from the
effects of credit card fee and interest revenue enhancements made in 1996 and
higher average levels of consumer loans partially offset by increased levels
of credit losses.
Non-Interest Revenues. Total non-interest revenues increased 17% in the
first quarter of 1997 from the first quarter of 1996.
Merchant and cardmember fees include revenues from fees charged to merchants
on credit card sales, late payment fees, overlimit fees, insurance fees, cash
advance fees, the administration of credit card programs and transaction
processing services. Merchant and cardmember fees increased 26% in the first
quarter of 1997 from the first quarter of 1996. The increase was due to higher
overlimit, late payment and merchant fee revenues. Overlimit fees were
implemented in March 1996 and the amount of the fee was increased in the
fourth quarter of 1996. The increase in late payment fee revenues was due to
an increase in the amount of the late payment fee charged, an increase in the
incidence of late payments and a tightening, in the fourth quarter of 1996, of
late payment fee terms. The increased incidence of late payments was
attributable to a higher level of delinquent accounts and an increase in
active credit card accounts. The increase in merchant fee revenue was due to
growth in credit card transaction volume.
Servicing fees are revenues derived from consumer loans that have been sold
to investors through asset securitizations. Cash flows from the interest yield
and cardmember fees generated by securitized loans are used to pay investors
in these loans a predetermined fixed or floating rate of return on their
investment, to reimburse the investors for losses to principal through charged
off loans and to pay the Company a fee for servicing the loans. Any excess net
cash flows remaining are paid to the Company. The servicing fees and excess
net cash flows paid to the Company are reported as servicing fees in the
consolidated statements of income. The sale of consumer loans through asset
securitizations therefore has the effect of converting portions of net credit
income and fee income to servicing fees.
10
<PAGE>
The table below presents the components of servicing fees (in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Merchant and cardmember fees.............................. $ 109.8 $ 47.0
Interest revenue.......................................... 529.8 493.2
Interest expense.......................................... (203.2) (189.0)
Provision for loan losses................................. (227.8) (150.9)
--------- ---------
Servicing fees............................................ $ 208.6 $ 200.3
========= =========
</TABLE>
Servicing fees increased 4% in the first quarter of 1997 from the first
quarter of 1996. This increase was due to higher cardmember fees, as discussed
previously, and a higher average level of securitized loans, partially offset
by a higher rate of credit losses on securitized loans.
Net Interest Income. Net interest income is equal to the difference between
interest revenue derived from Credit Services consumer loan and short-term
investment assets and interest expense incurred to finance those assets.
Credit Services assets, primarily consumer loans, earn interest revenue at
both fixed rates and market indexed variable rates. The Company incurs
interest expense at fixed and floating rates to finance Credit Services
assets. Interest expense also includes the effects of interest rate contracts
entered into by the Company as part of its interest rate risk management
program. This program is designed to reduce the volatility of earnings
resulting from changes in interest rates and is accomplished primarily through
matched financing, which entails matching the repricing schedules of consumer
loans and the related financing. Net interest income increased 24% in the
first quarter of 1997 from the first quarter of 1996 due to a higher average
level of consumer loans, a higher yield on consumer loans and a decline in the
interest rates, including the effect of interest rate contracts, on the
Company's borrowings. The higher yield on consumer loans was due to a shift in
the mix of consumer loans to higher yielding fixed rate loans and the effect
of interest revenue enhancements made in 1996, partially offset by higher
charge-offs of interest revenue.
11
<PAGE>
The following tables present analyses of Credit Services average balance
sheets and interest rates for the three months ended March 31, 1997 and 1996
and changes in net interest income during those periods.
TABLE 1
CREDIT SERVICES AVERAGE BALANCE SHEET ANALYSIS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------
1997 1996
-------------------------- --------------------------
AVERAGE AVERAGE
BALANCE RATE INTEREST BALANCE RATE INTEREST
--------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
General purpose credit
card loans.............. $19,183.9 14.12% $667.8 $16,648.2 13.68% $566.3
Other consumer loans..... 3,103.8 13.18 100.9 2,950.3 12.22 89.6
Investment securities.... 219.7 5.28 2.9 328.6 5.37 4.4
Other.................... 1,296.0 5.59 17.8 1,082.5 5.52 14.9
--------- ------ --------- ------
Total interest earning
assets................ 23,803.4 13.45 789.4 21,009.6 12.93 675.2
Allowance for loan
losses.................. (919.2) (673.1)
Non-interest earning
assets.................. 1,872.0 1,355.9
--------- ---------
Total assets........... $24,756.2 $21,692.4
========= =========
LIABILITIES & SHAREHOLDER'S EQUITY
Interest bearing
liabilities:
Interest bearing deposits
Savings................. $ 1,045.0 4.40% $ 11.3 $ 1,001.1 4.57% $ 11.4
Brokered................ 3,748.0 6.73 62.2 3,156.7 7.12 55.9
Other time.............. 2,202.7 6.07 33.0 1,822.0 6.16 27.9
--------- ------ --------- ------
Total interest bearing
deposits.............. 6,995.7 6.17 106.5 5,979.8 6.40 95.2
Other borrowings......... 12,856.0 5.92 187.7 11,563.7 6.26 179.9
--------- ------ --------- ------
Total interest bearing
liabilities........... 19,851.7 6.01 294.2 17,543.5 6.31 275.1
Shareholder's
equity/other
liabilities............. 4,904.5 4,148.9
--------- ---------
Total liabilities &
shareholder's equity.. $24,756.2 $21,692.4
========= =========
Net interest income...... $495.2 $400.1
====== ======
Net interest margin...... 8.44% 7.66%
Interest rate spread..... 7.44% 6.62%
</TABLE>
12
<PAGE>
TABLE 2
CREDIT SERVICES RATE/VOLUME ANALYSIS (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 VS 1996
----------------------
INCREASE/(DECREASE)
DUE TO CHANGES IN
----------------------
VOLUME RATE TOTAL
------ ------ ------
<S> <C> <C> <C>
INTEREST REVENUE
General purpose credit card loans....................... $81.8 $ 19.7 $101.5
Other consumer loans.................................... 4.4 6.9 11.3
Investment securities................................... (1.5) -- (1.5)
Other................................................... 2.7 0.2 2.9
------
Total interest revenue................................ 85.2 29.0 114.2
------
INTEREST EXPENSE
Interest bearing deposits
Savings................................................ 0.4 (0.5) (0.1)
Brokered............................................... 10.1 (3.8) 6.3
Other time............................................. 5.6 (0.5) 5.1
------
Total interest bearing deposits....................... 15.5 (4.2) 11.3
Other borrowings........................................ 19.1 (11.3) 7.8
------
Total interest expense................................ 34.5 (15.4) 19.1
------
Net interest income..................................... $51.6 $ 43.5 $ 95.1
===== ====== ======
</TABLE>
The supplemental table below provides average managed loan balance and rate
information which takes into effect both owned and securitized loans.
TABLE 3
SUPPLEMENTAL CREDIT SERVICES AVERAGE MANAGED LOAN BALANCE SHEET INFORMATION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------
1997 1996
-------------------------- --------------------------
AVG. BAL. RATE % INTEREST AVG. BAL. RATE % INTEREST
--------- ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans............. $35,624.7 14.78% $1,298.5 $31,388.4 14.72% $1,149.1
General purpose credit card
loans..................... 31,676.5 14.85 1,159.9 27,455.9 14.89 1,016.3
Total interest earning
assets.................... 37,140.4 14.41 1,319.2 32,799.6 14.33 1,168.4
Total interest bearing
liabilities............... 33,188.7 6.08 497.4 29,333.5 6.36 464.0
Consumer loan interest rate
spread.................... 8.70% 8.36%
Interest rate spread....... 8.33 7.97
Net interest margin........ 8.97 8.64
</TABLE>
Provision for Loan Losses. The provision for loan losses is the amount
necessary to establish the allowance for loan losses at a level the Company
believes is adequate to absorb estimated losses in its consumer loan portfolio
at the balance sheet date. The Company's allowance for loan losses is
regularly evaluated by management for adequacy on a portfolio by portfolio
basis and was $818.8 million and $663.6 million at March
13
<PAGE>
31, 1997 and 1996. The provision for loan losses is affected by net charge-
offs, loan volume and changes in the amount of consumer loans estimated to be
uncollectable. The provision for loan losses increased 67% in the first
quarter of 1997 from the first quarter of 1996 due to an increase in net
charge-off rates. Net charge-offs as a percentage of average consumer loans
outstanding increased to 6.88% in the first quarter of 1997 from 4.44% in the
first quarter of 1996. The increase in the Company's net charge-off rate was
consistent with the industry-wide trend of increasing credit loss rates that
the Company believes is related, in part, to increased consumer debt levels
and bankruptcy rates. The Company believes that the trend may continue and the
Company may experience a higher net charge-off rate for the full year 1997
compared to 1996. In 1996, the Company took steps to reduce the impact of this
trend, including raising credit quality standards for new accounts,
selectively reducing credit limits and increasing collection activity. The
Company believes these credit quality improvements had a minimal impact in
1996, but believes they may have an increased effect in 1997. The Company's
expectations about future charge-off rates and credit quality improvements are
subject to uncertainties that could cause actual results to differ materially
from what has been projected above. Factors that influence the level and
direction of consumer loan delinquencies and charge-offs include changes in
consumer spending and payment behaviors, bankruptcy trends, the seasoning of
the Company's loan portfolio, interest rate movements and their impact on
consumer behavior, and the rate and magnitude of changes in the Company's
consumer loan portfolio, including the overall mix of accounts, products and
loan balances within the portfolio.
Consumer loans are considered delinquent when interest or principal payments
become 30 days past due. Consumer loans are charged off when they become 180
days past due, except in the case of bankruptcies and fraudulent transactions,
where loans are charged off earlier. Loan delinquencies and charge-offs are
primarily affected by changes in economic conditions and vary throughout the
year due to seasonal consumer spending and payment behaviors. The Company
believes the increase in consumer loan delinquency rates at March 31, 1997
from prior periods was related to the industry-wide credit conditions
discussed previously. The decline in the percentage of consumer loans past due
30 to 89 days as of March 31, 1997 from December 31, 1996 was due to the
effects of a program that allowed selected cardmembers in good standing to
defer payment one month. The following table presents delinquency and net
charge-off rates with supplemental managed loan information.
CREDIT SERVICES ASSET QUALITY (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996
-------------------- -------------------- --------------------
OWNED MANAGED OWNED MANAGED OWNED MANAGED
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans.......... $21,966.4 $35,225.0 $18,784.0 $31,045.9 $23,188.2 $36,572.8
Consumer loans
contractually past due
as a percentage of
consumer loans
30 to 89 days......... 3.61% 3.62% 3.66% 3.62% 4.25% 4.29%
90 to 179 days........ 2.93% 2.93% 2.39% 2.35% 2.81% 2.77%
Net charge-offs as a
percentage of average
consumer loans
(year-to-date)......... 6.88% 6.89% 4.44% 4.71% 5.19% 5.40%
</TABLE>
Non-Interest Expenses. Non-interest expenses remained level in the first
quarter of 1997 from the first quarter of 1996.
Employee compensation and benefits expense increased 12% in the first
quarter of 1997 from the first quarter of 1996 due to an increase in the
number of employees. Marketing and business development expense decreased 4%
in the first quarter of 1997 from the first quarter of 1996. The decrease was
due to lower mailing and promotional costs partially offset by an increase in
Cardmember rewards expense. Cardmember rewards expense, which includes the
Cashback Bonus(R) Award, increased due to continued growth in credit card
transaction volume and increased cardmember qualification for higher award
levels.
14
<PAGE>
SECURITIES
STATEMENTS OF INCOME (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
1997 1996
------ ------
<S> <C> <C>
Commissions....................................................... $305.6 $300.7
Asset management and administration fees.......................... 311.6 274.9
Principal transactions............................................ 118.0 118.9
Investment banking................................................ 79.5 64.7
Other............................................................. 27.0 19.7
------ ------
Total non-interest revenues..................................... 841.7 778.9
------ ------
Interest revenue.................................................. 197.1 186.2
Interest expense.................................................. 120.7 115.6
------ ------
Net interest income............................................. 76.4 70.6
Provision for losses on receivables............................... 3.0 3.0
------ ------
Net credit income............................................... 73.4 67.6
------ ------
Net operating revenues.......................................... 915.1 846.5
------ ------
Employee compensation and benefits................................ 476.8 446.1
Marketing and business development................................ 29.4 27.5
Information processing and communications......................... 79.3 67.7
Facilities and equipment.......................................... 49.1 46.4
Other............................................................. 59.9 55.8
------ ------
Total non-interest expenses..................................... 694.5 643.5
------ ------
Income before income taxes........................................ 220.6 203.0
Income tax expense................................................ 90.5 81.5
------ ------
Net income........................................................ $130.1 $121.5
====== ======
</TABLE>
Securities net income increased 7% to $130.1 million in the first quarter of
1997 from the first quarter of 1996. The growth in net income was due to
higher levels of assets under management and administration and continued
emphasis on cost control.
Commissions. Commission revenues arise from agency transactions in listed
and over-the-counter ("OTC") equity securities, and sales of mutual funds,
insurance products, futures and options. Commissions revenue remained level in
the first quarter of 1997 from the first quarter of 1996 as higher revenues
from OTC equity transactions and insurance sales were offset by lower revenues
from futures transactions.
Asset Management and Administration Fees. Asset management and
administration fees include fund management fees, distribution-related fees
and other administrative fees. Asset management and administration fees
increased 13% in the first quarter of 1997 from the first quarter of 1996 due
to higher fund management fees, 12b-1 distribution fees and Investment
Consulting Services ("ICS") fees. Period end assets under management were a
record $91.6 billion, an increase of 10% from March 31, 1996 and 2% from
December 31, 1996. Average assets under management were 13% higher in the
first quarter of 1997 than in the first quarter of 1996.
15
<PAGE>
Components of assets under management and administration were as follows (in
billions)(1).
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1997 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
Equity funds.................................. $38.4 $32.4 $38.1
Fixed income funds............................ 23.5 24.6 24.1
Money market funds............................ 26.6 23.7 24.7
Investment management services................ 3.1 2.7 3.1
----- ------ -----
Total assets under management and
administration............................... $91.6 $83.4 $90.0
===== ====== =====
- --------
(1) Excludes ICS assets of $11.1 billion and $9.5 billion at March 31, 1997 and
1996, and $10.4 billion at December 31, 1996.
Fund management fees arise from investment management services that the
Company provides to registered investment companies (the "funds") pursuant to
various contractual arrangements. The Company receives management fees based
upon each fund's average net assets. Fund management fees increased 13% in the
first quarter of 1997 from the first quarter of 1996 due to higher average asset
levels.
Components of fund management fees were as follows (in millions).
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- ------------
<S> <C> <C> <C>
Equity funds............................................ $ 55.0 $44.3
Fixed income funds...................................... 28.0 28.6
Money market funds...................................... 20.1 18.2
------ -----
Total fund management fees.............................. $103.1 $91.1
====== =====
</TABLE>
The Company receives 12b-1 distribution fees for services it provides in
promoting and distributing certain open-ended Dean Witter Funds. The fees are
received from the funds and reimburse the Company for specific distribution,
marketing and other related expenses incurred by the Company on the fund's
behalf. These fees are based on the lesser of average daily fund asset balances
or average daily aggregate net fund sales and are affected by changes in the
overall level and mix of assets under management and administration. 12b-1
distribution fees increased 12% in the first quarter of 1997 from the first
quarter of 1996.
ICS fees are derived from private portfolio management services arranged by
the Company for individual investors and are affected by changes in the level
of ICS assets. ICS fees increased 15% in the first quarter of 1997 from the
first quarter of 1996.
Principal Transactions. Principal transactions include revenues from
customers' purchases and sales of securities in which the Company acts as a
principal and gains and losses on securities held for resale. The Company holds
securities for resale primarily to facilitate customer trading requirements.
Principal transaction revenue remained level in the first quarter of 1997
compared to the first quarter of 1996 as higher revenues from fixed income
securities were offset by a decline in revenue from OTC transactions.
Investment Banking Revenues. Investment banking revenues are derived from the
underwriting of public offerings of securities and fees from advisory services.
Investment banking revenues increased 23% in the first quarter of 1997 from the
first quarter of 1996. This increase was primarily attributable to increased
underwriting activity.
16
<PAGE>
Net Credit Income. Net credit income consists primarily of interest revenue
from customer margin loans less the cost of financing these loans, and credit
losses. Net credit income is affected by the levels of margin loans, borrowings
that finance these loans and market interest rates. Net credit income increased
9% in the first quarter of 1997 from the first quarter of 1996 due to higher
levels of margin loans.
Non-Interest Expense. Total non-interest expenses increased 8% in the first
quarter of 1997 from the first quarter of 1996 due to higher employee
compensation and benefits expense and information processing and communications
expense. As a percentage of net operating revenues, total non-interest expenses
was 75.9% in the first quarter of 1997 compared to 76.0% in the first quarter
of 1996. Employee compensation and benefits expense increased 7% in the first
quarter of 1997 from the first quarter of 1996 due to higher variable
compensation related to increased revenues and profitability partially offset
by lower recruitment costs. As a percentage of net operating revenues employee
compensation and benefits expense decreased to 52.1% in the first quarter of
1997 from 52.7% in the first quarter in 1996. Information processing and
communications expense increased 17% in the first quarter of 1997 from the
first quarter of 1996. The first quarter of 1997 included additional expenses
related to software development.
17
<PAGE>
LIQUIDITY AND CAPITAL
LIQUIDITY
The Company's liquidity policies are designed to provide funding for the
Company's current and future business requirements and to ensure access to
cost effective funding in all business environments. This is accomplished
through diversification of funding sources, extension of funding terms and
staggering of maturities. The Company expects that its future funding and
refinancing requirements will be met through its traditional sources of funds
which include senior long-term notes, asset securitizations, deposit taking,
the issuance of asset-backed and unsecured commercial paper, bank notes,
repurchase and securities lending agreements, short-term bank borrowings and
the purchase of federal funds.
Subsequent to the announcement of the Company's definitive merger agreement
with Morgan Stanley, Moody's placed the Company's long-term borrowings on
review for possible upgrade. S&P placed the Company's long-term and short-term
borrowings on CreditWatch with positive implications.
In April 1997, the Company renewed its $4.0 billion senior bank credit
facility. The facility expires in April 1998 and contains certain extension
provisions. The Company currently plans to renew or replace this facility
prior to its expiration. This facility contains covenants that require the
Company to maintain minimum net worth requirements and specified financial
ratios. The Company believes that the covenant restrictions will not impair
its ability to pay its current level of dividends. As of March 31, 1997, the
Company had never borrowed from its senior bank credit facility.
INTEREST RATE RISK
The Company's interest rate risk policies are designed to reduce the
volatility of earnings resulting from changes in interest rates. This is
accomplished primarily through matched financing. The Company is exposed to
the risk that changes in market interest rates will result in declines in net
interest income and servicing fees. Matched financing reduces this risk by
matching the repricing schedules of consumer loans and the related financing.
When necessary, the Company utilizes interest rate contracts to achieve its
matched financing objectives. Interest rate contracts include interest rate
swaps, cost of funds agreements and interest rate caps. Under interest rate
exchange agreements, which include interest rate swaps and cost of funds
agreements, the Company effectively exchanges the interest payments on its
financing with those of a counterparty. Interest rate cap agreements
effectively establish a maximum interest rate on certain of the Company's
floating rate financings. Interest rate swap and cap agreements are entered
into with institutions that are established dealers in these instruments and
that maintain certain minimum credit criteria established by the Company. Cost
of funds agreements are entered into as part of agreements pursuant to which
the Company provides private label credit card processing services to certain
of its merchant clients.
Notional amounts of interest rate exchange agreements outstanding were as
follows (in millions).
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Agreements that converted the interest rate on
financing:
From fixed to floating................................. $5,021.3 $5,021.3
From floating to fixed................................. 1,178.9 1,182.8
From floating to floating.............................. 225.0 275.0
-------- --------
$6,425.2 $6,479.1
======== ========
</TABLE>
In addition to the interest rate exchange agreements described above, the
Company has entered into foreign currency exchange agreements on its foreign
denominated borrowings. These agreements hedge the Company's exposure to
currency fluctuations and primarily converted the repricing characteristics of
the related foreign denominated borrowings to floating US indexed rates. At
March 31, 1997 and December 31, 1996, $492.2 million of these agreements were
outstanding.
18
<PAGE>
CAPITAL
The Company's shareholders' equity increased to $5,460.3 million at March
31, 1997 from $5,164.4 million at December 31, 1996. At March 31, 1997,
$3,904.1 million of the Company's shareholders' equity was invested in the
equity of its subsidiaries. The remainder of the Company's shareholders'
equity was advanced to its subsidiaries to finance their operations.
For purposes of evaluating the financial performance of its segments, the
Company's shareholders' equity was allocated as follows at March 31, 1997:
Credit Services, $3,058.9 million; Securities, $1,457.3 million.
Prior to the announcement of its definitive agreement to merge with Morgan
Stanley, the Company purchased shares of its common stock under a general
stock repurchase program and for issuance in connection with the Company's
equity-based compensation plans. The Company ceased open market purchases of
its common stock at the time of the merger announcement. The Company's Board
of Directors has since formally rescinded the Company's remaining stock
purchase authorizations. Prior to February 5, 1997, the Company purchased 0.8
million shares of its common stock. In the first quarter of 1997, the Company
reissued 5.9 million shares of its common stock, which had been held in
treasury, under the terms of employee compensation plans.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, twenty-four market makers, including Dean Witter Reynolds
Inc., resolved an investigation by the U.S. Department of Justice of possible
anti-competitive practices in the over-the-counter securities market by
agreeing, without trial or adjudication, to the entry of an Order and
Stipulation filed in the United States District Court for the Southern
District of New York on July 17, 1996. The Order and Stipulation requires
certain ongoing undertakings including the appointment of an antitrust
compliance officer to monitor trading practices and assure continued
compliance with the antitrust laws. The Order and Stipulation was entered and
so ordered by the District Court on April 22, 1997.
