<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DEAN WITTER, DISCOVER & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6211; 6141; 7374 36-3145972
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OF INCORPORATION)CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHRISTINE A. EDWARDS
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
DEAN WITTER, DISCOVER & CO.
TWO WORLD TRADE CENTER
NEW YORK, NY 10048
(212) 392-2222
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
ALLEN FINKELSON JONATHAN M. CLARK FAITH D. JOHN R. ETTINGER
ROBERT A. KINDLER GENERAL COUNSEL GROSSNICKLE DAVIS POLK &
CRAVATH, SWAINE & AND SECRETARY SHEARMAN & WARDWELL 450
MOORE 825 EIGHTH MORGAN STANLEY STERLING 599 LEXINGTON AVENUE
AVENUE NEW YORK, GROUP INC. 1585 LEXINGTON AVENUE NEW YORK, NY 10017
NY 10019 (212) BROADWAY NEW YORK, NEW YORK, NY 10022 (212) 450-4000
474-1000 NY 10036 (212) (212) 848-4000
761-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger referred to herein (the "Merger").
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED(1) PER SECURITY(2) PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share(4)....................... 292,287,919 $36.44 $10,650,794,604 $3,227,513.52
- -----------------------------------------------------------------------------------------------------
ESOP Convertible Preferred
Stock.......................... 3,681,881 $35.875 $132,087,481 $40,026.51
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based on the maximum number of shares to be issued in connection with the
Merger, calculated as the product of (a) 177,144,193, the aggregate number
of shares of Morgan Stanley Group Inc. Common Stock, par value $1.00 per
share ("Morgan Stanley Common Stock") outstanding on April 4, 1997 (other
than shares owned by the Registrant) or issuable pursuant to employee
options prior to the date the Merger is expected to be consummated or upon
conversion of all outstanding shares of Morgan Stanley ESOP Convertible
Preferred Stock ("Morgan Stanley ESOP Preferred Stock") and (b) an
exchange ratio of 1.65 shares of Common Stock for each share of Morgan
Stanley Common Stock.
(2) Estimated solely for purpose of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"), and calculated pursuant to Rule 457 (f) under the Securities Act.
Pursuant to Rule 457(f)(1) under the Securities Act, the proposed maximum
aggregate offering price of the Common Stock was calculated in accordance
with Rule 457(c) under the Securities Act as: (a) $60.125, the average of
the high and low prices per share of Morgan Stanley Common Stock on April
4, 1997 as reported on the New York Stock Exchange Composite Transaction
Tape, multiplied by (b) 177,144,193, the aggregate number of shares of
Morgan Stanley Common Stock outstanding on April 4, 1997 or issuable
pursuant to outstanding employee options prior to the date the Merger is
expected to be consummated or upon conversion of all outstanding shares of
Morgan Stanley ESOP Preferred Stock. Pursuant to Rule 457(c)(2) under the
Securities Act, the proposed maximum aggregate offering price per share of
the ESOP Convertible Preferred Stock is based on the book value of the
Morgan Stanley ESOP Preferred Stock as of March 31, 1997.
(3) Pursuant to Rule 457(b) under the Securities Act, $2,017,026.83 of the
registration fee was paid on March 3, 1997 in connection with the filing
of preliminary proxy materials.
(4) This Registration Statement also covers the associated preferred stock
purchase rights (the "Rights") issued pursuant to a Rights Agreement dated
as of April 25, 1995 and amended as of February 4, 1997, between the
Registrant and The Chase Manhattan Bank (formerly Chemical Bank), as
Rights Agent. Prior to the occurrence of certain events, the Rights will
not be exercisable or evidenced separately from the Registrant's Common
Stock.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
DEAN WITTER, DISCOVER & CO.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
April 11, 1997
Dear Dean Witter, Discover & Co. Stockholder,
You are cordially invited to attend our 1997 Annual Meeting at 9:00 A.M. on
Wednesday, May 28, 1997 at Harborside Financial Center, Jersey City, New
Jersey. At our annual meeting, you will vote on proposals to approve the
merger agreement between Dean Witter Discover and Morgan Stanley Group Inc.,
an employee benefit plan authorizing Dean Witter Discover to issue equity-
based awards and certain other matters.
The merger represents the vision that we share with Morgan Stanley of
building the preeminent global financial services firm. The combination of our
companies, our preeminent brands and our highly complementary businesses will
create a partnership uniquely qualified to capitalize on new opportunities
domestically and around the world during an era of consolidation and
globalization in the financial services industry. The combined company will be
named Morgan Stanley, Dean Witter, Discover & Co.
In the merger, each outstanding share of Morgan Stanley common stock will be
converted into 1.65 shares of Dean Witter Discover common stock, and each
outstanding share of Morgan Stanley preferred stock will be converted into one
share of a corresponding series of preferred stock of Dean Witter Discover.
Each of your shares of Dean Witter Discover common stock will remain
outstanding and will represent one share of the larger combined company.
DEAN WITTER DISCOVER'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
FAIR TO YOU AND IN YOUR BEST INTERESTS. THE BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE MERGER.
Thank you, and I look forward to seeing you at the annual meeting.
Philip J. Purcell
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger described in this Joint Proxy
Statement/Prospectus or the Dean Witter Discover common stock to be issued
in connection with the merger, nor have they determined if this Joint
Proxy Statement/Prospectus is accurate or adequate. Furthermore, the
Securities and Exchange Commission has not determined the fairness or
merits of the merger. Any representation to the contrary is a criminal
offense.
This Joint Proxy Statement/Prospectus is dated April 11 , 1997 andis first
being mailed to stockholders on or about April 14 , 1997.
<PAGE>
DEAN WITTER, DISCOVER & CO.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 11, 1997
To the Stockholders of
Dean Witter, Discover & Co.:
The 1997 Annual Meeting of Stockholders of Dean Witter, Discover & Co., a
Delaware corporation ("Dean Witter Discover"), will be held on Wednesday, May
28, 1997 at 9:00 A.M., at Harborside Financial Center, Jersey City, New Jersey
(the "Dean Witter Discover Annual Meeting"), for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 10,
1997, between Dean Witter Discover and Morgan Stanley Group Inc., a Delaware
corporation ("Morgan Stanley"), a copy of which is attached as Annex I to the
Joint Proxy Statement/Prospectus that accompanies this notice (the "Joint
Proxy Statement/Prospectus"). The Merger Agreement provides for the merger of
Morgan Stanley with and into Dean Witter Discover (the "Merger"). If the
Merger Agreement is adopted and the Merger is consummated, (i) at the
effective time of the Merger, the surviving corporation's name will be Morgan
Stanley, Dean Witter, Discover & Co., (ii) each issued and outstanding share
of Morgan Stanley common stock, par value $1.00 per share, other than certain
shares owned by Morgan Stanley and Dean Witter Discover, will be converted
into the right to receive 1.65 shares of Dean Witter Discover common stock,
par value $0.01 per share ("Dean Witter Discover Common Stock"), and (iii)
each issued and outstanding share of Morgan Stanley preferred stock, other
than certain shares owned by Morgan Stanley and Dean Witter Discover, will be
converted into the right to receive one share of a corresponding series of
preferred stock of Dean Witter Discover.
2. To consider and vote upon a proposal to elect seven directors to serve
until the next annual meeting of stockholders of Dean Witter Discover or, if
the Merger is consummated, until the expiration of their respective terms as
described in the Joint Proxy Statement/Prospectus and, in each case, until
their successors are elected and qualify.
3. To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche llp as Dean Witter Discover's independent auditors for the
fiscal year ending December 31, 1997.
4. To consider and vote upon a proposal to approve an employee benefit plan
under which up to 30,000,000 shares of Dean Witter Discover Common Stock may
be issued as equity-based compensation to employees; and to approve the class
of eligible employees, the objective business criteria and the maximum amounts
payable for purposes of paying long-term, equity-based compensation in the
form of qualified, performance-based compensation under Internal Revenue Code
section 162(m).
5. To consider and transact such other business as may properly come before
the Dean Witter Discover Annual Meeting or any adjournments or postponements
thereof.
Holders of record of Dean Witter Discover Common Stock at the close of
business on April 4, 1997 will be entitled to vote at the Dean Witter Discover
Annual Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF DEAN WITTER DISCOVER HAS DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF DEAN
WITTER DISCOVER, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO ADOPT THE MERGER
AGREEMENT AT THE DEAN WITTER DISCOVER ANNUAL MEETING.
The Board of Directors of Dean Witter Discover has also unanimously approved
each of the other proposals to be considered at the Dean Witter Discover
Annual Meeting and unanimously recommends that stockholders vote in favor of
each such proposal.
<PAGE>
Detailed information concerning the Merger Agreement and the Merger, as well
as the other items to be voted on at the Dean Witter Discover Annual Meeting,
is contained in the attached Joint Proxy Statement/Prospectus; please read it
carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE DEAN WITTER DISCOVER ANNUAL MEETING
IN PERSON, PLEASE COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY
TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF DEAN WITTER
DISCOVER, BY SUBSEQUENTLY FILING ANOTHER PROXY OR BY ATTENDING THE DEAN WITTER
DISCOVER ANNUAL MEETING AND VOTING IN PERSON.
THE BOARD OF DIRECTORS OF DEAN WITTER DISCOVER UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO ADOPT THE MERGER AGREEMENT AND TO APPROVE THE OTHER PROPOSALS TO
BE CONSIDERED AT THE DEAN WITTER DISCOVER ANNUAL MEETING.
By Order of the Board of Directors,
Christine A. Edwards
Executive Vice President,
General Counsel and Secretary
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
HOLDERS OF DEAN WITTER DISCOVER COMMON STOCK SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
2
<PAGE>
MORGAN STANLEY GROUP INC.
1585 BROADWAY
NEW YORK, NEW YORK 10036
April 11, 1997
Dear Morgan Stanley Group Inc. Stockholder,
You are cordially invited to attend our special meeting of stockholders on
Wednesday, May 28, 1997 at 1585 Broadway, New York, New York, at 9:30 A.M. At
the special meeting, you will vote on a proposal to approve the merger
agreement between Dean Witter, Discover & Co. and Morgan Stanley, which
provides for the merger of Morgan Stanley into Dean Witter Discover.
The merger will combine Morgan Stanley's strengths in investment banking,
institutional sales and trading and global asset management with Dean Witter
Discover's strengths in providing investment services to individual customers,
asset management and credit services. We believe that the merger will create a
preeminent global financial services firm. The combined company will be named
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
In the merger, each outstanding share of Morgan Stanley common stock will be
converted into the right to receive 1.65 shares of MSDWD common stock and each
outstanding share of Morgan Stanley preferred stock will be converted into one
share of a corresponding series of preferred stock of MSDWD.
MORGAN STANLEY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO
YOU AND IN YOUR BEST INTERESTS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, AND RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER
AGREEMENT.
Because of the significance of the merger, your participation in the special
meeting, in person or by proxy, is especially important. We hope you will be
able to attend the special meeting. However, even if you anticipate attending
in person, we urge you to mark, sign and return the enclosed proxy card
promptly in the enclosed postage-paid envelope to ensure that your shares of
common stock and any shares of ESOP Convertible Preferred Stock you hold will
be represented at the special meeting. If you do attend, you will, of course,
be able to vote your shares in person.
Thank you, and we look forward to seeing you at the special meeting.
Richard B. Fisher John J. Mack
Chairman President
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger described in this Joint Proxy
Statement/Prospectus or the Dean Witter Discover common stock to be
issued in connection with the merger, nor have they determined if this
Joint Proxy Statement/Prospectus is accurate or adequate. Furthermore,
the Securities and Exchange Commission has not determined the fairness
or merits of the merger. Any representation to the contrary is a
criminal offense.
This Joint Proxy Statement/Prospectus is dated April 11, 1997 and is first
being mailed to stockholders on or about April 14, 1997.
<PAGE>
MORGAN STANLEY GROUP INC.
1585 BROADWAY
NEW YORK, NEW YORK 10036
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
April 11, 1997
To the Stockholders of
Morgan Stanley Group Inc.:
A Special Meeting of Stockholders of Morgan Stanley Group Inc., a Delaware
corporation ("Morgan Stanley"), will be held on Wednesday, May 28, 1997 at
9:30 A.M., at 1585 Broadway, New York, New York (the "Morgan Stanley Special
Meeting"), for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 10,
1997, between Dean Witter, Discover & Co., a Delaware corporation ("Dean
Witter Discover"), and Morgan Stanley, a copy of which is attached as Annex I
to the Joint Proxy Statement/Prospectus that accompanies this notice. The
Merger Agreement provides for the merger of Morgan Stanley with and into Dean
Witter Discover (the "Merger"). If the Merger Agreement is adopted and the
Merger is consummated, (i) at the effective time of the Merger, the surviving
corporation's name will be Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"), (ii) each issued and outstanding share of Morgan Stanley common
stock, par value $1.00 per share ("Morgan Stanley Common Stock"), other than
certain shares owned by Morgan Stanley and Dean Witter Discover, will be
converted into the right to receive 1.65 shares of MSDWD common stock, par
value $0.01 per share ("MSDWD Common Stock"), (iii) each issued and
outstanding share of Morgan Stanley preferred stock ("Morgan Stanley Preferred
Stock"), other than certain shares owned by Morgan Stanley and Dean Witter
Discover, will be converted into the right to receive one share of a
corresponding series of preferred stock of MSDWD and (iv) each issued and
outstanding share of Dean Witter Discover common stock will remain outstanding
and thereafter will represent one share of MSDWD Common Stock.
2. To consider and transact such other business as may properly come before
the Morgan Stanley Special Meeting or any adjournments or postponements
thereof.
Holders of record of Morgan Stanley Common Stock and of Morgan Stanley ESOP
Convertible Preferred Stock, liquidation preference $35.875 per share ("Morgan
Stanley ESOP Preferred Stock"), at the close of business on April 4, 1997 (the
"Record Date") will be entitled to vote at the Morgan Stanley Special Meeting
or any adjournments or postponements thereof. On the Record Date, there were
158,008,632 shares of Morgan Stanley Common Stock outstanding (excluding
treasury shares), each of which is entitled to one vote with respect to each
matter to be voted on at the Morgan Stanley Special Meeting. Morgan Stanley's
transfer books will not be closed. In addition, on the Record Date, there were
3,681,881 shares of Morgan Stanley ESOP Preferred Stock outstanding. Each
share of Morgan Stanley ESOP Preferred Stock is entitled to 2.7 votes with
respect to each matter to be voted on at the Morgan Stanley Special Meeting.
The Morgan Stanley Common Stock and the Morgan Stanley ESOP Preferred Stock
vote together as a single class.
THE BOARD OF DIRECTORS OF MORGAN STANLEY HAS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF MORGAN STANLEY, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT AT THE MORGAN
STANLEY SPECIAL MEETING.
<PAGE>
The affirmative vote of a majority of the combined voting power of the shares
of Morgan Stanley Common Stock and Morgan Stanley ESOP Preferred Stock
outstanding on the Record Date, voting as a single class, is required to adopt
the Merger Agreement. Detailed information concerning the Merger Agreement and
the Merger is contained in the attached Joint Proxy Statement/Prospectus which
you are urged to read carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MORGAN STANLEY SPECIAL MEETING IN
PERSON, PLEASE COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY
TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
GENERAL COUNSEL AND SECRETARY OF MORGAN STANLEY, BY SUBSEQUENTLY FILING ANOTHER
PROXY OR BY ATTENDING THE MORGAN STANLEY SPECIAL MEETING AND VOTING IN PERSON.
STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WHEN RETURNING THEIR
PROXIES. IF THE MERGER AGREEMENT IS ADOPTED AND THE MERGER IS CONSUMMATED,
STOCKHOLDERS WILL BE NOTIFIED AND FURNISHED INSTRUCTIONS ON HOW AND WHEN TO
SURRENDER THEIR STOCK CERTIFICATES.
THE BOARD OF DIRECTORS OF MORGAN STANLEY UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO ADOPT THE MERGER AGREEMENT AT THE MORGAN STANLEY SPECIAL MEETING.
By Order of the Board of Directors,
Jonathan M. Clark
General Counsel and Secretary
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
HOLDERS OF MORGAN STANLEY COMMON STOCK SHOULD
NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................... 1
SUMMARY..................................................................... 4
RISK FACTORS................................................................ 18
Fixed Merger Consideration Despite Potential Changes in Stock Prices....... 18
Integration of Operations; Nonrealization of Synergies..................... 18
Risks Inherent in the Securities Business.................................. 18
Risks Inherent in the Asset Management Business............................ 19
Risks Inherent in the Credit Services
Businesses................................................................ 20
Forward-Looking Statements May Prove
Inaccurate................................................................ 20
THE STOCKHOLDERS' MEETINGS.................................................. 20
Date, Times and Places..................................................... 20
Matters to be Considered at the Stockholders' Meetings..................... 21
Record Date; Stock Entitled to Vote;
Quorum.................................................................... 21
Votes Required............................................................. 22
Share Ownership of Management and Certain Stockholders..................... 22
Voting of Proxies.......................................................... 24
Revocability of Proxies.................................................... 25
Solicitation of Proxies.................................................... 25
THE MERGER.................................................................. 26
Background to the Merger................................................... 26
Reasons for the Merger and Board
Recommendations........................................................... 29
Opinions of Financial Advisors............................................. 32
Accounting Treatment....................................................... 38
Form of the Merger......................................................... 39
Merger Consideration....................................................... 39
Conversion of Shares; Procedures for
Exchange of Certificates; Fractional Shares............................... 40
Effective Time............................................................. 41
Stock Exchange Listings.................................................... 41
Federal Income Tax Considerations.......................................... 41
Effect on Awards Outstanding Under Morgan Stanley Stock Plans.............. 42
Regulatory Matters and Third Party
Approvals................................................................. 43
Certain Transactions; Conflicts of Interest................................ 43
Appraisal and Dissenters' Rights........................................... 45
Litigation................................................................. 46
</TABLE>
<TABLE>
<S> <C>
Delisting and Deregistration of Morgan
Stanley Common Stock...................................................... 46
Resale of MSDWD Stock...................................................... 46
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................................. 47
General.................................................................... 47
Conditions to the Consummation of the
Merger.................................................................... 47
No Solicitation............................................................ 48
Termination................................................................ 49
Termination Fees........................................................... 50
Conduct of Business Pending the Merger..................................... 50
Dividend Coordination...................................................... 51
Amendment to Rights Plan................................................... 51
Assumption of Morgan Stanley Stock Plans................................... 51
Amendment and Waiver....................................................... 52
Expenses................................................................... 52
Representations and Warranties............................................. 52
Amendments to Dean Witter Discover
Certificate............................................................... 53
Amendments to Dean Witter Discover
By-Laws................................................................... 53
Reciprocal Stock Option Agreements......................................... 53
THE COMPANIES............................................................... 56
Dean Witter Discover....................................................... 56
Morgan Stanley............................................................. 56
MSDWD...................................................................... 57
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION................. 61
Market Prices.............................................................. 61
Dividends.................................................................. 63
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................. 64
DIRECTORS AND EXECUTIVE OFFICERS OF MSDWD FOLLOWING THE
MERGER..................................................................... 70
Directors.................................................................. 70
Committees of the MSDWD Board.............................................. 72
Executive Officers......................................................... 73
Stock Ownership of Directors, Executive
Officers and Five Percent Stockholders.................................... 73
DESCRIPTION OF MSDWD CAPITAL STOCK FOLLOWING THE MERGER..................... 74
Authorized Capital Stock................................................... 74
MSDWD Common Stock......................................................... 75
MSDWD Preferred Stock...................................................... 75
General.................................................................... 75
</TABLE>
<PAGE>
<TABLE>
<S> <C>
MSDWD ESOP Preferred Stock................................................ 76
MSDWD Cumulative Preferred Stock.......................................... 77
Depositary Shares......................................................... 80
COMPARISON OF STOCKHOLDERS' RIGHTS......................................... 83
Authorized Capital........................................................ 83
Board of Directors........................................................ 83
Committees................................................................ 84
Special Meetings of Stockholders.......................................... 84
Advance Notice of Stockholder-Proposed Business at Annual Meetings........ 84
Action of Stockholders.................................................... 84
Amendment of Governing Documents.......................................... 84
Interested Transactions................................................... 85
Certain Restrictions on Repurchases of
Securities............................................................... 86
Removal of Officers....................................................... 86
Rights Plan............................................................... 86
Certain Provisions Relating to Share
Acquisitions............................................................. 88
Anti-takeover Effect of Certain Provisions of MSDWD Certificate, MSDWD By-
Laws, the Rights Plan and Section 203 of the DGCL........................ 89
OTHER INFORMATION FOR DEAN WITTER DISCOVER ANNUAL MEETING.................. 90
PROPOSAL NO. 2--ELECTION OF
DIRECTORS................................................................. 90
Nominees for Election as Dean Witter
Discover Directors....................................................... 90
Committees and Meetings of the Dean
Witter Discover Board.................................................... 91
Director Compensation..................................................... 92
EXECUTIVE COMPENSATION..................................................... 93
Summary Compensation Table................................................ 93
Option Exercises and Year-End Option Holdings............................. 95
Pension Plans............................................................. 95
Severance Arrangement..................................................... 97
Compensation Committee's Report on
Executive Compensation................................................... 97
Stock Performance Graph................................................... 101
CERTAIN TRANSACTIONS....................................................... 101
</TABLE>
<TABLE>
<S> <C>
BENEFICIAL OWNERSHIP OF DEAN
WITTER DISCOVER COMMON STOCK............................................... 102
Five Percent Stockholders.................................................. 102
Directors and Executive Officers........................................... 102
PROPOSAL NO. 3--RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS................................................................... 104
PROPOSAL NO. 4--APPROVAL OF THE DEAN WITTER DISCOVER
EMPLOYEES' EQUITY
ACCUMULATION PLAN.......................................................... 104
General.................................................................... 104
Background................................................................. 104
Summary of the Dean Witter Discover
Employees' Equity Accumulation Plan....................................... 105
New Plan Benefits Table.................................................... 109
Certain Federal Income Tax Consequences.................................... 110
LEGAL MATTERS............................................................... 112
EXPERTS..................................................................... 112
FUTURE STOCKHOLDER PROPOSALS................................................ 112
WHERE YOU CAN FIND MORE
INFORMATION................................................................ 113
LIST OF DEFINED TERMS....................................................... 115
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
</TABLE>
Annex I Amended and Restated Agreement and Plan of Merger (including
proposed MSDWD Certificate of Incorporation and MSDWD By-Laws)
Annex II Dean Witter Discover Stock Option Agreement
Annex III Morgan Stanley Stock Option Agreement
Annex IV Opinion of Wasserstein Perella & Co., Inc.
Annex V Opinion of Morgan Stanley & Co. Incorporated
Annex VI Dean Witter, Discover & Co. Employees' Equity Accumulation Plan
Annex VII Certain Provisions of Section 262 of Delaware General Corporation
Law
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: Our companies are proposing to merge because we believe the resulting
combination will provide our stockholders with substantial benefits and
will enable us to better serve our clients. We believe the merger will
create a preeminent global financial services firm with leading market
positions in each of its three primary businesses-- securities, asset
management and credit services. In addition, we believe the merger will
combine three preeminent brands in the financial services industry:
Discover Card, Morgan Stanley and Dean Witter. To review the background and
reasons for the merger in greater detail, as well as the risks of the
merger, see pages 18 through 20 and 26 through 32.
Q: WHAT IS "MORGAN STANLEY, DEAN WITTER, DISCOVER & CO."?
A: Morgan Stanley, Dean Witter, Discover & Co. is the name that Dean Witter
Discover and Morgan Stanley have agreed to use for the combined company
after the merger.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares
may be represented at your stockholders' meeting. If you sign and send in
your proxy and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the merger. If you do not vote or you
abstain, it will have the effect of a vote against the merger.
The Dean Witter Discover annual meeting and the Morgan Stanley special
meeting will each take place on May 28, 1997. You may attend your
stockholders' meeting and vote your shares in person, rather than signing
and mailing your proxy card. In addition, you may take back your proxy up
to and including the day of your stockholders' meeting by following the
directions on page 25 and either change your vote or attend your
stockholders' meeting and vote in person.
THE BOARDS OF DIRECTORS OF BOTH DEAN WITTER DISCOVER AND MORGAN STANLEY
UNANIMOUSLY RECOMMEND VOTING IN FAVOR OF THE PROPOSED MERGER.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send Morgan Stanley stockholders
written instructions for exchanging their share certificates. Dean Witter
Discover stockholders will keep their certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is approved, Morgan Stanley common stockholders will have the
right to receive 1.65 shares of common stock of the combined company, which
we sometimes refer to in this document as MSDWD Common Stock, in exchange
for each share of Morgan Stanley common stock they own. Morgan Stanley
preferred stockholders will have the right to receive one share of a
corresponding series of preferred stock of the combined company in exchange
for each share of Morgan Stanley preferred stock which they now hold.
In addition, if the merger is approved, each share of Dean Witter Discover
common stock will automatically represent one share of MSDWD Common Stock.
We will not issue fractional shares. Instead, Morgan Stanley common
stockholders will receive cash for any fractional share of MSDWD Common
Stock owed to them based on the market value on a date close to the date
the merger occurs.
Example:
. If you currently own 100 shares of Morgan Stanley common stock, then
after the merger you will receive 165 shares of MSDWD Common Stock.
. If you currently own 1 share of Morgan Stanley common stock, then after
the merger you will receive 1 share of MSDWD Common Stock and a check for
the market value of the .65 fractional share.
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. If you currently own 100 shares of Dean Witter Discover common stock,
those shares will represent 100 shares of MSDWD Common Stock after the
merger.
Q: AS A DEAN WITTER DISCOVER STOCKHOLDER, HOW WILL THE MERGER AFFECT ME?
A: Following the merger, each Dean Witter Discover share will remain
outstanding and stockholders of Dean Witter Discover will own approximately
55% of the common stock of the combined company, Morgan Stanley, Dean
Witter, Discover & Co.
Q: WHY WILL MORGAN STANLEY STOCKHOLDERS RECEIVE SHARES OF THE COMBINED
COMPANY, BUT DEAN WITTER DISCOVER STOCKHOLDERS WILL NOT RECEIVE MORGAN
STANLEY SHARES?
A: Morgan Stanley will be merged with and into Dean Witter Discover and will
no longer be a separate company. Dean Witter Discover will be the surviving
company in the merger and will be renamed "Morgan Stanley, Dean Witter,
Discover & Co." Morgan Stanley common stockholders will have the right to
receive 1.65 shares of common stock of the combined company for each share
of Morgan Stanley common stock they own. Each share held by a Dean Witter
Discover stockholder will automatically become one share of common stock of
the combined company.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Following the merger, management expects to recommend that the merged
company pay dividends on the MSDWD Common Stock initially in the amount of
$0.14 per share per quarter, or $0.56 per share per year (which is equal to
the recent historical dividends of Dean Witter Discover). Although we
currently expect to pay such dividends, we cannot assure such payments. The
merged company's Board of Directors will use its discretion to decide
whether to declare dividends and the amount of any dividends. In making its
decision, the Board will consider various factors, including the earnings
and financial condition of Morgan Stanley, Dean Witter, Discover & Co. and
its subsidiaries.
Example: If you currently own 100 shares of Morgan Stanley common stock,
then after the merger you will receive 165 shares of MSDWD Common Stock,
and would receive a total dividend payment of $23.10 per quarter, or $92.40
per year.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to stockholder approvals, we must also obtain regulatory
approvals. We hope to complete the merger as early as the end of May 1997.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of shares by Morgan Stanley stockholders will be tax-free to
Morgan Stanley stockholders for federal income tax purposes. However,
Morgan Stanley stockholders will have to pay taxes on cash received for
fractional shares and may have to pay taxes as a result of the payment by
Dean Witter Discover on their behalf of certain transfer taxes. The merger
will be tax-free to Dean Witter Discover stockholders for federal income
tax purposes. To review the tax consequences to stockholders in greater
detail, see pages 41 through 42.
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
DEAN WITTER DISCOVER STOCKHOLDERS
Dean Witter, Discover & Co.
Two World Trade Center, 56th Floor
New York, New York 10048
Attention: Office of Investor Relations
Phone Number: (212) 392-6171
MORGAN STANLEY STOCKHOLDERS
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Attention: Investor Relations
Phone Number: (212) 762-8131
If you would like additional copies of the Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
Georgeson & Company Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Phone Number: 1-800-223-2064
web site: http://www.georgeson.com
3
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" (page
113). We have included page references parenthetically to direct you to a more
complete description of the topics presented in this Summary.
THE COMPANIES (PAGE 56)
DEAN WITTER, DISCOVER & CO.
Two World Trade Center
New York, NY 10048
(212) 392-2222
Dean Witter Discover provides a diverse range of financial services, primarily
to individual investors and customers in the United States. Dean Witter Discover
has two principal lines of business: securities and credit services. Its
securities business focuses on providing investment and asset management
services to its 3.2 million clients through approximately 9,100 professional
account executives located in 371 branch offices. Dean Witter Discover is also
one of the largest asset management operations in the United States. In
addition, as of December 31, 1996, Dean Witter Discover was the largest single
issuer of general purpose credit cards in the United States as measured by
number of accounts and cardmembers.
MORGAN STANLEY GROUP INC.
1585 Broadway
New York, NY 10036
(212) 761-4000
Morgan Stanley is a leading securities firm that provides a wide range of
financial services on a global basis. Its principal businesses consist of
investment banking, including the origination of quality underwritten public
offerings, mergers and acquisitions and other financial advisory services,
institutional sales and trading and global asset management. These services are
provided to a large and diversified group of clients and customers, including
corporations, governments, financial institutions and individual investors, with
a focus on the institutional investor marketplace. Headquartered in New York
City, Morgan Stanley has five regional offices in the United States and 28
principal offices in 19 countries.
OUR REASONS FOR THE MERGER (PAGE 29)
The merger will combine our companies' complementary strengths to create a
preeminent financial services firm with leading market positions in each of its
three primary businesses--securities, asset management and credit services. We
believe the combined company will be able to offer more diverse and quality
products and services to our individual and institutional clients, which will
increase our operating leverage, optimize our capital, enhance our profitability
and accelerate our growth. We believe the financial services industry is
becoming increasingly competitive, and that the greater strength of the combined
company will enable us to serve our individual and institutional clients better
than our competitors and to provide our stockholders with substantial benefits.
To review the background and reasons for the merger in greater detail, as well
as the risks of the merger, see pages 18 through 20 and 26 through 32.
THE STOCKHOLDERS' MEETINGS (PAGE 20)
The Dean Witter Discover Annual Meeting will be held at Harborside Financial
Center, Jersey City, New Jersey, at 9:00 A.M. on May 28, 1997. At the annual
meeting Dean Witter Discover stockholders will be asked:
. to adopt the merger agreement,
. to elect seven directors,
. to ratify the appointment of Deloitte & Touche llp as Dean Witter
Discover's independent auditors, and
. to approve the Dean Witter Discover Employees' Equity Accumulation Plan.