In connection with the NASDAQ Action reported in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, on April 14, 1997 the
district court granted the plaintiff's motion to include institutional
investors in the previously-certified class.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
An exhibit index has been filed as part of this Report on Page E-1.
(B) REPORTS ON FORM 8-K
Form 8-K dated January 22, 1997 reporting Items 5 and 7.
Form 8-K dated February 4, 1997 reporting Items 5 and 7.
Form 8-K dated February 4, 1997 reporting Items 5 and 7.
Form 8-K dated February 20, 1997 reporting Items 5 and 7.
Form 8-K dated February 27, 1997 reporting Items 5 and 7.
Form 8-K dated February 28, 1997 reporting Items 5 and 7.
Form 8-K dated April 15, 1997 reporting Items 5 and 7.
Form 8-K dated April 17, 1997 reporting Items 5 and 7.
Form 8-K dated April 17, 1997 reporting Items 5 and 7.
20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Dean Witter, Discover & Co.
(REGISTRANT)
/s/ Robert P. Seass
By: _________________________________
Robert P. Seass
Senior Vice President and
Controller
(Principal Accounting Officer and
duly authorized Officer of
Registrant)
Date: April 30, 1997
21
<PAGE>
EXHIBIT INDEX
DEAN WITTER, DISCOVER & CO.
QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S>
10.1 $4.0 Billion Credit Agreement, dated April 14, 1997, between Dean Witter,
Discover & Co. and Morgan Guaranty Trust Company of New York, The Chase
Manhattan Bank and other banks named therein.
10.2 Dean Witter, Discover & Co., Employees' Equity Accumulation Plan, as
amended April 7, 1997.
11 Computation of earnings per share.
12 Computation of ratio of earnings to fixed charges.
15 Letter of awareness from Deloitte & Touche llp, dated April 30, 1997,
concerning unaudited interim financial information.
27 Financial Data Schedule.
</TABLE>
E-1
<PAGE>
EXHIBIT 10.1
[EXECUTION COPY]
$4,000,000,000
CREDIT AGREEMENT
dated as of
April 14, 1997
among
DEAN WITTER, DISCOVER & CO.
The BANKS Listed Herein
The MANAGING AGENTS Referred to Herein
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Documentation Agent
--------------------
J.P. MORGAN SECURITIES INC.,
Arranger
<PAGE>
TABLE OF CONTENTS*
ARTICLE I
DEFINITIONS
Page
----
SECTION 1.01 Definitions......................... 1
1.02 Accounting Terms and Determinations. 18
1.03 Types of Borrowings................. 18
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend................ 19
2.02 Notice of Committed Borrowing...... 21
2.03 Money Market Borrowings............ 21
2.04 Notice to Banks; Funding of Loans.. 26
2.05 Notes.............................. 26
2.06 Maturity of Loans.................. 27
2.07 Interest Rates..................... 27
2.08 Facility Fee....................... 31
2.09 Optional Termination or
Reduction of Commitments........... 31
2.10 Method of Electing Interest Rates.. 32
2.11 Optional Prepayments............... 33
2.12 General Provisions as to Payments.. 34
2.13 Funding Losses..................... 35
2.14 Computation of Interest and Fees... 36
2.15 Taxes.............................. 36
2.16 Regulation D Compensation.......... 38
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness...................... 39
3.02 Borrowings......................... 40
______________________
*The Table of Contents is not a part of this Agreement.
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Page
----
SECTION 4.01 Corporate Existence and Power.... 41
4.02 Corporate and Governmental
Authorization; No Contravention.. 41
4.03 Binding Effect................... 41
4.04 Financial Information............ 42
4.05 Litigation....................... 42
4.06 Compliance with ERISA............ 42
4.07 Taxes............................ 43
4.08 Compliance with Laws............. 43
4.09 Full Disclosure.................. 43
4.10 DWR Capital Maintenance.......... 44
ARTICLE V
COVENANTS
SECTION 5.01 Information....................... 44
5.02 Maintenance of Property; Insurance 47
5.03 Conduct of Business and
Maintenance of Existence.......... 48
5.04 Compliance with Laws.............. 49
5.05 Negative Pledge................... 49
5.06 Consolidations, Mergers and
Sales of Assets................... 52
5.07 Use of Proceeds................... 53
5.08 Minimum Consolidated Net Worth.... 53
5.09 Capital Maintenance and Leverage
Ratio of Greenwood Trust.......... 53
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default................. 53
6.02 Notice of Default................. 57
ARTICLE VII
THE AGENTS
SECTION 7.01 Appointment and Authorization..... 58
7.02 Agents and Affiliates............. 58
7.03 Action by Agents.................. 58
7.04 Consultation with Experts......... 58
7.05 Liability of Agents............... 58
ii
<PAGE>
Page
----
7.06 Indemnification................... 59
7.07 Credit Decision................... 59
7.08 Successor Agent................... 59
7.09 Agents' Fees...................... 60
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair...... 60
8.02 Illegality 61
8.03 Increased Cost and Reduced Return 62
8.04 Base Rate Loans Substituted for
Affected Fixed Rate Loans......... 64
8.05 Substitution of Bank.............. 65
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices........................... 65
9.02 No Waivers........................ 66
9.03 Expenses; Documentary Taxes;
Indemnification................... 66
9.04 Sharing of Set-Offs............... 67
9.05 Amendments and Waivers............ 68
9.06 Successors and Assigns............ 68
9.07 Collateral........................ 70
9.08 Governing Law; Submission to Juris-
diction; Severability............. 70
9.09 Counterparts; Integration......... 71
9.10 WAIVER OF JURY TRIAL.............. 71
9.11 Restrictions on Transfers......... 71
9.12 Confidentiality................... 72
9.13 Termination of Existing Credit
Agreement......................... 73
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the
Borrower
iii
<PAGE>
Exhibit F - Opinion of Special Counsel for the
Documentation Agent
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Notice of Committed Borrowing
Exhibit I - Notice of Interest Rate Election
Exhibit J - Confidentiality Letter
Exhibit K - Extension Agreement
iv
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of April 14, 1997 among DEAN WITTER, DISCOVER &
CO., the BANKS listed on the signature pages hereof, the MANAGING AGENTS
referred to herein, THE CHASE MANHATTAN BANK, as Administrative Agent, and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein,
-----------
have the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Banks hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Documentation Agent and
submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" of a given Person means any other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such given Person.
"Agents" means the Administrative Agent and the Documentation Agent.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of
its Euro-Dollar
<PAGE>
Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market
Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears interest at
the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice
of Interest Rate Election or the provisions of Article VIII or (ii) an overdue
amount which was a Base Rate Loan immediately before it became overdue.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Dean Witter, Discover & Co., a Delaware
corporation, and its successors.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means (i) a Committed Loan which bears interest at a CD
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately
before it became overdue.
"CD Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
2
<PAGE>
"CD Rate" means a rate of interest determined pursuant to Section
2.07(b) on the basis of an Adjusted CD Rate.
"CD Reference Banks" means Bank of America National Trust and Savings
Association, Deutsche Bank AG, Union Bank of Switzerland and The Chase Manhattan
Bank.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.09 or changed pursuant to
Section 9.06(c).
"Commitment Termination Date" means April 13, 1998 or, in the case of
any Bank, such later date to which the Commitment Termination Date for such Bank
shall have been extended pursuant to Section 2.01(b), or if any such day is not
a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01;
provided that, if any such loan or loans (or portions thereof) are combined or
- --------
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Confidential Information" means any written or oral information
provided under this Agreement by or on behalf of the Borrower that has been
identified by its source as confidential.
"Consolidated Net Income" means, for any Person and for any period,
the net income of such Person and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries
determined as of such date.
"Consolidated Subsidiary" means, for any Person at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
3
<PAGE>
"Dean Witter Realty" means Dean Witter Realty Inc., a Delaware
corporation, and its successors.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money properly recordable as a liability
on the financial statements of such Person, and all liabilities of such Person
in respect of deposits, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments properly recordable as a
liability on the financial statements of such Person, (iii) all obligations of
such Person to pay the deferred purchase price of property or services except
trade accounts payable arising in the ordinary course of business, (iv) the net
present value of future minimum lease payments under all obligations of such
Person as lessee which are capitalized in accordance with generally accepted
accounting principles, (v) all obligations of such Person to purchase securities
(or other property) which arise out of or in connection with the sale of the
same or substantially similar securities or property, (vi) all non-contingent
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit or similar instrument, (vii) all
obligations of such Person to redeem shares of its capital stock which are
redeemable otherwise than at the sole option of such Person, (viii) all interest
rate or currency swap agreements, interest rate cap or collar agreements or
similar arrangements of such Person (determined for purposes of any calculation
hereunder at the unrealized net loss position, if any, of such Person under such
arrangement at the time of determination), (ix) all Debt secured by a Lien on
any asset of such Person, whether or not such Debt is otherwise an obligation of
such Person, and (x) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both hereunder
would, unless cured or waived, become an Event of Default.
"Documentation Agent" means Morgan Guaranty Trust Company of New York
in its capacity as documentation agent for the Banks hereunder, and its
successors in such capacity.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its
4
<PAGE>
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Domestic Lending Office) or such other office as such Bank may hereafter
designate as its Domestic Lending Office by notice to the Borrower and the
Administrative Agent; provided that any Bank may so designate separate Domestic
--------
Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on
the other hand, in which case all references herein to the Domestic Lending
Office of such Bank shall be deemed to refer to either or both of such offices,
as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.07(b).
"DWR" means Dean Witter Reynolds Inc., a Delaware corporation, and
its successors.
"Effective Date" means the date this Agreement becomes effective
in accordance with Section 3.01.
"Environmental Laws" means any and all federal, state and local
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions applicable to the
Borrower relating to the environment, the effect of the environment on human
health or to emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Group" means the Borrower, any of its Subsidiaries and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any of its Subsidiaries, are treated as a single employer under
Section 414 of the Internal Revenue Code; provided, however, that no Related
-------- -------
Company shall be considered to be a member of the ERISA Group.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
5
<PAGE>
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Bank as
it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Administrative Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-
Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.07(c) on the basis of the London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of
Bank of America National Trust and Savings Association, Deutsche Bank AG, Union
Bank of Switzerland and The Chase Manhattan Bank.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Examining Authority" means The New York Stock Exchange, Inc., or any
other organization designated by the SEC as the Examining Authority for DWR as
provided in subsection (c)(12) of Rule 15c3-1.
6
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
"Existing Credit Agreement" means the $4,000,000,000 Credit Agreement
dated as of April 19, 1996 among the Borrower, the banks listed on the signature
pages thereof, the lead managers referred to therein, Chemical Bank, as
administrative agent and Morgan Guaranty Trust Company of New York, as
documentation agent.
"Facility Fee Rate" means a per annum rate determined in accordance
with the Pricing Schedule.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to The Chase Manhattan Bank on such day on
such transactions as determined by the Administrative Agent.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time, or any successor statute.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"Former MS Subsidiary" means, at any time from and after the Merger,
any Person that (i) either (x) was a Subsidiary (as defined herein, without
giving effect to the proviso of such definition) of MS Group immediately prior
to the Merger, or (y) is a Subsidiary (as defined herein) of a Person referred
to in clause (x) at such time and (ii) would be a "Subsidiary" (as defined under
the MS Group Facility) of MS Group at such time, determined on a MS Pro Forma
Basis.
7
<PAGE>
"Greenwood Trust" means Greenwood Trust Company, a Delaware banking
corporation.
"Group of Loans" or "Group" means at any time a group of Loans
consisting of (i) all Committed Loans which are Base Rate Loans at such time or
(ii) all Committed Loans which are Fixed Rate Loans of the same type having the
same Interest Period at such time; provided that, if a Committed Loan of any
--------
particular Bank is converted to or made as a Base Rate Loan pursuant to Section
8.02 or 8.04, such Loan shall be included in the same Group or Groups of Loans
from time to time as it would have been in if it had not been so converted or
made.
"GTC Adjusted Total Assets" means, at any date, the consolidated total
assets of Greenwood Trust and its Consolidated Subsidiaries at such date, as
adjusted in accordance with the risk-based capital guidelines promulgated by the
Federal Deposit Insurance Corporation (or any successor) as in effect at such
date.
"GTC Tier 1 Capital" means the Tier 1 capital of Greenwood Trust and
its Consolidated Subsidiaries, calculated in accordance with the risk-based
capital requirements for federally insured banks promulgated by the Federal
Deposit Insurance Corporation (or any successor) from time to time.
"GTC Tier 2 Capital" means the Tier 2 capital of Greenwood Trust and
its Consolidated Subsidiaries, calculated in accordance with the risk-based
capital requirements for federally insured banks promulgated by the Federal
Deposit Insurance Corporation (or any successor) from time to time.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt (whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Debt of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not include
--------
endorsements for collection or deposit in the ordinary
8
<PAGE>
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Highly Confidential Information" means (i) any Financial and
Operational Combined Uniform Single Report of any Former MS Subsidiary and (ii)
any other information not publicly disclosed by the Borrower or its Subsidiaries
which consists of, or to the extent that it contains or discusses, competitively
sensitive information, including without limitation information relating to
pricing; expenses; profit margins; the identity of present or potential
customers, vendors or joint venture participants; marketing plans; and plans for
new products or services.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (1) with respect to each Euro-Dollar Loan, a
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which begins before and would otherwise end
after the Maturity Date of any Bank, as in effect on the first day of such
Interest Period (after giving effect to the Term Loan Election, if any,
exercised on such first day), shall end on such Maturity Date as so in
effect.
(2) with respect to each CD Loan, a period commencing on the date of borrowing
specified in the applicable Notice of Borrowing or on the date specified in the
applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days
9
<PAGE>
thereafter, as the Borrower may elect in the applicable notice; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which begins before and would otherwise end
after the Maturity Date of any Bank, as in effect on the first day of such
Interest Period (after giving effect to the Term Loan Election, if any,
exercised on such first day), shall end on such Maturity Date as so in
effect.
(3) with respect to each Money Market LIBOR Borrowing, the period commencing on
the date of such Borrowing and ending such whole number of months thereafter as
the Borrower may elect in accordance with Section 2.03; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) in the case of any Bank, any Interest Period which would
otherwise end after the Maturity Date for such Bank as in effect on the
first day of such Interest Period (after giving effect to the Term Loan
Election, if any, exercised on such first day) shall end on the Maturity
Date for such Bank as so in effect.
(4) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 7 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall
10
<PAGE>
be extended to the next succeeding Euro-Dollar Business Day; and
(b) in the case of any Bank, any Interest Period which would
otherwise end after the Maturity Date for such Bank as in effect on the
first day of such Interest Period (after giving effect to the Term Loan
Election, if any, exercised on such first day) shall end on the Maturity
Date for such Bank as so in effect.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment Advisors Act" means the Investment Advisors Act of 1940,
as amended.
"Invitation for Money Market Quotes" has the meaning set forth in
Section 2.03(c).
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
"Lien" means, with respect to any asset of any Person properly
recordable as such on the financial statements of such Person, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind. For the
purposes of this Agreement, the Borrower or any of its Subsidiaries shall be
deemed to own subject to a Lien any asset properly recordable as such on the
financial statements of the Borrower or such Subsidiary (as the case may be)
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).
"Managing Agents" means each of the Banks listed on the signature
pages hereof as a "Managing Agent", each in such capacity.
"Margin Stock" has the meaning set forth in Regulation U.
11
<PAGE>
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $75,000,000.
"Material Subsidiaries" means, at any time, (i) Greenwood Trust, NOVUS
and DWR, (ii) any Subsidiary of the Borrower (other than any Former MS
Subsidiary or any Subsidiary listed in clause (i)) that, together with the
Consolidated Subsidiaries of such Subsidiary, either (x) has a consolidated
stockholders' equity that is not less than 5% of the consolidated stockholders'
equity of the Borrower and its Consolidated Subsidiaries at such time or (y) had
Consolidated Net Income, total assets or gross revenues for (or, in the case of
total assets, as of the last day of) the fiscal quarter of the Borrower then
most recently ended, that is not less than 10% of the Consolidated Net Income,
total assets or gross revenues, respectively, of the Borrower and its
Consolidated Subsidiaries for (or, in the case of total assets, as of the last
day of) such fiscal quarter, in each case considered on a consolidated basis,
and (iii) from and after the Merger, any Principal MS Subsidiary.
"Maturity Date" means, for any Bank, the Commitment Termination Date
for such Bank or, if the Term Loan Election has been made prior to the
Commitment Termination Date for such Bank, such later date as the Borrower shall
specify in accordance with Section 2.01(c).
"Merger" means the merger of MS Group with and into the Borrower (with
the Borrower as the surviving corporation), as contemplated by the Agreement and
Plan of Merger dated as of February 4, 1997 (as heretofore amended and as it may
be further amended, supplemented or otherwise modified from time to time on or
prior to the Merger) between the Borrower and MS Group.
"Money Market Absolute Rate" has the meaning set forth in Section
2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Administrative Agent; provided that any Bank may from time to time by
--------
notice to the Borrower and the Administrative Agent designate separate Money
Market Lending Offices for its Money Market LIBOR Loans, on the one hand,
12
<PAGE>
and its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc.
"MS Group" means Morgan Stanley Group Inc., a Delaware corporation.
"MS Group Facility" shall mean the Amended and Restated Competitive
Advance and Revolving Credit Agreement dated as of August 9, 1996, among MS
Group, the Banks party thereto and The Chase Manhattan Bank, as Agent as in
effect on the date hereof and without regard to any amendments or modifications
thereof, and whether or not such agreement is still in effect at the time of any
relevant determination hereunder.
"MS Pro Forma Basis" means, for any determination of Former MS
Subsidiary, Principal MS Subsidiary or Subsidiary hereunder, that such
determination is made in accordance with the terms of the MS Group Facility
except that (i) the consolidated assets of the "Borrower" as defined in the MS
Group Facility shall at all times be deemed to be equal to $250,000,000,000,
(ii) the consolidated net worth of the "parent" as defined in the MS Group
Facility shall at all times be deemed to be equal to $6,500,000,000 and (iii)
all other references in the text of such definitions to the "Borrower" or the
"parent" shall for purposes of such definition mean the Borrower.
"MS Repo Obligation" means any obligation by the Borrower after the
Merger in respect of any obligation or liability arising from a Repo Transaction
(as defined in the MS Group Facility).
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<PAGE>
"MS Swap Obligation" means any obligation of the Borrower or any
Former MS Subsidiary in respect of any Specified Transaction (as defined in the
MS Group Facility), other than a MS Repo Obligation.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Non-U.S. Institution" shall mean any Bank or Participant that is not
organized under the laws of the United States or any State thereof or the
District of Columbia.
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in
Section 2.03(f)).
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10.
"NOVUS" means NOVUS Credit Services Inc., a Delaware corporation, and
its successors.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
14
<PAGE>
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by The
Chase Manhattan Bank in New York City from time to time as its Prime Rate.
"Principal MS Subsidiary" means, at any date from and after the
Merger, any Former MS Subsidiary that would be a "Principal Subsidiary" (as
defined under the MS Group Facility) at such time, determined on a MS Pro Forma
Basis.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Receivable" means, as of any date, any of the following: (i) any
amount owing by the obligors under (A) any charge or other arrangement owned or
originated by NOVUS or any Subsidiary of NOVUS, including, without limitation,
amounts owing for the payment of goods and services, cash advances, finance
charges, annual fees and any other fees or charges, (B) any retail installment
sales contracts or installment sales contracts or installment or other loans for
merchandise, including but not limited to marine equipment, recreational
vehicles, automobiles or light-duty trucks, owned by NOVUS or any Subsidiary of
NOVUS or (C) any mortgage or home equity loans of any type owned by NOVUS or any
Subsidiary of NOVUS; (ii) any amount owing to NOVUS or any Subsidiary of NOVUS
with respect to interchange or other fees by or on behalf of merchants; (iii)
any amount owing to the Borrower or any of its Subsidiaries (A) with respect to
fees for account maintenance and asset management activities, (B) with respect
to funds advanced by the Borrower or any of its Subsidiaries for the purchase of
securities, (C) in connection with loans to consumers, including without
limitation loans in anticipation of Internal Revenue Service refunds, unsecured
installment loans or unsecured credit lines accessible by check or otherwise,
(D) with respect to any insurance, insurance-related or security protection
products, (E) in connection with any commercial loan or line of credit, (F) with
respect to servicing fees, (G) with respect to licensing fees for
15
<PAGE>
proprietary software, (H) in connection with the financing of insurance
premiums, (I) in connection with the brokering of credit applicants, the sale of
loans in the secondary loan market or other loan brokering and mortgage banking
activities or (J) with respect to participation interests or undivided interests
in loans originated by third parties; or (iv) any rights with respect to any of
the foregoing.
"Receivables Transaction" means for any Person any transfer of
Receivables that is properly reported as a sale or conveyance by means of
contribution to capital by such Person in accordance with generally accepted
accounting principles or regulatory accounting principles, as applicable, but,
for purposes of this definition only, without giving effect to any changes in
such principles after the date hereof.
"Receivables Transaction Debt" means for any Person (i) any Debt of
such Person arising as a result of a Receivables Transaction by such Person and
(ii) if such Person is a Special Purpose Subsidiary, any Debt incurred by such
Person in connection with a Receivables Transaction (whether or not such Special
Purpose Subsidiary is a party to such Receivables Transaction).
"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Regulations G, T, U and X" means Regulations G, T, U and X,
respectively, of the Board of Governors of the Federal Reserve System, in each
case as in effect from time to time.
"Related Company" means a Person which became a member of the ERISA
Group (as defined herein, without giving effect to the proviso thereof) through
a direct or indirect investment in such Person's equity or debt securities,
other ownership interests, net worth or indebtedness (including any financing
extended to such Person) made by the Borrower or any of its Subsidiaries (or by
any partnership, fund or other Person in which the Borrower or any such
Subsidiary has made such a direct or indirect investment) in the ordinary course
of merchant banking activities conducted by the Borrower, such Subsidiary, such
partnership or such other Person.
"Required Banks" means at any time Banks having at least 60% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes
16
<PAGE>
evidencing at least 60% of the aggregate unpaid principal amount of the Loans.
"Responsible Officer" means the chief financial officer or the
treasurer of the Borrower or any other officer of the Borrower designated by its
chief financial officer or treasurer as responsible for the administration of
this Agreement.
"Revolving Credit Period" means, for any Bank, the period from and
including the Effective Date to and including the Commitment Termination Date
for such Bank.
"Rule 15c3-1" means Rule 15c3-1, as promulgated by the SEC under the
Exchange Act (17 C.F.R. (S) 240.15c3-1), as in effect from time to time, or any
successor rule or regulation of the SEC hereafter in effect.
"S&P" means Standard & Poor's Ratings Services.
"SEC" means the Securities and Exchange Commission or any entity
succeeding to any or all of its functions under the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Special Purpose Subsidiary" means any Subsidiary of the Borrower that
has been established and is maintained as a special purpose entity to support or
facilitate one or more Receivables Transactions or to issue Receivables
Transaction Debt, and has no business activities other than the foregoing and
activities incidental thereto.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person; provided that any Person that at such time meets the requirements
--------
of clause (i) of the definition of Former MS Subsidiary but not clause (ii) of
such definition shall not be deemed to be a Subsidiary at such time.
"Term Loan Election" has the meaning set forth in Section 2.01(c).
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value
17
<PAGE>
of all benefit liabilities under such Plan, determined on a plan termination
basis using the assumptions prescribed by the PBGC for purposes of Section 4044
of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to
such liabilities under Title IV of ERISA (excluding any accrued but unpaid
contributions), all determined as of the then most recent valuation date for
such Plan, but only to the extent that such excess represents a potential
liability of a member of the ERISA Group to the PBGC or any other Person under
Title IV of ERISA.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; provided that, if the Borrower notifies the Documentation Agent
--------
that the Borrower wishes to amend any covenant in Article V or any related
definition to eliminate the effect of any change in generally accepted
accounting principles after the date hereof on the operation of such covenant or
definition (or if the Documentation Agent notifies the Borrower that the
Required Banks wish to amend Article V or any related definition for such
purpose), then the Borrower's compliance with such covenant shall be determined
on the basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles became
effective, until either such notice is withdrawn or such covenant or definition
is amended in a manner satisfactory to the Borrower and the Required Banks.
SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the
-------------------
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article II on a single date all of which Loans are of the same type (subject to
Article VIII) and, except in the case of Base Rate Loans, have the same initial
Interest Period. Borrowings are classified for purposes of this Agreement
either by reference to the pricing of Loans comprising such Borrowing (e.g., a
----
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article II under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
----
which all Banks participate in proportion to their
18
<PAGE>
Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03
in which the Bank participants are determined on the basis of their bids in
accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. (a) Each Bank severally agrees,
-------------------
on the terms and conditions set forth in this Agreement, to make loans to the
Borrower pursuant to this Section 2.01(a) from time to time during the Revolving
Credit Period for such Bank in amounts such that the aggregate principal amount
of Committed Loans by such Bank at any one time outstanding shall not exceed the
amount of its Commitment. Within the foregoing limits, the Borrower may borrow
under this Section 2.01(a), prepay Loans to the extent permitted by Section
2.11, and reborrow at any time during the Revolving Credit Period for each Bank
under this Section 2.01(a). The Commitment of each Bank shall terminate at the
close of business on the Commitment Termination Date for such Bank. Each
Borrowing under this Section 2.01(a) shall be in an aggregate principal amount
of $75,000,000 or any larger multiple of $5,000,000 (except that any such
Borrowing may be in the aggregate amount equal to the unused Commitments) and
shall be made from the several Banks ratably in proportion to their respective
Commitments.
(b) Extension of the Commitment Termination Date. The Commitment
-------------------------------------------------
Termination Date may be extended in the manner set forth in this Section
2.01(b), in each case for a period of 364 days measured from the Commitment
Termination Date then in effect (subject to the definition of Commitment
Termination Date). If the Borrower wishes to request an extension of the
Commitments, it shall give notice to that effect to the Documentation Agent not
less than 30 nor more than 45 days prior to the Commitment Termination Date then
in effect (but only if the Term Loan Election shall not have been made),
whereupon the Documentation Agent shall promptly notify each of the Banks of
such request. Each Bank will use its best efforts to respond to such request,
whether affirmatively or negatively, as it may elect in its discretion, not less
than 20 days prior to the Commitment Termination Date then in effect. If less
than all Banks respond affirmatively to such request by such 20th day, then the
Borrower shall have the right to replace each such Bank that does not elect to
extend its Commitment with a
19
<PAGE>
substitute bank or banks that will agree to assume or extend such Commitment
(which may be one or more of the Banks), which will purchase the Note and assume
the Commitment of such non-extending Bank pursuant to Section 9.06(c) no later
than 15 days prior to the Commitment Termination Date then in effect. Any Bank
which declines to extend its Commitment (including by its failure to respond,
which shall be deemed to be a non-extension) hereby agrees promptly to execute
an Assignment and Assumption Agreement substantially in the form of Exhibit G
hereto with any substitute Bank or Banks so designated by the Borrower (and the
Borrower agrees that it will pay the $2,000 administrative fee referred to in
Section 9.06(c) with respect to each such Assignment and Assumption Agreement).
If Banks holding at least 51% of the aggregate amount of the Commitments then in
effect (including such Assignees and excluding their respective transferor
Banks) respond affirmatively (such Banks, the "Continuing Banks"; and any other
Banks, the "Non-Continuing Banks"), then, subject to receipt by the
Documentation Agent of counterparts of an Extension Agreement in substantially
the form of Exhibit K hereto duly completed and signed by all of the parties
hereto other than the Non-Continuing Banks (and only if the Term Loan Election
shall not have been made), the Commitments of the Continuing Banks shall be
extended for the period specified above (and the Commitment of each Non-
Continuing Bank shall terminate on the Commitment Termination Date theretofore
in effect for such Bank). Such Extension Agreement shall be executed and
delivered no earlier than 20 days prior to the Commitment Termination Date then
in effect, and no extension of the Commitments pursuant to this Section 2.01(b)
shall be legally binding on any party hereto unless and until such Extension
Agreement is so executed and delivered.
(c) Term Loan Election. Not more than 45 days prior to the
------------------
Commitment Termination Date then in effect (but only if the Commitment
Termination Date then in effect shall not have been extended for any Bank
pursuant to Section 2.01(b)), the Borrower may elect by notice to the
Documentation Agent (the "Term Loan Election") that the Maturity Date (but not
the Commitment Termination Date) with respect to any Committed Loan then
outstanding or for which a Notice of Borrowing or Notice of Interest Rate
Election is delivered after or simultaneously with such Term Loan Election be
extended to a date, specified in such Term Loan Election notice, that is not
more than 180 days after the Commitment Termination Date then in effect (or, if
such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar
Business Day). If a Term Loan Election is made, Committed Loans outstanding on
the Commitment Termination Date shall thereafter not be revolving loans and
amounts
20
<PAGE>
thereof repaid or prepaid may not be reborrowed under this Agreement. The
Documentation Agent shall notify the Banks promptly after a Term Loan Election
is made.
SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give
-----------------------------
the Administrative Agent notice, substantially in the form attached hereto as
Exhibit H (a "Notice of Committed Borrowing") not later than 10:00 A.M. (New
York City time) on (x) the date of each Base Rate Borrowing, (y) the second
Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate or at a CD Rate or a Euro-Dollar Rate, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
SECTION 2.03. Money Market Borrowings.
-----------------------
(a) The Money Market Option. In addition to Committed Borrowings
-----------------------
pursuant to Section 2.01, the Borrower may, as set forth in this Section,
request the Banks to make Money Market Loans to the Borrower during the
Revolving Credit Period. The Banks may, but shall have no obligation to, make
such offers and the Borrower may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
--------------------------
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto so as to be received no
later than 10:00 A.M. (New York City time) on (x) the fifth Euro-Dollar Business
Day prior to the date of Borrowing proposed therein, in the case of a LIBOR
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of an Absolute Rate Auction (or, in either case,
such other time
21
<PAGE>
or date as the Borrower and the Administrative Agent shall have mutually agreed
and shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$25,000,000 or a larger multiple of $5,000,000 (or an amount equal to the
remaining unused amount of the Commitments, if less than $25,000,000),
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request (in the form of Exhibit
B). No Money Market Quote Request shall be given until the Borrower has
notified the Administrative Agent of its acceptance or non-acceptance of the
Money Market Quotes relating to any outstanding Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
----------------------------------
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto (an "Invitation for Money Market
Quotes"), which shall constitute an invitation by the Borrower to each Bank to
submit Money Market Quotes offering to make the Money Market Loans to which such
Money Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank
----------------------------------------------
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Administrative Agent by telex or facsimile transmission at
its offices specified in or pursuant to Section 9.01 not later than (x)
22
<PAGE>
2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to
the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M.
(New York City time) on the proposed date of Borrowing, in the case of an
Absolute Rate Auction (or, in either case, such other time or date as the
Borrower and the Administrative Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective); provided that Money Market Quotes submitted by the Administrative
--------
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles III
and VI, any Money Market Quote so made shall be irrevocable except with the
written consent of the Administrative Agent given on the instructions of the
Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each such
offer is being made, which principal amount (w) may be greater than or less
than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger
multiple of $1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be subject to an
aggregate limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
23
<PAGE>
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or does
not specify all of the information required by subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in
the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly
------------------
notify the Borrower of the terms (x) of any Money Market Quote submitted by a
Bank that is in accordance with subsection (d) and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered, and the identity of the
respective Banks submitting such offers, and (C) if applicable, limitations on
the aggregate principal amount of Money Market Loans for which offers in any
single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:00 A.M.
---------------------------------
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the
24
<PAGE>
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective), the Borrower
shall notify the Administrative Agent of its acceptance or non-acceptance of the
offers so notified to it pursuant to subsection (e). In the case of acceptance,
such notice (a "Notice of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
--------
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market
Quote Request,
(ii) the principal amount of each Money Market Borrowing must be (A)
$25,000,000 or a larger multiple of $5,000,000, (B) an amount equal to the
remaining unused amount of the Commitments, if less than $25,000,000 or (C)
the aggregate principal amount of offers, if less than both $25,000,000 and
the amount referred to in clause (B),
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be,
and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the requirements
of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by two or
----------------------------------
more Banks with the same Money Market Margins or Money Market Absolute Rates, as
the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in multiples of $1,000,000, as the Administrative Agent may
deem appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Administrative Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest error.
25
<PAGE>
SECTION 2.04. Notice to Banks; Funding of Loans.
---------------------------------
(a) Upon receipt of a Notice of Borrowing, the Administrative Agent
shall promptly notify each Bank of the contents thereof and of such Bank's share
(if any) of such Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall make available its share
of such Borrowing, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address referred to in Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article III has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower, promptly
after the Administrative Agent's receipt thereof, at the Administrative Agent's
aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section 2.04 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Administrative Agent, such Bank and the
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the
interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case
of such Bank, the Federal Funds Rate. Any such demand shall be made first upon
such Bank and, if such Bank shall have failed to repay such amount within two
Euro-Dollar Business Days after such demand, then upon the Borrower. If such
Bank shall repay to the Administrative Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Loan included in such Borrowing
for purposes of this Agreement.
SECTION 2.05. Notes. (a) Subject to subsection (b) below, the Loans
-----
of each Bank shall be evidenced by a single Note payable to the order of such
Bank for the
26
<PAGE>
account of its Applicable Lending Office in an amount equal to the aggregate
unpaid principal amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Administrative
Agent, request that its Loans of a particular type be evidenced by a separate
Note in an amount equal to the aggregate unpaid principal amount of such Loans.
Each Note issued to a Bank making such a request shall be in substantially the
form of Exhibit A hereto with appropriate modifications to reflect the fact that
it evidences solely Loans of the relevant type. If a Bank making such a request
had previously been issued a Note evidencing all its Loans, such Note shall be
surrendered for cancellation upon issuance of substitute Notes as aforesaid.
Each reference in this Agreement to the "Note" of such Bank shall be deemed to
refer to and include any or all of such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and prior to any transfer of its Note shall endorse on the schedule
forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding; provided that the
--------
failure of any Bank to make any such recordation or endorsement shall not affect
the obligations of the Borrower hereunder or under the Notes. Each Bank is
hereby irrevocably authorized by the Borrower so to endorse its Note and to
attach to and make a part of its Note a continuation of any such schedule as and
when required.
SECTION 2.06. Maturity of Loans. Each Committed Loan shall mature,
-----------------
and the principal amount thereof shall be due and payable, on the Maturity Date.
Each Money Market Loan included in any Money Market Borrowing shall mature, and
the principal amount thereof shall be due and payable, on the last day of the
Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
--------------
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable in arrears at intervals of 30
days after such Loan became a Base Rate Loan and on the Maturity Date for the
Bank that made such Loan, and, with respect to the principal amount of
27
<PAGE>
any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on the date
such Base Rate Loan is so converted. Any overdue principal of or interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
applicable Adjusted CD Rate; provided that if any CD Loan shall, as a result of
--------
clause (2)(b) of the definition of Interest Period, have an Interest Period of
less than 30 days, such CD Loan shall bear interest on each day during such
Interest Period at the Base Rate for such day. Such interest shall be payable
for each Interest Period on the last day thereof and, if such Interest Period is
longer than 90 days, 90 days after the first day thereof. Any overdue principal
of or interest on any CD Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the higher of (i)
the sum of the CD Margin plus the Adjusted CD Rate applicable to such Loan and
(ii) the Base Rate for such day.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of
28
<PAGE>
deposit dealers of recognized standing for the purchase at face value from each
CD Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. (S) 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for insuring time deposits at offices
of such institution in the United States. The Adjusted CD Rate shall be
adjusted automatically on and as of the effective date of any change in the
Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the applicable London Interbank Offered Rate. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than three months, three months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
29
<PAGE>
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-
Dollar Margin plus the London Interbank Offered Rate applicable to such Loan and
(ii) the Euro-Dollar Margin plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per
annum at which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
six months as the Administrative Agent may select) deposits in dollars in an
amount approximately equal to such overdue payment due to each of the Euro-
Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the
London interbank market for the applicable period determined as provided above
by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum
equal to the sum of 2% plus the Base Rate for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Euro-
Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank
making such Loan in accordance with Section 2.03. Each Money Market Absolute
Rate Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.03. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any overdue principal of
or interest on any Money Market Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the sum of 2% plus the Base
Rate for such day.
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<PAGE>
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error. The Administrative Agent will, at the request of the Borrower,
furnish such additional information concerning the calculation of the interest
rate on any Fixed Rate Loan as the Borrower may reasonably request.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.08. Facility Fee. The Borrower shall pay to the
------------
Administrative Agent for the account of the Banks ratably in proportion to their
Commitments a facility fee for each day at the Facility Fee Rate for such day.
Such facility fee shall accrue, for each Bank, (x) from and including the
Effective Date to but excluding the Commitment Termination Date for such Bank
(or earlier date of termination of the Commitments in their entirety), on the
daily average aggregate amount of the Commitments (whether used or unused) and
(y) from and including the Commitment Termination Date for such Bank (or such
earlier date of termination) to but excluding the date the Loans of such Bank
shall be repaid in their entirety, on the daily average aggregate outstanding
principal amount of the Loans of all Banks with the same Commitment Termination
Date, and shall be payable quarterly in arrears on each March 31, June 30,
September 30 and December 31 and upon the date of termination of the Commitments
in their entirety (and, if later, the date the Loans shall be repaid in their
entirety).
SECTION 2.09. Optional Termination or Reduction of Commitments.
------------------------------------------------
During the Revolving Credit Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Administrative Agent, (i) terminate the
Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of $75,000,000 or any
larger multiple of $5,000,000, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the
31
<PAGE>
Loans. The Administrative Agent shall notify the Banks promptly upon receipt of
any such notice from the Borrower.
SECTION 2.10. Method of Electing Interest Rates. (a) The Loans
---------------------------------
included in each Committed Borrowing shall bear interest initially at the type
of rate specified by the Borrower in the applicable Notice of Committed
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to Euro-
Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to convert
such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue
such Loans as CD Loans for an additional Interest Period, in each case
effective on the last day of the then current Interest Period applicable to
such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or CD Loans or elect to continue such
Loans as Euro-Dollar Loans for an additional Interest Period, in each case
effective on the last day of the then current Interest Period applicable to
such Loans.
Each such election shall be made by delivering a notice substantially in the
form attached hereto as Exhibit I (a "Notice of Interest Rate Election") to the
Administrative Agent not later than 10:00 A.M. (New York City time) on the third
Euro-Dollar Business Day before the conversion or continuation selected in such
notice is to be effective (unless the relevant Loans are to be converted from
Domestic Loans to Domestic Loans of the other type or continued as Domestic
Loans of the same type for an additional Interest Period, in which case such
notice shall be delivered to the Administrative Agent prior to 10:00 A.M. (New
York City time) on the second Domestic Business Day before such conversion or
continuation is to be effective). A Notice of Interest Rate Election may, if it
so specifies, apply to only a portion of the aggregate principal amount of the
relevant Group of Loans; provided that (i) such portion is allocated ratably
--------
among the Loans of the several Banks that comprise such Group and (ii) the
portion to which such Notice applies, and the remaining portion to which it does
32
<PAGE>
not apply, are each $75,000,000 or any larger multiple of $5,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in such
notice is to be effective, which shall comply with the applicable clause of
subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if such new Loans are Fixed Rate Loans, the duration of
the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans
for an additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower. If the Borrower fails to deliver a
timely Notice of Interest Rate Election to the Administrative Agent for any
Group of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on
the last day of the then current Interest Period applicable thereto.
SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at
--------------------
least one Domestic Business Day's notice to the Administrative Agent, prepay the
Group of Loans bearing interest at the Base Rate (or any Money Market Borrowing
bearing interest at the Base Rate pursuant to Section 8.01(a)) (i) in whole at
any time, or (ii) from time to time in part in amounts aggregating $75,000,000
or any larger multiple of $5,000,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the Loans of the
several Banks included in such Group or Borrowing.
33
<PAGE>
(b) The Borrower may, upon at least three Domestic Business Days'
notice to the Administrative Agent, in the case of a Group of CD Loans or upon
at least three Euro-Dollar Business Days' notice to the Administrative Agent, in
the case of a Group of Euro-Dollar Loans, prepay the Loans comprising such a
Group on the last day of any Interest Period applicable to such Group, (i) in
whole at any time, or (ii) from time to time in part in amounts aggregating
$75,000,000 or any larger multiple of $5,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Loans of
the several Banks included in such Group.
(c) Except as provided in Section 8.02, the Borrower may not prepay
all or any portion of the principal amount of any Money Market Loan prior to the
maturity thereof.
(d) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The Borrower
---------------------------------
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, without setoff or counterclaim, not later than 12:00 Noon (New York
City time) on the date when due, in Federal or other funds immediately available
in New York City, to the Administrative Agent at its address referred to in
Section 9.01. The Administrative Agent will promptly distribute to each Bank
its ratable share of each such payment received by the Administrative Agent for
the account of the Banks. Whenever any payment of principal of, or interest on,
the Domestic Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-
Dollar Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the date for payment thereof shall be
the next preceding Euro-Dollar Business Day. Whenever any payment of principal
of, or interest on, the Money Market Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall
34
<PAGE>
be extended to the next succeeding Euro-Dollar Business Day. If the date for
any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
that the Borrower shall not have so made such payment, each Bank shall repay to
the Administrative Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
--------------
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a Base Rate Loan (pursuant to Article VI or VIII or otherwise) on
any day other than the last day of an Interest Period applicable thereto, or the
last day of an applicable period fixed pursuant to Section 2.07(d), or if the
Borrower fails to borrow, convert, continue or prepay any Fixed Rate Loans after
notice has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or
2.11(d), the Borrower shall reimburse each Bank within 15 days after demand for
any resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, convert, continue or prepay, provided that such Bank shall
--------
have delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error,
and provided further that such loss shall in no event exceed the interest which
-------- -------
would have been payable for the balance of such Interest Period or other period,
less the applicable CD Margin or Euro-Dollar Margin, as the case may be. Such
Bank will, at the request of the Borrower, furnish such additional information
concerning the determination of such loss as the Borrower may reasonably
request.
35
<PAGE>
SECTION 2.14. Computation of Interest and Fees. Interest based on
--------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Taxes. (a) All payments to or for the benefit of each
-----
Bank and any Participant under this Agreement are payable free and clear of any
and all present and future taxes, levies, imposts, duties, deductions,
withholdings, fees, liabilities and similar charges levied or imposed by the
United States (or any political subdivision or tax authority of or in such
jurisdiction) ("Taxes"); provided, that the term "Taxes" as used in this Section
--------
2.15 shall not include (i) any tax imposed on or measured by the net income of
such Bank or Participant or any franchise tax, or (ii) any tax imposed by reason
of either (A) the failure of the certification made by such Bank or Participant
on any form provided pursuant to Section 2.15(b) to be accurate and true in all
material respects or (B) the failure of the Administrative Agent, such Bank or
Participant to otherwise comply with Section 2.15(b), unless any such failure
would not have occurred but for a change in treaty, law or regulation or in the
interpretation thereof by any governmental or regulatory agency or body charged
with the administration or interpretation thereof, or the introduction of any
law or regulation, that occurs on or after the date hereof (a "Change in Law").