Morgan Stanley and Dean Witter Discover have not yet selected the independent
auditors for Morgan Stanley, Dean Witter, Discover & Co. if the merger is
completed.
4
<PAGE>
The Morgan Stanley Special Meeting will be held at 1585 Broadway, New York,
New York, at 9:30 A.M. on May 28, 1997. At the special meeting, Morgan Stanley
stockholders will be asked to adopt the merger agreement. If the merger is
completed, there will not be a 1997 Annual Meeting of the stockholders of
Morgan Stanley.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 32)
To the Dean Witter Discover Stockholders:
The Dean Witter Discover Board believes that the merger is fair to you and in
your best interest and unanimously recommends that you vote "for" the proposal
to adopt the merger agreement. The Dean Witter Discover Board also unanimously
recommends that you vote "for" the other proposals at the Dean Witter Discover
Annual Meeting.
To the Morgan Stanley Stockholders:
The Morgan Stanley Board believes that the merger is fair to you and in your
best interest and unanimously recommends that you vote "for" the proposal to
adopt the merger agreement.
RECORD DATE; VOTING POWER (PAGE 21)
You are entitled to vote at your stockholders' meeting if you owned shares as
of the close of business on April 4, 1997, the Record Date.
On the Record Date, there were 324,950,195 shares of Dean Witter Discover
Common Stock allowed to vote at the annual meeting. Dean Witter Discover
stockholders will have one vote at the annual meeting for each share of Dean
Witter Discover Common Stock they owned on the Record Date for each of the
proposals described above.
On the Record Date, there were 158,008,632 shares of Morgan Stanley Common
Stock and 3,681,881 shares of Morgan Stanley ESOP Preferred Stock allowed to
vote at the special meeting. Morgan Stanley stockholders will have one vote at
the special meeting for each share of Morgan Stanley Common Stock and 2.7 votes
for each share of Morgan Stanley ESOP Preferred Stock held of record on the
Record Date for the adoption of the merger agreement.
VOTES REQUIRED (PAGE 22)
A majority of the shares of Dean Witter Discover Common Stock outstanding on
the Record Date must vote to adopt the merger agreement. A majority of the
shares of Dean Witter Discover Common Stock present and allowed to vote at the
Dean Witter Discover Annual Meeting must vote to ratify the appointment of
Deloitte & Touche llp and to approve the Dean Witter Discover Employees' Equity
Accumulation Plan. The seven nominees receiving the greatest number of votes
cast shall be elected directors at the Dean Witter Discover Annual Meeting.
A majority of the voting power of the shares of Morgan Stanley Common Stock
and of Morgan Stanley ESOP Preferred Stock outstanding on the Record Date,
voting together as a single class, must vote to adopt the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS (PAGE 22)
On the Record Date, directors and executive officers of Dean Witter Discover
and their affiliates owned and were allowed to vote 1,812,169 shares of Dean
Witter Discover Common Stock, or approximately 0.6% of the shares of Dean
Witter Discover Common Stock outstanding on the Record Date.
On the Record Date, (a) approximately 48,210,000 shares of Morgan Stanley
Common Stock, or approximately 28.7% of the votes that may be voted at the
Morgan Stanley Special Meeting, were owned by certain employees of Morgan
Stanley and were subject to certain Voting Agreements described on page 23 and
(b) 1,548,994 whole shares of Morgan Stanley ESOP Preferred Stock, or
approximately 2.5% of the votes that may be voted at the Morgan Stanley Special
Meeting, were owned by employees of Morgan Stanley. None of the shares of
Morgan Stanley ESOP Preferred Stock are subject to the Voting Agreements. On
the Record Date, directors and executive officers of Morgan Stanley and their
affiliates owned and were allowed to vote 11,434,051 shares of Morgan Stanley
Common Stock, and 7,858 shares of Morgan Stanley ESOP Preferred Stock.
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<PAGE>
The directors and executive officers of each company have indicated that they
intend to vote the Dean Witter Discover Common Stock or Morgan Stanley Common
Stock or Morgan Stanley ESOP Preferred Stock, subject to any voting
restrictions contained in the Voting Agreements, owned by him or her "for"
adoption of the merger agreement.
THE MERGER (PAGE 26)
The merger agreement is attached as Annex I to this document. We encourage
you to read the merger agreement. It is the legal document governing the
merger.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 38)
As a result of the merger, Dean Witter, Discover & Co. will change its name
to Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). We sometimes refer to
the combined company as MSDWD.
If the merger is approved, holders of Morgan Stanley Common Stock will have
the right to receive 1.65 shares of common stock of the combined company, which
we sometimes refer to as MSDWD Common Stock, for each share of Morgan Stanley
Common Stock they own. Morgan Stanley, Dean Witter, Discover & Co. will not
issue fractional shares. Morgan Stanley common stockholders will instead be
paid cash for any fractional shares of MSDWD Common Stock owed to them based on
the market value on a date close to the date the merger occurs.
Holders of Morgan Stanley preferred stock will have the right to receive one
share of a corresponding series of preferred stock of the combined company for
each share of Morgan Stanley preferred stock they own.
After the merger, each share of Dean Witter Discover common stock will
represent one share of MSDWD Common Stock.
Stockholders of Morgan Stanley or Dean Witter Discover should not send in
their stock certificates until instructed to do so after the merger is
completed.
MSDWD DIVIDEND POLICY FOLLOWING THE MERGER (PAGE 63)
Following the merger, management expects to recommend that MSDWD pay
dividends on the MSDWD Common Stock initially in the amount of $0.14 per share
per quarter, or $0.56 per share per year (which is equal to the recent
historical dividends of Dean Witter Discover). Although we currently expect
that MSDWD will pay such dividends, we cannot assure such payments. The MSDWD
Board will use its discretion to decide whether to declare dividends and the
amount of any dividends. In making its decision, the MSDWD Board will consider
various factors, including the earnings and financial condition of MSDWD and
its subsidiaries.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 41)
We each must receive an opinion from our outside counsel that, as a general
matter, Morgan Stanley stockholders will not be taxed as a result of the
exchange of Morgan Stanley stock in the merger, except if they receive cash for
fractional shares.
Dean Witter Discover stockholders will not be taxed as a result of the
merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS (PAGE 32)
In deciding to approve the merger, each Board considered the opinion of its
financial advisor as to the fairness of the merger to its stockholders from a
financial point of view. Dean Witter Discover received an opinion from its
financial advisor, Wasserstein Perella & Co., Inc., and Morgan Stanley received
an opinion from its financial advisor, Morgan Stanley & Co. Incorporated. These
opinions are attached as Annexes IV and V to this Joint Proxy
Statement/Prospectus. WE ENCOURAGE YOU TO READ THESE OPINIONS CAREFULLY.
The financial advisors performed several analyses in connection with
delivering their opinions. These analyses included comparing Dean Witter
Discover and Morgan Stanley historical stock
6
<PAGE>
prices, comparing Dean Witter Discover and Morgan Stanley to other publicly
traded companies and estimating the relative values and contributions of Dean
Witter Discover and Morgan Stanley based on past and estimated future
performances.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 43)
Our stockholders should note that a number of directors and executive
officers of Dean Witter Discover and Morgan Stanley have interests in the
merger as employees and/or directors that are different from, or in addition
to, yours as a stockholder. If we complete the merger, certain directors and
members of the existing senior management of each of Dean Witter Discover and
Morgan Stanley will be designated as members of the initial Board of Directors
and senior management of MSDWD. Also, certain indemnification arrangements for
existing directors and officers of Dean Witter Discover and Morgan Stanley will
be continued. Please refer to pages 43 and 44 for more information concerning
these interests.
OWNERSHIP OF MSDWD FOLLOWING THE MERGER
We anticipate that Morgan Stanley stockholders will receive approximately
260,714,243 shares of MSDWD Common Stock in the merger. Based on that number,
following the merger, existing Dean Witter Discover stockholders will own
approximately 55%, and former Morgan Stanley stockholders will own
approximately 45%, of the MSDWD Common Stock outstanding.
DIRECTORS AND EXECUTIVE OFFICERS OF MSDWD FOLLOWING THE MERGER (PAGE 70)
If we complete the merger, the Board of Directors of MSDWD will initially
consist of:
. Philip J. Purcell (Chairman of the Board and Chief Executive Officer of
Dean Witter Discover)
. John J. Mack (President of Morgan Stanley)
. Richard B. Fisher (Chairman of the Board of Morgan Stanley)
. Thomas C. Schneider (Executive Vice President and Chief Financial Officer
of Dean Witter Discover)
. Robert P. Bauman
. Edward A. Brennan
. Daniel B. Burke
. C. Robert Kidder
. Miles L. Marsh
. Michael A. Miles
. Allen E. Murray
. Paul J. Rizzo
. Clarence B. Rogers, Jr.
. Laura D'Andrea Tyson
If we complete the merger:
. Mr. Purcell will chair the Board of Directors and serve as the Chief
Executive Officer.
. Mr. Mack will be the President and Chief Operating Officer.
. Philip N. Duff (Chief Financial Officer of Morgan Stanley) will be an
Executive Vice President and will be Chief Financial Officer.
. Mr. Schneider will be an Executive Vice President and will be Chief
Strategic and Administrative Officer.
. Christine A. Edwards (Executive Vice President, General Counsel and
Secretary of Dean Witter Discover) will be an Executive Vice President
and will be Chief Legal Officer.
LISTING OF MSDWD STOCK (PAGE 41)
The MSDWD stock to be issued in connection with the merger, other than the
MSDWD ESOP Preferred Stock, has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. If we complete the merger,
Dean Witter Discover and Morgan Stanley stockholders would then be able to
trade shares of MSDWD stock. In addition, Morgan Stanley stockholders will no
longer be able to trade Morgan Stanley stock because Morgan Stanley stock will
no longer be
7
<PAGE>
listed on the New York Stock Exchange and other exchanges. The trading symbol
for the MSDWD Common Stock will be MWD.
CONDITIONS TO THE MERGER (PAGE 47)
We will complete the merger only if we satisfy or (in some cases) waive
several conditions, including the following:
. a majority of the common stock of Dean Witter Discover and a majority of
the voting power of Morgan Stanley voting stock adopt the merger
agreement;
. no legal restraints or prohibitions exist which prevent the consummation
of the merger, limit the conduct of a material portion of the business of
Dean Witter Discover or Morgan Stanley, or are reasonably likely to have
a material adverse effect on Dean Witter Discover or Morgan Stanley;
. before either company's stockholders adopt the merger agreement, there is
no Material Adverse Change (as defined on page 48) since February 4, 1997
with respect to the other company;
. our counsel deliver opinions in respect of certain federal income tax
consequences of the merger; and
. our independent accountants deliver letters stating that the merger will
qualify for pooling of interests accounting treatment.
TERMINATION OF THE MERGER AGREEMENT (PAGE 49)
The Board of Directors of both our companies can jointly agree to terminate
the merger agreement at any time without completing the merger. Either company
can terminate the merger agreement if:
(1) we do not complete the merger by September 30, 1997, but either of us
may extend this deadline up to 90 days if the merger is delayed only
because we have not received certain governmental or third party
approvals;
(2) the stockholders of Dean Witter Discover or Morgan Stanley do not
approve the merger;
(3) a governmental authority or other legal action permanently prohibits
the merger, limits the conduct of a material portion of the business of
either company, or is reasonably likely to have a material adverse
effect on either company;
(4) the other party breaches or materially fails to comply with any of the
representations or warranties it made or obligations it has under the
merger agreement, resulting in the inability to satisfy a condition to
the completion of the merger;
(5) either Board of Directors determines, during the 20 business days
before its stockholders' meeting, that there is a substantial
probability that its stockholders will not adopt the merger agreement
because a third party has made a proposal to acquire a majority of
their voting power or a substantial portion of their assets on terms
such Board determines are more favorable to its stockholders than the
merger; or
(6) the other company's Board of Directors engages in discussions with
third parties regarding certain takeover proposals or other business
transactions that are prohibited by the merger agreement.
TERMINATION FEES (PAGE 50)
If either of us receives a takeover proposal and that party or the other
party then terminates the merger agreement as described in the first, second or
sixth reasons above, and if the party receiving the takeover proposal agrees to
or effects a takeover transaction within 18 months, that party must pay the
other a termination fee of $250 million. In addition, if either of us
terminates the merger agreement as described in the fifth reason above, that
party must at that time pay the other the same termination fee.
RECIPROCAL STOCK OPTION AGREEMENTS (PAGE 53)
We both signed reciprocal stock option agreements under which we each granted
an option to the other party to purchase approximately 19.9% of its outstanding
common stock if certain events occur that entitle the party exercising the
option to receive a termination fee in connection with the merger agreement.
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REGULATORY APPROVALS (PAGE 43)
We are prohibited by U.S. antitrust laws from completing the merger until
after we have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
required waiting period has ended. We each filed the required notification and
report forms with the Federal Trade Commission and the Antitrust Division. The
waiting period ended on March 10, 1997. However, the Department of Justice and
the Federal Trade Commission continue to have the authority to challenge the
merger on antitrust grounds before or after the merger is completed.
We are both required to make filings with or obtain approvals from certain
other domestic and international regulatory authorities in connection with the
merger.
In addition, Morgan Stanley must obtain consents or waivers from third
parties in connection with certain financing arrangements to which it is a
party.
We cannot predict whether we will obtain all required regulatory approvals
before we complete the merger, or whether any approvals will include conditions
that would be detrimental to Morgan Stanley, Dean Witter Discover or MSDWD. It
is not a condition to our completing the merger, however, that we obtain all
required regulatory approvals.
APPRAISAL RIGHTS (PAGE 45)
Both of our companies are organized under Delaware law. Under Delaware law,
Dean Witter Discover and Morgan Stanley stockholders, other than the trustee
that is the record owner of Morgan Stanley ESOP Preferred Stock, have no right
to an appraisal of the value of their shares in connection with the merger.
The trustee for Morgan Stanley's ESOP may be entitled to appraisal rights
under Delaware law. See pages 45 and 46 for a description of these appraisal
rights.
ACCOUNTING TREATMENT (PAGE 38)
We expect the merger will be accounted for as a pooling of interests, which
means that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 20)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Dean Witter Discover,
Morgan Stanley or MSDWD. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Stockholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents which we incorporate by
reference, could affect the future financial results of MSDWD, Dean Witter
Discover and Morgan Stanley and could cause those results to differ materially
from those expressed in our forward-looking statements contained or
incorporated by reference in this document. These factors include the
following:
. operating, legal and regulatory risks;
. economic, political and competitive forces affecting our securities,
asset management and credit services businesses; and
. the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
Comparative Market Price Data
The following table presents trading information for the Dean Witter Discover
Common Stock and Morgan Stanley Common Stock on February 4, 1997 and April 10,
1997. February 4, 1997 was the last full trading day prior to our announcement
of the signing of the merger agreement. April 10, 1997 was the last practicable
trading day for which information was available prior to the date of this Joint
Proxy Statement/Prospectus. You should read the information presented below in
conjunction with "Comparative Per Share Market Price and Dividend Information"
on pages 61 through 63.
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER MORGAN STANLEY
COMMON STOCK COMMON STOCK
DOLLARS PER SHARE DOLLARS PER SHARE
--------------------- -----------------
HIGH LOW HIGH LOW
---------- ---------- -----------------
<S> <C> <C> <C> <C>
February 4, 1997........................ 38 7/8 37 7/8 57 3/8 56 3/4
April 10, 1997.......................... 37 36 1/8 61 1/4 59 7/8
</TABLE>
On February 4, 1997, the last reported sale price per share of Dean Witter
Discover Common Stock on the New York Stock Exchange was $38 5/8 and the last
reported sale price per share of Morgan Stanley Common Stock on the New York
Stock Exchange was $57 3/8. On April 10, 1997, the last reported sale price per
share of Dean Witter Discover Common Stock on the New York Stock Exchange
Composite Transaction Tape was $36 1/4, and the last reported sale price per
share of Morgan Stanley Common Stock on the New York Stock Exchange Composite
Transaction Tape was $60.
The market prices of shares of Dean Witter Discover Common Stock and Morgan
Stanley Common Stock fluctuate. As a result, we urge you to obtain current
market quotations.
On the Record Date, there were approximately 196,005 holders of record of
Dean Witter Discover Common Stock and approximately 879 holders of record of
Morgan Stanley Common Stock.
Comparative Dividend Data
The Dean Witter Discover Board declared a $0.14 per share dividend on
December 16, 1996 (adjusted for the two-for-one stock split which became
effective January 14, 1997), which was paid on April 1, 1997 to stockholders of
record on March 3, 1997. The Morgan Stanley Board declared a $0.20 per share
dividend on March 27, 1997, which will be paid on April 25, 1997 to
stockholders of record on April 4, 1997.
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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
We expect that the merger will be accounted for as a pooling of interests,
which means that for accounting and financial reporting purposes, we will treat
our companies as if they had always been combined.
We have presented below unaudited pro forma condensed combined financial
information that reflects the pooling of interests method of accounting. We
have included this information to give you a better picture of what the results
of operations and financial position of the combined businesses of Dean Witter
Discover and Morgan Stanley might have been had the merger occurred on an
earlier date. The unaudited pro forma condensed combined statement of income
data combines information from the historical consolidated statements of income
of Dean Witter Discover and Morgan Stanley giving effect to the merger. The
unaudited pro forma condensed combined statement of financial condition data
combine information from the historical consolidated balance sheet of Dean
Witter Discover and the historical consolidated statement of financial
condition of Morgan Stanley giving effect to the merger as if we had completed
the merger on November 30, 1996.
We are providing this information for illustrative purposes only. It does not
necessarily reflect what the results of operations or financial position of the
combined company would have been if the merger had actually occurred at the
beginning of the earliest period presented. This information also does not
necessarily indicate what the combined company's future operating results or
consolidated financial position will be. This information does not reflect (a)
the effect of any potential changes in revenues or any operating synergies
which we may achieve by combining the resources of our companies, (b)
investment banking, legal and miscellaneous transaction costs related to the
merger, which we will reflect as an expense in the period we complete the
merger, and (c) costs associated with the combining of our companies which we
cannot presently estimate.
Please see "Unaudited Pro Forma Condensed Combined Financial Statements" on
pages 64 through 69 for a more detailed explanation of this analysis.
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<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME
DATA(1):
Revenues:
Investment banking.................. $ 2,190 $ 1,556 $ 1,102
Principal transactions:
Trading........................... 2,659 1,685 1,614
Investments....................... 86 121 154
Commissions......................... 1,776 1,533 1,323
Merchant and cardmember fees........ 1,506 1,135 940
Servicing fees...................... 819 697 586
Interest and dividends.............. 11,288 10,530 8,715
Asset management and administration. 1,732 1,377 1,317
Other............................... 116 98 106
Total revenues.................. 22,172 18,732 15,857
Interest expense.................... 8,934 8,190 6,697
Provision for losses on credit
receivables........................ 1,232 744 548
Net revenues.................... 12,006 9,798 8,612
Expenses excluding interest:
Compensation and benefits........... 5,071 4,005 3,535
Occupancy and equipment............. 493 454 421
Brokerage, clearing and exchange
fees............................... 317 289 276
Information processing and
communications..................... 996 889 767
Business development................ 1,027 874 773
Professional services............... 334 246 244
Other............................... 651 690 634
Relocation charge................... -- 59 --
Total expenses excluding
interest....................... 8,889 7,506 6,650
Income before income taxes.......... 3,117 2,292 1,962
Provision for income taxes.......... 1,137 827 705
Net income.......................... $ 1,980 $ 1,465 $ 1,257
Preferred stock dividend
requirements....................... $ 66 $ 65 $ 65
Earnings applicable to common
shares(2).......................... $ 1,914 $ 1,400 $ 1,192
Average common and common equivalent
shares outstanding(2)(3)(4)........ 594,478,535 608,246,433 606,721,462
Primary earnings per share(3)(4).... $ 3.22 $ 2.30 $ 1.96
Fully diluted earnings per
share(3)(4)........................ $ 3.14 $ 2.25 $ 1.93
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF FINANCIAL CONDITION DATA(5):
Total assets.................... $ 238,860
Total stockholders' equity...... 11,702
Long-term borrowings............ 22,642
</TABLE>
- --------
(1) Statement of income data reflect the combination of Dean Witter Discover
data for the calendar years ended December 31 and Morgan Stanley data for
the fiscal year ended November 30, 1996 and the twelve months ended
November 30, 1995 and 1994, restated to reflect a twelve-month
presentation.
(2) The amounts shown for earnings applicable to common shares and for average
common and common equivalent shares outstanding are used to calculate
primary earnings per share.
(3) Dean Witter Discover historical share and per share amounts have been
restated to reflect a two-for-one stock split which became effective
January 14, 1997.
(4) Morgan Stanley historical share and per share amounts for the twelve months
ended November 30, 1995 and 1994 have been restated to reflect a two-for-
one stock split which became effective January 26, 1996.
(5) Statement of financial condition data reflect the combination of Dean
Witter Discover data as of December 31, 1996 and Morgan Stanley data as of
November 30, 1996.
12
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth information on the earnings, dividends
declared and book value per common share for our respective companies on a
historical, pro forma combined and pro forma equivalent basis.
We derived pro forma combined earnings per share (primary and fully diluted)
from the pro forma combined information presented under "Unaudited Pro Forma
Condensed Combined Financial Statements." Pro forma combined cash dividends
declared per share reflect Dean Witter Discover's cash dividends declared in
the periods indicated. We calculated the information in the "Morgan Stanley Pro
Forma Equivalent" column by multiplying the information in the "MSDWD Pro Forma
Combined" column by 1.65, which is the Exchange Ratio of Dean Witter Discover
common stock for each share of Morgan Stanley common stock. We based the book
value per share in the "Dean Witter Discover Historical," "Morgan Stanley
Historical" and the "MSDWD Pro Forma Combined" columns upon outstanding common
shares. The numbers of outstanding common shares in the "MSDWD Pro Forma
Combined" column have been adjusted to include the shares of Dean Witter
Discover common stock to be issued in the merger.
The information set forth below is only a summary and you should read it in
conjunction with the Unaudited Pro Forma Condensed Combined Financial
Statements on pages 64 through 69 and the respective audited consolidated
financial statements of Dean Witter Discover and Morgan Stanley. We incorporate
the audited consolidated financial statements of Dean Witter Discover and
Morgan Stanley into this Joint Proxy Statement/Prospectus by reference. See
"Where You Can Find More Information" on page 113.
<TABLE>
<CAPTION>
MORGAN
DEAN WITTER MORGAN MSDWD STANLEY
DISCOVER STANLEY PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED EQUIVALENT(2)
----------- ---------- --------- -------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE(1):
PRIMARY:
1996......................... $ 2.79 $ 6.27 $ 3.22 $ 5.31
1995......................... $ 2.44 $ 3.49 $ 2.30 $ 3.80
1994......................... $ 2.14 $ 2.86 $ 1.96 $ 3.23
FULLY DILUTED:
1996......................... $ 2.77 $ 5.96 $ 3.14 $ 5.18
1995......................... $ 2.44 $ 3.33 $ 2.25 $ 3.71
1994......................... $ 2.14 $ 2.75 $ 1.93 $ 3.18
DIVIDENDS DECLARED PER
SHARE(1):
1996......................... $ 0.44 $ 0.70 $ 0.44 $ 0.73
1995......................... $ 0.32 $ 0.48 $ 0.32 $ 0.53
1994......................... $ 0.25 $ 0.60 $ 0.25 $ 0.41
BOOK VALUE PER SHARE (END OF
YEAR)(3)(4):
1996......................... $16.16 $35.17 $18.43 $30.41
</TABLE>
- --------
(1) Information for Dean Witter Discover is for the years ended December 31 and
information for Morgan Stanley is for the fiscal year ended November 30,
1996 and the twelve months ended November 30, 1995 and November 30, 1994.
(2) The Morgan Stanley pro forma equivalent per share amounts are calculated by
multiplying the MSDWD pro forma combined amounts by the Exchange Ratio of
1.65.
(3) This information is as of December 31, 1996 for Dean Witter Discover and
November 30, 1996 for Morgan Stanley.
(4) Amounts exclude the effect of potentially dilutive common equivalent
shares.
13
<PAGE>
DEAN WITTER DISCOVER SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of Dean Witter
Discover for each of the years in the five-year period ended December 31, 1996.
We derived this information from the audited consolidated financial statements
of Dean Witter Discover. We incorporate Dean Witter Discover's audited
consolidated financial statements which are included in Dean Witter Discover's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 into
this Joint Proxy Statement/Prospectus by reference. See "Where You Can Find
More Information" on page 113.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Non-interest revenues.............. $ 5,441 $ 4,615 $ 4,095 $ 3,912 $3,208
Interest revenue................... 3,587 3,319 2,507 1,909 1,975
Interest expense................... 1,566 1,515 1,049 815 966
Provision for losses on
receivables....................... 1,232 744 548 458 484
Net credit income.................. 789 1,061 910 636 525
Net operating revenues............. 6,230 5,676 5,006 4,549 3,734
Non-interest expenses.............. 4,685 4,280 3,791 3,553 3,063
Income before income taxes and
cumulative effect of accounting
change............................ 1,545 1,396 1,215 996 703
Income tax expense................. 594 540 474 393 264
Cumulative effect of accounting
change, net of income taxes....... -- -- -- -- 29
Net income......................... 951 856 741 604 411
Ratio of earnings to fixed
charges(1)........................ 2.0 1.9 2.1 2.2 1.7
PER SHARE DATA (2):
Earnings per common share
Primary.......................... $ 2.79 $ 2.44 $ 2.14 $ 1.81 --
Fully diluted.................... 2.77 2.44 2.14 1.81 --
Book value per common share........ 16.16 14.31 12.16 10.19 --
Dividends per common share......... 0.44 0.32 0.25 0.15 --
BALANCE SHEET AND OTHER OPERATING
DATA:
Consumer loans..................... $23,188 $21,556 $16,174 $12,148 $9,795
Total assets....................... 42,414 38,208 31,859 27,662 23,822
Short-term borrowings.............. 5,865 6,326 4,050 3,261 5,665
Deposits........................... 7,213 6,191 5,209 4,888 4,857
Long-term borrowings............... 8,144 6,732 5,293 3,140 --
Shareholders' equity............... 5,164 4,834 4,108 3,477 2,673
Return on average shareholders'
equity(3)......................... 19.0% 19.2% 19.5% 19.6% 17.6%
</TABLE>
- --------
(1) For purposes of these calculations, earnings before fixed charges consists
of income before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest component of rent expense.
(2) Per share data has been restated to reflect Dean Witter Discover's two-for-
one stock split which became effective January 14, 1997.
(3) Return on average shareholders' equity for 1992 excludes the effects of a
$28.6 million charge for the cumulative effect of a change in the method of
accounting for postretirement benefits other than pensions, a nonrecurring
gain of $32.1 million from the initial public offering of SPS Transaction
Services, Inc. common stock and a $133.0 million capital contribution from
Sears, Roebuck and Co. on December 31, 1992. Return on average
shareholders' equity for 1992 giving effect to the capital contribution at
December 31, 1992 would have been 17.1%.
14
<PAGE>
MORGAN STANLEY SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of Morgan
Stanley for certain of its fiscal periods in the five-year period ended
November 30, 1996. We derived this information from the audited consolidated
financial statements of Morgan Stanley. We incorporate the audited consolidated
financial statements of Morgan Stanley which are included in Morgan Stanley's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996 into
this Joint Proxy Statement/Prospectus by reference. See "Where You Can Find
More Information" on page 113.
<TABLE>
<CAPTION>
AT OR FOR THE
------------------------------------------------------------------------------
FISCAL PERIOD
ENDED FISCAL PERIOD
FISCAL YEAR NOVEMBER 30, ENDED FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED 1995 NOVEMBER 30, ENDED ENDED ENDED
NOVEMBER 30, ANNUALIZED 1995 JANUARY 31, JANUARY 31, JANUARY 31,
1996 (UNAUDITED)(1) (10 MONTHS)(1) 1995 1994 1993
------------ -------------- -------------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Investment banking..... $ 1,944 $ 1,453 $ 1,211 $ 919 $ 1,238 $ 965
Principal
transactions:
Trading.............. 2,210 1,346 1,122 1,104 1,459 953
Investments.......... 86 122 102 139 158 128
Commissions............ 613 525 437 449 393 312
Interest and
dividends.............. 7,701 7,127 5,939 6,406 5,660 4,814
Asset management and
administration........ 582 372 310 350 258 200
Other.................. 8 4 3 9 10 10
Total revenues....... 13,144 10,949 9,124 9,376 9,176 7,382
Interest expense....... 7,368 6,601 5,501 5,875 5,020 4,362
Net revenues......... 5,776 4,348 3,623 3,501 4,156 3,020
Expenses excluding
interest:
Compensation and
benefits............... 2,863 2,154 1,795 1,733 2,049 1,457
Other.................. 1,341 1,134 945 1,115 907 770
Relocation charge...... -- -- -- 59 -- --
Total expenses
excluding interest... 4,204 3,288 2,740 2,907 2,956 2,227
Income before income
taxes................... 1,572 1,060 883 594 1,200 793
Provision for income
taxes................... 543 340 283 199 414 283
Net income.............. $ 1,029 $ 720 $ 600 $ 395 $ 786 $ 510
Earnings applicable to
common shares(2)....... $ 963 $ 655 $ 546 $ 330 $ 731 $ 461
Ratio of earnings to
fixed charges(3)........ 1.2 1.2 1.2 1.1 1.2 1.2
Ratio of earnings to
fixed charges and
preferred stock
dividends(3)........... 1.2 1.1 1.1 1.1 1.2 1.2
PER SHARE DATA(4):
Earnings per common
share
Primary................ $ 6.27 $ 4.18 $ 3.48 $ 2.09 $ 4.80 $ 2.95
Fully diluted.......... $ 5.96 $ 4.00 $ 3.33 $ 2.02 $ 4.58 $ 2.86
Book value per common
share................... $ 35.03 $ 28.18 $ 28.18 $ 24.89 $ 23.07 $ 18.36
Dividends per common
share................... $ 0.70 $ 0.64(5) $ 0.48 $ 0.60 $ 0.54 $ 0.478
BALANCE SHEET AND OTHER
OPERATING DATA:
Total assets............ $196,446 $143,753 $143,753 $116,694 $ 97,242 $ 80,353
Total capital(6)........ $ 18,917 $ 14,345 $ 14,345 $ 12,057 $ 9,813 $ 6,570
Long-term borrowings(6). $ 12,379 $ 9,171 $ 9,171 $ 7,502 $ 5,344 $ 3,136
Shareholders' equity.... $ 6,538 $ 5,174 $ 5,174 $ 4,555 $ 4,469 $ 3,434
Return on average common
equity.................. 20.9% 16.2% 16.2%(7) 8.8% 23.7% 17.6%
</TABLE>
15
<PAGE>
- --------
(1) Fiscal 1995 was a ten-month period resulting from the change in Morgan
Stanley's fiscal year-end from January 31 to November 30. The information
presented for "Fiscal Period Ended November 30, 1995 Annualized" is
intended to facilitate more meaningful comparisons with the full year
operating results of fiscal 1996 and prior years.