If any Taxes are required to be withheld or deducted from any amount payable to
or for the benefit of any Bank or Participant hereunder, the Borrower agrees
that the amount payable to or for the benefit of such Bank or Participant
hereunder will be increased to the amount which, after deduction from such
increased amount of all Taxes required to be withheld or deducted therefrom,
will yield to such Bank or Participant the amount stated in this Agreement to be
payable with respect thereto; provided, however, that (1) such Bank will not be
-------- -------
entitled to receive (for itself or for the account of a Participant) additional
amounts to compensate the Bank (or a Participant, as the case may be) for Taxes
withheld or deducted during a fiscal year which ended more than one year from
the date on which the Borrower receives the Bank's (or the Participant's, as the
case may be) request for payment of additional amounts, and (2) if the Borrower
is obligated to pay any additional amount to any Bank or Participant with
respect to any Taxes under this Section 2.15(a) as a result of a change in
treaty, such Bank or Participant shall change
36
<PAGE>
its Applicable Lending Office upon the request of the Borrower if such change
would avoid the need for the payment of such additional amount and would not, in
the sole determination of such Bank or Participant, be otherwise disadvantageous
to such Bank or Participant. The Administrative Agent on behalf of such Bank or
Participant will, as a condition of such payment, provide the Borrower with
evidence satisfactory to it of the imposition of such payment, together with the
calculation of the amounts payable thereunder. The Borrower will, to the extent
it has made payments of any Taxes, upon the request of the Administrative Agent
on behalf of any Bank or Participant, provide the Administrative Agent on behalf
of any Bank or Participant with evidence satisfactory to it of the payment of
any Taxes with respect to amounts payable under this Agreement. If any of the
Taxes required to be borne by the Borrower pursuant to this Section 2.15 are
paid by any Bank or Participant, the Borrower will reimburse such Bank or
Participant on a grossed-up basis for such payments, together with any interest,
penalties and expenses in connection therewith. If pursuant to this Section
2.15(a) any Bank or Participant receives an increased payment with respect to
Taxes, and such Bank or Participant also recovers any portion of such Taxes from
the applicable taxing authority such that the total amount of the payments and
the recovered Taxes exceeds the amount stated to be payable with respect to such
Bank or Participant, such Bank or Participant shall remit any such excess to the
Borrower.
(b) Each Bank and Participant that is a Non-U.S. Institution
covenants and agrees with the Borrower that it will (i) provide to the
Administrative Agent (and the Administrative Agent hereby agrees to forward to
the Borrower) an appropriately executed copy of Internal Revenue Service Form
4224 certifying that any payments made to or for the benefit of such Bank or
Participant are effectively connected with the conduct of a United States trade
or business (or, alternatively, Internal Revenue Service Form 1001, but only if
the applicable treaty described in such form provides for a complete exemption
from federal income tax withholding) or any successor form, (A) on or prior to
the date hereof (or, in the case of an assignee Bank or Participant, on or prior
to the relevant assignment or the grant of the relevant participation,
respectively), (B) in each subsequent year in the case of Form 4224, or in each
third subsequent year in the case of Form 1001, prior to the first payment to be
made to or for the benefit of such Bank or Participant in such year, (C) upon
the occurrence of any act by such Bank or Participant which would require the
amendment or resubmission of any such form previously provided hereunder, and
(D) upon the request of the
37
<PAGE>
Borrower, upon the occurrence of any event (other than as a result of an act by
such Bank or Participant) which would require the amendment or resubmission of
any such form previously provided hereunder, and (ii) notify the Administrative
Agent (and the Administrative Agent hereby agrees to notify the Borrower) if the
certification made on any form provided pursuant to this Section 2.15(b) is no
longer accurate and true in all material respects.
SECTION 2.16. Regulation D Compensation. For so long as any Bank is
-------------------------
required to maintain reserves against "Eurocurrency liabilities" (or any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
such Bank to United States residents), and, as a result, the cost to such Bank
(or its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar
Loans is increased, then such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum up to but not exceeding the excess of (i) (A) the applicable London
Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve
-----
Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank
wishing to require payment of such additional interest (x) shall so notify the
Borrower and the Administrative Agent, in which case such additional interest on
the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place
indicated in such notice with respect to each Interest Period commencing at
least three Euro-Dollar Business Days after the giving of such notice and (y)
shall furnish to the Borrower at least five Euro-Dollar Business Days prior to
each date on which interest is payable on the Euro-Dollar Loans an officer's
certificate setting forth the amount to which such Bank is then entitled under
this Section (which shall be consistent with such Bank's good faith estimate of
the level at which the related reserves are maintained by it). Each such
certificate shall be accompanied by such information as the Borrower may
reasonably request as to the computation set forth therein.
38
<PAGE>
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective
-------------
on the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Documentation Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any Bank as to which an
executed counterpart shall not have been received, receipt by the
Documentation Agent in form satisfactory to it of telegraphic, telex or
other written confirmation from such Bank of execution of a counterpart
hereof by such Bank);
(b) receipt by the Documentation Agent for the account of each Bank
of a duly executed Note dated on or before the Effective Date complying
with the provisions of Section 2.05;
(c) receipt by the Documentation Agent of all fees payable for its
own account on or before the Effective Date pursuant to the letter dated
March 17, 1997 between the Borrower and the Documentation Agent;
(d) receipt by the Documentation Agent of evidence satisfactory to it
of (i) the termination, effective on or before the Effective Date, of the
commitments under the Existing Credit Agreement, (ii) the repayment in
full, not later than the Effective Date, of all loans (if any) thereunder,
together with interest accrued thereon to the date of payment and (iii) the
receipt by the proper parties of all accrued and unpaid facility fees and
all other amounts due and payable for the account of the agents or any
other party under the Existing Credit Agreement;
(e) receipt by the Documentation Agent of an opinion of Christine A.
Edwards, Esq., General Counsel for the Borrower, or Ronald T. Carman, Esq.,
Senior Vice President for the Borrower, substantially in the form of
Exhibit E hereto;
(f) receipt by the Documentation Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Documentation Agent, substantially in the
form of
39
<PAGE>
Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request; and
(g) receipt by the Documentation Agent of all documents it may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement and the Notes, and any
other matters relevant to any of the foregoing, all in form and substance
reasonably satisfactory to the Documentation Agent.
Provided that this Agreement shall not become effective or be binding on any
- --------
party hereto unless all of the foregoing conditions are satisfied (or waived in
accordance with Section 9.05) not later than the close of business on the
fifteenth Domestic Business Day after the date hereof. The Documentation Agent
shall promptly notify the Borrower, the Administrative Agent and the Banks of
the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan
----------
on the occasion of any Borrowing (including the first Borrowing) is subject to
the satisfaction of the following conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03, as the case may be;
(b) immediately after such Borrowing, the aggregate outstanding
principal amount of the Loans will not exceed the aggregate amount of the
Commitments;
(c) immediately before and after such Borrowing, no Default shall
have occurred and be continuing; and
(d) the representations and warranties of the Borrower contained in
this Agreement shall be true in all material respects on and as of the date
of such Borrowing (or, in the case of any representation and warranty
expressly made only as to a specific date, as of the date so specified).
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the satisfaction of the
conditions specified in clauses (b), (c) and (d) of this Section.
40
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower has been
-----------------------------
duly incorporated and is validly existing as a corporation and in good standing
under the laws of Delaware, with full corporate powers to carry on its business
as presently conducted. The Borrower is duly qualified, is authorized to do
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole. Each of
the Borrower's Material Subsidiaries has been duly incorporated or organized and
is validly existing as a corporation or banking institution and in good standing
under the laws of its jurisdiction of incorporation or organization, with full
corporate powers to carry on its business as presently conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by the Borrower of this
- -------------
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any of its Subsidiaries or result in the creation
or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
--------------
binding agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrower, in each case enforceable in accordance with their respective terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the
41
<PAGE>
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 4.04. Financial Information.
---------------------
(a) The consolidated statement of financial position of the Borrower
and its Consolidated Subsidiaries as of December 31, 1996 and the related
consolidated statements of income, stockholder's equity and cash flows for the
fiscal year then ended, reported on by Deloitte & Touche LLP and set forth in
the Borrower's report on Form 10-K filed with the SEC for the year ended
December 31, 1996, a copy of which has been delivered to each of the Banks,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such fiscal year.
(b) Except as disclosed in writing to the Banks prior to the
Effective Date, between December 31, 1996 and the Effective Date, there has been
no material adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
SECTION 4.05. Litigation. As of the Effective Date, the Borrower
----------
does not know of any pending legal or governmental proceeding (i) required to be
described in the Borrower's report on Form 10-K filed with the SEC for the year
ended December 31, 1996 which is not described as required or (ii) not required
to be described pursuant to clause (i) but which would be required to be
described in a subsequent filing by the Borrower with the SEC pursuant to the
Exchange Act, and which has not been disclosed in writing to the Banks prior to
the Effective Date.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
---------------------
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA
42
<PAGE>
or the Internal Revenue Code or (iii) incurred any liability under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA.
SECTION 4.07. Taxes. All United States Federal income tax returns
-----
and all other material tax returns which are required to be filed by or on
behalf of the Borrower and its Subsidiaries have been filed and all taxes due
pursuant to such returns or pursuant to any assessment received by or on behalf
of the Borrower or any of its Subsidiaries have been paid, except (i) any taxes
pursuant to any such assessments being contested in good faith by appropriate
proceedings and for payment of which appropriate reserves have been made and
(ii) any returns where the failure to file such returns and any taxes where the
failure to pay such taxes would not have a material adverse effect on the
financial condition or results of operations of the Borrower and its
Consolidated Subsidiaries taken as a whole. The charges, accruals and reserves
on the books of the Borrower and its Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate.
SECTION 4.08. Compliance with Laws. The Borrower and each of its
--------------------
Subsidiaries (or, in the case of any Subsidiaries that are Former MS
Subsidiaries, only Principal MS Subsidiaries) are in compliance in all respects
with all applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, FIRREA and the
Investment Advisors Act) except where (i) the necessity of compliance therewith
is being contested in good faith by appropriate proceedings or (ii) the failure
to comply with which would not reasonably be expected to have a material adverse
effect on the business, consolidated financial position or consolidated results
of operations of the Borrower and its Consolidated Subsidiaries, taken as a
whole. DWR has elected by proper written notice to the SEC and to the New York
Stock Exchange, Inc. to comply with the alternative net capital requirements set
forth in Rule 15c3-1 and is subject to such alternative net capital
requirements.
SECTION 4.09. Full Disclosure. All written information heretofore
---------------
furnished by the Borrower to any Agent or any Bank for purposes of or in
connection with this Agreement, taken together, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made not misleading as of the date on which such
information was stated or certified; provided that the Borrower makes no
--------
representations or warranties with respect to any
43
<PAGE>
projections or other non-factual information contained in any such information.
SECTION 4.10. DWR Capital Maintenance. DWR shall at all times remain
-----------------------
in compliance with the applicable net capital requirements of Rule 15c3-1. The
representation set forth in this Section shall be deemed to be made at all
times.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to the
-----------
Administrative Agent (who will promptly deliver copies thereof to each of the
Banks):
(a) as soon as available and in any event within 110 days after the
end of each fiscal year of the Borrower the consolidated statement of
financial position of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated statements of
income, stockholders' equity and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all reported on in the manner provided by the SEC for such filing by
Deloitte & Touche LLP or other independent public accountants of nationally
recognized standing;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, the unaudited consolidated statement of financial position of the
Borrower and its Consolidated Subsidiaries as of the end of such quarter
and the related unaudited consolidated statements of income, stockholders'
equity and cash flows for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in
the case of such statements of income, stockholders' equity and cash flows
in comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of presentation,
44
<PAGE>
generally accepted accounting principles and consistency by the chief
financial officer or the principal accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the principal accounting officer of the Borrower
(i) setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the requirements of
Sections 5.08 and 5.09 on the date of such financial statements, (ii)
stating whether the Borrower was in compliance with the requirements of
Section 4.10 on the date of such financial statements and (iii) stating to
the best of such officer's knowledge, whether any Default exists on the
date of such certificate and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or proposes to
take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements confirming
the calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to clause (c) above;
(e) within five days after any Responsible Officer obtains knowledge
of any Default, if such Default is then continuing, a certificate of the
chief financial officer or the principal accounting officer of the Borrower
setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(f) promptly after the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly after the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Borrower shall have filed with the SEC;
(h) as soon as available and in any event within 60 days after the
end of each fiscal quarter of
45
<PAGE>
Greenwood Trust, copies of all quarterly Reports of Condition and Income
made to the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System or the Federal Deposit Insurance Corporation, as
applicable, except any information included therein which such agency has
allowed to be filed confidentially; and, to the extent not prohibited by
law or regulation or by the relevant agency and to the extent such
information does not constitute Highly Confidential Information, promptly
after the receipt or filing thereof, as the case may be, all other reports
submitted by the Borrower or any of its Subsidiaries to, or received from,
the Board of Governors of the Federal Reserve System or the Federal Deposit
Insurance Corporation the subject matter of which would reasonably be
expected to have a material effect on the business, consolidated financial
position, consolidated results of operations or prospects of the Borrower
and its Consolidated Subsidiaries, taken as a whole;
(i) (x) as soon as available and in any event within 45 days after
the end of each fiscal quarter of DWR, each quarterly Financial and
Operational Combined Uniform Single Report of DWR required to be filed on a
quarterly basis with the SEC or the New York Stock Exchange or any other
securities or commodities exchange (or any report which is required in lieu
of such report); and, (y) to the extent not prohibited by law or regulation
or by the relevant agency or association and to the extent such information
does not constitute Highly Confidential Information, promptly after the
receipt or filing thereof, as the case may be, all other material reports
submitted by DWR to or received by DWR from the SEC, any Examining
Authority or any other regulatory agencies, stock, securities or
commodities exchanges, or securities associations (but excluding any
monthly Financial and Operational Combined Uniform Single Report pursuant
to this clause (y) filed in the ordinary course);
(j) promptly after any Responsible Officer becomes aware thereof, a
notice concerning any (i) actual change in the rating assigned to any of
the Borrower's outstanding debt securities by S&P or Moody's, or (ii)
notice from S&P or Moody's that such outstanding debt securities have been
put on "credit watch";
(k) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of
46
<PAGE>
ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer, any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the principal
accounting officer of the Borrower setting forth details as to such
occurrence and action, if any, which the Borrower or applicable member of
the ERISA Group is required or proposes to take; and
(l) from time to time such additional information, other than Highly
Confidential Information, regarding the financial position or business of
the Borrower and its Subsidiaries as the Administrative Agent, at the
request of any Bank, may reasonably request.
SECTION 5.02. Maintenance of Property; Insurance. (a) The Borrower
----------------------------------
will keep, and will cause each of its Material Subsidiaries to keep, all
property useful and necessary in its business in good working order and
condition, except for (i) ordinary wear and tear and (ii) any failure caused by
force majeure that would not reasonably be expected to have a material adverse
- ----- -------
effect on the business, consolidated financial position or consolidated results
of operations of the Borrower and its Consolidated Subsidiaries, taken as a
whole, and which
47
<PAGE>
failure the Borrower is using reasonably diligent efforts to remedy provided,
--------
however that the Borrower shall not be required (and shall not be required to
- -------
cause any Material Subsidiary) to keep any such property in good working order
and condition if the Borrower (or if applicable such Material Subsidiary) shall
in good faith determine that keeping such property in good working order and
condition is no longer advisable for the conduct of the business of the Borrower
(or, as applicable of such Material Subsidiary).
(b) The Borrower will, and will cause each of its Subsidiaries to,
provide as self-insurer, or maintain (either in the name of the Borrower or in
such Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention and such amounts
of self-insurance) as are usually insured against in the same general area by
companies of established repute engaged in the same or a similar business; and
will furnish to the Banks, upon request from the Administrative Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.03. Conduct of Business and Maintenance of Existence. (a)
------------------------------------------------
The Borrower will continue, and will cause each of its Material Subsidiaries to
continue, to engage in business of the same general type as now conducted by the
Borrower and such Material Subsidiaries and will preserve, renew and keep in
full force and effect, and will cause each of its Subsidiaries to preserve,
renew and keep in full force and effect their respective corporate existence and
their respective rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing in this Section 5.03 shall
--------
prohibit (i) the Borrower or any of its Subsidiaries from engaging in any
investment, lending or savings business, or any business in support thereof or
otherwise related or incidental to financial or consumer services or (ii) the
merger of a Subsidiary of the Borrower into the Borrower or the merger or
consolidation of a Subsidiary of the Borrower with or into another Person if the
corporation surviving such consolidation or merger is a Subsidiary of the
Borrower and if, in each case, after giving effect thereto, no Default shall
have occurred and be continuing or (iii) the termination of the corporate
existence of any Subsidiary of the Borrower or the discontinuation by the
Borrower or any of its Subsidiaries of any businesses in which it or they are
currently engaged or any businesses in which they may be engaged in the future,
if the Borrower in good faith determines that such termination or
discontinuation is in the best interest of the Borrower or if such
discontinuation
48
<PAGE>
is required by applicable law and, in any event, is not materially
disadvantageous to the Banks or (iv) the transfer by the Borrower or any of its
Subsidiaries of any business or businesses in which it or they are currently
engaged or may in the future be engaged to the Borrower or any of its
Subsidiaries (as applicable), and the discontinuation of the conduct of such
business or businesses by such transferor or transferors after such transfer or
(v) any transaction expressly permitted by Section 5.06.
(b) The Borrower will pay and discharge, and will cause each of its
Material Subsidiaries to pay and discharge, at or before maturity, all their
respective obligations and liabilities, including, without limitation, tax
liabilities, except where (i) the same may be contested in good faith by
appropriate proceedings or (ii) any such failures would not reasonably be
expected, in the aggregate, to have a material adverse effect on the business,
financial position or results of operations of the Borrower and its
Subsidiaries, taken as a whole, and will maintain, and will cause each of its
Subsidiaries to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the same.
SECTION 5.04. Compliance with Laws. The Borrower will comply, and
--------------------
cause each of its Subsidiaries (or, in the case of any Subsidiaries that are
Former MS Subsidiaries, only Principal MS Subsidiaries), to comply, with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, applicable
Environmental Laws, FIRREA, the Investment Advisors Act and ERISA and the rules
and regulations thereunder) except where (i) the necessity of compliance
therewith is being contested in good faith by appropriate proceedings or (ii)
the failure to comply with which would not reasonably be expected to have a
material adverse effect on the business, consolidated financial position or
consolidated results of operations of the Borrower and its Consolidated
Subsidiaries, taken as a whole.
SECTION 5.05. Negative Pledge. Neither the Borrower nor any of its
---------------
Subsidiaries will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal amount
not exceeding $100,000,000;
49
<PAGE>
(b) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary of the Borrower and not created in
contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within
--------
120 days after the acquisition thereof;
(d) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or any of its
Subsidiaries and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof
by the Borrower or any of its Subsidiaries and not created in contemplation
of such acquisition;
(f) any Lien on any Receivable or proceeds thereof arising pursuant
to any Receivables Transaction and any Lien on any asset of a Special
Purpose Subsidiary arising in connection with a Receivables Transaction;
(g) any Lien on assets of a Subsidiary of the Borrower granted to
secure Debt owing by such Subsidiary to the Borrower or any of its other
Subsidiaries;
(h) any Lien to secure short-term broker loans, or on securities
borrowed or loaned, or to collateralize repurchase or reverse repurchase
transactions, which such loans or other transactions are incurred or
conducted (as the case may be) in the ordinary course of its business;
(i) Liens arising in the ordinary course of its business which (i) do
not secure Debt, (ii) do not secure any obligation in an amount exceeding
$50,000,000 and (iii) do not in the aggregate materially detract from the
value of its assets or materially impair the use thereof in the operation
of its business;
(j) any Lien on any assets that are carried in the balance sheet
asset account called "cash and securities subject to federal regulation"
and are (i) owned by any Subsidiary of the Borrower or (ii)
50
<PAGE>
maintained on behalf of customers, and which Liens arise in connection with
commodity or options transactions executed by any Subsidiary of the
Borrower in the ordinary course on a commodities or options exchange or
through a clearing house;
(k) any Lien on any asset arising pursuant to (i) a capitalized lease
or (ii) a sale/leaseback transaction with respect to real estate, office
facilities or office equipment of the Borrower or any of its Subsidiaries;
(l) any Lien on any asset segregated or escrowed as required by any
securities, commodities or options exchange, any clearing house associated
with any such exchange, or any regulatory authority in connection with the
execution or clearing of transactions in the ordinary course;
(m) any Lien on any asset of Dean Witter Realty securing Debt for
money borrowed by Dean Witter Realty;
(n) any Lien on cash and securities of the Borrower or any of its
Subsidiaries deposited with any Subsidiary of the Borrower that is a
regulated depositary institution, to collateralize extensions of credit
made or deemed made to any of its "affiliates" (as defined in Section 23A
of the Federal Reserve Act) as a result of consumer or commercial credit,
charge or similar arrangements with non-"affiliates", as the Borrower or
any of its Subsidiaries deems reasonably necessary or advisable in order to
ensure compliance with the requirements of such Section 23A;
(o) any Lien on securities arising out of the rights of Persons to
whom such securities are owed in connection with a failed securities
transaction;
(p) any Lien on any asset of SPS Transactions Services, Inc., or any
Subsidiary thereof;
(q) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by the foregoing
clauses of this Section, provided that such Debt is not increased and is
--------
not secured by any additional assets;
(r) any Lien on any asset of Greenwood Trust, Hurley State Bank,
MountainWest Financial Corporation or Discover Card Bank of New Castle
arising out of any pledge of such assets to a Federal Reserve Bank in
51
<PAGE>
connection with a borrowing from a Federal Reserve Bank;
(s) Liens on any asset of Greenwood Trust securing payment
obligations owed to merchants, in an aggregate outstanding amount at no
time exceeding $5,000,000;
(t) Liens on Margin Stock, if and to the extent the value of all such
Margin Stock of the Borrower and its Subsidiaries exceeds 25% of the value
of the total assets subject to this Section;
(u) Liens not otherwise permitted by the foregoing clauses of this
Section securing obligations in an aggregate principal amount at any time
outstanding not to exceed 8% of Consolidated Net Worth; and
(v) any Lien created, assumed or suffered to exist by a Former MS
Subsidiary that is permitted under the MS Group Facility without giving
effect to Section 6.01(l) thereof.