(2)The amounts shown for earnings applicable to common shares are used to
calculate primary earnings per share.
(3) For purposes of these calculations, earnings before fixed charges consists
of income before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest component of rent expense.
(4) All per share amounts prior to the fiscal year ended November 30, 1996 have
been restated to reflect a two-for-one common stock split which became
effective January 26, 1996.
(5) Quarterly dividend has been annualized.
(6) These amounts exclude the current portion of long-term borrowings and
include Capital Units.
(7) Return on average common equity for fiscal period ended November 30, 1995
has been annualized.
16
<PAGE>
MORGAN STANLEY SUMMARY FINANCIAL DATA
The following table presents historical summary financial data of Morgan
Stanley for a five-year period ended November 30, 1996 on periods consistent
with a November 30 fiscal year-end.
<TABLE>
<CAPTION>
AT OR FOR THE
----------------------------------------------------------------
FISCAL YEAR 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Investment banking..... $ 1,944 $ 1,374 $ 904 $ 1,247 $ 978
Principal
transactions:
Trading.............. 2,210 1,206 1,192 1,373 1,123
Investments.......... 86 121 154 157 98
Commissions............ 613 510 449 380 300
Interest and
dividends.............. 7,701 7,211 6,208 5,427 4,780
Asset management and
administration........ 582 370 344 236 200
Other.................. 8 5 4 10 16
Total revenues....... 13,144 10,797 9,255 8,830 7,495
Interest expense....... 7,368 6,675 5,649 4,805 4,380
Net revenues......... 5,776 4,122 3,606 4,025 3,115
Expenses excluding
interest:
Compensation and
benefits............... 2,863 2,023 1,771 1,983 1,508
Other.................. 1,341 1,144 1,088 864 763
Relocation charge...... -- 59 -- -- --
Total expenses
excluding interest... 4,204 3,226 2,859 2,847 2,271
Income before income
taxes................... 1,572 896 747 1,178 844
Provision for income
taxes................... 543 287 231 410 322
Net income before
cumulative effect of a
change in accounting... 1,029 609 516 768 522
Cumulative effect of a
change in accounting... -- -- -- -- (9)
Net income.............. $ 1,029 $ 609 $ 516 $ 768 $ 513
Earnings applicable to
common shares(1)....... $ 963 $ 544 $ 451 $ 713 $ 463
PER SHARE DATA(2):
Earnings per common
share
Primary................ $ 6.27 $ 3.49 $ 2.86 $ 4.65 $ 2.97
Fully diluted.......... $ 5.96 $ 3.33 $ 2.75 $ 4.44 $ 2.85
Book value per common
share................... $ 35.03 $ 28.18 $ 24.19 $ 21.23 $ 17.32
Dividends per common
share................... $ 0.70 $ 0.48 $ 0.60 $ 0.54 $ 0.478
BALANCE SHEET AND OTHER
OPERATING DATA:
Total assets............ $196,446 $143,753 $127,618 $133,857 $113,681
Total capital(3)........ $ 18,917 $ 14,345 $ 11,932 $ 8,495 $ 6,341
Long-term borrowings(3). $ 12,379 $ 9,171 $ 7,459 $ 4,562 $ 3,156
Shareholders' equity.... $ 6,538 $ 5,174 $ 4,473 $ 3,933 $ 3,185
Return on average common
equity.................. 20.9% 13.6% 12.2% 23.9% 18.2%
</TABLE>
- --------
(1)The amounts shown for earnings applicable to common shares are used to
calculate primary earnings per share.
(2) Per share amounts for the 12 months ended November 30, 1995, 1994, 1993 and
1992 have been restated to reflect a two-for-one common stock split which
became effective January 26, 1996.
(3)These amounts exclude the current portion of long-term borrowings and
include Capital Units.
17
<PAGE>
RISK FACTORS
STOCKHOLDERS OF DEAN WITTER, DISCOVER & CO. ("DEAN WITTER DISCOVER") AND
MORGAN STANLEY GROUP INC. ("MORGAN STANLEY" AND, TOGETHER WITH DEAN WITTER
DISCOVER, THE "COMPANIES") SHOULD CONSIDER THE FOLLOWING MATTERS IN
CONSIDERING WHETHER TO VOTE IN FAVOR OF THE ADOPTION OF THE AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL 10, 1997 (THE "MERGER
AGREEMENT"), BETWEEN MORGAN STANLEY AND DEAN WITTER DISCOVER, A COPY OF WHICH
IS ATTACHED HERETO AS ANNEX I, PURSUANT TO WHICH MORGAN STANLEY WILL BE MERGED
WITH AND INTO DEAN WITTER DISCOVER (THE "MERGER"). THESE MATTERS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED
BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS (THIS "JOINT PROXY
STATEMENT/PROSPECTUS").
Fixed Merger Consideration Despite Potential Changes in Stock Prices
Each share of common stock, par value $1.00 per share of Morgan Stanley
("Morgan Stanley Common Stock"), will be converted at such time as a
certificate of merger (the "Certificate of Merger") is duly filed with the
Delaware Secretary of State, or at such time as Dean Witter Discover and
Morgan Stanley agree and specify in the Certificate of Merger (the "Effective
Time"), into the right to receive 1.65 shares (the "Exchange Ratio") of common
stock, par value $0.01 per share, of the combined company (the "MSDWD Common
Stock") (the "Merger Consideration"). The Exchange Ratio is a fixed number and
will not be adjusted in the event of any increases or decreases in the price
of either the common stock of Dean Witter Discover, par value $0.01 per share
("Dean Witter Discover Common Stock"), or Morgan Stanley Common Stock. The
prices of Dean Witter Discover Common Stock and Morgan Stanley Common Stock at
the Effective Time may vary from their respective prices at the date of this
Joint Proxy Statement/Prospectus and at the date of the Dean Witter Discover
1997 Annual Meeting of Stockholders and the Morgan Stanley Special Meeting of
Stockholders, each to be held on May 28, 1997 (the "Dean Witter Discover
Annual Meeting" and the "Morgan Stanley Special Meeting", respectively, and,
together, the "Stockholders' Meetings"). Such variations may be the result of
changes in the business, operations or prospects of Dean Witter Discover or
Morgan Stanley, market assessments of the likelihood that the Merger will be
consummated, the timing thereof and the prospects of the Merger and post-
Merger operations, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Time may occur at a date
later than the Stockholders' Meetings, there can be no assurance that the
prices of Dean Witter Discover Common Stock and Morgan Stanley Common Stock on
the date of the Stockholders' Meetings will be indicative of their respective
prices at the Effective Time. The Merger Agreement provides that the Effective
Time will occur as soon as practicable following the Stockholders' Meetings
and the satisfaction or waiver of the other conditions set forth in the Merger
Agreement, provided that the Effective Time may be postponed by either party
for up to 90 days after such satisfaction or waiver of the conditions to the
extent necessary to obtain any material governmental, regulatory or other
third-party approvals, consents, orders or authorizations required in
connection with or as a result of the Merger. Stockholders of Dean Witter
Discover and Morgan Stanley are urged to obtain current market quotations for
Dean Witter Discover Common Stock and Morgan Stanley Common Stock.
Integration of Operations; Nonrealization of Synergies
The Merger involves the integration of two companies that have previously
operated independently. No assurance can be given that the combined company,
which will be named Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"),
will be able to integrate the respective operations of Dean Witter Discover
and Morgan Stanley without encountering difficulties or experiencing the loss
of key Morgan Stanley or Dean Witter Discover personnel or that the benefits
expected from such integration will be realized. In addition, there can be no
assurance that MSDWD will realize anticipated operating synergies from the
Merger.
Risks Inherent in the Securities Business
Volatility of the Securities Business. MSDWD's securities business,
particularly its involvement in primary and secondary markets for all types of
financial products, including derivatives, will be subject to substantial
positive and negative fluctuations due to a variety of factors that cannot be
predicted with great
18
<PAGE>
certainty, including variations in the fair value of securities and other
financial products and the volatility and liquidity of trading markets.
Fluctuations also occur due to the level of market activity and the size,
number and timing of transactions or assignments (including realization of
returns from MSDWD's principal and merchant banking investments). As a result,
net income and revenues in any particular period may not be representative of
full-year results and may vary significantly from year to year and from
quarter to quarter.
National and Global Factors Affecting Profitability. Results of operations
in the past for each of Dean Witter Discover and Morgan Stanley have been and
in the future for MSDWD may continue to be materially affected by many factors
of a national and international nature, including economic and market
conditions; the availability of capital; the level and volatility of interest
rates; currency values and other market indices; the availability of credit;
inflation; and legislative and regulatory developments. Such factors may also
have an impact on MSDWD's ability to achieve its strategic objectives,
including, without limitation, profitable global expansion.
Increased Competition. MSDWD's results of operations may also be materially
affected by competitive factors. In addition to competition from firms
traditionally engaged in the securities business, there has been increased
competition from other sources, such as commercial banks, insurance companies
and other companies offering financial services, some of whom are much larger
than MSDWD will be. As a result of recent or pending legislative and
regulatory initiatives in the United States to remove or relieve certain
restrictions on commercial banks, competition in some markets which have
traditionally been dominated by investment banks has increased and may
continue to increase in the near future. Such competition, among other things,
will affect MSDWD's ability to attract and retain highly skilled individuals.
In addition, the two complementary trends in the financial services industry
of consolidation and globalization present, among other things, technological,
risk management and other infrastructure challenges that will affect MSDWD's
ability to be and remain competitive.
Highly Regulated Industry. The securities business is highly regulated at
both the state and federal levels in the United States as well as in many of
the foreign countries in which MSDWD will conduct its activities. The failure
of a company to comply with applicable laws or regulations could result in
fines, suspensions of individual employees, revocation of its registration as
broker-dealer or other sanctions. In addition, changes in these laws or
regulations could have an adverse impact on profitability and mode of
operations.
Risks Inherent in the Asset Management Business
Competitive Business. The asset management industry is highly competitive,
with more than 6,300 open-end management investment companies holding over
$3.5 trillion in assets as of December 31, 1996. Competition in the sale of
mutual funds is affected by a number of factors, including investment
objectives and performance, advertising and sales promotion efforts, the level
of fees, distribution channels and the types and quality of services offered.
In addition to fund products offered by other broker-dealers, investment
companies are in competition with funds sold directly by investment management
firms and insurance companies, as well as with other investment alternatives
sold by such companies and by banks and other financial institutions.
Highly Regulated Industry. The asset management business is highly regulated
at both the state and federal levels in the United States as well as in many
of the foreign countries in which MSDWD will conduct its activities. The
failure of a company to comply with applicable laws or regulations could
result in fines, suspensions of individual employees, revocation of its
registration as an investment advisor, broker-dealer or transfer agent, or
other sanctions. In addition, changes in these laws or regulations could have
an adverse impact on profitability and mode of operations.
Effects of Market Decline. In addition, sharp declines in market values of
securities, if prolonged, may adversely affect MSDWD's ability to attract and
maintain assets under management and may reduce MSDWD's revenues because (i) a
decline in the value of assets under management will reduce fees that are
generally calculated as a percentage of the value of such assets and (ii)
investors may respond to such market conditions by withdrawing from equity and
fixed income mutual funds and either investing in, for example, money market
funds which typically have lower management fees or withdrawing entirely from
the securities markets.
19
<PAGE>
Risks Inherent in the Credit Services Businesses
Increased Consolidation. Portions of the credit services industry are highly
competitive. Over the last several years, substantial consolidation has
occurred among processors of credit card transactions and acquirors of credit
card portfolios and, to a lesser extent, among credit card issuers. This has
resulted in a smaller number of competitors, operating more efficiently and
competing more effectively than in the past. In addition, changes in
technology are contributing to a continuing evolution in the nature of and
demand for credit card and related payment services. These trends may affect
the ability of MSDWD to be and remain competitive, to retain existing
cardmembers and merchant and cash outlets for its cards, to attract new
cardmembers and merchant and cash outlets on terms (including price) that are
consistent with MSDWD's business objectives and to maintain the profitability
and the level of usage of its credit card services.
Risks from Increased Credit Losses and Funding Constraints. The credit
services businesses may be adversely affected by the risks of (i) increased
credit losses as a result of economic downturns, changes in consumer payment
patterns, changes in the characteristics of the consumers to whom MSDWD
extends credit and bankruptcy trends; (ii) MSDWD's potential inability to
obtain short- or long-term funding for its activities on terms and in amounts
necessary to conduct its business and to maintain profitable interest-rate
margins without excessive volatility; (iii) fraud by merchants, cardholders
and third parties; and (iv) losses as a result of business failures of
merchant customers.
Other Risks. The credit services businesses may also be adversely affected
by the risks of (i) a decrease in revenue as a result of declines in consumer
usage of MSDWD's credit cards, increased discretionary payment of credit
balances, other changes in consumer behavior and a decline in merchant
acceptance of or cash advance access for MSDWD's credit cards and (ii) adverse
federal and state legislative and regulatory developments.
Forward-Looking Statements May Prove Inaccurate
Dean Witter Discover and Morgan Stanley have made forward-looking statements
in this document (including documents that are incorporated by reference
herein) that are subject to risks and uncertainties. Forward-looking
statements include the information concerning possible or assumed future
results of operations of Dean Witter Discover, Morgan Stanley or MSDWD set
forth under "The Companies," "The Merger--Reasons for the Merger and Board
Recommendations" and "The Merger--Opinions of Financial Advisors," and those
preceded by, followed by or that include the words "believes," "expects,"
"anticipates" or similar expressions. Such forward-looking statements are
based on the beliefs of Dean Witter Discover, Morgan Stanley and their
respective Boards in which they attempt to analyze the Companies' competitive
position in their respective industries and the factors affecting their
respective businesses. Stockholders should understand that each of the
foregoing risk factors, in addition to those discussed elsewhere in this
document and in the documents which are incorporated by reference herein,
could affect the future results of MSDWD, Dean Witter Discover or Morgan
Stanley, and could cause those results to differ materially from those
expressed in the forward-looking statements contained or incorporated by
reference herein. In addition, there can be no assurance that (i) Dean Witter
Discover, Morgan Stanley and their respective Boards have correctly identified
and assessed all of the factors affecting the Companies' businesses; (ii) the
publicly available and other information with respect to these factors on
which Dean Witter Discover, Morgan Stanley and their Boards have based their
analyses is complete or correct; (iii) Dean Witter Discover's, Morgan
Stanley's and their respective Boards' analyses are correct; or (iv) MSDWD's
strategy, which is based in part on these analyses, will be successful.
THE STOCKHOLDERS' MEETINGS
Date, Times and Places
Dean Witter Discover. The Dean Witter Discover Annual Meeting will be held
at Harborside Financial Center, Jersey City, New Jersey, at 9:00 A.M. on May
28, 1997.
Morgan Stanley. The Morgan Stanley Special Meeting will be held at 1585
Broadway, New York, New York, at 9:30 A.M. on May 28, 1997.
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Matters to be Considered at the Stockholders' Meetings
Dean Witter Discover. At the Dean Witter Discover Annual Meeting, holders of
Dean Witter Discover Common Stock are being asked (i) to adopt the Merger
Agreement (including the issuance of MSDWD Common Stock, the amendment of the
Restated Certificate of Incorporation of Dean Witter Discover (the "Dean
Witter Discover Certificate") and the reconstitution of the Board of Directors
of MSDWD (the "MSDWD Board"), in each case pursuant to the Merger as described
herein), (ii) to elect seven members to the Dean Witter Discover Board to hold
office until the next annual meeting of stockholders or, if the Merger is
consummated, until the expiration of their respective terms as described
herein and, in each case, until their successors are elected and qualify,
(iii) to ratify the appointment of Deloitte & Touche llp as Dean Witter
Discover's independent auditors for the fiscal year ending December 31, 1997
and (iv) to approve the Dean Witter Discover Employees' Equity Accumulation
Plan. THE DEAN WITTER DISCOVER BOARD HAS DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF DEAN WITTER DISCOVER,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT DEAN WITTER DISCOVER STOCKHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT. IN ADDITION, THE DEAN WITTER DISCOVER BOARD UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE DEAN WITTER DISCOVER BOARD
NOMINEES DESCRIBED HEREIN, A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS DEAN WITTER DISCOVER'S INDEPENDENT AUDITORS AND A
VOTE "FOR" APPROVAL OF THE DEAN WITTER DISCOVER EMPLOYEES' EQUITY ACCUMULATION
PLAN. See "The Merger," "Certain Provisions of the Merger Agreement" and
"Other Information for Dean Witter Discover Annual Meeting."
Morgan Stanley. At the Morgan Stanley Special Meeting, holders of Morgan
Stanley Common Stock and Morgan Stanley ESOP Convertible Preferred Stock,
liquidation preference $35.875 per share (the "Morgan Stanley ESOP Preferred
Stock" and, together with the Morgan Stanley Common Stock, the "Morgan Stanley
Voting Stock"), are being asked to adopt the Merger Agreement. See "The
Merger" and "Certain Provisions of the Merger Agreement." As described below,
holders of Morgan Stanley preferred stock, without par value ("Morgan Stanley
Preferred Stock"), other than the Morgan Stanley ESOP Preferred Stock are not
entitled to vote at the Morgan Stanley Special Meeting. THE MORGAN STANLEY
BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF MORGAN STANLEY, HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT MORGAN STANLEY
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
Record Date; Stock Entitled to Vote; Quorum
Dean Witter Discover. Only holders of record of Dean Witter Discover Common
Stock at the close of business on the Record Date are entitled to notice of
and to vote at the Dean Witter Discover Annual Meeting. On the Record Date,
324,950,195 shares of Dean Witter Discover Common Stock were issued and
outstanding and held by approximately 196,005 holders of record. A majority of
the shares of Dean Witter Discover Common Stock issued and outstanding and
entitled to vote on the Record Date must be represented in person or by proxy
at the Dean Witter Discover Annual Meeting in order for a quorum to be present
for purposes of transacting business at the Dean Witter Discover Annual
Meeting, including voting on the adoption of the Merger Agreement. In the
event that a quorum is not present at the Dean Witter Discover Annual Meeting,
it is expected that such meeting will be adjourned or postponed to solicit
additional proxies. Holders of record of Dean Witter Discover Common Stock on
the Record Date are each entitled to one vote per share on each matter to be
considered at the Dean Witter Discover Annual Meeting.
Morgan Stanley. Holders of record of Morgan Stanley Common Stock and of
Morgan Stanley ESOP Preferred Stock at the close of business on the Record
Date are entitled to receive notice of and to vote at the Morgan Stanley
Special Meeting. The holders of Morgan Stanley Common Stock and Morgan Stanley
ESOP Preferred Stock vote together as a single class. On the Record Date,
158,008,632 shares of Morgan Stanley Common Stock were issued and outstanding
and held by approximately 879 holders of record, and 3,681,881 shares of
Morgan Stanley ESOP Preferred Stock were outstanding and held of record by a
trustee (the "ESOP Trustee") for Morgan Stanley's Employee Stock Ownership
Plan (the "ESOP"), of which 1,548,994 whole shares of Morgan Stanley ESOP
Preferred Stock entitled to vote were allocated to and, beneficially owned by
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approximately 6,642 participants in Morgan Stanley's ESOP and 2,129,180 shares
of Morgan Stanley ESOP Preferred Stock entitled to vote were unallocated. An
aggregate of 3,707 fractional shares were allocated to, and beneficially owned
by, participants in Morgan Stanley's ESOP, but were not entitled to vote. A
majority of the combined voting power of the shares of Morgan Stanley Voting
Stock issued and outstanding and entitled to vote on the Record Date must be
represented in person or by proxy at the Morgan Stanley Special Meeting in
order for a quorum to be present for purposes of voting on the adoption of the
Merger Agreement. In the event that a quorum is not present at the Morgan
Stanley Special Meeting, it is expected that such meeting will be adjourned or
postponed to solicit additional proxies. Holders of record of Morgan Stanley
Common Stock on the Record Date are each entitled to one vote per share on
each matter to be voted on at the Morgan Stanley Special Meeting. Each share
of Morgan Stanley ESOP Preferred Stock held of record on the Record Date is
entitled to 2.7 votes per share on each matter to be voted on at the Morgan
Stanley Special Meeting. Participants in the ESOP are entitled to direct the
ESOP Trustee to vote the shares of Morgan Stanley ESOP Preferred Stock that
have been allocated to their accounts and the ESOP Trustee is required under
the terms of the ESOP to follow any such directions that are timely received.
If a participant in the ESOP fails to provide timely directions to the ESOP
Trustee with respect to the voting of shares allocated to such participant's
account, the ESOP Trustee will abstain from voting such shares. With respect
to unallocated shares of Morgan Stanley ESOP Preferred Stock held by the ESOP
Trustee, the ESOP Trustee is required under the terms of the ESOP to vote all
such shares in favor of or against the matter being voted on in the respective
amounts determined by multiplying the total number of unallocated shares of
Morgan Stanley ESOP Preferred Stock by a fraction the numerator of which is
the number of shares of Morgan Stanley ESOP Preferred Stock allocated to
participants giving instructions to vote in favor of or against the matter,
respectively, with respect to their allocated shares of Morgan Stanley ESOP
Preferred Stock and the denominator of which is the total number of shares of
such Morgan Stanley ESOP Preferred Stock allocated to all participants who
gave instructions to have their allocated shares voted, in each case, with
respect to such matter. Holders of Morgan Stanley Preferred Stock, other than
the Morgan Stanley ESOP Preferred Stock, at the close of business on the
Record Date are entitled to receive notice of the Morgan Stanley Special
Meeting, but are not entitled to vote on the proposal to adopt the Merger
Agreement.
Votes Required
Dean Witter Discover. The adoption of the Merger Agreement requires the
affirmative vote of the holders of record of a majority of the shares of Dean
Witter Discover Common Stock outstanding on the Record Date. The election of
directors requires a plurality of the votes cast, and each of the ratification
of the appointment of Deloitte & Touche llp as Dean Witter Discover's
independent auditors for the fiscal year ending December 31, 1997 and the
approval of the Dean Witter Discover Employees' Equity Accumulation Plan
requires the affirmative vote of a majority of the votes cast in respect of
shares of Dean Witter Discover Common Stock present, in person or by proxy,
and entitled to vote at the Dean Witter Discover Annual Meeting. AN ABSTENTION
OR BROKER NON-VOTE (AS DEFINED BELOW) WITH RESPECT TO THE PROPOSAL TO ADOPT
THE MERGER AGREEMENT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST SUCH
PROPOSAL, BUT WILL HAVE NO EFFECT ON ANY OTHER PROPOSAL. WITH REGARD TO THE
ELECTION OF DIRECTORS AT THE DEAN WITTER DISCOVER ANNUAL MEETING, VOTES MAY BE
CAST IN FAVOR OF OR WITHHELD WITH RESPECT TO ANY OR ALL NOMINEES; VOTES THAT
ARE WITHHELD WILL BE EXCLUDED ENTIRELY FROM THE VOTE AND WILL HAVE NO EFFECT.
Morgan Stanley. The adoption of the Merger Agreement requires the
affirmative vote of a majority of the combined voting power of the shares of
Morgan Stanley Voting Stock outstanding on the Record Date, voting together as
a single class. AN ABSTENTION FROM VOTING OR A BROKER NON-VOTE WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
Share Ownership of Management and Certain Stockholders
Dean Witter Discover. At the close of business on the Record Date, directors
and executive officers of Dean Witter Discover and their affiliates
beneficially owned and were entitled to vote 1,812,169 shares of Dean Witter
Discover Common Stock, which represented approximately 0.6% of the shares of
Dean Witter Discover Common Stock outstanding on such date. Each such director
and executive officer has indicated his or her present intention to vote, or
cause to be voted, the Dean Witter Discover Common Stock owned by him or her
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for adoption of the Merger Agreement and the other proposals to be presented
at the Dean Witter Discover Annual Meeting.
Morgan Stanley. Certain stockholders of Morgan Stanley hold their shares of
Morgan Stanley Common Stock subject to agreements relating to, among other
things, the voting and disposition of such shares. Such agreements include the
Stockholders' Agreement dated as of February 14, 1986, as amended (the
"Stockholders' Agreement"), among Morgan Stanley and those persons who were
stockholders (the "Recapitalization Signatories") of Morgan Stanley at the
time of a recapitalization effected in contemplation of Morgan Stanley's
initial public offering (all of whom were Managing Directors or Principals of
Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co.") and employees of
Morgan Stanley at such time) and certain agreements (the "MAS Agreements")
entered into between Morgan Stanley and certain former general partners (the
"MAS Signatories") of Miller Anderson & Sherrerd, LLP ("Miller Andersen &
Sherrerd") who received shares of Morgan Stanley Common Stock in connection
with Morgan Stanley's purchase of Miller Anderson & Sherrerd completed on
January 3, 1996. In addition, various voting agreements (the "Plan Agreements"
and, together with the Stockholders' Agreement and the MAS Agreements, the
"Voting Agreements") have been entered into between Morgan Stanley, certain of
its employees and/or a trustee for a trust that holds shares of Morgan Stanley
Common Stock on behalf of such employees (together with the Recapitalization
Signatories and the MAS Signatories, the "Signatories") in connection with the
granting to such employees of stock awards, stock unit awards and/or option
awards under each of Morgan Stanley's 1988 Equity Incentive Compensation Plan,
as amended (the "1988 EICP"), and the 1995 Equity Incentive Compensation Plan
(the "1995 EICP" and, together with the 1988 EICP, the "EICPs"), options under
Morgan Stanley's 1986 Stock Option Plan (the "1986 Stock Option Plan") and
performance units under Morgan Stanley's Performance Unit Plan (the
"Performance Unit Plan"). The shares of Morgan Stanley Common Stock subject to
the Plan Agreements have been issued pursuant to stock awards or stock unit
awards and performance units granted to eligible employees under the EICPs and
the Performance Unit Plan, respectively, and upon the exercise of options
granted to eligible employees under the EICPs and the 1986 Stock Option Plan,
respectively. Shares of Morgan Stanley ESOP Preferred Stock are not subject to
any of the Voting Agreements.
The Voting Agreements provide that, before any vote of the stockholders of
Morgan Stanley occurs, a preliminary vote (the "Preliminary Vote") will be
taken at which each Signatory who is an employee of Morgan Stanley on such
date may vote all of his or her shares of Morgan Stanley Common Stock subject
to the Voting Agreements in such manner as such Signatory may determine in his
or her sole discretion. At any meeting of the stockholders called to vote with
respect to any corporate action, a Signatory who was an employee of Morgan
Stanley at the time of the Preliminary Vote or a trustee for a trust that
holds shares of Morgan Stanley Common Stock corresponding to stock units
awarded under the EICPs (including any such units awarded to former employees,
who do not participate in the Preliminary Vote) and who exercises his or her
right to vote at such meeting must vote the shares of Morgan Stanley Common
Stock that are subject to the Voting Agreements in accordance with the vote of
the majority of the shares of Morgan Stanley Common Stock voted in the
Preliminary Vote. Signatories who are no longer employed by Morgan Stanley on
the date of the Preliminary Vote do not participate in, and are not required
to vote their shares of Morgan Stanley Common Stock in accordance with the
vote of the majority of the shares of Morgan Stanley Common Stock voted in,
the Preliminary Vote.
Morgan Stanley and Dean Witter Discover anticipate that the Voting
Agreements will continue in effect following the Effective Time and that the
shares of MSDWD Common Stock received in the Merger in exchange for the Morgan
Stanley Common Stock that is subject to the Voting Agreements will remain
subject to the Voting Agreements.
At the close of business on the Record Date, approximately 48,210,000 shares
of Morgan Stanley Common Stock (constituting approximately 28.7% of the votes
that are entitled to be cast at the Morgan Stanley Special Meeting) were
beneficially owned by certain employees of Morgan Stanley and were subject to
certain of the Voting Agreements and will be required to be voted in
accordance with the results of the Preliminary Vote. A Preliminary Vote with
respect to the proposal to adopt the Merger Agreement will be taken on or
about May 7, 1997.
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At the close of business on the Record Date, directors and executive
officers of Morgan Stanley and their affiliates beneficially owned and were
entitled to vote 11,434,051 shares of Morgan Stanley Common Stock and 7,858
shares of Morgan Stanley ESOP Preferred Stock, allocated to their accounts as
ESOP participants. Substantially all of the shares of Morgan Stanley Common
Stock beneficially owned by the executive officers are subject to the Voting
Agreements. Each such director and executive officer has indicated his or her
present intention to vote, or cause to be voted, the Morgan Stanley Common
Stock owned by him or her and the Morgan Stanley ESOP Preferred Stock
allocated to his or her ESOP accounts for adoption of the Merger Agreement
(subject to voting restrictions contained in the Voting Agreements).
Voting of Proxies
Shares represented by all properly executed proxies received in time for the
Stockholders' Meetings will be voted at such Stockholders' Meetings in the
manner specified by the holders thereof, subject, in the case of certain of
the Morgan Stanley stockholders, to the terms of the Voting Agreements.
Properly executed proxies that do not contain voting instructions will be
voted in favor of adoption of the Merger Agreement and, in connection with the
Dean Witter Discover Annual Meeting, in favor of (i) the election of each
nominee to the Dean Witter Discover Board, (ii) the ratification of the
appointment of Deloitte & Touche llp as Dean Witter Discover's independent
auditors for the fiscal year ending December 31, 1997 and (iii) the approval
of the Dean Witter Discover Employees' Equity Accumulation Plan.
Abstentions may be specified on all proposals except, in connection with the
Dean Witter Discover Annual Meeting, the election of directors. Shares of
Morgan Stanley Voting Stock or Dean Witter Discover Common Stock represented
at the applicable Stockholders' Meeting but not voting, including shares of
Morgan Stanley Voting Stock or Dean Witter Discover Common Stock, as the case
may be, for which proxies have been received, but with respect to which
holders of shares have abstained on any matter, will be treated as present at
the applicable Stockholders' Meeting for purposes of determining the presence
or absence of a quorum for the transaction of all business.
For voting purposes at the Stockholders' Meetings, only shares affirmatively
voted in favor of a proposal (including properly executed proxies not
containing voting instructions) will be counted as favorable votes for such
proposal. The failure to submit a proxy (or to vote in person) or the
abstention from voting will have the same effect as a vote against adoption of
the Merger Agreement, but will have no effect on any of the other proposals.