SECTION 5.06. Consolidations, Mergers and Sales of Assets. The
-------------------------------------------
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer (or permit any Subsidiary to sell, lease or
otherwise transfer), directly or indirectly, all or any substantial part of the
assets of the Borrower and its Subsidiaries, taken as a whole, to any other
Person, provided that nothing in this Section 5.06 shall prohibit (s) the
--------
Merger, (t) any sale of Margin Stock for fair value payable in cash or cash
equivalents, (u) any transaction otherwise permitted in the proviso in Section
5.02(a) or in Section 5.03, or any Lien otherwise permitted in Section 5.05, or
any transaction expressly referred to in Section 6.01(e) of the MS Group
Facility, (v) any sale, lease or other transfer of assets of the Borrower to its
wholly-owned Subsidiaries or by a Subsidiary of the Borrower to the Borrower or
to any of its wholly-owned Subsidiaries, (w) any Receivables Transaction, (x)
sales of inventory in the ordinary course, (y) any sale, lease or other transfer
of assets of the Borrower and its Subsidiaries that, together with all other
such assets theretofore transferred in the same fiscal year (except those
transferred pursuant to clause (v), (w) or (x) above), did not in the aggregate
account for more than 20% of the Consolidated Net Income of the Borrower for the
immediately preceding fiscal year or (z) the Borrower from merging with another
Person if (A) the Borrower is the corporation surviving such merger and (B)
52
<PAGE>
immediately after giving effect to such merger, no Default shall have occurred
and be continuing.
SECTION 5.07. Use of Proceeds. The proceeds of the Loans made under
---------------
this Agreement will be used by the Borrower for general corporate purposes,
including without limitation the refinancing of short-term commercial paper
notes issued by the Borrower. None of such proceeds will be used in violation
of any applicable law or regulation, including Regulations G, T, U or X.
SECTION 5.08. Minimum Consolidated Net Worth. Consolidated Net Worth
------------------------------
of the Borrower will not be less than (i) at any time prior to the Merger,
$3,750,000,000 and (ii) at any time from and after the Merger, $6,000,000,000.
SECTION 5.09. Capital Maintenance and Leverage Ratio of Greenwood
---------------------------------------------------
Trust. (a) GTC Tier 1 Capital on the last day of any fiscal quarter of
- -----
Greenwood Trust shall not be less than 4% of the GTC Adjusted Total Assets on
such day.
(b) The sum of (i) GTC Tier 1 Capital plus (ii) GTC Tier 2 Capital,
in each case on the last day of any fiscal quarter of Greenwood Trust, shall not
be less than 8% of the GTC Adjusted Total Assets on such day.
(c) GTC Tier 1 Capital on the last day of any fiscal quarter of
Greenwood Trust shall not be less than 5.5% of the daily average consolidated
total assets of Greenwood Trust and its Consolidated Subsidiaries during such
fiscal quarter.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
-----------------
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) any principal of any Loan when
due or (ii) any interest on any Loan or any fee or other amount payable by
it hereunder within ten days after the due date thereof;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.05 to 5.09, inclusive, for more than five Domestic
Business Days;
53
<PAGE>
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above) for 30 days after written notice thereof has been given
to the Borrower by the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement, or in any certificate, financial statement
or other document delivered pursuant hereto (other than the representation
set forth in Section 4.10), shall prove to have been incorrect in any
material respect when made (or deemed made); or the representation set
forth in Section 4.10 shall be incorrect for more than three consecutive
Domestic Business Days;
(e) the Borrower and/or any of its Subsidiaries shall fail to make
any payment, when due or within any applicable grace period, in respect of
any Debt or Debts of the Borrower and/or one or more Subsidiaries (other
than the Notes), arising in one or more related or unrelated transactions,
in an aggregate principal amount not less than $75,000,000; provided that
--------
any such failure from and after the Merger by (i) the Borrower with respect
to any Debt consisting of any MS Repo Obligation, any MS Swap Obligation or
any Guarantee by the Borrower of any Debt of a Former MS Subsidiary or (ii)
a Former MS Subsidiary, in each case under clauses (i) and (ii) above,
which failure does not constitute an Event of Default (as defined in the MS
Group Facility) under Section 7.01(h) of the MS Group Facility shall not
constitute an Event of Default under this clause (e);
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt or Debts of the Borrower and/or
any of its Subsidiaries (other than the Notes and other than Debt under
clause (viii) of the definition thereof) in an aggregate principal amount
not less than $50,000,000; provided that any such event or condition with
--------
respect to Debt of (i) the Borrower with respect to any MS Repo Obligations
or any Guarantee by the Borrower of any Debt of a Former MS Subsidiary or
(ii) any Former MS Subsidiary, in each case in clauses (i) and (ii) above,
which event or condition does not constitute an Event of Default (as
defined in the MS Group Facility) under Section 7.01(h) of the MS Group
Facility shall not constitute an Event of Default under this clause (f);
54
<PAGE>
(g) the Borrower or any of its Material Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any of its Material Subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or an order for relief
shall be entered against the Borrower or any of its Material Subsidiaries
under the federal bankruptcy laws as now or hereafter in effect;
(i) a conservator or receiver shall be appointed for any Material
Subsidiary that is an "insured depository institution" as defined in
Section 3(c)(2) of the Federal Deposit Insurance Act, as amended (the
"FDIA"), by the "appropriate Federal banking agency" as defined in the
FDIA, by any state supervisory agency or by the Federal Deposit Insurance
Corporation pursuant to the FDIA; or a new bank shall be organized by the
FDIC to assume the insured deposits of any Material Subsidiary pursuant to
the FDIA; or a bridge bank shall be organized by the FDIC to assume the
assets and liabilities of any Material Subsidiary pursuant to the FDIA;
(j) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $25,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV
55
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of ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate, to impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or to cause a trustee
to be appointed to administer, any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $75,000,000;
(k) a judgment or order for the payment of money in excess of
$50,000,000 shall be rendered against the Borrower and/or any of its
Subsidiaries (or, in the case of any Subsidiaries that are Former MS
Subsidiaries, only Principal MS Subsidiaries) and such judgment or order
shall continue unsatisfied and unstayed for a period of 30 days; or
(l) any person or group of persons (within the meaning of Section 13
or 14 of the Exchange Act), other than (i) any one or more persons or group
of persons which are or, in the ordinary course of business, will become
vice presidents, principals, managing directors or key employees of the
Borrower or of any Material Subsidiary (and as used herein, the phrase
"ordinary course of business" includes the hiring of any managing director
or principal as an employee to engage in the conduct of an existing or
proposed business of the Borrower or any Subsidiary), (ii) any "pension
plan" as defined in Section 3(2) of ERISA, or any trust created thereunder,
(iii) the MS Group and Subsidiaries Employee Stock Ownership Plan, or any
trust created thereunder, and any successor to such trust, (iv) a trust
created under the Trust Agreement dated as of March 5, 1991 (as amended and
as it may be further amended, supplemented or otherwise modified from time
to time) between the Borrower, as successor to the MS Group, and State
Street Bank and Trust Company, and any successor to such trust, (v) a trust
created under the Trust Agreement dated as of May 27, 1993 (as amended and
as it may be further amended, supplemented or otherwise modified from time
to time) between the Borrower, as successor to the MS Group, and State
Street Bank and Trust Company, and any successor to such trust and (vi) a
trust created under the Trust
56
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Agreement dated as of April 1, 1994 (as amended and as it may be further
amended, supplemented or otherwise modified from time to time) between the
Borrower, as successor to the MS Group, and State Street Bank and Trust
Company, and any successor to such trust, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the SEC under
the Exchange Act) of 30% or more of the outstanding shares of common stock
of the Borrower; or, during any period of thirteen consecutive calendar
months, individuals (i) who were directors of the Borrower on the first day
of such period or on the date hereof, (ii) who were appointed or elected to
the board of directors of the Borrower in connection with the Merger (any
such directors described in clauses (i) or (ii) at any time, "Incumbent
Directors") or (iii) whose nomination for election to the board of
directors of the Borrower was recommended or approved by a vote of at least
a majority of the Incumbent Directors at such time, shall cease to
constitute a majority of the board of directors of the Borrower;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 60% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
--------
clause (g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by any Agent or the Banks, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
-----------------
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
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ARTICLE VII
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
-----------------------------
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the Notes as are delegated
to such Agent by the terms hereof or thereof, together with all such powers as
are reasonably incidental thereto.
SECTION 7.02. Agents and Affiliates. The Chase Manhattan Bank and
---------------------
Morgan Guaranty Trust Company of New York shall have the same rights and powers
under this Agreement as any other Bank and may each exercise or refrain from
exercising the same as though it (or, in the case of The Chase Manhattan Bank
one of its affiliates) were not an Agent. Each of The Chase Manhattan Bank and
Morgan Guaranty Trust Company of New York and their respective affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with, the Borrower or any Subsidiary or Affiliate of the Borrower as if
it (or, in the case of The Chase Manhattan Bank one of its affiliates) were not
an Agent hereunder.
SECTION 7.03. Action by Agents. The obligations of each of the
----------------
Agents hereunder are only those expressly set forth herein. Without limiting
the generality of the foregoing, neither Agent shall be required to take any
action with respect to any Default, except in the case of the Administrative
Agent as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. Either Agent may consult
-------------------------
with legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agents. None of the Agents, their
-------------------
respective affiliates or their respective directors, officers, agents or
employees shall be liable for any action taken or not taken by such Agent in
connection herewith (i) with the consent or at the request of the Required Banks
or (ii) in the absence of its own gross negligence or willful misconduct. None
of the Agents, their respective affiliates or their respective directors,
officers, agents or employees shall be responsible for or
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have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection herewith or any borrowing hereunder; (ii)
the performance or observance of any of the covenants or agreements of the
Borrower; (iii) the satisfaction of any condition specified in Article III,
except receipt of items required to be delivered to such Agent; or (iv) the
validity, effectiveness or genuineness of this Agreement, the Notes or any
instrument or writing furnished in connection herewith. Neither Agent shall
incur any liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
---------------
accordance with its Commitment, indemnify each Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost (including cost of settlement),
expense (including reasonable counsel fees and disbursements), claim, demand,
action, loss or liability (except such as result from such indemnitees' gross
negligence or willful misconduct) that such indemnitees may suffer or incur in
connection with this Agreement or any action taken or omitted by such
indemnitees hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
---------------
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. Either Agent may resign at any time
---------------
by giving notice thereof to the Banks and the Borrower. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Administrative Agent or Documentation Agent (as the case may be), with the prior
written consent of the Borrower (which consent shall not be unreasonably
withheld), provided that such successor meets the requirements set forth below.
--------
If no such successor Agent shall have been so appointed by the Required Banks,
and shall have accepted such appointment, within 30 days after such retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of the
Banks, appoint
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a successor Administrative Agent or Documentation Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $100,000,000. Upon the acceptance of its appointment as Administrative
Agent or Documentation Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Administrative Agent or Documentation Agent, as the case may be,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent or
Documentation Agent, as the case may be.
SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for
------------
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and such Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
-------------------------------------------------
Unfair. If on or prior to the first day of any Interest Period for any CD Loan,
- ------
Euro-Dollar Loan or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
the Reference Banks in the relevant market for such Interest Period, or
(b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or
more of the aggregate amount of the Commitments advise the Administrative
Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as
the case may be, as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Banks of funding their CD
Loans or Euro-Dollar Loans, as the case may be, for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the
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circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make or continue CD Loans or Euro-Dollar Loans, as
the case may be, or to convert outstanding Loans into CD Loans or Euro-Dollar
Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan
or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate
Loan on the last day of the then current Interest Period applicable thereto.
Unless the Borrower notifies the Administrative Agent at least two Domestic
Business Days before the date of any Fixed Rate Borrowing for which a Notice of
Borrowing has previously been given that it elects not to borrow on such date,
(i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall
instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing
is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such
Borrowing shall bear interest for each day from and including the first day to
but excluding the last day of the Interest Period applicable thereto at the Base
Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of this
----------
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-
Dollar Loans and such Bank shall so notify the Administrative Agent, the
Administrative Agent shall forthwith give notice thereof to the other Banks and
the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to
convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not, in the sole judgment of
such Bank, be otherwise disadvantageous to such Bank. If such Bank shall
determine that it may not lawfully continue to maintain and fund any of its
outstanding Euro-Dollar Loans to maturity and shall so specify in such notice,
each Euro-Dollar Loan of such Bank
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then outstanding shall be converted immediately to a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after
---------------------------------
(x) the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending Office) to any
tax, duty or other charge with respect to its Fixed Rate Loans, its Note or
its obligation to make Fixed Rate Loans, or shall change the basis of
taxation of payments to any Bank (or its Applicable Lending Office) of the
principal of or interest on its Fixed Rate Loans or any other amounts due
under this Agreement in respect of its Fixed Rate Loans or its obligation
to make Fixed Rate Loans (except for (A) the imposition of or change in any
tax on or measured by the overall net income of such Bank, (B) the
imposition of or change in any tax that is included in the definition of
"Taxes" as used in Section 2.15, but nevertheless in respect of which the
Borrower is not obligated to pay an additional amount by reason of the
remaining provisions of Section 2.15(a) or (C) the imposition of or change
in any income tax imposed by any governmental or other taxing authority of
or in any jurisdiction other than the United States); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System, but excluding (A) with respect to any CD
Loan any such requirement included in an applicable Domestic Reserve
Percentage and (B) with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar Reserve Percentage),
special deposit, insurance assessment (excluding, with respect to any CD
Loan, any such requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Bank
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(or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates
of deposit or the London interbank market any other condition affecting its
Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (including any determination by any such authority, central
bank or comparable agency that, for purposes of capital adequacy requirements,
the Commitments hereunder do not constitute commitments with an original
maturity of one year or less), has or would have the effect of reducing the rate
of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will, if practicable, with the consent of the Borrower (which
consent shall not unreasonably be withheld),
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designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole judgment of such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section and setting
forth in reasonable detail its computation of the additional amount or amounts
to be paid to it hereunder shall be conclusive in the absence of manifest error.
In determining such amount, such Bank may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing subsections (a) and (b) of
this Section 8.03, the Borrower shall only be obligated to compensate any Bank
for any amount arising or accruing both:
(i) during (A) any time or period commencing (x) in the case of
subsection (a), not earlier than the first day of any Interest Period in
effect on the date on which, and (y) in the case of subsection (b), not
earlier than the date on which, such Bank notifies the Administrative Agent
and the Borrower that it proposes to demand such compensation and
identifies to the Administrative Agent and the Borrower the statute,
regulation or other basis upon which the claimed compensation is or will be
based and (B) any time or period during which, because of the retroactive
application of such statute, regulation or other basis, such Bank did not
know that such amount would arise or accrue; and
(ii) within six months prior to any demand therefor, accompanied by a
certificate of such Bank claiming compensation and setting forth in
reasonable detail its computation of the additional amount or amounts to be
paid to it hereunder.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate
---------------------------------------------------
Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans
- -----
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03(a) and the Borrower shall, by at least five
Euro-Dollar Business Days' prior notice to such Bank through the Administrative
Agent, have elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer exist:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) CD Loans or Euro-Dollar Loans, as the case
may be, shall instead be Base Rate Loans (on which interest and
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principal shall be payable contemporaneously with the related Fixed Rate
Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid (or converted to a Base Rate Loan), all payments of
principal which would otherwise be applied to repay such Fixed Rate Loans
shall be applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable to the related CD
Loans or Euro-Dollar Loans of the other Banks.
SECTION 8.05. Substitution of Bank. If (i) the obligation of any
--------------------
Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to
Section 8.02, (ii) any Bank has demanded compensation or given notice of its
intention to demand compensation under Section 8.03 or (iii) the Borrower is
required to pay any additional amount to any Bank pursuant to Section 2.15(a),
the Borrower shall have the right, with the assistance of the Administrative
Agent, to seek a mutually satisfactory substitute bank or banks (which may be
one or more of the Banks) to replace such Bank under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or any Agent, at its address or telex or
telecopy number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or telex number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address or telex
number as such party may hereafter specify for the purpose by notice to each of
the Agents and the Borrower. Each such notice, request or other communication
shall be effective (i) if given by telex, when such telex is transmitted to the
telex number specified in this Section and the appropriate answerback is
received, (ii) if given by mail, 72 hours
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after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid or (iii) if given by telecopy or any other
means, when delivered at the address specified in this Section (and confirmed by
telephone by the sender, in the case of any telecopy notice to the Borrower);
provided that notices to the Administrative Agent under Article II or Article
- --------
VIII shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by any Agent or any
----------
Bank in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes; Indemnification. (a) The
--------------------------------------------
Borrower shall pay (i) all reasonable out-of-pocket expenses of the
Documentation Agent, including reasonable fees and disbursements of special
counsel for the Documentation Agent, in connection with the preparation and
administration of this Agreement, any waiver or consent hereunder or any
amendment hereof (other than any waiver or amendment solely for the benefit of
the Banks the request for which was initiated by the Banks or the Agents or any
of them) or any Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all out-of-pocket expenses incurred by each Agent and each Bank,
including fees and disbursements of counsel (who may be employees of such Bank,
provided that any allocation of such expenses is made in accordance with such
Bank's customary practice and is without duplication of the expense of any
outside counsel for such Bank for such matter), in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom. The Borrower shall indemnify each Bank against any
transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this Agreement
or the Notes.
(b) The Borrower agrees to indemnify each Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel (who may be employees of such Bank, provided that any
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allocation of such expenses is made in accordance with such Bank's customary
practice and is without duplication of the expense of any outside counsel for
such Bank for such matter), which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of this Agreement or any actual or
proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall
--------
have the right to be indemnified hereunder (i) for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction, (ii) in respect of any litigation instituted by (x) any
Participant against any Bank or any Agent, (y) any Agent or any Bank against any
Participant, any Bank or any Agent or (z) any holder of any security of any
Bank, any Participant or any Agent (in such holder's capacity as such) against
any Bank, Participant or Agent, to the extent any such litigation does not arise
out of any misconduct (alleged in good faith by such Bank) by or on behalf of
the Borrower or (iii) for amounts that constitute (A) any taxes excluded from
the definition of Taxes in Section 2.15 hereof or (B) any Taxes as defined in
Section 2.15 hereof.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it
-------------------
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest then
due and payable with respect to any Note held by it which is greater than the
proportion received by any other Bank in respect of the aggregate amount of
principal and interest then due and payable with respect to any Note held by
such other Bank, the Bank receiving such proportionately greater payment shall
purchase such participations in the Notes held by the other Banks, and such
other adjustments shall be made, as may be required so that all such payments of
principal and interest then due and payable with respect to the Notes held by
the Banks shall be shared by the Banks pro rata; provided that nothing in this
--------
Section shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness under the
Notes. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Note, whether or
not acquired pursuant to the foregoing arrangements, may exercise rights of set-
off or counterclaim and other rights with respect to such participation as fully
as if such holder of a participation were a direct creditor of the Borrower in
the amount of such participation.
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SECTION 9.05. Amendments and Waivers. Any provision of this
----------------------
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Administrative Agent or the Documentation
Agent are affected thereby, by such Agent); provided that no such amendment or
--------
waiver shall, unless signed by all the Banks, (i) increase or decrease the
Commitment of any Bank (except for a ratable decrease in the Commitments of all
Banks) or subject any Bank to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder (provided
that, in the case of Loans comprising a single Money Market Borrowing, only the
signatures of the Borrower and the Banks making Loans included in such Borrowing
shall be required), (iii) postpone the date fixed for any payment of principal
of or interest on any Loan or any fees hereunder or for any reduction or
termination of any Commitment, (iv) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the number of Banks,
which shall be required for the Banks or any of them to take any action under
this Section or any other provision of this Agreement or (v) amend any provision
of this Section 9.05.
SECTION 9.06. Successors and Assigns. (a) The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower, the Administrative Agent or Documentation Agent, such Bank shall
remain responsible for the performance of its obligations hereunder, and the
Borrower, the Administrative Agent and the Documentation Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
--------
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this
68
<PAGE>
Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the
consent of the Participant. The Borrower agrees that each Participant shall, to
the extent provided in its participation agreement, be entitled to the benefits
of Article VIII with respect to its participating interest. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b). No Bank
shall provide to any Participant or prospective Participant any Confidential
Information unless such Participant or prospective Participant shall theretofore
have delivered to the Borrower a duly executed Confidentiality Letter
substantially in the form of Exhibit J. No Bank shall transfer any interest in
this Agreement or any Note pursuant to this Section 9.06(b) to any Participant
that is a Non-U.S. Institution, unless such proposed Participant shall, as a
condition to the effectiveness of such transfer, (i) deliver Internal Revenue
Service forms as provided in Section 2.15(b) to the transferor Bank with copies
to the Borrower and the Administrative Agent and (ii) agree in writing to be
bound by the covenants specified in Section 2.15(b) for the benefit of the
transferor Bank, the Borrower and the Administrative Agent.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all (such
portion to include, unless such Assignee is a Bank prior to such assignment, a
Commitment of not less than $10,000,000) of its rights and obligations under
this Agreement and the Notes, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit G hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Borrower, which consent
shall not unreasonably be withheld, and with notice to the Administrative Agent
and the Documentation Agent; provided that if an Assignee is a Bank prior to
--------
such assignment or is an affiliate of such transferor Bank, no such consent
shall be required; and provided further that such assignment may, but need not,
-------- -------
include rights of the transferor Bank in respect of outstanding Money Market
Loans. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no
69
<PAGE>
further consent or action by any party shall be required. Upon the consummation
of any assignment pursuant to this subsection (c), the transferor Bank, the
Documentation Agent and the Borrower shall make appropriate arrangements so
that, if required, a new Note is issued to the Assignee. In connection with any
such assignment, the transferor Bank shall pay to the Documentation Agent an
administrative fee for processing such assignment in the amount of $2,000. If
the Assignee is not incorporated under the laws of the United States of America
or a state thereof, it shall, prior to the first date on which interest or fees
are payable hereunder for its account, deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section 2.15. No
Bank shall provide to any prospective Assignee (other than an Assignee referred
to in Section 9.06(d) or any Assignee that is a Bank prior to such proposed
assignment) any Confidential Information unless such prospective Assignee shall
theretofore have delivered to the Borrower a duly executed Confidentiality
Letter substantially in the form of Exhibit J.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02 or 8.03 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
SECTION 9.07. Collateral. Each of the Banks represents to the Agents
----------
and each of the other Banks that it in good faith is not relying upon any Margin
Stock as collateral in the extension or maintenance of the credit provided for
in this Agreement.