With regard to the election of directors at the Dean Witter Discover Annual
Meeting, votes may be cast in favor of or withheld with respect to any or all
nominees; votes that are withheld will be excluded entirely from the vote and
will have no effect. In addition, under the applicable rules of the New York
Stock Exchange, Inc. (the "NYSE"), brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote such customers' shares with respect to the proposals to
adopt the Merger Agreement and to approve the Dean Witter Discover Employees'
Equity Accumulation Plan in the absence of specific instructions from such
customers ("broker non-votes"). Broker non-votes will also have the same
effect as votes against adopting the Merger Agreement but no effect on any
other matter.
Participants in the Dean Witter START Plan (Saving Today Affords Retirement
Tomorrow) (the "DW START"), the SPS Transaction Services, Inc. START Plan
(Saving Today Affords Retirement Tomorrow) (the "SPS START"), the Dean Witter
Reynolds Inc. Account Executive Productivity Compensation Plan (the "AE
Plan"), the Dean Witter Reynolds Inc. Branch Manager Compensation Plan (the
"Branch Manager Plan"), the Dean Witter Discover Employee Stock Purchase Plan
(the "ESPP"), the Dean Witter, Discover & Co. Sub Trust of The Savings and
Profit Sharing Fund of Sears Employees (the "Sears Sub Trust") and the Dean
Witter, Discover & Co. Sub Trust of the Savings and Profit Sharing Fund of
Allstate Employees (the "Allstate Sub Trust") who receive this Joint Proxy
Statement/Prospectus in their capacity as participants will receive a voting
instruction form in lieu of a proxy. The trustees of the DW START, SPS START,
Sears Sub Trust and Allstate Sub Trust will, subject to the requirements of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
vote the shares, in person or by proxy, in accordance with instructions they
receive on or before May 23, 1997. If timely voting instructions are not
received, the trustee of the DW START and SPS START will, subject to the
requirements of ERISA, vote all shares for which timely instructions have not
been
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received in direct proportion to the voting of shares for which timely
instructions are received. If timely voting instructions are not received by
the trustee of the Sears Sub Trust and Allstate Sub Trust, the trustee will,
subject to the requirements of ERISA: (i) if the trustee receives proper
voting instructions with respect to at least 50% of the Dean Witter Discover
Common Stock held in the Sears or Allstate Sub Trust, respectively, vote the
shares for which timely instructions are not received in the same proportion
as the trustee is directed to vote shares for which timely voting instructions
have been received by each Sub Trust or (ii) if the trustee receives proper
voting instructions with respect to less than 50% of the Dean Witter Discover
Common Stock held in the Sears or Allstate Sub Trust, respectively, vote
shares for which timely voting instructions have not been received in the
trustee's discretion. The custodian of the AE Plan, the Branch Manager Plan
and the ESPP will vote the shares, in person or by proxy, in accordance with
instructions the custodian receives on or before May 23, 1997, but will not
vote shares for which timely instructions are not received.
The persons named as proxies by a Morgan Stanley or Dean Witter Discover
stockholder may propose and vote for one or more adjournments of the
applicable Stockholders' Meeting, including, without limitation, adjournments
to permit further solicitations of proxies in favor of any proposal; provided,
however, that no proxy that is voted against the proposal to adopt the Merger
Agreement will be voted in favor of any such adjournment or postponement.
Revocability of Proxies
The grant of a proxy on the enclosed Morgan Stanley or Dean Witter Discover
form of proxy does not preclude a stockholder from voting in person. A
stockholder may revoke a proxy at any time prior to its exercise by filing
with the General Counsel and Secretary of Morgan Stanley (in the case of a
Morgan Stanley stockholder) or the Executive Vice President, General Counsel
and Secretary of Dean Witter Discover (in the case of a Dean Witter Discover
stockholder) a duly executed revocation of proxy, by submitting a duly
executed proxy bearing a later date or by appearing at the applicable
Stockholders' Meeting and voting in person at such Stockholders' Meeting.
Attendance at the relevant Stockholders' Meeting will not, in and of itself,
constitute revocation of a proxy.
Solicitation of Proxies
Each of Morgan Stanley and Dean Witter Discover will bear the cost of the
solicitation of proxies from its own stockholders, except that Morgan Stanley
and Dean Witter Discover will share equally the cost of printing this Joint
Proxy Statement/Prospectus and the applicable fees associated with the filing
of this Joint Proxy Statement/Prospectus with the Securities and Exchange
Commission (the "Commission"). In addition to solicitation by mail, the
directors, officers and employees of each of Morgan Stanley and Dean Witter
Discover and its subsidiaries may solicit proxies from stockholders of such
Company by telephone or telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and Morgan Stanley and Dean Witter Discover will
reimburse such custodians, nominees and fiduciaries for their reasonable out-
of-pocket expenses in connection therewith.
Georgeson & Company Inc. ("Georgeson") will assist in the solicitation of
proxies by Morgan Stanley and by Dean Witter Discover. Dean Witter Discover
will pay Georgeson a fee of $19,000, plus reimbursement of certain out-of-
pocket expenses, and has agreed to indemnify Georgeson against losses arising
out of Georgeson's proxy soliciting services on behalf of Dean Witter
Discover. Morgan Stanley will pay Georgeson a fee of $7,500, plus
reimbursement of certain out-of-pocket expenses, and has agreed to indemnify
Georgeson against losses arising out of Georgeson's proxy soliciting services
on behalf of Morgan Stanley.
Neither the Board of Directors of Morgan Stanley (the "Morgan Stanley
Board") nor the Board of Directors of Dean Witter Discover (the "Dean Witter
Discover Board" and, together with the Morgan Stanley Board, the "Boards") is
aware of any matter other than those set forth in this Joint Proxy
Statement/Prospectus which will be brought before the Morgan Stanley Special
Meeting or the Dean Witter Discover Annual Meeting, respectively. If, however,
other matters are presented at either Stockholders' Meeting, proxies will be
voted in accordance with the discretion of the holders of such proxies.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
THE DISCUSSION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OF THE MERGER AND
THE PRINCIPAL TERMS OF THE MERGER AGREEMENT IS SUBJECT TO, AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX I AND IS
INCORPORATED HEREIN BY REFERENCE.
Background to the Merger
In the fall of 1993, Philip J. Purcell, Chairman and Chief Executive of Dean
Witter Discover, and John J. Mack, President of Morgan Stanley, held brief
preliminary discussions regarding strategic opportunities to leverage each
Company's strengths in asset accumulation and product origination,
respectively. In early 1994, Messrs. Mack and Purcell had further discussions
regarding potential strategic opportunities. These conversations never
developed into any detailed plans or actions on the part of either party.
During the period from June through October 1995, senior representatives of
Dean Witter Discover, including Mr. Purcell, Mitchell M. Merin, Executive Vice
President and Chief Administrative Officer, and Andrew Schoder, Senior Vice
President, Director of Planning, met with senior representatives of Morgan
Stanley, including Mr. Mack, Philip N. Duff, Chief Financial Officer, and
Stephen H. Belgrad, Vice President, Strategic Planning. These exploratory
discussions generally focused on various possible strategic joint venture
arrangements which would permit the Companies to leverage their respective
strengths. The representatives explored alternatives that would enable Dean
Witter Discover to access Morgan Stanley's quality global origination flow of
underwritten equity products, investment banking and research capabilities as
well as its global presence and financial expertise, and enable Morgan Stanley
to utilize Dean Witter Discover's strengths in U.S. retail distribution and
asset management. As part of these discussions, the senior executives also
discussed the ongoing consolidation and globalization of the financial
services industry. In August 1995, the Companies entered into a
Confidentiality Agreement (which was extended in January 1997) containing
customary terms and conditions.
During these discussions in the late fall of 1995, management
representatives briefly considered the possible combination of the two
Companies based on the complementary nature of their businesses and the
compatibility of the Companies' analyses of the long-term strategic trends in
the financial services industry. During these discussions, the management
representatives noted that certain risks relating to management and successful
realization of potential synergies raised by joint venture structures would be
mitigated by a full combination of the Dean Witter Discover and Morgan Stanley
businesses.
In the first quarter of 1996, Dean Witter Discover and Morgan Stanley
completed their analyses of the joint venture and merger alternatives which
had been discussed, and Morgan Stanley and Dean Witter Discover both decided,
as a result of the identified risks, to terminate discussions regarding the
possible joint venture and other strategic alliances that had been explored.
In connection with the discussions between Dean Witter Discover and Morgan
Stanley in the second half of 1995, the Executive Committee of the Morgan
Stanley Board and other members of senior management met on several occasions
to review the progress of the Dean Witter Discover discussions as well as
Morgan Stanley's overall strategic position in the financial services industry
in light of the growing importance of individually-held assets. As part of
these discussions, a consensus was formed regarding the importance of retail
asset accumulation for Morgan Stanley's future growth. As a result, Morgan
Stanley decided, in June 1996, to acquire retail asset manager Van Kampen
American Capital, Inc. ("Van Kampen American Capital"). The Executive
Committee of the Morgan Stanley Board and senior management of Morgan Stanley
continued their consideration of strategic issues throughout the fall and
winter of 1996, including a review of successful precedent strategies in
financial services, the key trends driving profitability and growth in the
financial services sector and the prospects for various Morgan Stanley
businesses, as well as a review of potential strategic alternatives.
In October 1996, Mr. Purcell reviewed with the Dean Witter Discover Board
the status of certain Dean Witter Discover strategic initiatives. As a result
of such review, the Dean Witter Discover Board agreed to have
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Mr. Purcell discuss certain strategic alternatives with Morgan Stanley and
also scheduled a special Dean Witter Discover Board meeting in December 1996
to analyze Dean Witter Discover's long-term business strategies for its
various business units.
On December 4, 1996, Messrs. Mack and Purcell met and among other things
explored whether Dean Witter Discover and Morgan Stanley were mutually
interested in preliminarily discussing a potential merger of equals business
combination. Both agreed to consider the potential benefits and risks
associated with a business combination and to consult with certain key
executives of their respective companies. Each agreed that his company was not
for sale and that the merger of equals structure might represent a desirable
approach to achieve strategic goals in light of changing industry conditions.
At its special meeting in December 1996, the Dean Witter Discover Board
reviewed in detail the business environment and the trend toward consolidation
in the financial services industry. The directors discussed the announced
mergers between several of the largest commercial banks. They also discussed
actions by banking regulators that would have the effect of easing business
combinations between commercial banks and investment banks. In addition, the
Dean Witter Discover Board reviewed various strategies designed to increase
market share, achieve product line parity and extend its securities business
globally, all with a view to maximizing stockholder value. The Dean Witter
Discover Board reviewed a status report from Mr. Purcell about his discussions
with Morgan Stanley and authorized him to continue these discussions.
On January 15, 1997, Messrs. Mack and Purcell met to discuss their
respective views of the benefits and risks of a business combination of Dean
Witter Discover and Morgan Stanley. They agreed that further discussion and
evaluation of a business combination would be desirable. On January 21, 1997,
Messrs. Mack and Purcell met again to discuss preliminarily the principal
terms of a merger of equals business combination. During the next several
days, management of both companies continued to analyze a possible combination
and further preliminary discussions were held. On January 27 and 28, 1997,
senior Dean Witter Discover and Morgan Stanley management members exchanged
and discussed certain business, personnel, legal and financial information
relating to Dean Witter Discover and Morgan Stanley, which was reviewed by the
respective functional areas of each organization. On Wednesday, January 29,
1997, Messrs. Mack and Purcell, Richard B. Fisher, Chairman of the Board of
Morgan Stanley and Thomas C. Schneider, Executive Vice President and Chief
Financial Officer of Dean Witter Discover, met to discuss certain significant
terms of a potential business combination, including, among others, the
appropriate exchange ratio, the structure of the combined company's board of
directors, and certain senior management roles. On Thursday, January 30, 1997,
Messrs. Mack, Fisher, Purcell and Schneider continued their discussions on key
issues. On Friday, January 31, 1997, Messrs. Purcell and Mack agreed on the
exchange ratio they could each recommend and reviewed the other principal
terms of a business combination and concluded that they would propose for
their respective Boards' consideration a Dean Witter Discover and Morgan
Stanley merger of equals transaction. They also agreed to instruct their
senior management teams and their advisors to continue their work analyzing
the proposed combination and to exchange drafts of a merger agreement and
related documents.
On February 1 and 2, 1997, members of senior management of both companies,
together with their advisors, held numerous meetings to discuss and review the
Dean Witter Discover and Morgan Stanley businesses, the terms and conditions
of the Merger Agreement and the Dean Witter Discover Stock Option Agreement
and the Morgan Stanley Stock Option Agreement (each as defined herein and,
together, the "Stock Option Agreements") and various other legal, financial
and regulatory issues, including, among other things, the treatment of
employee benefit plans, the identification of (and actions necessary to comply
with) required regulatory approvals, the tax treatment of the proposed
transaction and the proper accounting treatment of the proposed transaction.
During the afternoon and early evening of February 3, 1997, the Morgan
Stanley Board met to review the proposed business combination. Senior Morgan
Stanley management members and Morgan Stanley's financial advisor, Morgan
Stanley & Co., made presentations to the Morgan Stanley Board regarding the
businesses of Dean Witter Discover, the current state and expected future of
the financial services industry, the strategic
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rationales for the proposed Merger, other strategic alternatives and the
proposed terms and conditions of the Merger Agreement and Stock Option
Agreements. Outside counsel also reviewed certain legal matters, including a
further detailed review of the terms of the Merger Agreement and the Stock
Option Agreements and discussed the Morgan Stanley Board's fiduciary duties
and other relevant aspects of applicable law. Following such presentations and
discussions, the Morgan Stanley Board authorized senior management to continue
to pursue the proposed Merger.
Throughout the day on each of February 3 and 4, 1997, the Dean Witter
Discover and Morgan Stanley management teams, together with their advisors,
continued to meet to discuss various issues relating to the proposed Merger.
During the afternoon of February 4, 1997, the Morgan Stanley Board met again
to continue their discussion and review of the terms and conditions of the
proposed combination. Following detailed presentations from members of
management and its advisors, the Morgan Stanley Board received the oral
opinion of Morgan Stanley & Co. (subsequently confirmed in writing) that, as
of such date, the Exchange Ratio was fair from a financial point of view to
holders of shares of Morgan Stanley Common Stock (other than Dean Witter
Discover and its affiliates). See "--Opinions of Financial Advisors."
Following further discussion, the Morgan Stanley Board then unanimously
determined that the Merger was fair to, and in the best interests of, the
stockholders of Morgan Stanley, approved the Merger Agreement and the Merger
and resolved to recommend that the stockholders of Morgan Stanley vote to
adopt the Merger Agreement.
Later that same day, the Dean Witter Discover Board met at a special
meeting. Mr. Purcell reported that representatives of Dean Witter Discover and
Morgan Stanley had agreed to the terms of a merger to be presented to the Dean
Witter Discover Board. Senior Dean Witter Discover management members and Dean
Witter Discover's financial advisor, Wasserstein Perella & Co., Inc.
("Wasserstein Perella"), made presentations to the Dean Witter Discover Board
concerning the proposed Merger. Outside counsel then reviewed certain legal
matters, including a detailed review of the terms of the Merger Agreement and
the Stock Option Agreements, and discussed the Dean Witter Discover Board's
fiduciary duties and other relevant aspects of applicable law. Following such
presentations, the Dean Witter Discover Board received the oral opinion of
Wasserstein Perella (subsequently confirmed in writing), that, as of such
date, the Exchange Ratio was fair to the stockholders of Dean Witter Discover
from a financial point of view. See "--Opinions of Financial Advisors." After
hearing such reports from Dean Witter Discover's senior management and its
legal and financial advisors and after receiving Wasserstein Perella's oral
opinion, the Dean Witter Discover Board unanimously determined that the Merger
was fair to, and in the best interests of, the stockholders of Dean Witter
Discover, approved the Merger Agreement and the Merger and resolved to
recommend that the stockholders of Dean Witter Discover vote to adopt the
Merger Agreement.
The Merger Agreement and the Stock Option Agreements were signed by both
parties on the night of February 4, 1997. On the morning of February 5, 1997,
prior to the commencement of trading on the NYSE, the Companies issued a joint
press release announcing the execution of the Merger Agreement.
On April 10, 1997, the parties amended and restated the Merger Agreement in
order to restate in their entirety Exhibits A-1, A-2 and B thereto and to make
certain typographical corrections in the Merger Agreement. The Merger
Agreement attached hereto as Annex I reflects such amendment and restatement.
Other Relationships. Dean Witter Discover conducted its initial public
offering on February 22, 1993 and Morgan Stanley & Co. acted as the "qualified
independent underwriter" for the offering. Consistent with applicable rules of
the National Association of Securities Dealers, Inc., Morgan Stanley & Co.
advised Dean Witter Discover on the initial offering price for the offering.
Since the time of Dean Witter Discover's initial public offering, from time
to time, Morgan Stanley & Co. has sold fixed income securities for Dean Witter
Discover as an underwriter or dealer. Morgan Stanley & Co. is the arranger for
Dean Witter Discover's Program for the Issuance of Debt Instruments (Euro MTN
Program).
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Since September 1994, Morgan Stanley & Co. has been Dean Witter Discover's
financial advisor on a variety of corporate transaction matters. The financial
advisory agreement originally had a one-year term and has since been renewed
through September 1997.
In the fall of 1996, Morgan Stanley & Co. advised Dean Witter Discover in
connection with its acquisition of Lombard Brokerage, Inc., a broker-dealer
offering electronic brokerage services to customers.
From time to time, Dean Witter Discover has sold certain preferred stock and
capital unit securities of Morgan Stanley as an underwriter of such
securities.
Reasons for the Merger and Board Recommendations
Reasons for the Merger. The Boards believe that the Merger will create a
preeminent global financial services firm with leading market positions in
each of its three primary businesses--securities, asset management and credit
services. The Boards believe that the Merger will combine three preeminent
brands in the financial services industry: Discover(R) Card, Morgan Stanley
and Dean Witter. The Merger will combine Morgan Stanley's strengths in the
origination of quality underwritten public offerings, investment banking,
institutional sales and trading and global asset management with Dean Witter
Discover's strengths in providing investment and asset management services to
its customers and in providing quality consumer credit products to its
customers, primarily through its Discover Card brand. MSDWD's individual and
institutional customers will benefit from the complementary origination,
distribution and execution skills and geographic focus of each of Morgan
Stanley and Dean Witter Discover. In addition, MSDWD will manage or administer
more than $270 billion of assets on a pro forma basis and, based on its 38.9
million general purpose credit card accounts as of December 31, 1996, will be
the nation's largest credit card issuer as measured by number of accounts and
cardmembers, the third largest holder of credit card receivables as measured
by managed loans, which include both consumer loans owned by Dean Witter
Discover and consumer loans that Dean Witter Discover has sold but continues
to service, and the fourth largest merchant network in terms of domestic and
international credit card transaction volume. The pro forma market
capitalization for MSDWD as of the Record Date was approximately $21.7
billion.
On a pro forma basis after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for the 1996 fiscal year ("Fiscal 1996"), MSDWD
would have had net revenues of $12.0 billion, net income of $2.0 billion and
fully diluted earnings per share of $3.14. Approximately 65% of its pro forma
net revenues would have been derived from the securities business, 11% would
have been derived from the asset management business and 24% would have been
derived from the credit services businesses.
The Boards believe that, as a strategic matter, the financial services
industry is entering an unprecedented era of competition, defined by
globalization, consolidation and sector convergence. To serve their individual
and institutional clients better than their competitors and to maximize
absolute and relative shareholder value, the Boards believe firms must be
preeminent, with leading market positions in all of their businesses, balanced
earnings streams, broad-based customer access, size and scale and a global
presence among both providers and users of capital. The Boards believe that,
as a result of the Merger, MSDWD will have: (1) premier franchises in each of
its securities, asset management and credit services businesses with brand
identities that are among the most widely recognized in their respective
markets, and franchises that extend globally; (2) leading market shares and
strong distribution systems in MSDWD's most important businesses, providing
access to a broad range of institutional and individual clients and customers;
(3) a balanced risk profile and the financial strength and flexibility to
support future growth; (4) the size and scale to compete effectively on a
global basis; (5) a management team selected from among the most qualified
professionals at each firm, including senior managers who have guided the
Companies to significant growth and profitability in their respective
businesses; and (6) a high level of employee ownership.
MSDWD's principal business strategy will be to use these competitive
advantages to advance its preeminent position and to take advantage of
opportunities in each of its major businesses for increased operating
leverage,
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capital optimization, enhanced profitability and accelerated growth by
offering more diverse and quality products and services to its current and
potential individual and institutional clients. This should provide MSDWD's
stockholders with opportunities to obtain substantial benefits.
MSDWD's Securities Business. MSDWD will combine Dean Witter Discover's
leading franchise in offering investment and asset management products and
services to its individual clients with Morgan Stanley's leading franchise in
the origination of quality underwritten products, investment banking, research
and institutional sales and trading. Based on information published by
Securities Data Company, in 1996 Morgan Stanley ranked No. 1 in global mergers
and acquisitions announced transactions, acting as financial advisor in
transactions having an aggregate market value of $238 billion; it ranked No. 3
in worldwide equity offerings based on full credit to the lead manager and No.
3 based on full credit to each manager (No. 3 and No. 2, respectively, after
giving effect to the Merger); and, based on a survey published by
Institutional Investor, it ranked No. 2 in equity research on a global basis.
After giving effect to the Merger, MSDWD would serve the investment needs of
over 3.2 million individual and institutional clients with assets of $478
billion at year end 1996. Dean Witter Discover has the third largest, and one
of the fastest growing, account executive sales organizations in the United
States with approximately 9,100 professional account executives and 371 branch
offices at year end 1996. Over the past five years, the growth of Dean Witter
Discover's account executive sales organization has averaged over 6% per year.
MSDWD's securities business strategy will be: (i) to continue to increase
the size of Dean Witter Discover's professional account executive sales
organization; (ii) to leverage Morgan Stanley's strength in underwriting
equity and fixed income securities and creating and originating other
financial products on a global basis, along with its top ranked research
department, across Dean Witter Discover's extensive sales organization to
maximize placement opportunities and lower cost of capital for clients seeking
access to capital, to provide existing individual clients the benefits of more
and diverse products and to enable MSDWD's account executives to attract
additional clients; and (iii) to continue to build market share with Morgan
Stanley's institutional clients on a global basis. The Boards believe access
to the Dean Witter Reynolds Inc. ("DWR") sales organization will permit MSDWD
to increase its revenues and market share in lead managed underwritings where
it already has a premier position. The Boards also believe a broader product
mix for MSDWD's individual customers should generate increased revenues and
assets under management and should help MSDWD to accelerate the growth of its
account executive sales organization. MSDWD's distribution capabilities will,
in turn, be strengthened by the increased productivity of its account
executives and by its enhanced ability to attract and retain account
executives.
On a pro forma basis after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for Fiscal 1996, MSDWD would have had
securities net revenues of $7.8 billion.
MSDWD's Asset Management Business. MSDWD will be a leader in asset
management on a global basis, with well-recognized brand names, including
those associated with Dean Witter InterCapital Inc. ("InterCapital"), Van
Kampen American Capital, Morgan Stanley Asset Management Inc. ("Morgan Stanley
Asset Management") and Miller Anderson & Sherrerd, a strong institutional and
individual customer base, multiple channels of distribution, and a broad and
balanced product mix. On a pro forma basis, at December 31, 1996, MSDWD would
have had over $270 billion of assets under management and/or administration,
ranking MSDWD among the top five active asset managers on a global basis.
Approximately $120 billion of such assets would have been invested in mutual
funds primarily offered to individual customers. Approximately $112 billion
(including approximately $36 billion invested in international related
products) would have been invested in products primarily offered to
institutional clients, which would have been composed of approximately $35
billion in institutional mutual funds and approximately $77 billion in
separate accounts, pooled vehicles and other arrangements. The remaining
amounts primarily include assets in fiduciary accounts, unit investment trusts
and Dean Witter Discover's Investment Consulting Services ("ICS") accounts.
Among mutual funds primarily offered to individual customers, approximately
43% of MSDWD's assets under management would have been invested in equity
securities, 36% in fixed income securities and 21% in short-term investments.
Among products
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primarily offered to institutional clients, 50% would consist of equity
products, 43% of fixed income products and 7% of balanced products. MSDWD will
also be a leader in providing institutional investors and broker-dealers with
custody, securities clearance and settlement, portfolio valuation and related
services on a global basis.
MSDWD's asset management strategy will be to leverage its multiple brands
across several distinct individual and institutional distribution channels.
MSDWD's account executives will be able to offer a comprehensive array of
mutual funds and other asset management products, including mutual funds
advised by InterCapital as well as Van Kampen American Capital, Morgan Stanley
Asset Management and Miller Anderson & Sherrerd. In addition, Van Kampen
American Capital will continue to offer the Van Kampen American Capital,
Morgan Stanley Asset Management and Miller Anderson & Sherrerd brands of
mutual funds to national full-line and regional broker-dealers, financial
planners, banks and to other emerging distribution channels. Morgan Stanley
Asset Management and Miller Anderson & Sherrerd will retain their focus on
institutional clients and products marketed through direct and consultant-
based institutional channels. The institutional business will remain committed
to providing top tier investment performance across a broad range of
institutional products while growing the business on a global basis. MSDWD
will also continue to focus on building its global custody capabilities
worldwide.
On a pro forma basis, after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for Fiscal 1996, MSDWD would have had asset
management net revenues of $1.4 billion.
MSDWD's Credit Services Business. MSDWD, primarily through its well-
recognized Discover Card brand, will be positioned to become a leading
worldwide credit services company with sufficient size, scale and financial
resources to compete effectively in this growing business. Dean Witter
Discover currently is the leading issuer of credit cards in the United States,
as measured by the number of accounts and card members, with 38.9 million
general purpose credit card accounts, the third largest holder of credit card
receivables as measured by managed loans and the fourth largest merchant
network in terms of domestic and international credit card transaction volume.
Dean Witter Discover had $53.6 billion in general purpose credit card
transaction volume (approximate total market size in 1996: $700 billion in the
United States, $1.7 trillion worldwide) in 1996 and $36.6 billion in managed
loans, including both owned and securitized credit card receivables
(approximate total market size as of September 30, 1996: $400 billion in the
United States) as of December 31, 1996. The Discover Card is offered
exclusively through Dean Witter Discover's nationwide proprietary NOVUS (R)
merchant network, consisting of well in excess of 2 million merchant
locations.
Given the approximately 20% compound annual growth rate of worldwide credit
card transaction volume over the last five years, MSDWD's credit services
strategy, using the Discover Card as its foundation, will be to focus on the
implementation of its multi-card strategy, on the buildout of its NOVUS
network and on maintaining credit quality. The Boards believe that MSDWD's
credit services business will be well-positioned to take advantage of the
continuing trend of individual consumers increasingly using credit cards as a
method of payment for goods and services. In addition, the Boards believe that
Morgan Stanley's global presence, and the financial resources of the combined
company, create significant opportunities for expansion of this business
outside the United States.
For 1996, MSDWD's credit services businesses would have had net revenues of
$2.9 billion.
Information and Factors Considered by the Boards. In reaching its
conclusions, each of the Boards considered, among other things: (i)
information concerning the financial performance and condition, results of
operations, capital levels and cash flows of each company historically and
prospectively, as separate entities and as a combined company; (ii) the
judgment, advice and analyses of each Company's management and financial
advisors; (iii) current industry, economic and market conditions and trends,
including the likelihood of increasing competition, continued consolidation
and globalization and sector convergence in the financial services industry;
(iv) the importance of market position, along with the significance of scale,
scope of product offerings and
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financial resources to a Company's ability to compete effectively in the
global financial services market; (v) the strategic benefits of the Merger;
(vi) the Merger's structure as a merger of equals; (vii) the possibility of
achieving synergies of origination and distribution of financial services
products on a global basis as a result of consummating the Merger that might
not be available to either Company on its own; (viii) the current and
historical market prices and trading information with respect to each
Company's common stock; (ix) the opinions of its financial advisors described
below as to the fairness, from a financial point of view, of the Exchange
Ratio; (x) the Merger's structure as a tax-free exchange and as a "pooling of
interests" transaction in accordance with U.S. generally accepted accounting
principles ("GAAP"); and (xi) the impact of the Merger on the customers and
employees of each Company.
The foregoing discussion of the information and factors considered and given
weight by each Board is not intended to be exhaustive. In view of the variety
of factors considered in connection with each Board's evaluation of the Merger
and recommendation to its stockholders to approve the Merger, neither Board
assigned any relative or specific weight to the specific factors considered
and individual directors may have given differing weights to different
factors.
Board Recommendations. Each of the Boards has determined that the Merger is
fair to, and in the best interests of, the stockholders of its Company, has
unanimously approved the Merger Agreement and the Merger, and unanimously
recommends that the stockholders of its Company vote to adopt the Merger
Agreement.
Opinions of Financial Advisors
Opinion of the Financial Advisor to the Dean Witter Discover
Board. Wasserstein Perella was retained to act as Dean Witter Discover's
financial advisor in connection with the Merger and related matters based on
Wasserstein Perella's qualifications, expertise, reputation and experience
with respect to transactions similar to those contemplated by the Merger
Agreement. Wasserstein Perella delivered its oral opinion to the Dean Witter
Discover Board on February 4, 1997 (subsequently confirmed in writing) that,
as of the date of such opinion, and based on the procedures followed,
assumptions made, matters considered and limitations on the review undertaken,
as set forth in the opinion, the Exchange Ratio was fair to the stockholders
of Dean Witter Discover from a financial point of view.
A COPY OF THE WASSERSTEIN PERELLA OPINION DATED FEBRUARY 4, 1997 IS ATTACHED
AS ANNEX IV TO THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED
TO READ THE WASSERSTEIN PERELLA OPINION IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN BY WASSERSTEIN PERELLA IN RENDERING ITS
OPINION. REFERENCES TO THE WASSERSTEIN PERELLA OPINION AND THE SUMMARY OF THE
WASSERSTEIN PERELLA OPINION HEREIN ARE QUALIFIED BY REFERENCE TO THE FULL TEXT
OF THE WASSERSTEIN PERELLA OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE.
THE WASSERSTEIN PERELLA OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, TO THE DEAN WITTER DISCOVER STOCKHOLDERS OF THE
EXCHANGE RATIO AND DOES NOT ADDRESS DEAN WITTER DISCOVER'S UNDERLYING BUSINESS
DECISION TO EFFECT THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY DEAN
WITTER DISCOVER STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT OR THE MERGER.
In connection with rendering its opinion, Wasserstein Perella reviewed and
analyzed, among other things, the following: (i) the Merger Agreement; (ii)
certain publicly available information relating to Dean Witter Discover and
Morgan Stanley for recent years and interim periods to the date of such
opinion; (iii) certain internal financial and operating information, including
financial forecasts, prepared by or on behalf of Dean Witter Discover and
Morgan Stanley and provided to Wasserstein Perella for purposes of its
analysis; (iv) certain financial and stock market data relating to Dean Witter
Discover and Morgan Stanley; (v) certain publicly available information with
respect to certain other companies that Wasserstein Perella believed to be
comparable to Dean Witter Discover, Morgan Stanley or one or more of their
businesses or assets; and (vi) certain publicly available information
concerning the nature and terms of certain other transactions that Wasserstein
Perella considered to be reasonably comparable to the transactions
contemplated by the Merger Agreement or otherwise
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relevant to its inquiry. Wasserstein Perella also held discussions with
members of senior management of Dean Witter Discover and Morgan Stanley to
review and discuss the information reviewed by Wasserstein Perella and, among
other matters, Dean Witter Discover's and Morgan Stanley's respective
businesses, operations, assets, financial condition and future prospects.
Wasserstein Perella also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria which it
deemed relevant.
In the course of its review, Wasserstein Perella assumed and relied upon the
accuracy and completeness of all the financial and other information provided
to it or discussed with it or publicly available and neither attempted
independently to verify nor assumed responsibility for verifying any such
information. Wasserstein Perella also assumed that the financial forecasts
provided to it were reasonably prepared on bases reflecting the best currently
available estimates and judgments of Dean Witter Discover's and Morgan
Stanley's respective managements as to the financial performance of Dean
Witter Discover and Morgan Stanley for the period covered. Wasserstein Perella
expresses no opinion with respect to such forecasts or the assumptions upon
which they are based.
In addition, Wasserstein Perella has not reviewed any of the books and
records of Dean Witter Discover or Morgan Stanley or assumed any
responsibility for conducting a physical inspection of the properties or
facilities of Dean Witter Discover or Morgan Stanley, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities
of Dean Witter Discover or Morgan Stanley and Wasserstein Perella has not been
furnished any such valuation or appraisal. In addition, Wasserstein Perella
has not performed a review of the securities inventories of Dean Witter
Discover or Morgan Stanley. The Wasserstein Perella opinion also assumes that
the Merger will be consummated in accordance with the terms of the Merger
Agreement and that the Merger will be accounted for as a pooling of interests
under GAAP. The Wasserstein Perella opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be
evaluated by Wasserstein Perella as of the date thereof.
Set forth below is a summary of certain of the financial analyses used by
Wasserstein Perella in connection with providing its opinion to the Dean
Witter Discover Board.
Stock Price and Exchange Ratio Analyses. Wasserstein Perella reviewed the
closing prices of Dean Witter Discover Common Stock and Morgan Stanley
Common Stock over the period from September 30, 1996 through January 31,
1997. During this period, Dean Witter Discover Common Stock increased from
a closing price of $27.500 per share on September 30, 1996 to a closing
price of $38.125 per share on January 31, 1997 (adjusted for the two-for-
one stock split described herein). During the same period, Morgan Stanley
Common Stock increased from a closing price of $49.750 per share to a
closing price of $57.125 per share.
In addition, Wasserstein Perella analyzed the ratios of closing stock
prices per share of Morgan Stanley Common Stock to Dean Witter Discover
Common Stock as reported on the NYSE during various periods. Wasserstein
Perella observed that from February 23, 1993 (the first day of public
trading following Dean Witter Discover's initial public offering) through
January 31, 1997, the average of the ratios of closing stock prices per
share of Morgan Stanley Common Stock and Dean Witter Discover Common Stock
was 1.76x with a standard deviation of 0.14x, a high of 2.19x and a low of
1.44x. Wasserstein Perella also observed that the average of the ratios of
closing stock prices per share of Morgan Stanley Common Stock and Dean
Witter Discover Common Stock for various periods ending January 31, 1997
were (1) 1.77x since January 31, 1996 (with a high of 1.97x and a low of
1.50x); (2) 1.69x over the last sixty trading days (with a high of 1.81x
and a low of 1.50x); and (3) 1.62x over the last thirty trading days (with
a high of 1.75x and a low of 1.50x). In addition, the ratio of closing
stock prices per share of Morgan Stanley Common Stock to Dean Witter
Discover Common Stock on January 31, 1997 of $57.125 and $38.125,
respectively, was approximately 1.50x.
Comparative Valuation Analysis. Wasserstein Perella prepared a summary
valuation of each of Dean Witter Discover and Morgan Stanley, and compared
the resulting valuation of each to its respective market values as of
January 31, 1997. Wasserstein Perella arrived at its summary valuation of
each company by
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valuing each principal business segment of each company by reference to
selected publicly traded companies considered to be comparable in certain
respects to the business segment in question.
For purposes of this analysis, the principal business segments of each
of the companies were compared to the following publicly traded companies:
Dean Witter Discover's securities/brokerage business segment was compared
to a peer group of three brokerage companies consisting of A.G. Edwards,
Merrill Lynch, and Paine Webber Group. Dean Witter Discover's asset
management business segment was compared to a peer group of four asset
management companies consisting of Franklin Resources, Inc., T. Rowe Price
Associates, John Nuveen & Co., Inc. and Pioneer Group, Inc. Dean Witter
Discover's credit card business segment was compared to a peer group of
four credit card companies consisting of Advanta Corporation, Capital One
Financial Corp., Household International Inc. and MBNA Corporation. First
USA Bank was excluded as it was believed that its current trading price was
affected by the recent news of its agreement to merge with BancOne
Corporation.
Morgan Stanley's securities/brokerage business segment was compared to a
peer group of four brokerage companies consisting of Merrill Lynch, Bear
Stearns, Salomon and Lehman Brothers. Morgan Stanley's asset management
business segment was compared to a peer group of eight asset management
companies consisting of Franklin Resources, T. Rowe Price, John Nuveen,
Pioneer Group, Alliance Capital Management L.P., New England Investment
Companies, L.P., United Asset Management Corporation and Oppenheimer
Capital L.P.
Based on this analysis, Wasserstein Perella calculated that Dean Witter
Discover's value per fully diluted share, arrived at as a result of this
analysis, represented a premium valuation range of 11% to 24% to the Dean
Witter Discover Common Stock price of $38.125 per share as of January 31,
1997. Wasserstein Perella also calculated that Morgan Stanley's intrinsic
value per fully diluted share, arrived at as a result of this analysis,
represented a premium valuation range of 7% to 22% to the Morgan Stanley
Common Stock price of $57.125 per share as of January 31, 1997.
Pro Forma Merger Analysis. Wasserstein Perella prepared a pro forma
analysis of the financial impact of the Merger on Dean Witter Discover.
Based upon fully diluted earnings per share estimates for Dean Witter
Discover and Morgan Stanley prepared by their respective managements for
1997, Wasserstein Perella compared the fully diluted earnings per share
estimate of Dean Witter Discover, on a stand-alone basis, to the pro forma
fully diluted earnings per share estimate of the combined company before
the impact of transaction costs but after giving effect to the estimated
impact of synergies and integration costs as estimated by Dean Witter
Discover management. This analysis showed that the Merger would be
accretive to Dean Witter Discover on an earnings per share basis in 1997.
In addition, Wasserstein Perella noted that the Merger would be accretive
to Dean Witter Discover shareholder value assuming that following the
Merger, Dean Witter Discover Common Stock continues to trade at 11.9x 1997
pro forma earnings per share (the multiple of most recently available
Institutional Brokers System ("IBES") earnings estimates for fiscal year
1997 at which Dean Witter Discover Common Stock traded on January 31,
1997). IBES is a data service that monitors and publishes compilations of
earnings estimates produced by selected research analysts regarding
companies of interest to institutional stockholders.
Wasserstein Perella also analyzed the pro forma impact of the Merger on
Dean Witter Discover's capital structure based on 1996 fiscal year-end
financial information, as of December 31, 1996, for Dean Witter Discover
and as of November 30, 1996 for Morgan Stanley, provided by management of
Dean Witter Discover and Morgan Stanley, respectively. This analysis showed
that Dean Witter Discover's total assets would increase from $42 billion as
of December 31, 1996 to approximately $239 billion pro forma for the
Merger. Dean Witter Discover's total shareholders' equity would increase
from $5 billion as of December 31, 1996 to approximately $12 billion pro
forma for the Merger. In addition, Dean Witter Discover's total capital
(defined as common shareholders' equity plus preferred shareholders' equity
plus capital units plus long-term debt) would increase from $13 billion as
of December 31, 1996 to approximately $35 billion pro forma for the Merger.
Dean Witter Discover's long-term debt as a percentage of total capital
would increase from 61% as of December 31, 1996 to approximately 64% pro
forma for the Merger.
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Relative Contribution Analysis. Wasserstein Perella performed an analysis
of the respective financial contributions of Dean Witter Discover and
Morgan Stanley to the pro forma combined company on several bases. This
analysis demonstrated that Dean Witter Discover and Morgan Stanley would
contribute 27% and 73%, respectively, to adjusted assets (net of securities
borrowed and securities purchased under agreements to resell) as of
December 31 and November 30, 1996, respectively; 44% and 56%, respectively,
to total shareholders' equity as of December 31 and November 30, 1996,
respectively; 38% and 62%, respectively, to total capital (as defined
above) as of December 31, and November 30, 1996, respectively; 51% and 49%,
respectively, to fiscal year 1996 net revenues; 50% and 50%, respectively,
to fiscal year 1996 net income; 55% and 45%, respectively, to average net
revenue from fiscal year 1994 through fiscal year 1996; and 57% and 43%,
respectively, to average net income from fiscal year 1994 through fiscal
year 1996. Wasserstein Perella calculated that the Exchange Ratio would
result in an allocation between the holders of Dean Witter Discover Common
Stock and Morgan Stanley Common Stock of pro forma ownership of the
combined entity equal to 56% and 44%, respectively.
The foregoing summary does not purport to be a complete description of the
analyses performed by Wasserstein Perella or of its presentation to the Dean
Witter Discover Board. The preparation of financial analyses and fairness
opinions is a complex process and is not necessarily susceptible to partial
analysis or summary description. Wasserstein Perella believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analyses and of the factors considered by
Wasserstein Perella, without considering all of such analyses and factors,
could create an incomplete view of the processes underlying the analyses
conducted by Wasserstein Perella and its opinion. Wasserstein Perella made no
attempt to assign specific weights to particular analyses. No company or
transaction used in the above analyses as a comparison is identical to Dean
Witter Discover and Morgan Stanley or the transactions contemplated by the
Merger Agreement. Any estimates contained in Wasserstein Perella's analyses
are not necessarily indicative of actual value, which may be significantly
more or less favorable than as set forth therein. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold.
Wasserstein Perella, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. The Exchange Ratio was determined by arm's-length negotiations
between Dean Witter Discover and Morgan Stanley, in consultation with their
respective financial advisors and other representatives. Wasserstein Perella
has rendered various investment banking and other advisory services to Dean
Witter Discover and its affiliates in the past and may render such services in
the future, for which it has received, and may continue to receive, customary
compensation from Dean Witter Discover and its affiliates. In the ordinary
course of business, Wasserstein Perella and its affiliates may actively trade
the debt and equity securities of Dean Witter Discover and Morgan Stanley and
their respective affiliates for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to an engagement letter with Wasserstein Perella, Dean Witter
Discover has agreed to pay Wasserstein Perella a transaction fee equal to
$9.75 million, of which $1.5 million was paid upon execution of the Merger
Agreement and the balance of which will be paid upon consummation of the
Merger. Dean Witter Discover has agreed to reimburse Wasserstein Perella for
its out-of-pocket expenses, including the fees and expenses of its legal
counsel, incurred in connection with its engagement, and to indemnify
Wasserstein Perella and certain related persons against certain liabilities
and expenses relating to or arising out of its engagement, including certain
liabilities under the federal securities laws.
Opinion of the Financial Advisor to the Morgan Stanley Board. Morgan Stanley
& Co. has delivered its written opinion to the Morgan Stanley Board, dated
February 4, 1997, to the effect that, on the date of such opinion, and based
on assumptions made, procedures followed, matters considered and limitations
on the review undertaken, as set forth in the opinion, the Exchange Ratio
pursuant to the Merger Agreement was fair from a
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financial point of view to the holders of shares of Morgan Stanley Common
Stock (other than Dean Witter Discover and its affiliates).
THE FULL TEXT OF MORGAN STANLEY & CO.'S OPINION DATED FEBRUARY 4, 1997,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX V TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. MORGAN STANLEY'S STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
MORGAN STANLEY & CO. OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY &
CO.'S OPINION IS DIRECTED TO THE MORGAN STANLEY BOARD AND THE FAIRNESS OF THE
EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF SHARES OF MORGAN STANLEY COMMON STOCK AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY MORGAN STANLEY STOCKHOLDER AS TO HOW TO VOTE AT THE
MORGAN STANLEY SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY &
CO. SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley & Co., among other
things, (i) reviewed certain publicly available financial statements and other
information of Morgan Stanley and Dean Witter Discover, respectively; (ii)
reviewed certain internal financial statements and other financial and
operating data concerning Morgan Stanley and Dean Witter Discover prepared by
the managements of Morgan Stanley and Dean Witter Discover, respectively;
(iii) analyzed certain financial projections of Morgan Stanley and Dean Witter
Discover prepared by the managements of Morgan Stanley and Dean Witter
Discover, respectively; (iv) discussed the past and current operations and
financial condition and the prospects of Morgan Stanley and Dean Witter
Discover with senior executives of Morgan Stanley and Dean Witter Discover,
respectively; (v) analyzed the pro forma impact of the Merger on the combined
company's earnings per share, consolidated capitalization and financial
ratios; (vi) reviewed the reported prices and trading activity for the Morgan
Stanley Common Stock and the Dean Witter Discover Common Stock; (vii) compared
the financial performance of Morgan Stanley and Dean Witter Discover and the
prices and trading activity of the Morgan Stanley Common Stock and the Dean
Witter Discover Common Stock with that of certain other comparable publicly
traded companies and their securities; (viii) discussed the strategic
objectives of the Merger and the plan for the combined company with senior
executives of Morgan Stanley and Dean Witter Discover; (ix) reviewed the
financial terms, to the extent publicly available, of certain comparable
precedent merger transactions; (x) participated in discussions and
negotiations among representatives of Morgan Stanley and Dean Witter Discover
and their financial and legal advisors; (xi) reviewed the Merger Agreement and
certain related documents; and (xii) considered such other factors as it
deemed appropriate.
In rendering its opinion, Morgan Stanley & Co. assumed and relied upon
without independent verification the accuracy and completeness of the
information supplied or otherwise made available to Morgan Stanley & Co. by
Morgan Stanley and Dean Witter Discover for purposes of its opinion. With
respect to financial projections, Morgan Stanley & Co. assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Morgan Stanley and Dean
Witter Discover. Morgan Stanley & Co. did not make any independent valuation
or appraisal of the assets or liabilities of Morgan Stanley and Dean Witter
Discover, nor was it furnished with any such appraisals. In addition, Morgan
Stanley & Co. assumed the Merger will be consummated in accordance with the
terms set forth in the Merger Agreement. Morgan Stanley & Co.'s opinion was
based on economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley & Co. as of, the date of its
opinion.
The following is a brief summary of the analyses performed by Morgan Stanley
& Co. in preparation of its opinion dated February 4, 1997 to the Morgan
Stanley Board:
Stock Price Performance. Morgan Stanley & Co. reviewed the performance,
over the period from February 23, 1993 (the date of Dean Witter Discover's
initial public offering) through February 3, 1997, of the closing prices of
Morgan Stanley Common Stock and Dean Witter Discover Common Stock relative
to the S&P 500 Index. Both the Morgan Stanley Common Stock and the Dean
Witter Discover Common Stock outperformed the S&P 500 Index by
approximately 26% and approximately 82%, respectively, over such
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time period. Over the same period, the Morgan Stanley Common Stock closed
at a high of $60.25 per share and a low of $27.625 per share and the Dean
Witter Discover Common Stock closed at a high of $38.375 per share and a
low of $15.50 per share.
Trading Valuation. Morgan Stanley & Co. reviewed certain published
research reports on Dean Witter Discover, including estimated price targets
referenced therein, from certain Wall Street securities firms. This price
target is usually one which research analysts believe is achievable in the
near term based on, among other things, their expectations for the future
financial performance of the company and that of the industry in which the
company competes. Morgan Stanley & Co. observed that the price targets for
Dean Witter Discover Common Stock contained in the reports reviewed by
Morgan Stanley & Co. ranged from $38 to $45 per share.
In addition, Morgan Stanley & Co. performed a component analysis to
calculate an implied unaffected market trading value of Dean Witter
Discover. Morgan Stanley & Co. compared certain financial and market
statements of Dean Witter Discover's three primary business lines (asset
management, securities and credit cards) with that of certain publicly
traded companies which were deemed comparable for purposes of this
analysis. The comparables were selected based on general business,
operating and financial characteristics representative of companies in Dean
Witter Discover's three principal lines of business. Based on this
analysis, Morgan Stanley & Co. calculated implied values for Dean Witter
Discover Common Stock of $41.51 to $46.12 per share. On a regular basis,
Morgan Stanley & Co. analyzes Morgan Stanley's stock price and financial
performance relative to its peers, including, among others, Merrill Lynch &
Co., Bear Stearns & Co. Inc. and Salomon Brothers Inc, and for that reason
Morgan Stanley & Co. did not perform a formal trading valuation of Morgan
Stanley Common Stock.
Exchange Ratio Analysis. Morgan Stanley & Co. reviewed the ratios of
closing stock prices per share of Morgan Stanley Common Stock to Dean
Witter Discover Common Stock over various periods ending February 3, 1997.
Morgan Stanley & Co. observed that the average of the ratios of closing
stock prices of Morgan Stanley Common Stock and Dean Witter Discover Common
Stock for the various periods ending February 3, 1997 were 1.77x for the
previous year, 1.71x for the previous 90 days, 1.68x for the previous 60
trading days, 1.62x for the previous 30 trading days, 1.57x for the
previous 20 trading days and 1.51x for the previous five trading days.
Morgan Stanley & Co. also observed that the implied exchange ratio based on
the closing market prices of Morgan Stanley Common Stock and Dean Witter
Discover Common Stock on February 3, 1997 of $57.125 and $38.375,
respectively, was approximately 1.49x.
Pro Forma Merger Analysis. Morgan Stanley & Co. analyzed the pro forma
effects of the Merger on Morgan Stanley and Dean Witter Discover. In
connection with this analysis, Morgan Stanley & Co. observed the following
attributes of the Merger: achieving scale and economies in several business
lines including the asset management business, complementary capabilities
in terms of Morgan Stanley's origination of underwritten product and Dean
Witter Discover's distribution, consolidation opportunities and the
potential for recurring revenues and earnings stability among the three
business lines of securities, asset management and credit services.
Morgan Stanley & Co. analyzed the financial impact of the Merger on the
holders of Morgan Stanley Common Stock, using the most recent available
IBES earnings estimates for fiscal years 1997 and 1998 for Morgan Stanley
and Dean Witter Discover. This analysis showed that, after giving effect to
the Merger, before the impact of one-time Merger-related charges and
synergies estimated to result from the Merger, current holders of Morgan
Stanley Common Stock would realize increases in fully diluted earnings per
share of approximately 1% in 1997 and 8% in 1998, in each case as compared
to Morgan Stanley on a stand-alone basis. Morgan Stanley & Co. also
analyzed the change in book value and dividends per share from Morgan
Stanley on a stand-alone basis, noting that the book value per share would
decrease by approximately 17% and the dividends per share would increase by
approximately 16% following the Merger.
Summary Contribution Analysis. Morgan Stanley & Co. computed the
contribution to the combined entity's pro forma financial results
attributable to each of Morgan Stanley and Dean Witter Discover. The
computation showed, among other things, that Morgan Stanley and Dean Witter
Discover would contribute to the combined entity approximately 51% and 49%,
respectively, of book value as of November 30 and
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December 31, 1996 for Morgan Stanley and Dean Witter Discover,
respectively, and 46% and 54%, respectively, of projected 1997 earnings
using IBES earnings estimates, and 43% and 57%, respectively, of market
value. Morgan Stanley calculated that the Exchange Ratio would result in an
allocation between the holders of Morgan Stanley Common Stock and Dean
Witter Discover Common Stock of pro forma ownership of the combined entity
equal to 45% and 55%, respectively.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Morgan Stanley & Co. considered the results of all of
its analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Furthermore, selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion. In addition, Morgan Stanley & Co. may have
given various analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley &
Co.'s view of the actual value of Morgan Stanley and Dean Witter Discover.
In performing its analyses, Morgan Stanley & Co. made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Dean Witter
Discover or Morgan Stanley. The analyses performed by Morgan Stanley & Co. are
not necessarily indicative of actual value, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as a part of Morgan Stanley & Co.'s analysis of the fairness from a
financial point of view of the Exchange Ratio pursuant to the Merger Agreement
to the holders of shares of Morgan Stanley Common Stock and were provided to
the Morgan Stanley Board in connection with the delivery of Morgan Stanley &
Co.'s opinion dated February 4, 1997. In addition, as described above, Morgan
Stanley & Co.'s opinion and presentation to the Morgan Stanley Board was one
of many factors taken into consideration by the Morgan Stanley Board in making
its determination to approve the Merger. The consideration to be received by
the stockholders of Morgan Stanley pursuant to the Merger was determined
through arm's-length negotiations between Morgan Stanley and Dean Witter
Discover and was approved by the Morgan Stanley Board. Morgan Stanley & Co.
provided advice to Morgan Stanley during the course of such negotiations;
however, the decision to enter into the Merger Agreement and to accept the
Exchange Ratio was solely that of the Morgan Stanley Board.
Morgan Stanley & Co. is an internationally recognized investment banking and
advisory firm. Morgan Stanley & Co. is a wholly owned subsidiary of Morgan
Stanley. Certain members of management of Morgan Stanley & Co. are also
members of management of Morgan Stanley and have interests in the Merger that
are different from, or in addition to, the interests of stockholders of Morgan
Stanley. See "--Certain Transactions; Conflicts of Interest" and "Directors
and Executive Officers of MSDWD Following the Merger." No fee was payable to
Morgan Stanley & Co. in connection with the delivery of its opinion. Morgan
Stanley & Co., as part of its investment banking business, is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
financings and valuation for estate, corporate and other purposes. In
connection with its trading and brokerage activities, Morgan Stanley & Co.
may, from time to time, have a long or short position in, and buy and sell,
securities of Morgan Stanley or Dean Witter Discover.
Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the
recorded assets and liabilities of Dean Witter Discover and Morgan Stanley
will be carried forward to the combined corporation at their recorded amounts,
subject to any adjustments required to conform the accounting policies of the
two companies; income of the combined corporation will include income of Dean
Witter Discover and Morgan Stanley for the entire fiscal year in which
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the Merger occurs; and the reported income of the separate corporations for
prior periods will be combined and restated as income of the combined
corporation.
Form of the Merger
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time, Morgan Stanley will be merged with and into Dean Witter
Discover. Dean Witter Discover will be the surviving corporation in the
Merger, and will continue its corporate existence under Delaware law under the
name "Morgan Stanley, Dean Witter, Discover & Co." The Dean Witter Discover
Certificate, as in effect immediately prior to the Effective Time (and as
amended pursuant to the Merger as described herein and as supplemented by the
certificates of designation for the Dean Witter Discover Preferred Stock to be
issued in the Merger ("MSDWD Preferred Stock" and, together with the MSDWD
Common Stock, the "MSDWD Stock"), which will become effective at the Effective
Time), will be the certificate of incorporation of MSDWD (the "MSDWD
Certificate"), and the by-laws of Dean Witter Discover (the "Dean Witter
Discover By-Laws"), as amended and restated as described herein, will be the
by-laws of MSDWD (the "MSDWD By-Laws").
Merger Consideration
At the Effective Time, (i) each outstanding share of Morgan Stanley Common
Stock, other than certain shares owned by Morgan Stanley or Dean Witter
Discover, will be converted into the right to receive 1.65 fully paid and
nonassessable shares of MSDWD Common Stock (except that cash will be paid in
lieu of fractional shares as described under "--Conversion of Shares;
Procedures for Exchange of Certificates; Fractional Shares" below), (ii) each
outstanding share of Morgan Stanley Preferred Stock (other than shares of
Morgan Stanley ESOP Preferred Stock), other than certain shares owned by
Morgan Stanley or Dean Witter Discover, will be converted into the right to
receive one fully paid and nonassessable share of the corresponding newly
established series of MSDWD Preferred Stock having terms that are identical to
the Morgan Stanley Preferred Stock being so converted, except that the issuer
thereof will be MSDWD, and (iii) each outstanding share of Morgan Stanley ESOP
Preferred Stock will be converted into the right to receive one validly
issued, fully paid and nonassessable share of MSDWD ESOP Preferred Stock (the
"MSDWD ESOP Preferred Stock") having terms that are identical to the Morgan
Stanley ESOP Preferred Stock being so converted, except that (a) the issuer
thereof will be MSDWD, (b) the number of shares of MSDWD Common Stock into
which each share of MSDWD ESOP Preferred Stock will be convertible (at the
same times and subject to the same terms and conditions under which Morgan
Stanley ESOP Preferred Stock is convertible into shares of Morgan Stanley
Common Stock immediately prior to the Effective Time) will equal two times the
Exchange Ratio and (c) each share of MSDWD ESOP Preferred Stock shall be
entitled to a number of votes equal to 1.35 times the number of shares of
MSDWD Common Stock into which one share of MSDWD ESOP Preferred Stock will be
convertible immediately following the Merger. As of the Effective Time, all
such shares of Morgan Stanley Common Stock and Morgan Stanley Preferred Stock,
as the case may be, will no longer be outstanding and will automatically be
cancelled and will cease to exist and each holder of a certificate
representing any shares of Morgan Stanley Common Stock or Morgan Stanley
Preferred Stock, as the case may be, will cease to have any rights in respect
thereof. See "--Conversion of Shares; Procedures for Exchange of Certificates;
Fractional Shares." The Exchange Ratio was determined through arm's-length
negotiations between Morgan Stanley and Dean Witter Discover.
Any shares of Morgan Stanley Common Stock and Morgan Stanley Preferred Stock
owned immediately prior to the Effective Time by Morgan Stanley or Dean Witter
Discover will be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; provided, however, that
any shares of Morgan Stanley Common Stock and Morgan Stanley Preferred Stock
(i) held by Morgan Stanley or Dean Witter Discover in connection with any
market making or proprietary trading activity or for the account of another
person, (ii) as to which Morgan Stanley or Dean Witter Discover is or may be
required to act as a fiduciary or in a similar capacity or (iii) the
cancellation of which would violate any legal duties or obligations of Morgan
Stanley or Dean Witter Discover, will not be cancelled but, instead, will be
treated as set forth in the preceding paragraph.
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Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares
The conversion of Morgan Stanley Common Stock into the right to receive
MSDWD Common Stock and Morgan Stanley Preferred Stock into the right to
receive MSDWD Preferred Stock will occur automatically at the Effective Time.
As soon as practicable after the Effective Time, Dean Witter Trust Company, in
its capacity as Exchange Agent (the "Exchange Agent"), will send a transmittal
letter to each former Morgan Stanley stockholder. The transmittal letter will
contain instructions with respect to obtaining shares of MSDWD Common Stock or
MSDWD Preferred Stock, as the case may be, in exchange for shares of Morgan
Stanley Common Stock or Morgan Stanley Preferred Stock.
MORGAN STANLEY STOCKHOLDERS AND DEAN WITTER DISCOVER STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the Effective Time, each certificate that previously represented
shares of Morgan Stanley Common Stock or Morgan Stanley Preferred Stock will
represent only the right to receive the MSDWD Common Stock or MSDWD Preferred
Stock into which such shares were converted in the Merger and the right to
receive cash in lieu of fractional shares of MSDWD Common Stock as described
below.
Holders of certificates previously representing Morgan Stanley Common Stock
or Morgan Stanley Preferred Stock will not be paid dividends or distributions
on the MSDWD Common Stock or the MSDWD Preferred Stock into which such shares
have been converted with a record date after the Effective Time, and will not
be paid cash in lieu of fractional shares of MSDWD Common Stock, until such
certificates are surrendered to the Exchange Agent for exchange. When such
certificates are surrendered, any unpaid dividends and any cash in lieu of
fractional shares of MSDWD Common Stock payable as described below will be
paid without interest.
In the event of a transfer of ownership of Morgan Stanley Common Stock or
Morgan Stanley Preferred Stock which is not registered in the records of
Morgan Stanley's transfer agent, a certificate representing the proper number
of shares of MSDWD Common Stock or MSDWD Preferred Stock may be issued to a
person other than the person in whose name the certificate so surrendered is
registered if such certificate is properly endorsed or otherwise is in proper
form for transfer and the person requesting such issuance will pay any
transfer or other taxes required by reason of the issuance of shares of MSDWD
Common Stock or MSDWD Preferred Stock to a person other than the registered
holder of such certificate or establish to the satisfaction of MSDWD that such
tax has been paid or is not applicable.
All shares of MSDWD Common Stock or MSDWD Preferred Stock issued upon
conversion of shares of Morgan Stanley Common Stock or Morgan Stanley
Preferred Stock, as the case may be (including any cash paid in lieu of any
fractional shares of MSDWD Common Stock), will be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Morgan Stanley
Common Stock or Morgan Stanley Preferred Stock, subject, however, to MSDWD's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time that may have been declared or made by Morgan
Stanley on such shares of Morgan Stanley Common Stock or Morgan Stanley
Preferred Stock in accordance with the Merger Agreement on or prior to the
Effective Time and which remain unpaid at the Effective Time.
No fractional shares of MSDWD Common Stock will be issued to any Morgan
Stanley stockholder upon surrender of certificates previously representing
Morgan Stanley Common Stock. Promptly after the Effective Time, the Exchange
Agent will determine the excess of (i) the number of whole shares of MSDWD
Common Stock delivered to the Exchange Agent by MSDWD over (ii) the aggregate
number of whole shares of MSDWD Common Stock to be distributed to former
holders of Morgan Stanley Common Stock (such excess being the "Excess
Shares"). The Exchange Agent will sell the Excess Shares on the NYSE in
accordance with the terms of the Merger Agreement and will hold the proceeds
in trust for the former holders of Morgan Stanley Common Stock (the "Common
Shares Trust"). The Exchange Agent shall make available to each former holder
of Morgan Stanley Common Stock the amount, if any, determined by multiplying
the amount comprising the Common Shares Trust by a fraction the numerator of
which is the fractional share interest to which such holder would otherwise be
entitled and the denominator of which is the aggregate amount of fractional
share interests to which all former holders of Morgan Stanley Common Stock are
entitled. Alternatively, MSDWD may elect,
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for each fractional share that would otherwise be issued, to make available to
such stockholders an amount in cash equal to the product obtained by
multiplying the fractional share interest to which such holder would otherwise
be entitled by the closing price for a share of Dean Witter Discover Common
Stock on the NYSE Composite Transaction Tape on the date on which the Merger
is completed (the "Closing Date").