SECTION 9.08. Governing Law; Submission to Jurisdiction;
------------------------------------------
Severability. (a) This Agreement and each Note shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
Borrower and each Bank hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Southern District
70
<PAGE>
of New York and of any New York State court sitting in New York City (such
courts referred to in this sentence, collectively, "New York Courts") for
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in a New York
Court and any claim that any such proceeding brought in a New York Court has
been brought in an inconvenient forum.
(b) If any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.09. Counterparts; Integration. This Agreement may be
-------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS
--------------------
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Restrictions on Transfers. Each Bank agrees that it
-------------------------
will not, except by operation of law, transfer or propose to transfer all or any
portion of its rights and obligations under this Agreement and the Note held by
it, or any participation therein to any Person except (i) banks (including
without limitation Federal Reserve Banks) or trust companies empowered by law to
accept deposits or (ii) their corporate parents or their Affiliates which are in
the business of lending money and which are either wholly owned by them or are
wholly-owned Subsidiaries of a common corporate parent, unless such Bank shall
have first delivered to the Borrower an opinion of counsel to the effect (and in
a form reasonably acceptable to the Borrower) that such transfer may legally be
effected without compliance with the registration and prospectus delivery
requirements of the Securities Act. Each Bank agrees that it will not transfer
all or any portion of any Note held by
71
<PAGE>
it, or any participation therein, in violation of applicable securities laws.
SECTION 9.12. Confidentiality. Each Agent and each Bank agrees that
---------------
any Confidential Information provided to it in connection with this Agreement
(i) will be kept confidential and will not be disclosed to any third party by
such Agent or Bank or by its affiliates, officers, directors, counsel,
representatives or employees (collectively, the "Representatives"), except as
specifically set forth in the following sentence, and (ii) will not be used by
such Agent or Bank or its Representatives other than for the purpose of
evaluating the performance of any Loan hereunder or the compliance by the
Borrower with the terms hereof or for purposes of evaluating any other
extensions of credit to the Borrower by such Agent or Bank. Each Agent and each
Bank agrees to reveal any Confidential Information only (a) to those of its
Representatives who need to know the Confidential Information for the purposes
set forth in clause (ii) above, are informed by such Agent or Bank of the
confidential nature of the Confidential Information and are instructed by such
Agent or Bank to treat the Confidential Information confidentially and in
accordance with the terms of this Agreement; (b) to any public auditors
(provided that such auditors agree in writing prior to such disclosure, for the
benefit of the Borrower (including by a written agreement for the benefit of
borrowers from such Bank generally), to keep such information confidential on
terms substantially similar to those set forth in this Section 9.12), bank
examiners or regulatory auditors of such Agent or Bank and to other Banks; (c)
in connection with any litigation or dispute arising from this Agreement
involving the Banks, the Agents or the Borrower or any of its Subsidiaries and
affiliates; provided that any Agent or Bank that wishes to disclose any
--------
Confidential Information pursuant to this clause (c) in a litigation or dispute
not involving the Borrower or any of its Subsidiaries or affiliates shall notify
the Borrower in writing a reasonable period prior to so disclosing such
information; (d) if and to the extent required by law or regulation (including
oral questions, interrogatories, subpoena, civil demand or similar process),
provided that any Agent or Bank which may be required to disclose any
- --------
Confidential Information pursuant to this clause (d), shall (I) to the extent
permitted by relevant law, notify the Borrower in writing of any request for
disclosure of any Confidential Information promptly after receipt of such
request (but in any event prior to such disclosure) and (II) not disclose any
such Confidential Information earlier than such Confidential Information is
required to be so disclosed; and (e) to Participants,
72
<PAGE>
prospective Participants to which sales of participating interests are permitted
pursuant to Section 9.06(b) and prospective Assignees to which assignments of
interests are permitted pursuant to Section 9.06(c), but only if such
Participant, prospective Participant or prospective Assignee and the applicable
Bank execute and deliver to the Borrower a Confidentiality Letter substantially
in the form of Exhibit J hereto prior to the delivery of any Confidential
Information to such Participant, prospective Participant or prospective
Assignee. Notwithstanding the foregoing, any such information supplied to a
Bank, Agent, Participant, prospective Participant or prospective Assignee under
this Agreement shall cease to be Confidential Information if it is or becomes
known to such Person by other than unauthorized disclosure, or if it becomes a
matter of public knowledge other than by unauthorized disclosure by such Person.
Without limitation of any other provision of this Agreement, the provisions of
this Section 9.12 shall survive the termination of the Commitments and the
repayment of the Loans.
SECTION 9.13. Termination of Existing Credit Agreement. The Borrower
----------------------------------------
and each of the Banks that is also a "Bank" party to the Existing Credit
Agreement (x) agrees that the "Commitments" as defined in the Existing Credit
Agreement shall terminate in their entirety on the Effective Date. Each of such
Banks waives (a) any requirement of notice of such termination pursuant to
Section 2.09 of the Existing Credit Agreement and (b) any claim to any facility
fees or other fees under the Existing Credit Agreement for any day on or after
the Effective Date. The Borrower (i) represents and warrants that no loans are,
as of the date hereof, or will be, as of the Effective Date, outstanding under
the Existing Credit Agreement and (ii) covenants that all accrued and unpaid
facility fees and any other amounts due and payable under the Existing Credit
Agreement shall have been paid on or prior to the Effective Date.
73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
DEAN WITTER, DISCOVER & CO.
By /s/ Birendra Kumar
-------------------------------
Title: Senior Vice President
Treasurer
2 World Trade Center
56th Floor
New York, New York 10048
Fax: 212-392-7184
Attn: Janice L. Barefoot
ARRANGERS AND BANKS
-------------------
$175,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Sandra J.S. Kurek
-------------------------------
Title: Associate
$175,000,000 THE CHASE MANHATTAN BANK
By /s/ Roger A. Parker
-------------------------------
Title: Vice President
<PAGE>
MANAGING AGENTS
---------------
$100,000,000 ABN-AMRO BANK N.V., NEW YORK
BRANCH
By /s/ Giovanni P. Fallone
-------------------------------
Title: Group Vice President
By /s/ David W. Eastep
-------------------------------
Title: Assistant Vice President
$100,000,000 BANK OF AMERICA ILLINOIS
By /s/ John E. Williams
--------------------------------
Title: Vice President
$100,000,000 CITIBANK, N.A.
By /s/ Michael Mauerstein
--------------------------------
Title: Attorney-In-Fact
$100,000,000 CREDIT LYONNAIS BRANCH NEW YORK
BRANCH
By /s/ Sebastian Rocco
--------------------------------
Title: First Vice President
<PAGE>
$100,000,000 DEUTSCHE BANK A.G., NEW YORK
BRANCHAND/OR CAYMAN
ISLANDS BRANCH
By /s/ Peter J. Bassler
--------------------------------
Title: Vice President
By /s/ Indra D. Kish
--------------------------------
Title: Assistant Vice President
$100,000,000 LLOYDS BANK PLC
By /s/ Michael J. Gilligan
--------------------------------
Title: Vice President (G311)
By /s/ Stephen J. Attree
--------------------------------
Title: Assistant Vice President
(A088)
$100,000,000 MELLON BANK, N.A.
By /s/ William F. Casey, III
---------------------------------
Title: Vice President
$100,000,000 NATIONSBANK, N.A.
By /s/ Kenneth Ricciardi
---------------------------------
Title: Senior Vice President
<PAGE>
$100,000,000 ROYAL BANK OF CANADA
By /s/ John F. Hopper
---------------------------------
Title: Manager
$100,000,000 SOCIETE GENERALE NEW YORK BRANCH
By /s/ Janet M. Kagan
---------------------------------
Title: Vice President
$100,000,000 THE BANK OF NEW YORK
By /s/ Mark T. Rogers
---------------------------------
Title: Vice President
$100,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Denise G. de Diego
---------------------------------
Title: Vice President
$100,000,000 UNION BANK OF SWITZERLAND
By /s/ Virginia Loebel
---------------------------------
Title: Managing Director
By /s/ R. Fortney
---------------------------------
Title: Managing Director
<PAGE>
$100,000,000 WACHOVIA BANK OF GEORGIA N.A.
By /s/ James F. McCreary
---------------------------------
Title: Senior Vice President
$100,000,000 WELLS FARGO BANK, N.A.
By /s/ Patrick McCormick
---------------------------------
Title: Senior Vice President
By /s/ JoAnne Howell
---------------------------------
Title: Vice President
LEAD MANAGERS
-------------
$75,000,000 BANK OF MONTREAL
By /s/ Pamela Tebbutt
---------------------------------
Title: Director
$75,000,000 BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By /s/ David Place
---------------------------------
Title: Vice President
$75,000,000 BANQUE NATIONALE DE PARIS
NEW YORK BRANCH
By /s/ Riva L. Howard
---------------------------------
Title: Vice President
By /s/ William Shaheen
---------------------------------
Title: Vice President
<PAGE>
$75,000,000 BANQUE PARIBAS
By /s/ Charles T. Spinner
---------------------------------
Title: Senior Vice President
By /s/ Eve S. Cohen
---------------------------------
Title: Vice President
$75,000,000 BARCLAYS BANK PLC
By /s/ Karen M. Wagner
---------------------------------
Title: Associate Director
$75,000,000 CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Gerald J. Girardi
---------------------------------
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
$75,000,000 COMMERZBANK
AKTIENGESELLSCHAFT
By /s/ William M. Earley
---------------------------------
Title: Vice President
By /s/ Joseph J. Hayes
---------------------------------
Title: Assistant Treasurer
$75,000,000 CREDIT SUISSE FIRST BOSTON
By /s/ F. Byrne
---------------------------------
Title: Director
By /s/ Joseph M. Colgan
---------------------------------
Title: Vice President
<PAGE>
$75,000,000 DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
NEW YORK BRANCH
By /s/ Bruce Ritz
---------------------------------
Title: Vice President
By /s/ Ya-Roo Yang
---------------------------------
Title: Assistant Treasurer
$75,000,000 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ John Bresnan
---------------------------------
Title: Senior Vice President
$75,000,000 FLEET NATIONAL BANK
By /s/ Kenneth G. Ahrens
---------------------------------
Title: Vice President
$75,000,000 NATIONAL AUSTRALIA BANK
LIMITED ACN004044937
By /s/ Michael G. McHugh
---------------------------------
Title: Vice President
$75,000,000 SUNTRUST BANK, ATLANTA
By /s/ May M. Smith
---------------------------------
Title: Banking Officer
By /s/ Craig W. Farnsworth
---------------------------------
Title: Vice President and Manager
<PAGE>
$75,000,000 THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
By /s/ Takao Teramura
---------------------------------
Title: Vice President
$75,000,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH
By /s/ Masahiro Ito
---------------------------------
Title: Senior Vice President
$75,000,000 THE SUMITOMO BANK, LIMITED
By /s/ John C. Kissinger
---------------------------------
Title: Joint General Manager
PARTICIPANTS
------------
$50,000,000 BANCA NAZIONALE DEL LAVORO
S.P.A. - NEW YORK BRANCH
By /s/ Giuliano Violetta
---------------------------------
Title: First Vice President
By /s/ Giulio Giovine
---------------------------------
Title: Vice President
<PAGE>
$50,000,000 BANK OF HAWAII
By /s/ Alison Sierens
---------------------------------
Title: Assistant Vice President
$50,000,000 BANK ONE, COLUMBUS, N.A.
By /s/ James Zook
---------------------------------
Title: Vice President
$50,000,000 BARNETT BANK, N.A.
By /s/ Bradley M. Harrell
---------------------------------
Title: Senior Vice President
$50,000,000 FIRST BANK NATIONAL ASSOCIATION
By /s/ Timothy B. Brown
---------------------------------
Title: Assistant Vice President
$50,000,000 FIRST NATIONAL BANK OF
MARYLAND
By /s/ Stewart T. Shettle
---------------------------------
Title: Vice President
<PAGE>
$50,000,000 NORDDEUTSCHE LANDESBANK
GIROZENTRALE
By /s/ Petra Frank-Witt
---------------------------------
Title: Vice President
By /s/ Stephen K. Hunter
---------------------------------
Title: Senior Vice President
$50,000,000 THE FUJI BANK, LIMITED
NEW YORK BRANCH
By /s/ Toshiaki Yakura
---------------------------------
Title: Senior Vice President
$50,000,000 THE LONG-TERM CREDIT BANK
OF JAPAN, LTD., CHICAGO
BRANCH
By /s/ Mark A. Thompson
---------------------------------
Title: Vice President and Deputy
General Manager
$50,000,000 THE NORTHERN TRUST COMPANY
By /s/ Christiana L. Jakuc
---------------------------------
Title: Officer
<PAGE>
$50,000,000 THE SAKURA BANK, LIMITED
By /s/ Yasumasa Kikuchi
---------------------------------
Title: Senior Vice President
$50,000,000 WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By /s/ Patricia Griffin
---------------------------------
Title: Associate
By /s/ Kenneth R. Crespo
---------------------------------
Title: Vice President
$25,000,000 AUSTRALIA AND NEW ZEALAND
BANKING GROUP LTD.
By /s/ Michael Murphy
---------------------------------
Title: Vice President
$25,000,000 BANCA POPOLARE DI MILANO
By /s/ Anthony Franco
---------------------------------
Title: Executive Vice President
and General Manager
By /s/ Fulvio Montanari
---------------------------------
Title: First Vice President
<PAGE>
$25,000,000 BANCA COMMERCIALE ITALIANA
By /s/ Julian M. Teodori
---------------------------------
Title: Senior Vice President and
Branch Manager
By /s/ Diana R. Lamb
---------------------------------
Title: Vice President
$25,000,000 BANK AUSTRIA
AKTIENGESELLSCHAFT
By /s/ Clark P. Davis
---------------------------------
Title: Vice President
By /s/ Joseph A. Steiner
---------------------------------
Title: Senior Vice President
$25,000,000 COMPAGNIE FINANCIERE DE CIC ET
DE L'UNION EUROPEENE
By /s/ Nancy Nilsen
---------------------------------
Title: Vice President
By /s/ Eric Longuet
---------------------------------
Title: Vice President
$25,000,000 CREDITO ITALIANO
By /s/ Harmon P. Butler
---------------------------------
Title: First Vice President
By /s/ Saiyed A. Abbas
---------------------------------
Title: Assistant Vice President
<PAGE>
$25,000,000 DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By /s/ John A. O'Neill
---------------------------------
Title: Vice President
By /s/ Sonia Kataria
---------------------------------
Title: Vice President
$25,000,000 FIRST SECURITY BANK, N.A.
By /s/ Judy Callister
---------------------------------
Title: Vice President
$25,000,000 FIRST TENNESSEE BANK
NATIONAL ASSOCIATION
By /s/ Victor Notaro
---------------------------------
Title: Vice President
$25,000,000 MIDLAND BANK PLC
By /s/ Steven Mercer
---------------------------------
Title: Relationship Manager
<PAGE>
$25,000,000 REPUBLIC NATIONAL BANK OF
NEW YORK
By /s/ James Powers
---------------------------------
Title: Senior Vice President
By /s/ Paul M. Lopez
---------------------------------
Title: Vice President
$25,000,000 SVENSKA HANDELSBANKEN
By /s/ H. N. Bacon
---------------------------------
Title: Vice President
By /s/ Geoffrey Walker
---------------------------------
Title: Senior Vice President
$25,000,000 THE FIRST NATIONAL BANK OF
BOSTON
By /s/ Charles A. Garrity
---------------------------------
Title: Vice President
$25,000,000 UNITED STATES NATIONAL BANK OF
OREGON
By /s/ Fiza Noordin
---------------------------------
Title: Assistant Vice President
<PAGE>
TOTAL COMMITMENTS:
$4,000,000,000
==============
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Documentation Agent
By
-------------------------------
Title: Associate
60 Wall Street
New York, New York 10260-0060
Attention: Laurel Brien
Telex number: 177615
THE CHASE MANHATTAN BANK,
as Administrative Agent
By
-------------------------------
Title: Vice President
140 East 45th Street
29th Floor
New York, New York 10017
Attention: Janet M. Belden
Telex number: 353006 ABSC NYK
<PAGE>
EXHIBIT 10.2
DEAN WITTER, DISCOVER & CO.
EMPLOYEES' EQUITY ACCUMULATION PLAN
(AMENDED AS OF APRIL 7, 1997)
SECTION 1 PURPOSE.
- ------------------
The purposes of the Dean Witter, Discover & Co. Employees' Equity
Accumulation Plan are to attract, retain and motivate key employees of the
Company and to align the interests of key employees with stockholders through
equity-based compensation and enhanced opportunities for ownership of Stock. It
is the further purpose of this Plan to permit the granting of Awards that will
constitute performance based compensation for certain executive officers, as
described in section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder.
SECTION 2 DEFINITIONS.
- ----------------------
2.1 "Act" shall mean the Securities Exchange Act of 1934, as amended, and any
------
successor thereto.
2.2 "Award" shall mean a grant of Stock or Cash, or the right to acquire Stock
-------
or Cash, under such terms and conditions as shall be determined by the Committee
consistent with the terms of the Plan.
2.3 "Award Certificate" shall mean a written document described in Section
-------------------
6.3, setting forth the terms and conditions of an Award made pursuant to the
Plan.
2.4 "Cash" shall mean United States currency.
------
2.5 "Cash Unit" shall mean a general, unsecured obligation of the Company to
-----------
pay Cash to a Participant pursuant to an Award recorded by the Company as a
bookkeeping entry.
2.6 "Board" shall mean the Board of Directors of DWD.
-------
2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
------
successor thereto.
2.8 "Committee" shall mean a committee of two or more directors of DWD, as
-----------
described in Section 3.1.
2.9 "Company" shall mean DWD and any corporation, trade or business which at
---------
the time of reference, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with DWD.
1
<PAGE>
2.10 "Consent" shall mean, with respect to the granting of any Award under the
---------
Plan, the acquisition, issuance or purchase of Stock or other rights hereunder
or the taking of any other action hereunder:
(i) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or other self-regulatory organi-
zation or under any federal, state or local law, rule or regulation,
(ii) the expiration, elimination or satisfaction of any prohibitions,
restrictions or limitations under any federal, state or local law,
rule or regulation or the rules of any securities exchange or other
self-regulatory organization,
(iii) any and all written agreements and representations by the
Participant with respect to the disposition of Stock, or with respect
to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration
or qualification or to obtain an exemption from the requirement that
any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of the
granting of an Award, the acquisition, issuance or purchase of Stock
or other rights hereunder or the taking of any other action under the
Plan, by any governmental agencies or other regulatory bodies or any
parties to any loan agreements or other contractual obligations of the
Company.
2.11 "Disability" shall mean the termination of a Participant's employment
-------------
with the Company under circumstances (i) that entitle the Participant to
receive benefits under any long term disability plan sponsored by the Company,
or (ii) if the Participant does not participate in such a plan, are determined
by the Committee to have been caused by a physical or mental condition that
would have entitled the Participant (if the Participant had been eligible to
participate) to receive benefits under the DWD Long Term Disability Plan or any
successor thereto.
2.12 "DWD" shall mean Dean Witter, Discover & Co., a Delaware corporation, or
-----
any successor thereto.
2.13 "Executive Officer" shall mean an executive officer of DWD within the
-------------------
meaning of Rule 3b-7 promulgated under the Act.
2.14 "Fair Market Value" shall mean, with respect to a share of Stock, the fair
-------------------
market value thereof as determined by the Committee as follows:
(a) if Stock is listed for trading on the New York Stock Exchange, the
closing price, regular way, of the Stock as reported on the New York Stock
Exchange Composite Tape on the date of reference or, if no such reported sale of
the Stock shall have occurred on such date, on the next preceding date on which
there was such a reported sale; or
2
<PAGE>
(b) if Stock is not so listed but is listed on another national securities
exchange or authorized for quotation on the National Association of Securities
Dealers Inc.'s NASDAQ National Market System ("NNM"), the closing price, regular
way of the Stock on such date on such exchange or NNM, as the case may be, on
which the largest number of shares of Stock have been traded in the aggregate on
the preceding twenty trading days or, if no such reported sale of the Stock
shall have occurred on such date on such exchange or NNM, as the case may be, on
the preceding date on which there was such a reported sale on such exchange or
NNM, as the case may be; or
(c) if Stock is not listed for trading on a national securities exchange or
authorized for quotation on NNM, the average of the closing bid and asked prices
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if no such prices shall have been so reported for such
date, on the next preceding date for which such prices were so reported; or
(d) if no Fair Market Value may be determined from the foregoing, the value
of a share of Stock as determined in good faith by the Committee.
2.15 "Option" shall mean a right to acquire Stock.
--------
2.16 "Participant" shall mean an individual who has been granted an Award
-------------
under the Plan.
2.17 "Plan" shall mean the Dean Witter, Discover & Co. Employees' Equity
------
Accumulation Plan, as amended from time to time.
2.18 "Related Employment" shall mean the employment of an individual by an
--------------------
employer other than the Company, provided:
(a) such employment is undertaken by the individual at the request or with
the consent of the Company;
(b) immediately prior to undertaking such employment the individual was an
employee of the Company, or was engaged in Related Employment as defined herein;
and
(c) such employment is recognized by the Committee, in its discretion, as
Related Employment.
2.19 "Restricted Stock" shall mean an Award of Stock subject to conditions
-----------------
determined by the Committee pursuant to Section 8.
2.20 "Restricted Stock Unit" shall mean an Award of Stock Units subject to
----------------------
conditions determined by the Committee pursuant to Section 8.
2.21 "Retirement" shall mean the termination of employment with the Company
------------
under circumstances giving rise to an entitlement to a retirement benefit,
including a benefit payable by reason of Disability, under any employee pension
benefit plan maintained by the Company which plan is intended to be qualified
under Code section 401(a), provided, however, that, if the Participant has not
accrued a benefit under any such pension plan, the term "Retirement" shall have
the meaning given
3
<PAGE>
to such term under the Dean Witter Reynolds Inc. Pension Plan or any successor
thereto; provided further, that, notwithstanding the foregoing, the transfer of
an individual to Related Employment shall not be treated as a termination of
employment due to Retirement.
2.22 "Rule 16b-3" shall mean Rule 16b-3 under the Act and any successor
-----------
provision thereto.