Effective Time
The Effective Time will be the time of the filing of the Certificate of
Merger with the Delaware Secretary of State or such later time as is agreed
upon by Morgan Stanley and Dean Witter Discover and specified in the
Certificate of Merger. The filing of the Certificate of Merger will occur as
soon as practicable, but no later than the second business day, after
satisfaction or waiver of the conditions to the consummation of the Merger set
forth in the Merger Agreement unless another date is agreed to in writing by
Morgan Stanley and Dean Witter Discover, except that such filing may be
postponed by either party for up to 90 days after such satisfaction or waiver
of the conditions to the consummation of the Merger to the extent necessary to
obtain any material governmental, regulatory or other third-party approvals,
consents, orders or authorizations required in connection with or as a result
of the Merger.
Stock Exchange Listings
It is a condition to the consummation of the Merger that the MSDWD Common
Stock and MSDWD Preferred Stock issued pursuant to the Merger (other than the
MSDWD ESOP Preferred Stock) be approved for listing on the NYSE, subject to
official notice of issuance. Such approval has been granted by the NYSE,
subject to official notice of issuance.
Federal Income Tax Considerations
The following discussion summarizes all the material United States federal
income tax consequences of the Merger assuming that it is consummated as
contemplated by this Joint Proxy Statement/Prospectus. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, judicial decisions and administrative rulings as of the date
hereof, all of which are subject to change, including changes with retroactive
effect. The discussion below does not address any state, local or foreign tax
consequences of the Merger. The tax treatment of a stockholder may vary
depending upon the stockholder's particular situation, and certain
stockholders (including individuals who hold options in respect of Morgan
Stanley Common Stock, insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, and persons who are neither citizens nor
residents of the United States or that are foreign corporations, foreign
partnerships or foreign estates or trusts as to the United States) may be
subject to special rules not discussed below. Neither Dean Witter Discover nor
Morgan Stanley has requested or will request an advance ruling from the
Internal Revenue Service (the "Service") as to the tax consequences of the
Merger.
EACH MORGAN STANLEY STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS,
AND OF CHANGES IN APPLICABLE TAX LAWS.
Federal Income Tax Consequences of the Merger. Consummation of the Merger is
conditioned upon the receipt of opinions of Davis Polk & Wardwell, counsel to
Morgan Stanley, and Cravath, Swaine & Moore, counsel to Dean Witter Discover,
as to the qualification of the Merger as a tax-free reorganization under
Section 368(a) of the Code. These opinions state that:
(i) The Merger will qualify as a reorganization under Section 368(a) of
the Code and each of Morgan Stanley and Dean Witter Discover will be a
party to that reorganization within the meaning of Section 368(b) of the
Code.
(ii) Except for any cash received in lieu of fractional shares and to the
extent that any payment by Dean Witter Discover of transfer taxes is
treated as taxable consideration received by the Morgan Stanley
stockholders, a stockholder will not recognize any income, gain or loss as
a result of the receipt of MSDWD Common Stock.
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(iii) A Morgan Stanley stockholder's tax basis for the shares of MSDWD
Common Stock, including any fractional share interest for which cash is
received, will equal such stockholder's tax basis in shares of Morgan
Stanley Common Stock held immediately before the Merger.
(iv) A Morgan Stanley stockholder's holding period for the MSDWD Common
Stock, including any fractional share interest for which cash is received,
will include the period during which the shares of Morgan Stanley Common
Stock were held, provided that the shares of Morgan Stanley Common Stock
were held as capital assets at the Effective Time.
(v) Cash received by a Morgan Stanley stockholder in lieu of a fractional
share interest of MSDWD Common Stock will be treated as having been
received in exchange for the fractional share interest of MSDWD Common
Stock that the stockholder would otherwise have been entitled to receive.
This receipt of cash will result in gain or loss measured by the difference
between the tax basis allocable to the fractional share interest and the
amount of cash received. The gain or loss will be capital gain or loss to
the stockholder, provided that the Morgan Stanley Common Stock was a
capital asset in the stockholder's hands at the Effective Time.
Copies of the opinions issued by Davis Polk & Wardwell and Cravath, Swaine &
Moore have been filed as exhibits to the Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") of which
this Joint Proxy Statement/Prospectus is a part.
An opinion of counsel is not binding on the Service or the courts. Further,
the opinions of Davis Polk & Wardwell and Cravath, Swaine & Moore referred to
above are based on, among other things, current law and certain
representations as to factual matters made by, among others, Morgan Stanley
and Dean Witter Discover which, if incorrect in certain material respects,
would jeopardize the conclusions reached by counsel in their opinions. Neither
Morgan Stanley nor Dean Witter Discover is currently aware of any facts or
circumstances that would cause any representations made by it to Davis Polk &
Wardwell and Cravath, Swaine & Moore to be untrue or incorrect in any material
respect.
Dean Witter Discover and Morgan Stanley do not believe that any significant
transfer taxes will be payable as a consequence of the Merger. Dean Witter
Discover's payment of any transfer taxes that, to the knowledge of Dean Witter
Discover and Morgan Stanley, may be payable as a consequence of the Merger
should not be treated as taxable consideration ("boot") received by Morgan
Stanley stockholders in the Merger. If the payment of any such taxes were
treated as boot, the Morgan Stanley stockholders would recognize income or
gain in an amount not in excess of the amount of the boot.
Dean Witter Discover stockholders will not be taxed as a result of the
Merger.
Backup Withholding. Under the backup withholding rules, a holder of MSDWD
Common Stock may be subject to backup withholding at the rate of 31% with
respect to cash received in exchange for the fractional share interest unless
the stockholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number and certifies that the taxpayer identification
number is correct and the taxpayer is not subject to backup withholding for
specified reasons, and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be
credited against the stockholder's federal income tax liability.
Effect on Awards Outstanding Under Morgan Stanley Stock Plans
At the Effective Time, each outstanding award under the 1986 Stock Option
Plan, the 1988 EICP and the 1995 EICP (the 1986 Stock Option Plan, the 1988
EICP and the 1995 EICP collectively, the "Morgan Stanley Stock Plans") will be
adjusted as follows. Each outstanding restricted stock unit, which currently
represents the right to receive upon settlement one share of Morgan Stanley
Common Stock, will be assumed by Dean Witter Discover and will entitle the
holder to receive, upon the same terms and conditions that were applicable to
the restricted stock unit immediately prior to the Effective Time, 1.65 shares
of MSDWD Common Stock. Each outstanding option to purchase shares of Morgan
Stanley Common Stock will be assumed by Dean Witter
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Discover and will be converted into an option to acquire, upon the same terms
and conditions that were applicable to the stock option immediately prior to
the Effective Time, the number of shares of MSDWD Common Stock which such
option holder would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the Effective
Time (without regard to vesting requirements) at a price per share equal to
(x) the aggregate exercise price for Morgan Stanley Common Stock otherwise
purchasable pursuant to such option divided by (y) the number of shares of
MSDWD Common Stock deemed purchasable pursuant to such option. As of the
Record Date, restricted stock units covering 29,396,499 shares of Morgan
Stanley Common Stock, and options to purchase 20,014,123 shares of Morgan
Stanley Common Stock, were outstanding under the Morgan Stanley Stock Plans.
The shares of Morgan Stanley Common Stock corresponding to the restricted
stock units are currently outstanding and are held in certain trusts
established for the benefit of the employees to whom the restricted stock
units have been awarded.
Regulatory Matters and Third Party Approvals
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), Dean Witter Discover and Morgan
Stanley have each filed a Notification and Report Form for review under the
HSR Act with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice. The HSR Act waiting period was terminated
on March 10, 1997.
Filings will also be required with certain federal and state banking and
state insurance authorities in the United States in connection with changes,
as a result of the Merger, in the ownership of certain financial institutions
that are controlled by Dean Witter Discover and Morgan Stanley.
Dean Witter Discover and Morgan Stanley conduct operations in a number of
foreign countries where regulatory filings or approvals with applicable
commissions and other authorities will be required in connection with the
consummation of the Merger.
Morgan Stanley is party to numerous credit facilities, indentures,
guarantees, and other similar agreements. Consummation of the Merger may
require the consent of, or waivers from, the other parties to certain of such
agreements and may constitute a default resulting in termination, cancellation
or acceleration thereunder if such consents or waivers are not obtained.
Pursuant to the Merger Agreement, Morgan Stanley and Dean Witter Discover have
agreed to use best efforts to take all actions, and to cooperate with the
other party in doing all things, necessary or advisable to obtain all
consents, approvals or waivers from government authorities or third parties
necessary for the consummation of the Merger. It is not a condition to either
party's obligation to consummate the Merger, however, that such government or
third-party consents, approvals or waivers have been obtained.
Consummation of the Merger is conditioned upon, among other things, the
absence of any preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction which prohibits or
restricts the consummation of the Merger. Dean Witter Discover and Morgan
Stanley believe that all material filings and approvals have been made or
obtained, or will be made or obtained, as the case may be.
Certain Transactions; Conflicts of Interest
In considering the respective recommendations of the Dean Witter Discover
Board and the Morgan Stanley Board with respect to the Merger, stockholders of
Dean Witter Discover and Morgan Stanley should be aware that certain members
of the Boards and management of Dean Witter Discover and Morgan Stanley have
interests in the Merger that are different from, or in addition to, the
interests of stockholders of Dean Witter Discover or Morgan Stanley. Certain
members of management of Morgan Stanley & Co., which has acted as financial
advisor and delivered an opinion to the Morgan Stanley Board in connection
with the Merger (see "--Opinions of Financial Advisors--Opinion of the
Financial Advisor to the Morgan Stanley Board"), are also members of
management of Morgan Stanley and also have interests in the Merger that are
different from, or in addition to, the interests of stockholders of Morgan
Stanley. Such interests relate to or arise from, among other things, the terms
of the Merger Agreement providing for (i) the MSDWD Board initially to consist
of 14 members, half of
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whom have been designated by each of the Companies, with two members
designated by each Company being "inside" directors, (ii) the division of
certain senior management positions of MSDWD among the existing senior
management of each of the Companies and (iii) the indemnification of existing
directors and officers of Dean Witter Discover and Morgan Stanley. All such
additional interests are described below, to the extent material, and except
as described below such persons have, to the knowledge of Dean Witter Discover
and Morgan Stanley, no material interest in the Merger apart from those of
stockholders generally. The Dean Witter Discover Board and the Morgan Stanley
Board were each aware of, and considered the interests of, their respective
directors and officers in approving the Merger Agreement and the Merger.
MSDWD Board of Directors. As of the Effective Time, the MSDWD Board will
consist of Messrs. Purcell, Schneider, Mack, Fisher and ten other directors,
half of whom have been designated by each of Dean Witter Discover and Morgan
Stanley. See "Directors and Executive Officers of MSDWD Following the Merger"
for information pertaining to the initial members of the MSDWD Board.
The MSDWD Certificate will provide for the MSDWD Board to be divided into
three classes initially consisting of four, four and six directors with
initial terms expiring at the annual meetings of stockholders to be held in
1998, 1999 and 2000, respectively. Each class of directors elected at an
annual meeting of stockholders of MSDWD thereafter will be elected for a
three-year term. See "Directors and Executive Officers of MSDWD Following the
Merger" with respect to the expected composition of the initial classes of
directors of MSDWD.
MSDWD Management. See "Directors and Executive Officers of MSDWD Following
the Merger--Executive Officers" for a discussion of the expected composition
of the senior management of MSDWD, which will include existing members of the
managements of Dean Witter Discover and Morgan Stanley (including Morgan
Stanley & Co.).
Dean Witter Discover Severance Arrangements. Approximately 25 senior
officers, including all executive officers of Dean Witter Discover, including
Messrs. Purcell and Schneider, are participants in the Dean Witter Discover
Key Executive Employment Program (the "KEEP").
The Merger will constitute a "change in control" for purposes of the KEEP,
which entitles participants to the payment of a lump-sum severance benefit in
certain circumstances. See "Other Information for Dean Witter Discover Annual
Meeting--Executive Compensation Severance Arrangement."
Morgan Stanley Voting Agreements. At the Record Date, approximately
48,210,000 shares of Morgan Stanley Common Stock (constituting approximately
28.7% of the votes that are entitled to be cast at the Morgan Stanley Special
Meeting) were beneficially owned by certain employees of Morgan Stanley and
were subject to the Voting Agreements. If a beneficial owner of such shares
exercises his or her right to vote at the Morgan Stanley Special Meeting, such
shares must be voted in accordance with the results of the Preliminary Vote to
be taken prior to the Morgan Stanley Special Meeting. See "The Stockholders'
Meetings--Share Ownership of Management and Certain Stockholders."
Indemnification and Insurance. The Merger Agreement provides that all rights
of indemnification and exculpation from liabilities existing in favor of the
current and former directors or officers of Morgan Stanley and its
subsidiaries as provided in their respective certificates of incorporation and
by-laws and existing indemnification agreements of Morgan Stanley shall be
assumed by MSDWD, as the surviving corporation in the Merger, and will
continue in full force and effect in accordance with their terms and directors
and officers of Morgan Stanley who become directors and officers of MSDWD will
be entitled to the same indemnification rights as are afforded to other
directors and officers of MSDWD. The Merger Agreement provides that for six
years after the Effective Time, MSDWD will maintain directors' and officers'
liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who were, as of the date of the
Merger Agreement, covered by Morgan Stanley's directors' and officers'
liability insurance policy, on terms with respect to such coverage and amount
no less favorable than those in effect on the date of the Merger Agreement.
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In addition, the MSDWD Certificate will provide for MSDWD to indemnify and
advance litigation expenses to directors and officers of MSDWD to the fullest
extent permitted by the DGCL.
Appraisal and Dissenters' Rights
Under the DGCL, holders of Dean Witter Discover Common Stock are not
entitled to appraisal or dissenters' rights in connection with the Merger
because the Dean Witter Discover Common Stock is listed on a national
securities exchange and such shares will remain outstanding following the
Merger.
Under the DGCL, holders of Morgan Stanley Common Stock and Morgan Stanley
Preferred Stock (other than Morgan Stanley ESOP Preferred Stock) are not
entitled to appraisal or dissenters' rights in connection with the Merger
because the Morgan Stanley Common Stock and depositary shares representing
Morgan Stanley Preferred Stock (other than the Morgan Stanley ESOP Preferred
Stock) are listed on a national securities exchange and the consideration
which such holders will be entitled to receive under the Merger Agreement will
consist solely of MSDWD Common Stock or MSDWD Preferred Stock, respectively,
and, in the case of holders of Morgan Stanley Common Stock, cash in lieu of
fractional shares.
The ESOP Trustee, as holder of record of Morgan Stanley ESOP Preferred
Stock, upon compliance with the applicable statutory procedures summarized
herein, may be entitled to appraisal rights under Section 262 of the DGCL
("Section 262"). This Joint Proxy Statement/Prospectus constitutes notice to
the ESOP Trustee of the possible availability of appraisal rights under
Section 262, and the applicable statutory provisions of the DGCL are attached
to this Joint Proxy Statement/Prospectus as Annex VII.
Assertion of Appraisal Rights Only by Holder of Record. Only a holder of
record of shares is entitled to assert appraisal rights. The ESOP Trustee is
the holder of record of all outstanding shares of Morgan Stanley ESOP
Preferred Stock.
Effect of Conversion of Morgan Stanley ESOP Preferred Stock into Morgan
Stanley Common Stock. Under the DGCL, a holder of shares wishing to exercise
any available appraisal rights must be the record holder of such shares on the
date the written demand for appraisal is made and must continue to hold such
shares through the Effective Time.
To the extent that any shares of Morgan Stanley ESOP Preferred Stock are
converted into Morgan Stanley Common Stock prior to the Effective Time, no
appraisal rights could be asserted with respect to such shares of Morgan
Stanley ESOP Preferred Stock, as such shares would not exist (and consequently
would not be held of record) as of the Effective Time, and no appraisal rights
are available in respect of the shares of Morgan Stanley Common Stock into
which such shares of Morgan Stanley ESOP Preferred Stock would have been
converted.
Appraisal Process. If the ESOP Trustee were to assert appraisal rights with
respect to any shares of Morgan Stanley ESOP Preferred Stock, then within 120
days after the consummation of the Merger, MSDWD or the ESOP Trustee would be
entitled to file a petition in the Delaware Chancery Court demanding a
determination of the fair value of the shares as to which a timely demand for
appraisal has been made ("Appraisal Shares"). MSDWD is under no obligation to
and Dean Witter Discover and Morgan Stanley do not presently intend that MSDWD
will file a petition with respect to the appraisal of the fair value of any
Appraisal Shares. Accordingly, it would be the obligation of the ESOP Trustee
to initiate all necessary action to perfect any appraisal rights within the
time prescribed in Section 262.
If a petition for an appraisal were timely filed, after a hearing on such
petition, the Delaware Chancery Court would appraise the "fair value" of the
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The fair value of their Appraisal Shares as determined under Section 262 could
be more than, the same as or less than the value of the consideration the ESOP
Trustee would receive pursuant to the Merger Agreement if it did not seek
appraisal of the Appraisal Shares. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in the appraisal proceedings.
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The Delaware Chancery Court would determine the amount of interest, if any,
to be paid upon the amounts to be received in respect of Appraisal Shares. The
costs of the action may be determined by the Delaware Chancery Court and taxed
upon the parties as the Delaware Chancery Court deems equitable.
The ESOP Trustee would not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares for any purpose or be entitled to the
payment of dividends or other distributions on the Appraisal Shares (except
dividends or other distributions payable as of a record date prior to the
consummation of the Merger).
If the ESOP Trustee properly demanded appraisal of Appraisal Shares but
failed to perfect, or effectively withdrew or lost, its right to appraisal, as
provided in the DGCL, the Appraisal Shares would be converted into the right
to receive the consideration receivable with respect to such Appraisal Shares
in accordance with the Merger Agreement. A stockholder will fail to perfect,
or effectively lose or withdraw, his right to appraisal if, among other
things, no petition for appraisal is filed within 120 days after the effective
date of the Merger, or if the stockholder withdraws his demand for appraisal.
Any withdrawal attempted more than 60 days after such effective date would
require the written approval of MSDWD. Notwithstanding the foregoing, no
appraisal proceeding pending in the Court of Chancery shall be dismissed
without the approval of the Court, and any such approval may be conditioned
upon such terms as the Court deems just.
Litigation
On February 12, 1997, three Dean Witter Discover stockholders filed a
putative class action suit in the Court of Chancery of the State of Delaware
in New Castle County against Dean Witter Discover and certain of its
directors. The complaint alleges that defendants breached their fiduciary duty
to Dean Witter Discover stockholders in entering into the Merger Agreement by
(1) seeking to entrench themselves in board and management positions; (2)
refusing to negotiate with other parties interested in acquiring Dean Witter
Discover; and (3) structuring the Merger as an "exchange merger." The
complaint seeks equitable relief that would, in essence, require the
defendants to respond in good faith to all bona fide potential acquirors of
Dean Witter Discover. The defendants have not yet answered the complaint but
intend to defend this action vigorously.
Delisting and Deregistration of Morgan Stanley Common Stock
If the Merger is consummated, the shares of Morgan Stanley Common Stock and
Morgan Stanley Preferred Stock will be delisted from the NYSE, the Pacific
Stock Exchange, the Boston Stock Exchange and the Chicago Stock Exchange, as
the case may be, and will be deregistered under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Resale of MSDWD Stock
The MSDWD Stock issued pursuant to the Merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares issued to any Morgan Stanley
stockholder who may be deemed to be an "affiliate" of Morgan Stanley or Dean
Witter Discover for purposes of Rule 145 under the Securities Act or for
purposes of qualifying the Merger for pooling of interests accounting
treatment. It is expected that each such affiliate will agree not to transfer
any MSDWD Common Stock or MSDWD Preferred Stock received in the Merger except
in compliance with the resale provisions of Rule 144 or 145 promulgated under
the Securities Act or as otherwise permitted under the Securities Act and will
make no disposition of any MSDWD Common Stock or MSDWD Preferred Stock (or any
interest therein) received in connection with the Merger unless, in the
opinion of counsel to MSDWD, the transaction will not have any adverse
consequences for MSDWD with respect to the treatment of the Merger for tax
purposes. In addition, it is expected that each such affiliate will agree not
to make any such disposition within the 30 days prior to the Effective Time,
and, until after such time as financial results covering at least 30 days of
combined operations of Morgan Stanley and Dean Witter Discover after the
Merger have been published. The Merger Agreement requires Morgan Stanley to
use best efforts to cause its affiliates to enter into such agreements, and
Dean Witter Discover has agreed to use best efforts to cause its affiliates to
comply with the transfer restrictions referred to in the preceding sentence.
This Joint Proxy Statement/Prospectus does not cover resales of MSDWD Common
Stock or MSDWD Preferred Stock received by any person upon consummation of the
Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
General
The Morgan Stanley Board and the Dean Witter Discover Board have approved
the Merger Agreement which provides for the Merger to occur at the Effective
Time, with Dean Witter Discover continuing as the surviving corporation. This
section of the Joint Proxy Statement/Prospectus describes certain aspects of
the proposed Merger, including certain provisions of the Merger Agreement and
the Stock Option Agreements. The description of the Merger Agreement and the
Stock Option Agreements contained in this Joint Proxy Statement/Prospectus
does not purport to be complete and is qualified in its entirety by reference
to the Merger Agreement and the Stock Option Agreements, copies of which are
attached hereto as Annexes I, II and III and which are incorporated herein by
reference. All stockholders of Morgan Stanley and Dean Witter Discover are
urged to read carefully the Merger Agreement and the Stock Option Agreements
in their entirety.
Conditions to the Consummation of the Merger
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:
(i) the Morgan Stanley stockholders and the Dean Witter Discover
stockholders having each adopted the Merger Agreement;
(ii) the waiting period with respect to the Merger under the HSR Act
having expired or been terminated;
(iii) no judgment, order, decree, statute, law, ordinance, rule or
regulation enacted, entered, promulgated, enforced or issued by any court
or other governmental entity of competent jurisdiction or other legal
restraint or prohibition being in effect (a) preventing the consummation of
the Merger, (b) prohibiting or limiting the ownership or operation by
Morgan Stanley or Dean Witter Discover and their respective subsidiaries of
any material portion of the business or assets of Morgan Stanley or Dean
Witter Discover and their respective subsidiaries taken as a whole, or
compelling Morgan Stanley or Dean Witter Discover and their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of Morgan Stanley or Dean Witter Discover and their
respective subsidiaries taken as a whole, as a result of the Merger, any of
the transactions contemplated by the Merger Agreement or the Stock Option
Agreements, or (c) which otherwise is reasonably likely to have a Material
Adverse Effect (as defined below) on Morgan Stanley or Dean Witter Discover
("Restraints");
(iv) the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order;
(v) the shares of MSDWD Stock issuable to Morgan Stanley's stockholders
pursuant to the Merger (other than the MSDWD ESOP Preferred Stock) having
been approved for listing on the NYSE, subject to official notice of
issuance; and
(vi) Morgan Stanley and Dean Witter Discover each having received letters
dated as of the Closing Date from each of Ernst & Young LLP and Deloitte &
Touche llp (the independent accountants of Morgan Stanley and Dean Witter
Discover, respectively) to the effect that the Merger qualifies for pooling
of interests accounting treatment.
In addition, each party's obligation to effect the Merger is subject to the
satisfaction or waiver of the following additional conditions:
(i) the representations and warranties of the other party to the Merger
Agreement set forth in the Merger Agreement being true and correct as of
the date of the Merger Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent such representations
and warranties expressly relate to an earlier date, in which case as of
such date), except where the failure of such
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representations and warranties to be so true and correct (without giving
effect to any limitation as to "materially" or "material adverse effect"
set forth therein), does not have, and is not likely to have, individually
or in the aggregate, a Material Adverse Effect on such other party;
(ii) the other party to the Merger Agreement having performed in all
material respects all obligations required to be performed by it under the
Merger Agreement on or prior to the Closing Date;
(iii) such party having received from its counsel, on a date immediately
prior to the mailing of this Joint Proxy Statement/Prospectus and on the
Closing Date, opinions in each case dated as of such respective dates and
stating that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, that
Morgan Stanley and Dean Witter Discover will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and that no
gain or loss will be recognized by the stockholders of Morgan Stanley upon
their exchange of Morgan Stanley Stock for MSDWD Stock under Section 354 of
the Code (except to the extent such stockholders receive cash in lieu of
fractional shares and to the extent of a payment of transfer taxes made on
behalf of such stockholder, if any). See "The Merger--Federal Income Tax
Considerations--Federal Income Tax Consequences of the Merger"; and
(iv) at any time after the date of the Merger Agreement any Material
Adverse Change relating to the other party not having occurred; provided
that this condition no longer applies following the adoption of the Merger
Agreement by such first party's stockholders.
A "Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with Morgan Stanley or Dean Witter Discover, any change, effect,
event, occurrence or state of facts that is, or would reasonably be expected
to be, materially adverse to the business or financial condition of Morgan
Stanley or Dean Witter Discover and its respective subsidiaries taken as a
whole, as the case may be, other than any change, effect, event or occurrence
relating to (i) the United States economy or securities markets in general,
(ii) the Merger Agreement or the transactions contemplated thereby or the
announcement thereof, (iii) the failure to obtain applicable regulatory or
other third-party consents that may be required in connection with the Merger
Agreement or the transactions contemplated thereby or (iv) the financial
services industry in general, and not specifically relating to Morgan Stanley
or Dean Witter Discover or their respective subsidiaries, and the terms
"material" and "materially" have correlative meanings.
No Solicitation
The Merger Agreement provides that Morgan Stanley and Dean Witter Discover
will not, nor will they permit any of their respective subsidiaries to, nor
will they authorize or permit any of their respective officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by them or any of their respective subsidiaries
to, directly or indirectly through another person, (i) solicit, initiate,
encourage (including by way of furnishing information), or take any other
action designed to facilitate, any inquiries or the making of any Takeover
Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at
any time during the 20 business days prior to the publicly announced date of
the Morgan Stanley Special Meeting or the Dean Witter Discover Annual Meeting,
the Morgan Stanley Board or the Dean Witter Discover Board, as the case may
be, determines in good faith, after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to its
stockholders under applicable law, Morgan Stanley or Dean Witter Discover, as
the case may be, may, in response to a Superior Proposal (as defined below)
which was not solicited by it, subject to providing prior written notice of
its decision to do so to the other party, for a period of five business days
(x) furnish information with respect to it and its subsidiaries to any person
making a Superior Proposal pursuant to a customary confidentiality agreement
and (y) participate in negotiations regarding such Superior Proposal. A
"Takeover Proposal" is any inquiry, proposal or offer relating to any
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or assets of a party and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of such party or any
of its subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
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equity securities of such party or any of its subsidiaries, or any merger,
consolidation, liquidation, dissolution or similar transaction involving such
party or any of its subsidiaries. A "Superior Proposal" is a proposal made by
a third party to acquire, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of the
party or all or substantially all of the assets of a party, on terms that the
board of directors of the party subject to the proposal determines in good
faith (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to its stockholders than the Merger and for
which financing, to the extent required, is then committed or which, in the
good faith judgment of the board of directors of the party subject to the
proposal, is reasonably capable of being obtained.
Except as expressly permitted by the Merger Agreement, neither the Morgan
Stanley Board nor the Dean Witter Discover Board, nor any committee thereof,
will (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the other party, the approval or recommendation by such
board of directors or such committee of the Merger or the Merger Agreement,
(ii) approve or recommend, or propose publicly to approve or recommend, any
Takeover Proposal or (iii) cause such party to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Takeover Proposal. Notwithstanding the foregoing, in
the event that during the 20 business days prior to the publicly announced
date of the Morgan Stanley Special Meeting or the Dean Witter Discover Annual
Meeting, the Morgan Stanley Board or the Dean Witter Discover Board, as the
case may be, determines in good faith that there is a substantial probability
that the adoption of the Merger Agreement by the stockholders of Morgan
Stanley or Dean Witter Discover, as the case may be, will not be obtained due
to the existence of a Superior Proposal, the board of directors of such party
may terminate the Merger Agreement, but only at a time that is after the fifth
business day following the other party's receipt of written notice advising
such other party that the board of directors of such party is prepared to
accept a Superior Proposal. The terminating party must pay a fee in the amount
of $250 million (the "Termination Fee") to the nonterminating party upon such
termination. See "--Termination" and "--Termination Fees."
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after adoption thereof by the stockholders of Morgan
Stanley or Dean Witter Discover:
(i) by mutual written consent of Morgan Stanley and Dean Witter Discover;
(ii) by either party thereto, if the Merger has not been consummated by
the later of September 30, 1997 or such date, not more than 90 days later,
as the Effective Time may have been extended by either party to the extent
necessary to obtain any material governmental, regulatory or other third-
party approvals, consents, orders or authorizations required in connection
with or as a result of the transactions contemplated by the Merger
Agreement; provided, however, that such right to terminate the Merger
Agreement will not be available to either party whose failure to perform
any of its obligations under the Merger Agreement has resulted in the
failure of the Merger to be consummated by that date;
(iii) by either party thereto, if the Morgan Stanley stockholders or the
Dean Witter Discover stockholders have not adopted the Merger Agreement at
their respective Stockholders' Meeting;
(iv) by either party thereto, if any Restraints are in effect and have
become final and nonappealable (a) preventing the consummation of the
Merger, (b) prohibiting or limiting the ownership or operation by Morgan
Stanley or Dean Witter Discover and their respective subsidiaries of any
material portion of the business or assets of Morgan Stanley or Dean Witter
Discover and their respective subsidiaries taken as a whole, or compelling
Morgan Stanley or Dean Witter Discover and their respective subsidiaries to
dispose of or hold separate any material portion of the business or assets
of Morgan Stanley or Dean Witter Discover and their respective subsidiaries
taken as a whole, as a result of the Merger, or (c) which otherwise is
reasonably likely to have a Material Adverse Effect on Morgan Stanley or
Dean Witter Discover; provided that the party seeking to exercise this
right to terminate the Merger Agreement has used best efforts to prevent
the entry of and to remove such Restraint;
(v) by either Morgan Stanley, on the one hand, or Dean Witter Discover,
on the other hand, if the other party has breached or failed to perform in
any material respect any of its representations, warranties,
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covenants or other agreements contained in the Merger Agreement, which
breach or failure to perform would give rise to the failure of a condition
to the Merger and cannot be cured;
(vi) by either Morgan Stanley, on the one hand, or Dean Witter Discover,
on the other hand, if during the 20 business days prior to the publicly
announced date of its Stockholders' Meeting, its Board of Directors
determines in good faith that there is a substantial probability that its
stockholders will not adopt the Merger Agreement due to the existence of a
Superior Proposal and if such terminating party has complied with certain
notice requirements; or
(vii) by either Morgan Stanley, on the one hand, or Dean Witter Discover,
on the other hand, if the other party or any of its officers or directors
has taken any of the actions that would be prohibited by the covenant
described under "--No Solicitation" above.