2.23 "SAR" shall mean a stock appreciation right as described in Section 7.3.
-----
2.24 "SEC" shall mean the U.S. Securities and Exchange Commission, or any
-----
United States federal governmental body that succeeds to its responsibilities.
2.25 "Section 162(m) Award" shall mean an Award described in Section 6.2.
----------------------
2.26 "Stock" shall mean the common stock of DWD, par value $.01 per share, and
-------
any stock into which such stock is transformed as a result of a corporate
reorganization or other transaction.
2.27 "Stock Unit" shall mean a general, unsecured obligation of the Company to
------------
deliver one share of Stock (or the value thereof) to a Participant pursuant to
an Award recorded by the Company as a bookkeeping entry.
SECTION 3 ADMINISTRATION.
- ---------------------------
3.1 The Plan shall be administered by the Committee. It is intended that the
directors appointed to serve on the Committee shall qualify (i) as "non-employee
directors" (within the meaning of Rule 16b-3), (ii) as "outside directors"
(within the meaning of Code section 162(m) and the regulations thereunder) and
(iii) under any similar statute or rule; in each case to the extent applicable.
The fact that a Committee member shall fail to qualify under any of these
requirements shall not invalidate any Award made by the Committee which Award is
otherwise validly made under the Plan.
3.2 The Committee shall have the authority:
(i) to exercise all of the powers granted to it under the Plan,
(ii) to construe, interpret and implement the Plan and any written
documents setting forth Awards under the Plan,
(iii) to prescribe, amend and rescind rules relating to the Plan,
(iv) to make any determination necessary or advisable in admini-
stering the Plan,
(v) to correct any defect, supply any omission and reconcile any
inconsistency in the Plan or in any Award made under the Plan.
(vi) to delegate any of its powers to DWD's chief executive
officer except with respect to any person subject to the provisions
4
<PAGE>
of Section 16 of the Act, with respect to a Section 162(m) Award
or which by law may not be so delegated.
3.3 The determination of the Committee on all matters relating to the Plan or
any Award made under the Plan shall be final, binding and conclusive for all
purposes and upon all persons interested herein.
3.4 No member of the Committee shall be liable, individually or jointly and
severally with any other Committee member, for any action, determination or
omission made in good faith with respect to the Plan or any Award hereunder. In
the performance of their duties hereunder, Committee members shall be entitled
to rely upon information and advice furnished: (a) by the Company and its
officers, directors, employees, accountants, counsel and consultants; (b) by
Participants and their heirs, assigns and representatives; and (c) by any other
party whose information or advice is determined by the Committee to be
reasonable and necessary for the administration of the Plan.
3.5 The members of the Committee shall be appointed by, and serve at the
pleasure of, the Board. Notwithstanding anything to the contrary contained
herein, the Board may, in its sole discretion, at any time and from time to
time, resolve to administer the Plan, in which case, the term Committee as used
herein shall be deemed to refer to the Board.
SECTION 4 SHARES AVAILABLE FOR AWARDS.
- --------------------------------------
4.1 Subject to Section 10.4 (relating to adjustments upon changes in
capitalization), as of any date, the total number of shares of Stock with
respect to which Awards may be granted under the Plan, shall equal :
(a) 30,000,000 shares;
(b) reduced by the sum (without duplication) of:
(i) the number of shares of Stock subject to outstanding Awards;
(ii) the number of shares of Stock in respect of which Awards
have been exercised;
(iii) the number of shares of Stock issued without forfeiture or
similar restrictions or issued with forfeiture or similar restrictions
which have lapsed;
(c) increased by the sum of:
(i) shares of Stock subject to previously granted Awards that have
expired, terminated, been canceled or forfeited for any reason (other
than by reason of exercise or vesting);
(ii) shares of Stock delivered or withheld (or deliverable or
5
<PAGE>
required to be withheld as a condition of exercise of an Award) in
payment of the exercise or purchase price of an Award granted
under the Plan or under any other employee benefit plan of the
Company.
4.2 Without limiting the generality of the foregoing, the Committee may cancel
any Award under the Plan and issue a new Award in substitution therefor upon
such terms as the Committee may in its sole discretion determine, provided that
the substituted Award shall satisfy all applicable Plan requirements as of the
date such new Award is made. Notwithstanding the foregoing or any other
provision of the Plan, in no event shall an Option or SAR be granted in
substitution for a previously granted Option or SAR with the old Award being
canceled or surrendered as a condition of receiving the new Award, if the new
Award would have a lower Option exercise price or SAR appreciation base than the
Award it replaces. The foregoing is not intended to prevent equitable adjustment
of Awards upon the occurrence of certain events as herein provided, including
without limitation, adjustments pursuant to Section 10.4.
SECTION 5 PERSONS ELIGIBLE FOR AWARDS.
- --------------------------------------
Subject to Section 6.2(a), Awards under the Plan may be made to such
employees of the Company as the Committee shall from time to time, in its sole
discretion, select.
SECTION 6 TYPES OF AWARDS UNDER THE PLAN.
- -----------------------------------------
6.1 In General.
-----------
Awards may be made under the Plan in the form of:
(i) Options,
(ii) SARs,
(iii) Restricted Stock or Restricted Stock Units,
(iv) Other Stock-based Awards,
(v) Section 162(m) Awards; or
(vi) any other type of Award deemed by the Committee in its
discretion to be consistent with the purposes of the Plan, including
but not limited to Awards granted in connection with or in lieu of
awards or payments under any other employee benefit plan or
compensation arrangement of the Company (other than a plan
qualified under Code Section 401(a) or an excess benefit plan
related to a plan qualified under Section 401(a)) and Awards made
to eligible employees who are foreign nationals or are employed
outside the United States.
6
<PAGE>
6.2 Section 162(m) Awards.
----------------------
In the discretion of the Committee, any Award made under the Plan may be
designated a Section 162(m) Award. A Section 162(m) Award is an Award under
which all payments are intended to constitute qualified performance-based
compensation which, if recognized by persons with respect to whom the limits on
deductibility of Code section 162(m) apply (generally, DWD's chief executive
officer and four other highest-paid Executive Officers, hereafter referred to as
the "162(m) Covered Employees"), would be excluded from the Section 162(m) limit
on deductibility. Section 162(m) Awards shall consist of Awards that will vest,
become exercisable, cause the delivery of Stock, result in the payment of Cash
or serve as the basis for one or more other Awards under the Plan, upon the
attainment of one or more objective performance goals established by the
Committee at a time described in Section 6.2(c) below. An objective performance
goal shall be based upon one or more of the business criteria described in
Section 6.2(b) below. Section 162(m) Awards may also consist of Options and SARs
granted with a per share exercise price or appreciation base, as the case may
be, not less than the Fair Market Value of a share of Stock on the grant date
subject to the limit set forth in 7.8 below, whether or not the vesting or
exercisability of such Options and SARs is also subject to the attainment of one
or more performance goals. Notwithstanding anything to the contrary provided
herein, (i) an Award not designated a Section 162(m) Award may nevertheless be
intended to generate compensation deductible under Code section 162(m) and (ii)
unless an applicable Award Certificate otherwise provides, the failure of a
Section 162(m) Award to meet the requirements of Code section 162(m) shall not
invalidate such Award, provided it was otherwise properly granted under the
Plan.
(a) All Executive Officers and other members of the Company's senior
management group shall be eligible to receive Section 162(m) Awards under the
Plan.
(b) For purposes of Awards under this Section 6.2, performance goals shall
be based upon one or more of the following business criteria:
(i) earnings per share;
(ii) Stock price per share;
(iii) return on average equity, assets or investments;
(iv) pre-tax income;
(v) net revenue;
(vi) net income;
(vii) book value per share;
(viii) earnings available to Stockholders;
(ix) market share;
(x) operating income;
7
<PAGE>
(xi) cash flow;
(xii) number of credit cardholders or any group of cardholders
identified by geographic area, income, trade or occupation;
(xiii) number of merchants or any group of merchants identified by
geographic area, industry or trade, accepting the Company's
proprietary or general purpose credit cards or both;
(xiv) assets under management and administration; and
(xv) number or value of managed loans.
(c) The Committee shall, not later than 90 days after the start of the
period of service to which the performance goal(s) relate(s) (or, if such period
is less than a year, the first 25% of such period) and at a time when the
attainment of such goal(s) is substantially uncertain:
(i) identify the Executive Officers and/or any other senior
management employees who will receive Section 162(m) Awards for such
measuring period;
(ii) select one or more business criteria from among those listed in
Section 6.2(b) above upon which performance goal(s) will be based;
(iii) determine the length of the measuring period;
(iv) determine the terms and conditions of the Awards underlying the
Section 162(m) Awards;
(v) establish the various objective thresholds and targets that
constitute the performance goals and the amounts that shall be paid to
each Participant on attainment of such performance goals, which
amounts may be denominated in Stock, Stock Units, Cash or Cash Units;
and
(vi) make such other determinations deemed by the Committee to be
necessary or advisable to ensure compliance with Code Section 162(m)
in connection with the granting of a Section 162(m) Award.
(d) In making the determinations described in (c) above, the Committee may
specify that a Section 162(m ) Award will vest, become exercisable or be paid if
the applicable target is achieved for one performance goal, for any one of a
number of performance goals or for more than one performance goal. The Committee
may also provide that a Section 162(m) Award will vest, become exercisable or be
paid in full only upon the attainment of a specified performance goal or goals
or vest, become exercisable or be paid in varying percentages or amounts based
upon different levels of
8
<PAGE>
achievement of the applicable performance goal or goals. Performance goals can
be based on one or more business criteria that apply to the eligible employee, a
business segment or the Company as a whole. The Committee may establish
different performance goals for each Section 162(m) Award or may use the same
goals for more than one Award and may establish different objective thresholds
and targets for one or more eligible employees resulting in different payments
under each such Award.
(e) After the end of each measuring period, the Committee shall certify, in
writing, the performance results under each Section 162(m) Award (other than
Options or SARs granted with a per share exercise price or appreciation base, as
the case may be, not less than the Fair Market Value of a share of Stock) made
for such period and determine the amount of Stock, Stock Units, Cash or Cash
Units available to vest, become exercisable or be delivered or paid under each
such Award. The Committee may, in its sole discretion, cause the delivery or
payment of the amounts so determined, or reduce such amounts based on such
factors as may be determined by the Committee, including a determination that
such reduction is appropriate based upon:
(i) the pay practices of competitors;
(ii) the Company's or a business segment's (A) performance
relative to competitors, (B) performance with respect to strategic
business goals, (C) performance with respect to the business plan or
(D) achievement of market share goals; or
(iii) a Participant's individual performance.
With respect to any Participant granted a Section 162(m) Award who the
Committee determines is not or will not be a 162(m) Covered Employee in the
calendar year in which such Participant receives or is scheduled to receive
compensation under such Section 162(m) Award, the Committee may determine to
make an Award under the Plan or under any other plan or arrangement of the
Company in excess of, in addition to, or in lieu of such Section 162(m) Award.
(f) The Committee, in its sole discretion, may make Section 162(m) Awards
that are not valued, in whole or part, by reference to, or otherwise based on,
the Fair Market Value of Stock ("Cash-based Section 162(m) Awards"). Under the
procedures and subject to the terms and conditions described in Section 6.2(a)-
(e), Cash-based Section 162(m) Awards shall be awarded in such amounts and paid
pursuant to such terms and conditions as shall be determined by the Committee,
including but not limited to such business criteria, performance-based goals and
other conditions as shall be intended to assure that payments made under a Cash-
based Section 162(m) Award shall be qualified performance-based compensation
within the meaning of Code section 162(m).
(g) Notwithstanding anything else contained herein, in any calendar year
the maximum number of shares of Stock (or the equivalent value thereof) a
Participant may be awarded under a Section 162(m) Award other than an Option,
SAR or Cash-based Section 162(m) Award, shall be 100,000 shares multiplied by
the number of years in the relevant measuring period but in no event more than
500,000 shares, subject to adjustment under Section 10.4. The maximum value a
Participant may receive, in any calendar year, under a Cash-based Section 162(m)
Award shall be $2,000,000 multiplied by the number of years in the relevant
measuring period but in no event more than $10,000,000. The maximum number of
shares of Stock underlying Options or SARs awarded to any
9
<PAGE>
individual under the Plan, including Options and SARs that are Section 162(m)
Awards, shall not exceed the limit set forth in Section 7.8.
6.3 Award Certificates. The terms and conditions of all Options, SARs and
-------------------
Section 162(m) Awards shall be set forth in Award Certificates. Other Awards
granted under the Plan shall be evidenced by Award Certificates to the extent
deemed necessary or desirable by the Committee. An Award Certificate shall be
executed by an officer of the Company authorized by the Committee. A copy of the
Award Certificate, if any, shall be delivered to the Participant as soon as
practicable after the grant of an Award. The Committee may, in its sole
discretion, require a Participant to execute and return a copy of the Award
Certificate to the Company as a condition of receiving payment on account of an
Award.
6.4 Awards may be granted alone or in conjunction with one or more other
Awards, provided that Options intended to qualify as incentive stock options
shall only be granted in compliance with Section 7.1 and applicable provisions
of the Code.
6.5 In granting an Award, including, without limitation, a Section 162(m)
Award, the Committee may provide that, irrespective of whether an Award is
denominated, in whole or in part, by reference to shares of Stock, an Award may
be paid at the election of the Committee or, if permitted by the Committee, the
Participant, in whole or in part, in Stock, Stock Units, Cash, Cash Units or
other Awards.
6.6 Awards under the Plan, including, without limitation, Section 162(m)
Awards, may, in the discretion of the Committee, be made in substitution, in
whole or in part, for Cash or other compensation that would otherwise become
payable to an eligible individual. An Award Certificate may provide that an
eligible individual may elect to receive one form of Award permitted under the
Plan in lieu of any other form of Award, or may elect to receive an Award under
the Plan in lieu of all or part of any compensation which otherwise might have
been paid to such eligible individual, provided however, that any such election
shall not require the Committee to make any Award to such eligible individual.
Any such substitute or elective Awards shall have terms and conditions
consistent with the provisions of the Plan applicable to such Award.
6.7 With respect to any dividend or distribution on shares of Stock
corresponding to an Award other than an Option or a SAR, the Committee may, in
its discretion, authorize current or deferred payments (payable in Cash or Stock
or a combination thereof) or appropriate adjustments to the outstanding Award to
reflect such dividend or distribution, including the reinvestment of dividends
into additional shares of Stock or Stock Units, provided, however, that non-Cash
(i.e., property) dividends received with respect to Stock or Stock Units shall
be subject to the same restrictions, vesting and earnout rules as the underlying
Award.
6.8 Deferred Compensation.
-----------------------
(a) Plan Awards. The Committee may, in an Award Certificate or by
------------
appropriate action at any time before an Award is vested, paid or exercised, or,
subject to the approval of the Committee, give Participants the opportunity to
defer the payment or settlement of the Award in accordance with procedures
specified by the Committee. The Committee shall have the right at any time to
accelerate
10
<PAGE>
the payment or settlement of any Award granted under the Plan, including,
without limitation, any Award subject to a prior deferral election, provided,
however, that the amount payable on account of such Award may be discounted to
reflect the time value of the accelerated payment. The Committee may provide
that a Participant exercising an Option other than an incentive stock option may
defer the compensation to be received upon such exercise provided that the
Participant pays the exercise price by tendering shares of Stock held by the
Participant for at least 6 months or such other period of time as may be
determined by the Committee as necessary to avoid a charge to the Company's
earnings for financial statement purposes.
(b) Other Deferred Compensation. The Committee shall determine whether or
----------------------------
not an Award shall be made in conjunction with deferral of a Participant's
salary, bonus or other compensation, or any combination thereof and whether or
not such deferred amounts may be:
(i) forfeited to the Company or, in the case of Awards other
than Section 162(m) Awards, other Participants, or any combina-
tion thereof under certain circumstances (which may include but
need not be limited to, certain types of termination of employ-
met or performance of services for the Company); and/or
(ii) subject to increase or decrease in value based upon the
attainment of, or failure to attain, respectively, certain performance
measures.
6.9 Unfunded Status of Plan.
------------------------
The Plan is intended to constitute an "unfunded and unsecured" plan for
incentive compensation. With respect to any payments in either Cash, Stock that
is not Restricted Stock or other property, not yet made to a Participant by the
Company, nothing herein contained shall give any Participant any rights that are
greater than those of a general, unsecured creditor of the Company. In its sole
discretion, the Committee may set aside assets (in trust or otherwise) to assist
the Company in meeting its obligations under the Plan (either alone or in
conjunction with one or more other compensation plans); provided however, that
the existence of such trusts or other arrangements shall be consistent with the
unfunded status of the Plan.
SECTION 7 OPTIONS AND SARS.
- ---------------------------
7.1 Options.
--------
(a) Subject to Sections 7.8 and 7.9, the Committee may grant Options in
such amounts and subject to such conditions as the Committee shall from time to
time in its sole discretion determine, subject to the terms of the Plan. Such
terms and conditions may include, but shall not be limited to, restrictions on
the transferability and the forfeiture of Stock acquired by a Participant upon
the exercise of an Option. Unless the applicable Award Certificate provides
otherwise, no Option may be sold, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of by the Participant.
11
<PAGE>
(b) Each Award Certificate relating to an Option shall specify whether the
Option is a non-qualified stock option, is intended to be an incentive stock
option described in Code section 422 or is intended to be any other type of
option that may be described in the Code. No Option shall be treated as an
incentive stock or other tax-qualified option unless the Award Certificate
specifically states that the Award is intended to be an incentive stock option
or other tax-qualified option.
(c) In the case of incentive stock options, the terms and conditions of
any such grant shall be subject to and comply with the requirements of Code
sections 421, 422 and 424, any regulations thereunder and any successors
thereto, including, but not limited to, the requirement that such Options be
exercisable during the participant's lifetime only by the Participant, that no
such Option shall be granted more than ten years after the date the Board adopts
the Plan nor exercisable more than ten years after the date of grant. In no
event shall incentive stock options be granted under the Plan in respect of more
than 20,000,000 shares of Stock, subject to adjustment under Section 10.4. If an
Option is intended to be an incentive stock option and if, for any reason, such
option shall fail to so qualify as an incentive stock option, such option shall
be considered to be a nonqualified stock option appropriately granted under the
Plan, to the extent such option meets the Plan's requirements applicable to
nonqualified stock options.
7.2 Restoration Option Rights.
--------------------------
(a) Subject to Sections 7.8 and 7.9, the Committee may grant to a
Participant, as a feature of an Option (under this Plan) or separately in
connection with an option under any other plan of the Company (in either case,
an "Original Option") a right to acquire Stock (a "Restoration Option Right")
pursuant to which a Participant who pays the exercise price of the Original
Option by tendering shares of Stock shall automatically be granted an option (a
"Restoration Option") to acquire a number of shares of Stock equal to the sum
of: (i) the number of shares tendered by the Participant to pay the exercise
price; and (ii) the number of shares tendered by the Participant or, pursuant to
the Participant's exercise of a tax withholding right described in Section
10.3(b)(ii), withheld by the Company from the shares being acquired upon the
exercise of the Original Option to pay income or other taxes required to be
withheld from the Participant's compensation as a result of the exercise of the
Original Option.
(b) The Committee may grant Restoration Option Rights in connection with
an Original Option at the time the Original Option is granted or at any later
time on or before the date on which the Original Option is exercised.
(c) The Committee may, in its discretion, provide in an Award Certificate
that a Restoration Option shall not be granted or, if granted, shall not become
exercisable, unless the Fair Market Value of a share of Stock shall, on the date
of such grant or exercise, be equal to or exceed a minimum amount determined by
the Committee.
(d) The Restoration Option exercise price shall not be less than the Fair
Market Value of a share of Stock on the Original Option's exercise date.
Restoration Options shall be subject to the terms and provisions contained in
the Plan and such other terms, conditions and limitations as the Committee shall
determine from time to time regarding the exercisability, forfeiture, payment
provisions and other features of Restoration Options. All Restoration Options
shall expire not later
12
<PAGE>
than the expiration date of the Original Option with respect to which the
Restoration Option was granted.
7.3 SARs.
-----
(a) Related SARs. Subject to Sections 7.8 and 7.9, the Committee may
----------------
grant a SAR in connection with all or any part of an Option granted under the
Plan (a "Related SAR"), either at the time the related Option is granted or any
time thereafter prior to the exercise, termination or cancellation of such
Option, and subject to such terms and conditions as the Committee shall from
time to time in its sole discretion determine, subject to the terms of the Plan.
The grantee of a Related SAR shall, subject to the terms of the Plan and the
applicable Award Certificate, have the right to surrender to the Company for
cancellation all or a portion of the related SAR granted under the Plan, but
only to the extent that such related Option is then exercisable, and to be paid
therefor an amount equal to the excess (if any) of :
(i) the aggregate Fair Market Value of the shares of Stock
subject to the related Option or portion thereof (determined as
of the date of exercise of such Related SAR), over
(ii) the aggregate exercise price of the related Option or
portion thereof.
(b) Unrelated SARs. Subject to Sections 7.8 and 7.9, the Committee may
--------------
grant a SAR that is not connected with an Option (an "Unrelated SAR") in such
amount and subject to such terms and conditions as the Committee shall from time
to time in its sole discretion determine, subject to the terms of the Plan. The
grantee of an Unrelated SAR shall, subject to the terms of the Plan and the
applicable Award Certificate, have the right to surrender to the Company for
cancellation all or a portion of such SAR, but only to the extent that such SAR
is then exercisable, and to be paid therefor an amount equal to the excess (if
any) of:
(i) the aggregate Fair Market Value of the shares of Stock
underlying such SAR or portion thereof (determined as of the date
of exercise of such SAR) over,
(ii) the aggregate appreciation base of the shares of Stock underlying
such SAR or portion thereof.
(c) Payment due to a Participant upon exercise of a SAR shall be made in
Cash, Cash Units, Stock or Stock Units (Stock or Stock Units to be valued at the
Fair Market Value thereof as of the date of exercise), currently or deferred
under Section 6.8, as determined by the Committee in its sole discretion
consistent with the relevant Award Certificate and the Plan.