Termination Fees
The Merger Agreement provides that if a Qualifying Takeover Proposal (as
defined below) is made known to any party or any of its subsidiaries or has
been made directly to its stockholders generally or any person shall have
publicly announced an intention to make a Qualifying Takeover Proposal and
thereafter the Merger Agreement is terminated pursuant to the provisions
described in clause (ii), (iii) or (vii) under "--Termination" above, then, if
within 18 months of the termination the party that was the subject of the
Qualifying Takeover Proposal consummates, or enters into an agreement to
consummate, a Qualifying Takeover Proposal, the party that was the subject of
the Qualifying Takeover Proposal must then pay the other party the Termination
Fee. If the Merger Agreement is terminated pursuant to the provisions
described in clause (vi) under "--Termination," then the terminating party
must pay the nonterminating party the Termination Fee upon such termination. A
"Qualifying Takeover Proposal" is any inquiry, proposal or offer relating to
any acquisition or purchase of a business that constitutes 35% or more of the
net revenues, net income or assets of a party and its subsidiaries, taken as a
whole, or 35% or more of any class of equity securities of such party, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 35% or more of any class of equity securities of such
party, or any merger, consolidation, liquidation, dissolution or similar
transaction involving such party.
The Merger Agreement further provides that if one party should fail to pay
any Termination Fee due, the defaulting party must pay the costs and expenses
in connection with any action taken to collect payment, together with interest
on the amount of the Termination Fee.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Morgan Stanley and Dean Witter Discover
have each agreed to carry on their respective businesses in the ordinary
course consistent with past practice and in compliance in all material
respects with applicable laws and regulations and, to the extent consistent
therewith, to use reasonable efforts to preserve intact their current business
organizations, to keep available the services of their current officers and
other key employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. In addition, Morgan
Stanley and Dean Witter Discover have each agreed that, among other things and
subject to certain exceptions, neither it nor any of its subsidiaries may:
(i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any capital stock, other than certain
dividends and distributions by a subsidiary and other than the regular
quarterly dividends with respect to the Dean Witter Discover Common Stock
and the Morgan Stanley Common Stock and regular dividends in accordance
with their terms with respect to the Morgan Stanley Preferred Stock, or
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire any shares of its capital stock or its subsidiaries'
capital stock or any rights, warrants or options to acquire any such
securities;
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(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
lien any shares of capital stock, any other voting securities or any
securities convertible into or any rights, warrants or options to acquire
any such shares, other than pursuant to existing employee stock options,
the issuance of Morgan Stanley Common Stock upon conversion of outstanding
Morgan Stanley ESOP Preferred Stock or other outstanding convertible
securities and issuances pursuant to the Stock Option Agreements;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents (other than the amendments to the Dean Witter
Discover Certificate and Dean Witter Discover By-Laws described herein);
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, any business or any
person (except for acquisitions made in the ordinary course of business
consistent with past practice);
(v) sell, lease, license, mortgage or otherwise encumber, subject to any
lien or otherwise dispose of any properties or assets, other than in the
ordinary course of business consistent with past practice;
(vi) take any action that would cause the representations and warranties
described in clause (vii) under "--Representations and Warranties" below to
no longer be true and correct;
(vii) in the case of Morgan Stanley and its subsidiaries only, take any
action to cause or permit additional shares of Morgan Stanley Common Stock
to become subject to the Voting Agreements, other than in the ordinary
course of business consistent with past practice; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions.
Dividend Coordination
The Merger Agreement requires Morgan Stanley and Dean Witter Discover to
coordinate with each other the payment of dividends, and the designation of
record and payment dates, relating to Morgan Stanley Common Stock and Dean
Witter Discover Common Stock with the intent that holders of Morgan Stanley
Common Stock will not receive two dividends, or fail to receive one dividend,
for any single calendar quarter as a result of the Merger.
Amendment to Rights Plan
Dean Witter Discover has amended the Rights Agreement to provide that
neither the approval, execution or delivery of the Merger Agreement or the
Dean Witter Discover Stock Option Agreement nor the consummation of the
transactions contemplated by the Merger Agreement or the Dean Witter Discover
Stock Option Agreement will cause the rights issued thereunder to become
exercisable. See "Comparison of Stockholders' Rights--Rights Plan."
Assumption of Morgan Stanley Stock Plans
At the Effective Time, the Morgan Stanley Stock Plans and the Morgan Stanley
Group Inc. 1993 Stock Plan for Outside Directors (the "Morgan Stanley Outside
Directors Plan") will be assumed by MSDWD by operation of the Merger, with the
result that all obligations of Morgan Stanley under the Morgan Stanley Stock
Plans and the Morgan Stanley Outside Directors Plan will become obligations of
MSDWD. In the Merger, awards of restricted stock units and stock options
outstanding immediately prior to the Effective Time under the Morgan Stanley
Stock Plans will be adjusted as described above. See "The Merger--Effect on
Awards Outstanding Under Morgan Stanley Stock Plans." In addition, pursuant to
the Merger Agreement, prior to the Effective Time, Dean Witter Discover will
take all necessary action so that there will be reserved for issuance and
listing an amount of MSDWD Common Stock at least equal to (i) the number of
shares of MSDWD Common Stock that will be subject to such adjusted awards plus
(ii) 1.65 times the number of shares of Morgan Stanley Common Stock available
for future awards under the 1995 EICP and the Morgan Stanley Outside Directors
Plan immediately prior to the Effective Time. As of March 31, 1997, the number
of shares of Morgan Stanley Common Stock available for future awards under
such plans is approximately 79 million shares.
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Prior to the Effective Time, Morgan Stanley and Dean Witter Discover will
amend the terms of certain rabbi trusts established to hold shares of Morgan
Stanley common stock corresponding to awards of restricted stock units under
the Morgan Stanley Stock Plans so that, as of the Effective Time, MSDWD will
be substituted for Morgan Stanley as the "grantor" of each such trust and so
that the assets of such trusts would be available following the Effective Time
to satisfy the claims of general creditors of MSDWD or a material subsidiary
in the event that MSDWD or such material subsidiary were to become
"insolvent." The Merger Agreement also provides for the ESOP to be assumed by
MSDWD at the Effective Time.
Amendment and Waiver
Subject to applicable law: (i) the Merger Agreement may be amended by an
instrument in writing signed on behalf of each party at any time (except that
after the Merger Agreement shall have been adopted by the stockholders of
either Morgan Stanley or Dean Witter Discover, no amendment may be entered
into which requires further approval by such stockholders unless such further
approval is obtained) and (ii) at any time prior to the Effective Time, a
party may, by written instrument signed on behalf of such party, (a) extend
the time for performance of the obligations of the other party to the Merger
Agreement, (b) waive inaccuracies in representations and warranties of the
other party contained in the Merger Agreement or in any document delivered
pursuant thereto and (c) waive (except as provided in the Merger Agreement)
compliance by the other party with any agreements or conditions for such
party's benefit contained in the Merger Agreement.
Pursuant to Section 251(d) of the DGCL, no amendment to the Merger Agreement
made subsequent to the adoption of the Merger Agreement by the stockholders of
Morgan Stanley or Dean Witter Discover may, without further shareholder
approval, alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received by such stockholders in the Merger,
alter or change any term of the MSDWD Certificate to be effected by the Merger
or alter or change any terms and conditions of the Merger Agreement if such
alteration or change would adversely affect the holders of any class or series
of stock of Morgan Stanley or Dean Witter Discover, respectively.
Expenses
Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement, the Stock Option Agreements and the
transactions contemplated thereby will be paid by the party incurring such
fees or expenses, except as otherwise provided in the Merger Agreement and the
Stock Option Agreements and except that Morgan Stanley and Dean Witter
Discover will share equally the expenses incurred in connection with filing,
printing and mailing this Joint Proxy Statement/Prospectus and the
Registration Statement of which it is a part and with the filings of the
premerger notification and report forms under the HSR Act (including filing
fees). Dean Witter Discover will file any return with respect to, and will
pay, any state or local taxes (including any penalties or interest with
respect thereto), if any, which are attributable to the transfer of the
beneficial ownership of Morgan Stanley's real property as a result of the
Merger.
Representations and Warranties
The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of Morgan Stanley and Dean Witter Discover; (iv) authorization,
execution, delivery, performance and enforceability of, and required consents,
approvals, orders and authorizations of governmental authorities relating to,
the Merger Agreement and related matters; (v) documents filed by each of
Morgan Stanley and Dean Witter Discover with the Commission, the accuracy of
information contained therein and the absence of undisclosed liabilities of
each of Morgan Stanley and Dean Witter Discover; (vi) the accuracy of
information supplied by each of Morgan Stanley and Dean Witter Discover in
connection with this Joint Proxy Statement/Prospectus and the Registration
Statement of which it is a part; (vii) absence of material changes or events
with respect to each of Morgan Stanley and Dean Witter Discover; (viii)
compliance with applicable laws; (ix) absence of changes in benefit plans; (x)
matters relating to ERISA; (xi) filing of tax returns and payment of taxes;
(xii) required
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stockholder votes; (xiii) the satisfaction of certain state takeover statutes'
requirements; (xiv) the absence of actions that would prevent using the
"pooling of interests" method to account for the Merger; (xv) engagement and
payment of fees of brokers, investment bankers, finders and financial
advisors; (xvi) receipt of fairness opinions; (xvii) ownership by Morgan
Stanley of Dean Witter Discover Common Stock and by Dean Witter Discover of
Morgan Stanley Common Stock or Morgan Stanley Preferred Stock; (xviii) the
inapplicability of the Rights Agreement to the Merger Agreement, the Stock
Option Agreements and certain related agreements and transactions; (xix)
intellectual property matters; and (xx) non-competition or similar agreements.
Amendments to Dean Witter Discover Certificate
As of the Effective Time, the Dean Witter Discover Board will establish the
terms of the MSDWD Preferred Stock and will file certificates of designation
with respect thereto with the Delaware Secretary of State. The Dean Witter
Discover Certificate will be amended as of the Effective Time, pursuant to the
terms of the Merger Agreement, by replacing Articles One through Thirteen
thereof with the text set forth as Exhibit A-1 to the Merger Agreement, which
is attached as Annex I to this Joint Proxy Statement/Prospectus and which is
incorporated herein by reference. Such amendments will not affect the existing
certificates of designation for Dean Witter Discover Series A Preferred Stock
or the certificates of designation for the MSDWD Preferred Stock which will be
filed and become effective as of the Effective Time. For a summary of certain
provisions of the MSDWD Certificate and the rights of MSDWD stockholders
thereunder, see "Comparison of Stockholders' Rights."
Amendments to Dean Witter Discover By-Laws
The Merger Agreement provides that the Dean Witter Discover By-Laws will be
amended and restated as of the Effective Time as set forth in Exhibit A-2 to
the Merger Agreement, which is attached as Annex I to this Joint Proxy
Statement/Prospectus, and which is incorporated herein by reference. For a
summary of certain provisions of the MSDWD By-Laws and the rights of MSDWD
stockholders thereunder, see "Comparison of Stockholders' Rights."
Reciprocal Stock Option Agreements
General. Immediately following the execution and delivery of the Merger
Agreement, Morgan Stanley and Dean Witter Discover entered into (i) a stock
option agreement (the "Morgan Stanley Stock Option Agreement") pursuant to
which Morgan Stanley granted Dean Witter Discover an option to purchase up to
31,506,582 shares of Morgan Stanley Common Stock (or such number of shares of
Morgan Stanley Common Stock as represents 19.9% of the then-outstanding shares
of Morgan Stanley Common Stock) at a price per share of $62.906 and (ii) a
stock option agreement (the "Dean Witter Discover Stock Option Agreement")
pursuant to which Dean Witter Discover granted Morgan Stanley an option to
purchase up to 63,922,570 shares of Dean Witter Discover Common Stock (or such
number of shares of Dean Witter Discover Common Stock as represents 19.9% of
the then-outstanding shares of Dean Witter Discover Common Stock) at a price
per share of $38.125.
The following is a summary of certain provisions of the Morgan Stanley Stock
Option Agreement and the Dean Witter Discover Stock Option Agreement. The
terms of the Stock Option Agreements are identical in all material respects
other than with respect to the shares that may be purchased pursuant thereto
and the exercise prices thereof. The Stock Option Agreements are attached
hereto as Annexes II and III and are incorporated herein by reference.
Exercise of the Options. The options are exercisable with respect to any or
all of the shares subject thereto at any one time (except as described below),
after the occurrence of any event (a "Purchase Event") entitling the party
desiring to exercise the option to receive the Termination Fee pursuant to the
Merger Agreement. See "--Termination Fees." The right to purchase shares under
each Stock Option Agreement will expire upon the earliest to occur of (i) the
Effective Time, (ii) 18 months after the first occurrence of a Purchase Event
and (iii)
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termination of the Merger Agreement prior to the occurrence of a Purchase
Event (unless the grantee under the Stock Option Agreement (the "Grantee") has
the right to receive a Termination Fee following such termination upon the
occurrence of certain events, in which case the option will not terminate
until the later of (a) six months following the time such Termination Fee
becomes payable and (b) the expiration of the period in which the Grantee has
such right to receive a Termination Fee). Any purchase of shares upon exercise
of an option is subject to compliance with the HSR Act and the obtaining or
making of any governmental or regulatory consents, approvals, orders,
notifications or authorizations, the failure of which to have obtained or made
would have the effect of making the issuance of shares subject to the option
illegal. In the event that any such governmental or regulatory action has not
yet been obtained or made at the time the option is exercisable, which
prohibits the exercise of the entire option, the option may be exercised for a
lesser amount of shares than may be then acquired without such governmental or
regulatory action. If the Grantee receives official notice that such
governmental or regulatory action will not be issued or granted or it is not
granted within six months after a partial exercise in accordance with the
preceding sentence, then the Grantee may exercise the Cash-Out Right (as
defined below) for any remaining shares subject to the option.
Adjustments to Number and Type of Shares. The number and type of securities
subject to the options and the purchase price therefor will be adjusted for
any change in the common stock of the issuer under the Stock Option Agreement
(the "Issuer") by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or similar transaction, such
that the Grantee will receive (upon exercise of the option) the number and
type of securities that the Grantee would have received if the option had been
exercised immediately prior to the occurrence of such event (or the record
date therefor). The number of shares of common stock subject to each option
will also be adjusted in the event the Issuer issues additional shares of
common stock, such that the number of shares of common stock subject to the
option represents 19.9% of the shares of the Issuer's common stock then
outstanding, without giving effect to shares subject to or issued pursuant to
the option. In the event that the Issuer enters into an agreement to
consolidate with or merge into any person other than the Grantee or one of its
subsidiaries, to permit any person other than the Grantee or one of its
subsidiaries to merge into the Issuer, or to sell or otherwise transfer all or
substantially all of its assets to any person other than the Grantee or one of
its subsidiaries, then such transaction agreement will provide that the option
will, upon the consummation of such transaction, be converted into or
exchanged for an option to acquire the number and class of shares or other
securities or property the Grantee would have received in respect of Issuer
common stock if the option had been exercised immediately prior to such
consolidation, merger, sale or transfer (or the record date therefor).
Cash Payment in Respect of the Option. In lieu of purchasing shares of the
Issuer's common stock pursuant to the option, the Grantee may exercise its
right (the "Cash-Out Right") to have the Issuer pay to the Grantee an amount
per share of Issuer common stock equal to the number of shares of Issuer
common stock subject to the Cash-Out Right multiplied by the difference
between (i) the average closing price on the NYSE of the Issuer's common stock
for a 10-day trading period prior to the exercise of such right (except that
such price shall in no event exceed the "fair market value" of such stock, as
determined in accordance with Dean Witter Discover's Certificate (as in
existence as of the date of the Stock Option Agreements) and (ii) the exercise
price of the option.
Registration Rights and Listing. The Grantee has certain rights to require
registration by the Issuer of any shares purchased pursuant to the option
under the securities laws if necessary for the Grantee to be able to sell such
shares and to require the listing of such shares on the NYSE or other national
securities exchange.
Assignability. Neither Stock Option Agreement may be assigned or delegated
by the Grantee or Issuer thereunder without the prior written consent of the
other. The shares subject to the options pursuant to the Stock Option
Agreements may not be sold, assigned, transferred or otherwise disposed of
except in an underwritten public offering or to a purchaser or transferee who
would not, immediately after such sale, assignment, transfer or disposal,
beneficially own more than 4.9% of the outstanding voting power of the Issuer;
provided, however, that the Grantee shall be permitted to sell any such shares
if the sale is made pursuant to a tender or exchange offer that has been
approved or recommended by a majority of the members of the Issuer's board of
directors.
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Effect of Stock Option Agreements. The Stock Option Agreements are intended
to increase the likelihood that the Merger will be consummated on the terms
set forth in the Merger Agreement. Consequently, certain aspects of the Stock
Option Agreements may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a significant
interest in either Morgan Stanley or Dean Witter Discover from considering or
proposing such an acquisition, even if such persons were prepared to offer
higher consideration per share for Morgan Stanley Common Stock than that
implicit in the Exchange Ratio or a higher price per share for Dean Witter
Discover Common Stock than the market price.
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THE COMPANIES
Dean Witter Discover
Dean Witter Discover provides diversified financial services, including a
broad range of nationally marketed credit and investment products, with a
primary focus on individual customers and investors in the United States. Dean
Witter Discover has two principal lines of business: securities and credit
services. Its securities business, which is conducted primarily through DWR
(one of the largest members of the NYSE), focuses on serving the investment
needs of its 3.2 million clients through approximately 9,100 professional
account executives located in 371 branch offices. Dean Witter Discover,
primarily through InterCapital, has one of the largest asset management
operations in the United States and, together with ICS, managed and
administered total assets in excess of $100 billion as of December 31, 1996.
Dean Witter Discover's credit services businesses consist primarily of the
issuance, marketing and servicing of general purpose credit cards and the
provision of transaction processing services, private-label credit card
services and real estate-secured loans. As of December 31, 1996, it was the
largest single issuer of general purpose credit cards in the United States as
measured by number of accounts and cardmembers, the third largest holder of
credit card receivables as measured by managed loans and the fourth largest
merchant network in terms of domestic and international credit card
transaction volume. The Discover Card is Dean Witter Discover's most widely
held proprietary general purpose credit card.
Dean Witter & Co. was organized in 1924. In 1978, Dean Witter & Co.
Incorporated (the successor to Dean Witter & Co.) merged with Reynolds
Securities Inc. and, in 1981, Dean Witter Reynolds Organization Inc. was
acquired by Sears, Roebuck and Co. ("Sears"). Dean Witter Discover was a
wholly owned subsidiary of Sears until March 1, 1993 when it became a public
company through an initial public offering of approximately 20% of its common
stock. On June 30, 1993, Sears divested its remaining Dean Witter Discover
shares through a special dividend to its shareholders.
For the year ended December 31, 1996, Dean Witter Discover had net revenues
of $6.2 billion, net income of $951 million and fully diluted earnings per
share of $2.77. Approximately 43% of its net revenues was derived from its
securities business, 11% was derived from its asset management business and
46% was derived from its credit services businesses.
Dean Witter Discover's principal executive offices are located at Two World
Trade Center, New York, New York 10048, and its telephone number is (212) 392-
2222.
Morgan Stanley
Morgan Stanley is a leading securities firm that provides a wide range of
financial services on a global basis. Its businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring,
real estate, project finance and other corporate finance advisory activities;
asset management; merchant banking and other principal investment activities;
brokerage and research services; the trading of foreign exchange and
commodities as well as derivatives on a broad range of asset categories, rates
and indices; and global custody, securities clearance services and securities
lending. These services are provided to a large and diversified group of
clients and customers, including corporations, governments, financial
institutions and individual investors, but with a focus on the institutional
investor marketplace. Headquartered in New York City, Morgan Stanley has five
regional offices in the United States and 28 principal offices in 19
countries.
Morgan Stanley & Company, Incorporated was incorporated under the laws of
the State of New York in 1935 and was liquidated and reconstituted as Morgan
Stanley & Co. ("MS & Co."), a partnership, in 1941. Morgan Stanley & Co. was
incorporated under the laws of the State of Delaware in 1969 and over a number
of years assumed all of the business of the partnership. Morgan Stanley
Holdings Incorporated was incorporated under the laws of the State of Delaware
in 1975 to own all of the stock of Morgan Stanley & Co. and other related
entities, and changed its name to Morgan Stanley Inc. in 1978 and, in 1985, to
Morgan Stanley Group Inc. Morgan Stanley conducted its initial public offering
of approximately 20% of its common stock in 1986.
For Fiscal 1996, Morgan Stanley had net revenues of $5.8 billion, net income
of $1.0 billion, and fully diluted earnings per share of $5.96. Approximately
88% of its net revenues was derived from its securities business and 12% was
derived from its asset management business.
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Morgan Stanley's principal executive offices are located at 1585 Broadway,
New York, New York 10036, and its telephone number is (212) 761-4000.
MSDWD
Morgan Stanley will be merged with and into Dean Witter Discover. The
combined company will be named Morgan Stanley, Dean Witter, Discover & Co. and
will have its headquarters at 1585 Broadway, New York, New York 10036. MSDWD
will be a preeminent global financial services firm with leading market
positions in each of its three primary businesses--securities, asset
management and credit services. The Companies believe that the Merger will
combine three preeminent brands in the financial services industry: Discover
Card, Morgan Stanley and Dean Witter. The Merger will combine Morgan Stanley's
strengths in the origination of quality underwritten public offerings,
investment banking, institutional sales and trading and global asset
management with Dean Witter Discover's strengths in providing investment and
asset management services to its customers and in providing quality consumer
credit products to its customers, primarily through its Discover Card brand.
MSDWD's individual and institutional customers will benefit from the
complementary origination, distribution and execution skills and geographic
focus of each of Morgan Stanley and Dean Witter Discover. In addition, MSDWD
will manage or administer more than $270 billion of assets on a pro forma
basis and, based on its 38.9 million general purpose credit card accounts as
of December 31, 1996, will be the nation's largest credit card issuer as
measured by number of accounts and cardmembers, the third largest holder of
credit card receivables as measured by managed loans and the fourth largest
merchant network in terms of domestic and international credit card
transaction volume. The pro forma market capitalization for MSDWD as of the
Record Date was approximately $21.7 billion.
On a pro forma basis after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for Fiscal 1996, MSDWD would have had net
revenues of $12.0 billion, net income of $2.0 billion and fully diluted
earnings per share of $3.14. Approximately 65% of its pro forma net revenues
would have been derived from the securities business, 11% would have been
derived from the asset management business and 24% would have been derived
from the credit services businesses.
The Companies believe that, as a strategic matter, the financial services
industry is entering a period of unprecedented consolidation driven by three
trends that they believe will shape the structure and profitability of the
financial services industry in the future: (1) globalization of capital flows
resulting from the continued rapid pace of global financial deregulation and
the increasing integration of the global economy; (2) increased demand for
asset management services resulting from an aging population, structural
changes in pension schemes, the fiscal policies of the industrialized world
and the rise of a middle class with investable funds in the developing world;
and (3) the convergence of financial services segments resulting from
technological and financial innovation, deregulation, changing consumer
preferences and the continuing development of new sources of "value-added"
services. The Companies believe that these trends are a result of an external
environment characterized by: (1) increased acceptance of market-based systems
and reduced economic regulation in both the developing and the industrialized
worlds, leading to increased privatizations, the breakdown of regulatory
barriers between various financial services segments, new ties between markets
and renewed capital flows across borders; (2) the necessity of financing
emerging market growth externally, benefitting firms that are globally
positioned to link users and suppliers of capital; (3) the general aging of
the industrialized world's population, especially the "baby boom" generation,
at a time of reduced fiscal flexibility in the industrialized world, causing
strain in current government-sponsored retirement and health care systems and
leading individuals to take additional responsibility for their financial
well-being; (4) an increased willingness of both institutional and individual
investors to invest beyond their national borders both directly and through
mutual funds; (5) customer demand (both individual and institutional) for
integrated and customized solutions to their financial services needs leading
to financial innovation, additional classes of securities, new channels of
distribution and new businesses supported by the application of technology to
market challenges; and (6) the continuing trend of individual consumers
increasingly using credit cards as a method of payment for goods and services.
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The Companies believe that the implications of these trends for the
financial services industry include increased competition and rising
infrastructure and technology costs which will place a premium on firms that
achieve substantial size and scale with regard to capital available to employ
internally and in markets, breadth and depth of coverage of institutional and
individual clients, assets under management and breadth of global presence.
The value and importance of brand names and client loyalty will also grow in
this context. The Companies believe that the firms that will be winners in
this dynamic period of change will be full-service providers with leading
market positions in all of their businesses, recurring revenues and earnings
stability, broad-based customer access, size and scale and a global presence
among both providers and users of capital; and that consolidation will cause
the market leaders in the new environment to gain market share.
The Companies believe that, as a result of the Merger, MSDWD will be better
positioned to compete and to maximize absolute and relative shareholder value.
It will have: (1) premier franchises in each of its securities, asset
management and credit services businesses with brand identities that are among
the most widely recognized in their respective markets, and franchises that
extend globally; (2) leading market shares and strong distribution systems in
MSDWD's most important businesses, providing access to a broad range of
institutional and individual clients and customers; (3) a balanced risk
profile and the financial strength and flexibility to support future growth;
(4) the size and scale to compete effectively on a global basis; (5) a
management team selected from among the most qualified professionals at each
firm, including senior managers who have guided the Companies to significant
growth and profitability in their respective businesses; and (6) a high level
of employee ownership.
MSDWD's principal business strategy will be to use these competitive
advantages to advance its preeminent position and to take advantage of
opportunities in each of its major businesses for increased operating
leverage, capital optimization, enhanced profitability and accelerated growth
by offering more diverse and quality products and services to its current and
potential individual and institutional clients. This should provide MSDWD's
stockholders with opportunities to obtain substantial benefits.
MSDWD's Securities Business. MSDWD will combine Dean Witter Discover's
leading franchise in offering investment and asset management products and
services to its individual clients with Morgan Stanley's leading franchise in
the origination of quality underwritten products, investment banking, research
and institutional sales and trading. Based on information published by
Securities Data Company, in 1996 Morgan Stanley ranked No. 1 in global mergers
and acquisitions announced transactions, acting as financial advisor in
transactions having an aggregate market value of $238 billion; it ranked No. 3
in worldwide equity offerings based on full credit to the lead manager and No.
3 based on full credit to each manager (No. 3 and No. 2, respectively, after
giving effect to the Merger); and, based on a survey published by
Institutional Investor, it ranked No. 2 in equity research on a global basis.
After giving effect to the Merger, MSDWD would serve the investment needs of
over 3.2 million individual and institutional clients with assets of $478
billion at year end 1996. Dean Witter Discover has the third largest, and one
of the fastest growing, account executive sales organizations in the United
States with approximately 9,100 professional account executives and 371 branch
offices at year end 1996. Over the past five years, the growth of Dean Witter
Discover's account executive sales organization has averaged over 6% per year.
MSDWD's securities business strategy will be: (i) to continue to increase
the size of Dean Witter Discover's professional account executive sales
organization; (ii) to leverage Morgan Stanley's strength in underwriting
equity and fixed income securities and creating and originating other
financial products on a global basis, along with its top ranked research
department, across Dean Witter Discover's extensive sales organization to
maximize placement opportunities and lower cost of capital for clients seeking
access to capital, to provide existing individual clients the benefits of more
and diverse products and to enable MSDWD's account executives to attract
additional clients; and (iii) to continue to build market share with Morgan
Stanley's institutional clients on a global basis. The Companies believe
access to the DWR sales organization will permit MSDWD to increase its
revenues and market share in lead managed underwritings where it already has a
premier position. The Companies also believe a broader product mix for MSDWD's
individual customers should generate increased
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<PAGE>
revenues and assets under management and should help MSDWD to accelerate the
growth of its account executive sales organization. MSDWD's distribution
capabilities will, in turn, be strengthened by the increased productivity of
its account executives and by its enhanced ability to attract and retain
account executives.
On a pro forma basis after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for Fiscal 1996, MSDWD would have had
securities net revenues of $7.8 billion.
MSDWD's Asset Management Business. MSDWD will be a leader in asset
management on a global basis, with well-recognized brand names, including
those associated with InterCapital, Van Kampen American Capital, Morgan
Stanley Asset Management and Miller Anderson & Sherrerd, a strong
institutional and individual customer base, multiple channels of distribution,
and a broad and balanced product mix. On a pro forma basis, at December 31,
1996, MSDWD would have had over $270 billion of assets under management and/or
administration, ranking MSDWD among the top five active asset managers on a
global basis. Approximately $120 billion of such assets would have been
invested in mutual funds primarily offered to individual customers.
Approximately $112 billion (including approximately $36 billion invested in
international related products) would have been invested in products primarily
offered to institutional clients, which would have been composed of
approximately $35 billion in institutional mutual funds and approximately $77
billion in separate accounts, pooled vehicles and other arrangements. The
remaining amounts primarily include assets in fiduciary accounts, unit
investment trusts and Dean Witter Discover's ICS accounts. Among mutual funds
primarily offered to individual customers, approximately 43% of MSDWD's assets
under management would have been invested in equity securities, 36% in fixed
income securities and 21% in short-term investments. Among products primarily
offered to institutional clients, 50% would consist of equity products, 43% of
fixed income products and 7% of balanced products. MSDWD will also be a leader
in providing institutional investors and broker-dealers with custody,
securities clearance and settlement, portfolio valuation and related services
on a global basis.
MSDWD's asset management strategy will be to leverage its multiple brands
across several distinct individual and institutional distribution channels.
MSDWD's account executives will be able to offer a comprehensive array of
mutual funds and other asset management products, including mutual funds
advised by InterCapital as well as Van Kampen American Capital, Morgan Stanley
Asset Management and Miller Anderson & Sherrerd. In addition, Van Kampen
American Capital will continue to offer the Van Kampen American Capital,
Morgan Stanley Asset Management and Miller Anderson & Sherrerd brands of
mutual funds to national full-line and regional broker-dealers, financial
planners, banks and to other emerging distribution channels. Morgan Stanley
Asset Management and Miller Anderson & Sherrerd will retain their focus on
institutional clients and products marketed through direct and consultant-
based institutional channels. The institutional business will remain committed
to providing top tier investment performance across a broad range of
institutional products while growing the business on a global basis. MSDWD
will also continue to focus on building its global custody capabilities
worldwide.
On a pro forma basis, after giving effect to the Merger (without giving
effect to any potential changes in revenues or any operating synergies
expected to result therefrom), for Fiscal 1996, MSDWD would have had asset
management net revenues of $1.4 billion.