7.4 Exercise of Related SAR Reduces Shares Subject to Option.
--------------------------------------------------------
Upon any exercise of a Related SAR, or any portion thereof, the number of
shares of Stock subject to the related Option shall be reduced by the number of
shares of Stock in respect of which the Related SAR shall have been exercised.
13
<PAGE>
7.5 Exercisability of Options and SARs. Subject to the other provisions of the
-----------------------------------
Plan:
(a) Exercisability Determined by Award Certificate. Each Award Certificate
----------------------------------------------
shall set forth the period during which and the conditions subject to which the
Option or SAR evidenced thereby shall be exercisable, as determined by the
Committee in its discretion, provided, however, that no Option or SAR shall be
exercisable until twelve months following the grant date thereof, except in the
case of the Participant's death and excluding Restoration Options, and no Option
shall be exercisable until twelve months following a hardship distribution from
any plan of the Company subject to Treasury Regulations (S)1.401(k)-
1(d)(2)(iv)(B)(4) or any successor provision.
(b) Exercise of Related SAR. Unless the applicable Award Certificate
-----------------------
otherwise provides, a Related SAR shall be exercisable at any time during the
period that the related Option may be exercised.
(c) Partial Exercise Permitted. Unless the applicable Award Certificate
--------------------------
otherwise provides, an Option or SAR granted under the Plan may be exercised
from time to time as to all or part of the full number of shares as to which
such Option or SAR shall then be exercisable.
(d) Notice of Exercise; Exercise Date.
----------------------------------
(i) An Option or SAR shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and
in such manner as the Committee shall in its sole discretion pre-
scribe, and, in the case of an Option, by payment in accordance
with Section 7.6.
(ii) Unless the applicable Award Certificate otherwise provides,
or the Committee in its sole discretion otherwise determines, the
date of exercise of an Option or SAR shall be the date the Company
receives such written notice of exercise and payment.
7.6 Payment of Option Price.
------------------------
(a) Tender Due Upon Notice of Exercise. Unless the applicable Award
----------------------------------
Certificate otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an Option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the Option exercise price shall be made
-----------------
in any combination of the following:
(i) by certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the
Committee);
(ii) by personal check (subject to collection), which may
14
<PAGE>
in the Committee's discretion be deemed conditional;
(iii) if and to the extent authorized by the Committee, by
delivery of previously acquired shares of Stock owned by
the Participant for such period of time as may be required
to avoid a charge to the Company's earnings for financial
statement purposes (as determined by the Committee)
having a Fair Market Value (determined as of the Option
exercise date) equal to the portion of the Option exercise
price being paid thereby, provided that the Committee may
require the Participant to furnish an opinion of counsel accept-
able to the Committee to the effect that such delivery would not
result in the Participant incurring any liability under Section 16
of the Act and does not require any Consent; and
(iv) if and to the extent authorized by the Committee, by delivery
to the Company of an assignment of a sufficient amount of the
proceeds from the sale of Stock acquired upon exercise to pay
for all of the Stock acquired upon exercise and an authorization to
the broker or selling agent to pay that amount to the Company,
which sale shall be made at the Participant's direction at the time
of exercise, provided that the Committee may require the Parti-
cipant to furnish an opinion of counsel acceptable to the Commit-
tee to the effect that such delivery would not result in the Parti-
cipant incurring any liability under Section 16 of the Act and does
not require any Consent.
(c) Issuance of Shares. As soon as practicable after receipt of full
------------------
payment, the Company shall, subject to the provisions of Section 10.2, deliver
to the Participant one or more certificates for the shares of Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with the terms of the relevant Award Certificate, the Plan and
applicable securities laws, rules and regulations or otherwise, provided,
however, that in the event compensation received as a result of an Option
exercise is deferred pursuant to Section 6.8, such delivery shall take place as
soon as practicable following the end of the relevant deferral period.
7.7 Proof of Beneficial Ownership. Wherever in this Plan or any Award
------------------------------
Certificate a Participant is permitted to pay the exercise price of an Award or
taxes relating to the exercise of an Award by delivering shares of Stock, the
Participant may, subject to procedures satisfactory to the Committee, satisfy
such delivery requirement by presenting proof of beneficial ownership of such
shares of Stock, in which case the Company shall treat the Award as exercised
without further payment and shall withhold such number of shares from the shares
acquired by the exercise of the Award (or if the Award is paid in Cash, Cash in
an amount equal to the Fair Market Value of such shares).
15
<PAGE>
7.8 Maximum Number of Shares Subject to Awards
------------------------------------------
Grants of Options and SARs to any Participant in any five consecutive
calendar years may not be made with respect to more than 3,000,000 shares of
Stock, subject to adjustment under Section 10.4.
7.9 Exercise Price and Expiration Date
----------------------------------
No Option or SAR shall be granted hereunder at an exercise or base
appreciation price, as the case may be, lower than 100% of the Fair Market Value
of a share of Stock on the grant date thereof and no Option or SAR granted
hereunder shall remain exercisable for more than 10 years after the grant date
thereof.
SECTION 8 RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS.
- ------------------------------------------------------------
8.1 Grant of Awards.
---------------
The Committee may grant Restricted Stock or Restricted Stock Unit Awards,
alone or in tandem with other Award made under the Plan or made under any other
plan or arrangement of the Company, in such amounts and subject to such terms
and conditions as the Committee shall from time to time in its sole discretion
determine and set forth in an Award Certificate; provided, however, that no
Award of Restricted Stock or Restricted Stock Units shall vest less than one
year after the grant date thereof; and provided further, that the total number
of shares of Stock with respect to which the aggregate number of shares covered
by Awards made to all Participants under Sections 8 and 9 of the Plan which may
vest shall not exceed 10,000,000, subject to adjustment under Section 10.4. The
vesting of a Restricted Stock or Restricted Stock Unit Award granted under the
Plan may be conditioned upon (i) the completion of a specified period of
employment with the Company, (ii) the attainment of specified performance goals
including but not limited to such performance goals as would qualify the
Restricted Stock or Restricted Stock Unit Award as a Section 162(m) Award under
Section 6.2, and/or (iii) such other criteria as the Committee may determine in
its sole discretion. The forfeiture of a Restricted Stock or Restricted Stock
Unit Award shall be governed by such terms and conditions as are set forth in
the Award Certificate.
8.2 Payment.
-------
Each Award Certificate with respect to a Restricted Stock or Restricted
Stock Unit Award shall set forth the amount (if any) to be paid by the
Participant with respect to such Award. If a Participant makes any payment to
the Company (other than for taxes) for a Restricted Stock or Restricted Stock
Unit Award which does not vest, a refund of such payment may be made to the
Participant following the forfeiture of such Award on such terms and conditions
as the Committee may determine. Any payment required to be made by a Participant
shall be made in a form described in Section 7.6(b).
8.3 Issuance of Shares.
------------------
The Committee may provide that one or more certificates or other evidence
of ownership representing Restricted Stock Awards shall be registered in the
Participant's name and bear an appropriate legend specifying that such shares
are not transferable and are subject to the terms and
16
<PAGE>
conditions of the Plan and the applicable Award Certificate, or that such
certificate or certificates shall be held in escrow by the Company on behalf of
the Participant until such shares vest or are forfeited, all on such terms and
conditions as the Committee may determine. Unless the applicable Award
Certificate otherwise provides, no share of Restricted Stock may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of by the Participant until such share has vested in accordance with the terms
of such Award. Subject to the provisions of Section 10.2, as soon as practicable
after any Restricted Stock Award becomes unrestricted the Company shall issue or
reissue to the Participant (or to the Participant's designated beneficiary in
the event of the Participant's death) one or more certificates for the Stock
represented by such Restricted Stock Award.
8.4 Participants' Rights Regarding Restricted Stock. Unless the applicable
-----------------------------------------------
Award Certificate otherwise provides: (i) a Participant may vote and receive
dividends on Restricted Stock awarded under the Plan; and (ii) any Stock
received as a distribution with respect to shares of Restricted Stock (or
credited to an Award of Restricted Stock Units) shall be subject to the same
restrictions as such shares of Restricted Stock (or Restricted Stock Units).
SECTION 9 OTHER STOCK-BASED AWARDS.
- -----------------------------------
9.1 The Committee may grant other Awards of Stock and Awards that are valued,
in whole or in part, by reference to, or are otherwise based on, the Fair Market
Value of Stock ("Other Stock-Based Awards") under such terms and conditions as
the Committee shall determine, provided, however, that that the total number of
shares of Stock with respect to which the aggregate of Awards under Sections 8
and 9 of the Plan may vest shall not exceed 10,000,000, subject to adjustment
under Section 10.4.
9.2 The Committee may grant Other Stock-Based Awards alone or in addition to
any other Awards made under the Plan or any other plan or arrangement of the
Company. Subject to the provisions of the Plan, the Committee shall have sole
and absolute discretion to determine to whom and when such Other Stock-Based
Awards will be made, the number of shares of Stock to be Awarded under (or
otherwise related to) such Other Stock-Based Awards and all other terms and
conditions of such Awards. The Committee shall determine whether Other Stock-
Based Awards shall be denominated in Stock, Stock Units, Cash, Cash Units or a
combination thereof, or settled on a deferred basis pursuant to Section 6.8. The
Committee may, in its discretion, impose such performance goals or other
conditions upon an Other Stock-Based Award as shall qualify it as a Section
162(m) Award under Section 6.2.
9.3 Unless the applicable Award Certificate otherwise provides, a Participant
may vote and receive dividends on Other Stock-Based Awards awarded under the
Plan.
17
<PAGE>
SECTION 10 MISCELLANEOUS.
- -------------------------
10.1 Amendment of the Plan; Modification of Awards.
----------------------------------------------
(a) Amendments to the Plan. The Board may amend, alter, suspend,
----------------------
discontinue or terminate the Plan, or any portion thereof, at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval to the extent such approval is
necessary to comply with any tax or regulatory requirement, including but not
limited to any approval requirement which is a prerequisite for exemptive relief
from Section 16(b) of the Act, necessary to qualify Awards granted hereunder as
performance based compensation for purposes of Code section 162(m) or necessary
to satisfy listing or other requirements of any self-regulatory organization
(provided that the Company is subject to the requirements of Section 16 of the
Act, Code Section 162(m) or the jurisdiction of such self-regulatory
organization, as the case may be, as of the date of such action). No amendment
to the Plan shall impair any rights under an Award without the consent of the
affected Participant.
(b) Award Modifications. Subject to the terms and conditions of the Plan
-------------------
(including Section 10.1(a)), the Committee may amend outstanding Award
Certificates including, without limitation, any amendment which would:
(i) accelerate the time or times at which an Award may vest or
become exercisable; and/or
(ii) extend the scheduled termination or expiration date of the Award,
provided, however, that no modification having a material adverse
effect upon the interest of a Participant in an Award shall be made
without the consent of such Participant.
10.2 Consent Requirements.
--------------------
If the Committee shall at any time determine that any Consent is necessary
or desirable as a condition of, or in connection with, the granting of any Award
under the Plan, the acquisition, issuance or purchase of Stock or other rights
hereunder or the taking of any other action hereunder (each such action being
hereinafter referred to as a "Plan Action"), then such Plan Action shall not be
taken, in whole or in part, unless and until such Consent shall have been
effected or obtained to the full satisfaction of the Committee.
10.3 Withholding Taxes.
------------------
(a) Whenever under the Plan shares of Stock are to be delivered pursuant to
an Award, the Committee may require as a condition of delivery that the
Participant remit to the Company an amount sufficient to enable the Company to
satisfy all federal, state and other governmental withholding tax requirements
related thereto. Whenever Cash is to be paid under the Plan (whether upon the
exercise of a SAR or otherwise), the Company may, as a condition of its payment,
deduct therefrom, or from any salary or other payments due to the Participant,
an amount sufficient to enable the Company to satisfy all federal, state and
other governmental withholding tax requirements related thereto or to the
delivery of any shares of Stock under the Plan.
18
<PAGE>
(b) Without limiting the generality of the foregoing, if authorized by the
Committee:
(i) a Participant may elect to satisfy all or part of the
foregoing withholding requirements by delivery of unrestricted shares
of Stock owned by the Participant for such period of time as may be
required to avoid a charge to the Company's earnings for financial
statement purposes (as determined by the Committee) having a Fair
Market Value (determined as of the date of such delivery by the
Participant) equal to all or part of the amount to be so withheld,
provided that the Committee may require, as a condition of accepting
any such delivery, the Participant to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery would not
result in the Participant incurring any liability under Section 16(b)
of the Act and does not require any Consent; and
(ii) the Committee may, from time to time and upon such
terms and conditions as it may in its discretion determine, grant
rights ("tax withholding rights") under the Plan to have the
Company withhold from the receipt of proceeds on the settlement
or exercise of any Award a number of shares of Stock of sufficient
Fair Market Value to pay the amount of taxes the Company is
required to collect or withhold on the settlement or exercise
of the Award. Tax withholding rights shall be exercised simulta-
neously with the exercise or receipt of an Award, giving rise to a
tax withholding obligation. Shares of Stock withheld shall be
deemed to have been delivered to the Company on the exercise or
Award date, as appropriate.
10.4 Adjustments Upon Changes in Capitalization.
------------------------------------------
If and to the extent specified by the Committee, the number of shares of
Stock which may be issued pursuant to Awards under the Plan, the maximum number
of Options and/or unrelated SARs which may be granted to any one person in any
period, the maximum number of shares of Stock with respect to which the
aggregate of Awards made under Sections 8 and 9 may vest, the number of shares
of Stock that may be subject to incentive stock options, the number of shares of
Stock subject to Awards, the exercise price and appreciation base of Options and
SARs granted under the Plan, the maximum number of shares of Stock which may be
paid pursuant to a Section 162(m) Award, the amount payable by a Participant in
respect of an Award and any appropriate feature of any Other Stock-Based Award
shall be appropriately adjusted (as the Committee may determine) for any change
in the number of issued shares of Stock resulting from the subdivision or
combination of shares of Stock or other capital adjustments, or the payment of a
stock dividend after the effective date of the Plan, or other change in such
shares of Stock effected without receipt of consideration by the Company;
provided that any Awards covering fractional shares of Stock resulting from any
such adjustment shall be eliminated and provided further, that no Option granted
under the Plan shall be adjusted in a manner that causes such Option to fail to
continue to qualify as an "incentive stock option" within the meaning of Code
section 422 (and no
19
<PAGE>
Section 162(m) Award shall be adjusted pursuant to this Section 10.4 in a manner
that causes such Award to fail to meet the requirements of Code section 162(m)).
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
10.5 No Right of Employment or Continued Participation.
-------------------------------------------------
Nothing in the Plan or in any Award Certificate shall confer upon any
person the right to continue in the employment or other service of the Company
or a Subsidiary or affect any right which the Company may have to terminate the
employment or other service of such person. Nothing in the Plan shall confer
upon any person a claim or right to the grant of an Award.
10.6 No Rights as a Stockholder.
--------------------------
Except as otherwise provided in an applicable Award Certificate, no
Participant or other person shall have any of the rights of a stockholder of the
Company with respect to shares of Stock subject to an Award until the issuance
of a stock certificate to the Participant for such shares or, in the case of a
Restricted Stock Award granting dividend and/or voting rights to the
Participant, to the escrow agent, custodian or trustee designated to hold such
shares. Except as otherwise provided in an applicable Award Certificate or in
Section 10.4, or with respect to Restricted Stock, no adjustment shall be made
for dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in Cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued.
10.7 Nature of Payments.
-------------------
(a) Any and all Awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company by the Participant.
(b) All Awards and payments granted or made hereunder shall be considered
special incentive payments to the Participant. Except as specifically provided
in such plan or agreement, no Awards or payments shall be taken into account in
computing the Participant's salary or compensation for the purposes of
determining any benefits under any pension, retirement, life insurance or other
benefit plan of the Company or any agreement between the Company and the
Participant.
(c) By exercising or accepting payment of an Award under the Plan, the
Participant shall thereby waive any claim to continued exercise or vesting of an
Award or to damages or severance entitlement related to non-continuation of the
Award beyond the period provided herein or in the applicable Award Certificate,
notwithstanding any contrary provision in any written employment contract with
the Participant, whether any such contract is executed before or after the grant
date of the Award.
20
<PAGE>
10.8 Non-Uniform Determinations.
--------------------------
Except for adjustments pursuant to Section 10.4, the Committee's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Awards under
the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Award Certificates, as to:
(a) the persons receiving Awards under the Plan, and
(b) the terms and provisions of Awards under the Plan.
10.9 Other Payments or Awards.
------------------------
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, or the Committee from making any Award or payment to any
person under any other plan, arrangement or understanding, whether now existing
or hereafter in effect.
10.10 Change in Control.
------------------
The Committee may, in its discretion, include in any Award Certificate a
provision pursuant to which the Award will become exercisable, vest, be paid,
have restrictions on the Stock underlying the Award removed, be canceled or
forfeited, be replaced or otherwise become subject to special vesting, exercise
and forfeiture rules upon the occurrence of a "change in control" (as defined by
the Committee from time to time).
10.11 Section Headings.
----------------
The section headings contained herein are for the purposes of convenience
only and are not intended to define or limit the contents of said sections.
10.12 Effective Date .
----------------
The Plan shall be deemed adopted and become effective upon the approval
thereof by the stockholders of DWD.
10.13 Governing Law.
-------------
The Plan shall be governed by the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such state.
10.14 Plan Expenses.
--------------
The expenses of the Plan shall be borne by the Company.
21
<PAGE>
10.15 Related Employment.
-------------------
The commencement of Related Employment by a Participant shall not be
treated, for purposes of the Plan and any Award hereunder, as a termination of
employment. The Retirement, Disability or death of an individual during a period
of Related Employment shall be treated, for purposes of the Plan and any Award
hereunder, as if such event had occurred while the individual was an employee of
the Company.
10.16 Arbitration.
------------
All claims and disputes between a Participant and the Company arising out
of the Plan or any Award granted hereunder shall be submitted to arbitration in
accordance with the then current arbitration policy of the Company. Notice of
demand for arbitration shall be given in writing to the other party and shall be
made within a reasonable time after the claim or dispute has arisen, but in no
event later than the end of the applicable limitation period under applicable
law. The Award rendered by the arbitrator shall be made in accordance with the
provisions of the Plan, shall be final and judgment may be entered upon it, in
accordance with applicable law in any court having jurisdiction thereof. The
provisions of this Section 10.16 shall be specifically enforceable under
applicable law in any court having jurisdiction thereof.
22
<PAGE>
EXHIBIT 11
DEAN WITTER, DISCOVER & CO.
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED
MARCH31,
------------------
1997 1996(1)
-------- --------
Net Income $ 276.3 $ 245.8
======== =======
Average common shares outstanding, excluding the
dilutive effects of stock options and unissued
stock awards 322.1 335.2
======== =======
Earnings per common share:
Primary dilution basis (2)
Earnings per common share $ 0.81 $ 0.71
======== =======
Average common shares outstanding 339.4 348.3
======== =======
Full dilution basis (3)
Earnings per common share $ 0.81 $ 0.70
======== =======
Average common shares outstanding 339.4 349.6
======== =======
(1) 1996 share and per share data have been restated to reflect the Company's
two-for-one stock split.
(2) Earnings per common share on a primary dilution basis for the three months
ended March 31, 1997 and 1996 was calculated using the weighted average
price per share of the Company's common stock during the period, and
included the dilutive effects of stock options and unissued stock awards
under deferred compensation plans.
(3) Earnings per common share on a full dilution basis for the three months
ended March 31, 1997 and 1996 was calculated using the greater of the
period-end price per share of the Company's common stock or the weighted
average price per share of the Company's common stock during the period and
included the dilutive effects of stock awards under deferred compensation
plans
<PAGE>
Exhibit 12
DEAN WITTER, DISCOVER & CO.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
Earnings
Income before income taxes $ 454.5 $ 400.4
Interest expense 414.9 390.7
Interest factor in rent expense 13.3 13.0
-------- --------
Total earnings $ 882.7 $ 804.1
======== ========
Fixed charges
Interest expense 414.9 390.7
Interest factor in rent expense 13.3 13.0
-------- --------
Total fixed charges $ 428.2 $ 403.7
======== ========
Ratio of earnings to fixed charges 2.1 2.0
======== ========
"Earnings" consist of income before income taxes and fixed charges. "Fixed
charges" consist of interest costs, including interest on deposits, and that
portion of rent expense estimated to be representative of the interest factor.
<PAGE>
EXHIBIT 15
To the Directors and Shareholders of
Dean Witter, Discover & Co.:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of Dean Witter, Discover & Co. and
subsidiaries as of March 31, 1997 and for the three month periods ended March
31, 1997 and 1996, as indicated in our report dated April 30, 1997; because we
did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated by reference in the following Registration Statements of Dean
Witter, Discover & Co.:
Filed on Form S-3:
Registration Statement No. 33-57202
Registration Statement No. 33-60734
Registration Statement No. 33-89748
Registration Statement No. 33-92172
Registration Statement No. 333-7947
Registration Statement No. 333-22409
Filed on Form S-4:
Registration Statement No. 333-25003
Filed on Form S-8:
Registration Statement No. 33-62374
Registration Statement No. 33-63024
Registration Statement No. 33-63026
Registration Statement No. 33-78038
Registration Statement No. 33-79516
Registration Statement No. 33-82240
Registration Statement No. 33-82242
Registration Statement No. 33-82244
Registration Statement No. 333-4212
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,185
<SECURITIES> 0
<RECEIVABLES> 25,688
<ALLOWANCES> 831
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 847
<DEPRECIATION> 466
<TOTAL-ASSETS> 42,260
<CURRENT-LIABILITIES> 0
<BONDS> 7,690
0
0
<COMMON> 3
<OTHER-SE> 5,457
<TOTAL-LIABILITY-AND-EQUITY> 42,260
<SALES> 0
<TOTAL-REVENUES> 2,444
<CGS> 0
<TOTAL-COSTS> 1,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 378
<INTEREST-EXPENSE> 415
<INCOME-PRETAX> 455
<INCOME-TAX> 178
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