MSDWD's Credit Services Business. MSDWD, primarily through its well-
recognized Discover Card brand, will be positioned to become a leading
worldwide credit services company with sufficient size, scale and financial
resources to compete effectively in this growing business. Dean Witter
Discover currently is the leading issuer of credit cards in the United States,
as measured by the number of accounts and card members, with 38.9 million
general purpose credit card accounts, the third largest holder of credit card
receivables as measured by managed loans and the fourth largest merchant
network in terms of domestic and international credit card transaction volume.
Dean Witter Discover had $53.6 billion in general purpose credit card
transaction volume (approximate total market size in 1996: $700 billion in the
United States, $1.7 trillion worldwide) in 1996 and $36.6 billion in managed
loans, including both owned and securitized credit card receivables
(approximate total market size as of September 30, 1996: $400 billion in the
United States) as of December 31, 1996. The Discover Card is offered
exclusively through Dean Witter Discover's nationwide proprietary NOVUS
merchant network, consisting of well in excess of 2 million merchant
locations.
59
<PAGE>
Given the approximately 20% compound annual growth rate of worldwide credit
card transaction volume over the last five years, MSDWD's credit services
strategy, using the Discover Card as its foundation, will be to focus on the
implementation of its multi-card strategy, on the buildout of its NOVUS
network and on maintaining credit quality. The Companies believe that MSDWD's
credit services business will be well-positioned to take advantage of the
continuing trend of individual consumers increasingly using credit cards as a
method of payment for goods and services. In addition, the Companies believe
that Morgan Stanley's global presence, and the financial resources of the
combined company, create significant opportunities for expansion of this
business outside the United States.
For 1996, MSDWD's credit services businesses would have had net revenues of
$2.9 billion.
60
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
On the Record Date, there were approximately 196,005 holders of record of
Dean Witter Discover Common Stock and approximately 879 holders of record of
Morgan Stanley Common Stock.
Market Prices
The principal trading market for Dean Witter Discover Common Stock and
Morgan Stanley Common Stock is the NYSE. The following tables set forth, for
the periods indicated, the high and low sales price per share of Dean Witter
Discover Common Stock and Morgan Stanley Common Stock on the NYSE, as reported
by The Wall Street Journal (Eastern edition).
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER
COMMON STOCK
DOLLARS PER SHARE
---------------------
CALENDAR PERIOD HIGH LOW
- --------------- ---------- ----------
<S> <C> <C>
1995(1):
First Quarter........................................... 21 1/2 16 13/16
Second Quarter.......................................... 24 1/16 20 1/4
Third Quarter........................................... 28 15/16 23 3/8
Fourth Quarter.......................................... 27 9/16 23 1/4
1996(1):
First Quarter........................................... 28 5/8 22 9/16
Second Quarter.......................................... 30 7/8 25 5/8
Third Quarter........................................... 28 13/16 24 5/8
Fourth Quarter.......................................... 34 3/16 27 13/16
1997(1):
First Quarter........................................... 43 3/4 33 1/8
Second Quarter (through April 10)....................... 37 1/4 34 1/2
</TABLE>
- --------
(1) Dean Witter Discover share prices have been restated to reflect a two-for-
one stock split which became effective January 14, 1997.
61
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY
COMMON STOCK
DOLLARS PER SHARE
-----------------
PERIOD HIGH LOW
- ------ -------- --------
<S> <C> <C>
FISCAL PERIOD ENDED
NOVEMBER 30, 1995(1)(2)
First Quarter............................................... 33 11/16 30 7/16
Second Quarter.............................................. 39 13/16 33 1/16
Third Quarter............................................... 43 7/16 37 15/16
Fourth Quarter.............................................. 49 3/4 41 7/8
FISCAL YEAR ENDED
NOVEMBER 30, 1996
First Quarter............................................... 52 1/2 39 1/8
Second Quarter.............................................. 53 1/2 46
Third Quarter............................................... 54 1/4 42 1/8
Fourth Quarter.............................................. 60 1/4 47 1/4
FISCAL YEAR ENDED
NOVEMBER 30, 1997
First Quarter............................................... 71 7/8 54 3/8
Second Quarter (through April 10)........................... 66 3/8 57 1/2
</TABLE>
- --------
(1) Morgan Stanley share price amounts for the fiscal period ended November
30, 1995 have been restated to reflect a two-for-one stock split which
became effective on January 26, 1996.
(2) Fiscal 1995's quarterly periods reflect the change in Morgan Stanley's
fiscal year end. Since fiscal 1995 consists of the ten-month period from
February 1, 1995 to November 30, 1995, the first quarter consists only of
the results for the month ended February 28, 1995.
On February 4, 1997, the last trading day prior to the announcement of the
execution of the Merger Agreement, the last reported sale price per share of
Dean Witter Discover Common Stock on the NYSE Composite Transaction Tape was
$38 5/8 and the last reported sale price per share of Morgan Stanley Common
Stock on the NYSE Composite Transaction Tape was $57 3/8. On April 10, 1997,
the last trading day prior to the printing of this Joint Proxy
Statement/Prospectus, the last reported sale price per share of Dean Witter
Discover Common Stock on the NYSE Composite Transaction Tape was $36 1/4 and
the last reported sale price per share of Morgan Stanley Common Stock on the
NYSE Composite Transaction Tape was $60.
62
<PAGE>
Dividends
Dean Witter Discover and Morgan Stanley Dividends. Dean Witter Discover has
paid cash dividends on Dean Witter Discover Common Stock since its initial
public offering of such stock in February 1993. Dividends are paid quarterly.
Morgan Stanley has paid cash dividends on Morgan Stanley Common Stock since
the original issuance of such stock in 1986. Dividends are paid quarterly. The
following table sets forth dividends in respect of Dean Witter Discover Common
Stock and Morgan Stanley Common Stock paid in each of the last two years.
<TABLE>
<CAPTION>
DOLLARS PER SHARE
-------------------------------
DEAN WITTER DISCOVER COMMON
STOCK
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995(1)......................................... .08 .08 .08 .08
1996(1)......................................... .11 .11 .11 .11
</TABLE>
- --------
(1) Dean Witter Discover per share dividend amounts have been restated to
reflect a two-for-one stock split which became effective January 14, 1997.
<TABLE>
<CAPTION>
DOLLARS PER SHARE
-------------------------------
MORGAN STANLEY COMMON STOCK
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal period ended November 30, 1995(1)(2)..... -- .16 .16 .16
Fiscal year ended November 30, 1996............. .175 .175 .175 .175
</TABLE>
- --------
(1) Morgan Stanley per share dividend amounts for the fiscal period ended
November 30, 1995 have been restated to reflect for a two-for-one stock
split which became effective January 26, 1996.
(2) Fiscal 1995's quarterly periods reflect the change in Morgan Stanley's
fiscal year end. Since fiscal 1995 consists of the ten-month period from
February 1, 1995 to November 30, 1995, the first quarter consists only of
the results for the month ended February 28, 1995.
The Dean Witter Discover Board declared a $0.14 per share dividend on
December 16, 1996 (adjusted for the two-for-one stock split described above),
which was paid on April 1, 1997 to stockholders of record on March 3, 1997.
The Morgan Stanley Board declared a $0.20 per share dividend on March 27,
1997, which will be paid on April 25, 1997 to stockholders of record on April
4, 1997.
Post-Merger Dividend Policy. Following the Merger, management expects to
recommend that MSDWD pay dividends on the MSDWD Common Stock initially in the
amount of $0.14 per share per quarter, or $0.56 per share per year. The
payment of dividends will be in the discretion of the MSDWD Board and will be
determined after consideration of various factors, including (without
limitation) the earnings and financial condition of MSDWD and its
subsidiaries.
63
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
The following unaudited pro forma condensed combined statement of financial
condition combines the historical consolidated balance sheet of Dean Witter
Discover and the historical consolidated statement of financial condition of
Morgan Stanley giving effect to the Merger as though it had been consummated
on November 30, 1996. The following unaudited pro forma condensed combined
statements of income combine the historical consolidated statements of income
of Dean Witter Discover and Morgan Stanley giving effect to the Merger, which
is intended to be accounted for as a pooling of interests. This information
should be read in conjunction with the audited consolidated financial
statements and other financial information included in Dean Witter Discover's
audited consolidated financial statements which are included in Dean Witter
Discover's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, including the notes thereto and the audited consolidated financial
statements and other financial information contained in Morgan Stanley's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996,
including the notes thereto, and in each case incorporated by reference
herein. These unaudited pro forma condensed combined financial statements are
not necessarily indicative of the operating results and financial position
that might have been achieved had the Merger occurred as of the beginning of
the earliest period presented nor are they necessarily indicative of operating
results and financial position which may occur in the future.
64
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER MORGAN STANLEY
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
DECEMBER 31, 1996 NOVEMBER 30, 1996 ADJUSTMENTS (a) COMBINED
-------------------- ----------------- -------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............. $ 1,999 $ 4,545 -- $ 6,544
Cash and securities
deposited with clearing
organizations or
segregated under
federal and other
regulations............ 2,045 3,164 -- 5,209
Financial instruments
owned:
U.S. government and
agency securities...... 951 11,079 -- 12,030
Other sovereign
government obligations. -- 19,473 -- 19,473
Corporate and other
debt................... 923 15,978 -- 16,901
Corporate equities..... 40 12,622 -- 12,662
Derivative contracts... -- 11,220 -- 11,220
Physical commodities... -- 375 -- 375
Securities purchased
under agreements to
resell.................. 3,564 60,457 -- 64,021
Securities borrowed..... 3,866 39,680 -- 43,546
Receivables:
Consumer loans (net of
allowances of $815).... 22,373 -- -- 22,373
Customers, net......... 2,839 5,761 -- 8,600
Brokers, dealers and
clearing organizations. -- 5,421 -- 5,421
Fees, interest and
other.................. 805 2,065 -- 2,870
Other assets............ 3,009 4,606 -- 7,615
------- -------- ----- --------
Total assets............ $42,414 $196,446 -- $238,860
======= ======== ===== ========
Liabilities and
stockholders' equity
Commercial paper and
other short-term
borrowings.............. $ 5,865 $ 20,461 -- $ 26,326
Deposits................ 7,213 -- -- 7,213
Financial instruments
sold, not yet purchased:
U.S. government and
agency securities...... 1,199 10,196 -- 11,395
Other sovereign
government obligations. -- 6,513 -- 6,513
Corporate and other
debt................... 64 1,112 -- 1,176
Corporate equities..... 11 8,889 -- 8,900
Derivative contracts... -- 9,982 -- 9,982
Physical commodities... -- 476 -- 476
Securities sold under
agreements to
repurchase.............. 3,567 83,296 -- 86,863
Securities loaned....... 3,932 8,975 -- 12,907
Payables:
Customers.............. 3,433 18,629 -- 22,062
Brokers, dealers and
clearing organizations. -- 1,820 -- 1,820
Interest and dividends. 200 1,478 -- 1,678
Other liabilities and
accrued expenses....... 3,622 2,718 -- 6,340
Long-term borrowings.... 8,144 14,498 -- 22,642
------- -------- ----- --------
37,250 189,043 -- 226,293
------- -------- ----- --------
Capital Units........... -- 865 -- 865
------- -------- ----- --------
Commitments and
contingencies
Stockholders' equity:
Preferred stock........ -- 1,223 -- 1,223
Common stock(1)........ 3 163 ($160) (b) 6
Paid-in capital(1)..... 2,703 1,144 160 (b) 4,007
Retained earnings...... 2,973 4,504 (407) (b) 7,070
Cumulative translation
adjustments............ -- (11) -- (11)
------- -------- ----- --------
Subtotal.............. 5,679 7,023 (407) 12,295
------- -------- ----- --------
Less:
Stock compensation
related deductions.... (83) 78 -- (5)
Common stock held in
treasury, at cost..... 598 407 (407) (b) 598
------- -------- ----- --------
Total stockholders'
equity................ 5,164 6,538 -- 11,702
------- -------- ----- --------
Total liabilities and
stockholders' equity.... $42,414 $196,446 $ -- $238,860
======= ======== ===== ========
</TABLE>
- --------
(1) Dean Witter Discover historical amounts have been adjusted to reflect a
two-for-one stock split which became effective January 14, 1997.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
65
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER MORGAN STANLEY
HISTORICAL HISTORICAL
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED PRO FORMA
DECEMBER 31, 1996 NOVEMBER 30, 1996 COMBINED (a)
-------------------- ----------------- -----------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Revenues:
Investment banking....... $ 246 $ 1,944 $ 2,190
Principal transactions:
Trading................. 449 2,210 2,659
Investments............. -- 86 86
Commissions.............. 1,163 613 1,776
Merchant and cardmember
fees..................... 1,506 -- 1,506
Servicing fees........... 819 -- 819
Interest and dividends... 3,587 7,701 11,288
Asset management and
administration........... 1,150 582 1,732
Other.................... 108 8 116
----------- ----------- -----------
Total revenues.......... 9,028 13,144 22,172
Interest expense......... 1,566 7,368 8,934
Provision for losses on
credit receivables....... 1,232 -- 1,232
----------- ----------- -----------
Net revenues............ 6,230 5,776 12,006
----------- ----------- -----------
Expenses excluding
interest:
Compensation and
benefits................. 2,208 2,863 5,071
Occupancy and equipment.. 256 237 493
Brokerage, clearing and
exchange fees............ 43 274 317
Information processing
and communications....... 725 271 996
Business development..... 857 170 1,027
Professional services.... 108 226 334
Other.................... 488 163 651
----------- ----------- -----------
Total expenses excluding
interest................ 4,685 4,204 8,889
----------- ----------- -----------
Income before income
taxes.................... 1,545 1,572 3,117
Provision for income
taxes.................... 594 543 1,137
----------- ----------- -----------
Net income............... $ 951 $ 1,029 $ 1,980
----------- ----------- -----------
Preferred stock dividend
requirements............. -- $ 66 $ 66
----------- ----------- -----------
Earnings applicable to
common shares(1)......... $ 951 $ 963 $ 1,914
----------- ----------- -----------
Average common and common
equivalent shares
outstanding(1)(2)....... 341,179,638 153,514,483 594,478,535(c)
----------- ----------- -----------
Primary earnings per
share(2)................. $ 2.79 $ 6.27 $ 3.22(c)
----------- ----------- -----------
Fully diluted earnings
per share(2)............. $ 2.77 $ 5.96 $ 3.14(c)
----------- ----------- -----------
</TABLE>
- --------
(1) Amounts shown are used to calculate primary earnings per share.
(2) Dean Witter Discover historical share and per share amounts have been
restated to reflect a two-for-one stock split which became effective
January 14, 1997.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
66
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
MORGAN STANLEY
DEAN WITTER DISCOVER HISTORICAL
HISTORICAL TWELVE MONTHS
TWELVE MONTHS ENDED
ENDED NOVEMBER 30, PRO FORMA
DECEMBER 31, 1995 1995 COMBINED (a)
-------------------- -------------- ------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Revenues:
Investment banking......... $ 182 $ 1,374 $ 1,556
Principal transactions:
Trading................... 479 1,206 1,685
Investments............... -- 121 121
Commissions................ 1,023 510 1,533
Merchant and cardmember
fees...................... 1,135 -- 1,135
Servicing fees............. 697 -- 697
Interest and dividends..... 3,319 7,211 10,530
Asset management and
administration............ 1,007 370 1,377
Other...................... 93 5 98
------------ ------------ ------------
Total revenues............ 7,935 10,797 18,732
Interest expense........... 1,515 6,675 8,190
Provision for losses on
credit receivables........ 744 -- 744
------------ ------------ ------------
Net revenues.............. 5,676 4,122 9,798
------------ ------------ ------------
Expenses excluding
interest:
Compensation and benefits.. 1,982 2,023 4,005
Occupancy and equipment.... 235 219 454
Brokerage, clearing and
exchange fees............. 42 247 289
Information processing and
communications............ 646 243 889
Business development....... 735 139 874
Professional services...... 85 161 246
Other...................... 555 135 690
Relocation charge.......... -- 59 59
------------ ------------ ------------
Total expenses excluding
interest................. 4,280 3,226 7,506
------------ ------------ ------------
Income before income taxes. 1,396 896 2,292
Provision for income taxes. 540 287 827
------------ ------------ ------------
Net income................. $ 856 $ 609 $ 1,465
------------ ------------ ------------
Preferred stock dividend
requirements.............. -- $ 65 $ 65
------------ ------------ ------------
Earnings applicable to
common shares(1).......... $ 856 $ 544 $ 1,400
------------ ------------ ------------
Average common and common
equivalent shares
outstanding(1)(2)(3)...... 350,725,970 156,073,008 608,246,433(c)
------------ ------------ ------------
Primary earnings per
share(2)(3)............... $ 2.44 $ 3.49 $ 2.30(c)
------------ ------------ ------------
Fully diluted earnings per
share(2)(3)............... $ 2.44 $ 3.33 $ 2.25(c)
------------ ------------ ------------
</TABLE>
- --------
(1) Amounts shown are used to calculate primary earnings per share.
(2) Dean Witter Discover historical share and per share amounts have been
restated to reflect a two-for-one stock split which became effective
January 14, 1997.
(3) Morgan Stanley historical share and per share amounts have been restated
to reflect a two-for-one stock split which became effective January 26,
1996.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
67
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER MORGAN STANLEY
HISTORICAL HISTORICAL
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED PRO FORMA
DECEMBER 31, 1994 NOVEMBER 30, 1994 COMBINED (a)
-------------------- ----------------- ------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Revenues:
Investment banking...... $ 198 $ 904 $ 1,102
Principal transactions:
Trading................ 422 1,192 1,614
Investments............ -- 154 154
Commissions............. 874 449 1,323
Merchant and cardmember
fees................... 940 -- 940
Servicing fees.......... 586 -- 586
Interest and dividends.. 2,507 6,208 8,715
Asset management and
administration......... 973 344 1,317
Other................... 102 4 106
------------ ------------ ------------
Total revenues......... 6,602 9,255 15,857
Interest expense........ 1,048 5,649 6,697
Provision for losses on
credit receivables..... 548 -- 548
------------ ------------ ------------
Net revenues........... 5,006 3,606 8,612
------------ ------------ ------------
Expenses excluding
interest:
Compensation and
benefits............... 1,764 1,771 3,535
Occupancy and equipment. 228 193 421
Brokerage, clearing and
exchange fees.......... 45 231 276
Information processing
and communications..... 552 215 767
Business development.... 607 166 773
Professional services... 85 159 244
Other................... 510 124 634
------------ ------------ ------------
Total expenses
excluding interest.... 3,791 2,859 6,650
------------ ------------ ------------
Income before income
taxes.................. 1,215 747 1,962
Provision for income
taxes.................. 474 231 705
------------ ------------ ------------
Net income.............. $ 741 $ 516 $ 1,257
------------ ------------ ------------
Preferred stock dividend
requirements........... -- $ 65 $ 65
------------ ------------ ------------
Earnings applicable to
common shares(1)....... $ 741 $ 451 $ 1,192
------------ ------------ ------------
Average common and
common equivalent
shares
outstanding(1)(2)(3)... 346,717,026 157,578,446 606,721,462(c)
------------ ------------ ------------
Primary earnings per
share(2)(3)............ $ 2.14 $ 2.86 $ 1.96(c)
------------ ------------ ------------
Fully diluted earnings
per share(2)(3)........ $ 2.14 $ 2.75 $ 1.93(c)
------------ ------------ ------------
</TABLE>
- --------
(1) Amounts shown are used to calculate primary earnings per share.
(2) Dean Witter Discover historical share and per share amounts have been
restated to reflect a two-for-one stock split which became effective
January 14, 1997.
(3) Morgan Stanley historical share and per share amounts have been restated
to reflect a two-for-one stock split which became effective January 26,
1996.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
68
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE (a): BASIS OF PRESENTATION
The unaudited pro forma condensed combined statement of financial condition
combines the historical consolidated balance sheet of Dean Witter Discover at
December 31, 1996 with the historical consolidated statement of financial
condition of Morgan Stanley at November 30, 1996. The unaudited pro forma
condensed combined statements of income combine the historical consolidated
statements of income of Dean Witter Discover for the years ended December 31,
1996, 1995 and 1994 with the historical consolidated statements of income of
Morgan Stanley for the fiscal year ended November 30, 1996 and the twelve
months ended November 30, 1995 and November 30, 1994 (recast to reflect a
twelve month presentation). Certain amounts reflected in the historical
financial statement presentations of both companies have been reclassified to
conform to the unaudited pro forma condensed combined presentation.
The unaudited pro forma condensed combined financial statements exclude (a)
the effect of any potential changes in revenues or any operating synergies
which may be achieved upon combining the resources of the companies, (b)
investment banking, legal and miscellaneous transaction costs of the Merger,
which will be reflected as an expense in the period the Merger is consummated,
and (c) costs associated with the integration and consolidation of the
companies which are not presently estimable.
Transactions between Dean Witter Discover and Morgan Stanley are not
material in relation to the unaudited pro forma condensed combined financial
statements and, therefore, intercompany balances have not been eliminated from
the pro forma combined amounts. Dean Witter Discover and Morgan Stanley are in
the process of reviewing their respective accounting policies and do not
expect there to be any significant adjustments necessary in order to conform
such policies.
In January 1997, Dean Witter Discover acquired Lombard Brokerage, Inc.,
which was accounted for as a purchase transaction. During 1996, Morgan Stanley
acquired Miller Anderson & Sherrerd and Van Kampen American Capital, both
accounted for as purchase transactions. Subsequent to fiscal 1996 year-end,
Morgan Stanley announced that it had reached an agreement with Barclays PLC to
acquire its institutional global custody business. No pro forma effect has
been given to these transactions as the effect is not material.
NOTE (b): PRO FORMA ADJUSTMENTS
The pro forma adjustments to common stock, paid in capital, and retained
earnings at November 30, 1996 reflect (i) an exchange of 153.3 million shares
of Morgan Stanley Common Stock for 253.0 million shares (using the exchange
ratio of 1.65) of Dean Witter Discover Common Stock and (ii) the cancellation
and retirement of all shares of Morgan Stanley Common Stock held in treasury.
The number of shares of Dean Witter Discover Common Stock to be issued at
consummation of the Merger will be based upon the actual number of shares of
Morgan Stanley Common Stock outstanding at that time.
NOTE (c): PRO FORMA EARNINGS PER SHARE
The pro forma combined primary and fully diluted earnings per common share
for the respective periods presented is based on the combined weighted average
number of common shares and share equivalents of Dean Witter Discover and
Morgan Stanley. The number of common shares and share equivalents of Morgan
Stanley is based on an exchange ratio of 1.65 shares of Dean Witter Discover
Common Stock for each issued and outstanding share and share equivalent of
Morgan Stanley.
69
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF MSDWD FOLLOWING THE MERGER
Directors
The MSDWD Certificate will provide that the MSDWD Board will initially
consist of 14 members in three classes as set forth below, half of whom have
been designated by each of Morgan Stanley and Dean Witter Discover, with no
more than two members designated by each Company being "inside" directors. The
seven designees of Dean Witter Discover are the seven nominees for election to
the Dean Witter Discover Board at the Dean Witter Discover Annual Meeting. See
"Other Information for Dean Witter Discover Annual Meeting-- Nominees for
Election as Dean Witter Discover Directors." Messrs. Purcell and Schneider are
the two "inside" directors designated by Dean Witter Discover. Messrs. Fisher
and Mack are the two "inside" directors designated by Morgan Stanley. At the
Effective Time, the Morgan Stanley designees will become directors of the
MSDWD Board pursuant to the Merger Agreement.
The MSDWD Certificate will provide that the MSDWD Board will be divided into
three classes initially consisting of four, four and six directors,
respectively, with initial terms expiring at the annual meetings of
stockholders to be held in 1998, 1999 and 2000, respectively. Each class of
directors elected at an annual meeting of stockholders of MSDWD after the
Effective Time will be elected for a three-year term. The MSDWD By-Laws will
provide that a three-quarters vote of the directors of the MSDWD Board is
required in order to remove Mr. Purcell as Chairman and Chief Executive
Officer or Mr. Mack as President and Chief Operating Officer.
Set forth below is certain information with respect to the 14 individuals
who have been designated as the initial members of the MSDWD Board:
<TABLE>
<CAPTION>
POSITION WITH MSDWD TERM
NAME AGE FOLLOWING THE MERGER EXPIRING
---- --- -------------------- --------
<C> <C> <S> <C>
Philip J. Purcell....... 53 Chairman of the Board, Chief Executive
Officer and Director 2000
John J. Mack............ 52 President, Chief Operating Officer and
Director 2000
Thomas C. Schneider..... 59 Executive Vice President, Chief 1999
Strategic and Administrative Officer
and Director
Richard B. Fisher....... 60 Chairman of the Executive Committee of 1999
Board of Directors and Director
Robert P. Bauman........ 66 Director 1998
Edward A. Brennan....... 52 Director 1998
Daniel B. Burke......... 68 Director 2000
C. Robert Kidder........ 52 Director 2000
Miles L. Marsh.......... 49 Director 1999
Michael A. Miles........ 57 Director 2000
Allen E. Murray......... 68 Director 2000
Paul J. Rizzo........... 69 Director 1998
Clarence B. Rogers, Jr.. 67 Director 1998
Laura D'Andrea Tyson.... 49 Director 1999
</TABLE>
PHILIP J. PURCELL will become Chairman of the Board, Chief Executive Officer
and a Director of MSDWD upon consummation of the Merger. He has served as
Chairman of the Board and Chief Executive Officer of Dean Witter Discover, DWR
and NOVUS Credit Services Inc. ("NCSI"), 100 percent owned direct subsidiaries
of Dean Witter Discover, since 1986. Mr. Purcell has also been Chairman of the
Board of SPS Transaction Services, Inc. ("SPS"), a 74% owned indirect
subsidiary of Dean Witter Discover, since 1991 and is a director or trustee of
85 registered investment companies for which InterCapital, a wholly owned
subsidiary of Dean Witter Discover, serves as investment manager or investment
advisor.
JOHN J. MACK will become President, Chief Operating Officer and a Director
of MSDWD upon consummation of the Merger. He has served as President of Morgan
Stanley and Morgan Stanley & Co. since June 1993. He has been a director and a
Managing Director of Morgan Stanley since December 1987 and was a director and
a Managing Director of Morgan Stanley from January 1979 to March 1986. Mr.
Mack has been a director and a Managing Director of Morgan Stanley & Co. since
January 1979.
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THOMAS C. SCHNEIDER will become Executive Vice President, Chief Strategic
and Administrative Officer and a Director of MSDWD upon consummation of the
Merger. He has served as Executive Vice President and Chief Financial Officer
of Dean Witter Discover since 1987. Mr. Schneider is also a director of SPS.
RICHARD B. FISHER will become Chairman of the Executive Committee of the
MSDWD Board and a Director of MSDWD upon consummation of the Merger. He has
served as Chairman of the Board of Directors of Morgan Stanley and Morgan
Stanley & Co. since January 1991. From January 1984 through December 1990, he
served as President of Morgan Stanley and Morgan Stanley & Co. He has been a
director and a Managing Director of Morgan Stanley since July 1975 and a
director and a Managing Director of Morgan Stanley & Co. since July 1970. He
was a partner in MS & Co., the predecessor of Morgan Stanley & Co., from July
1970 through June 1975.
ROBERT P. BAUMAN will become a Director of MSDWD upon consummation of the
Merger. Mr. Bauman has been the non-executive chairman of British Aerospace
PLC since May 1994. He served as chief executive officer of SmithKline Beecham
Plc from 1989 until April 1994. Mr. Bauman is also a director of CIGNA
Corporation and Union Pacific Corporation. Mr. Bauman has been a non-executive
director of Reuters Holdings PLC since March 1994. Mr. Bauman has been a
director of Morgan Stanley since April 1996.
EDWARD A. BRENNAN will become a Director of MSDWD upon consummation of the
Merger. Mr. Brennan is the former Chairman of the Board, President and Chief
Executive Officer of Sears, having served in such capacities for more than
five years until his retirement in August 1995. He has been a director of Dean
Witter Discover since February 1993. Mr. Brennan is also a director of AMR
Corporation, Minnesota Mining and Manufacturing Company, The Allstate
Corporation, Unicom Corporation, Dean Foods Company and The SABRE Group
Holdings Inc.
DANIEL B. BURKE will become a Director of MSDWD upon consummation of the
Merger. Mr. Burke is retired. He served as chief executive officer of Capital
Cities/ABC, Inc. from 1990 until February 1994. He also served as president
and chief operating officer of that corporation from 1986 until February 1994
and was one of its directors from 1967 until February 1996. Mr. Burke is also
a director of Consolidated Rail Corporation, Darden Restaurants, Inc., Rohm
and Haas Company and The Washington Post Company. Mr. Burke has been a
director of Morgan Stanley since February 1994.
C. ROBERT KIDDER will become a Director of MSDWD upon consummation of the
Merger. Mr. Kidder has served since January 1995 as Chairman of the Board and
Chief Executive Officer of Borden, Inc., a consumer and specialty products
company. He served from June 1988 to August 1991 as President and Chief
Executive Officer, and from August 1991 to October 1994 as Chairman and Chief
Executive Officer, of Duracell International Inc. ("Duracell"), a consumer
battery company with global operations. Mr. Kidder has been a director of Dean
Witter Discover since July 1993 and is also a director of AEP Industries Inc.
and Electronic Data Systems Corporation.
MILES L. MARSH will become a Director of MSDWD upon consummation of the
Merger. Mr. Marsh has served as Chairman of James River Corporation of
Virginia ("James River"), a manufacturer and marketer of consumer paper
products, since January 1996 and has been James River's President and Chief
Executive Officer since October 1995. Previously, Mr. Marsh served as Chairman
and Chief Executive Officer of Pet Inc., a leading prepared foods company,
from March 1991 to February 1995. He has been a director of Dean Witter
Discover since December 1996. Mr. Marsh is also a director of GATX Corporation
and Whirlpool Corporation.
MICHAEL A. MILES will become a Director of MSDWD upon consummation of the
Merger. Mr. Miles has served since January 1995 as a special limited partner
in Forstmann Little & Company, a private investment firm with interests in
electronics, aerospace, publishing and other industries. From September 1991
to July 1994, he was the Chairman of the Board and Chief Executive Officer of
Philip Morris Companies Inc., a holding company engaged primarily in the
manufacture and sale of various consumer products ("Philip Morris").
Previously, Mr.
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<PAGE>
Miles was a Vice Chairman and Chief Executive Officer of Philip Morris and
Chairman and Chief Operating Officer of Kraft Foods, Inc., for more than five
years. Mr. Miles was a director of Dean Witter Discover from February 1993
until May 1994 and again became a director of Dean Witter Discover in January
1995. He is also a director of Sears, The Allstate Corporation, Time Warner
Inc. and Dell Computer Corporation.
ALLEN E. MURRAY will become a Director of MSDWD upon consummation of the
Merger. Mr. Murray is retired. He served as chairman of the board of directors
and chief executive officer of Mobil Corporation from February 1986 until March
1994 and as one of its directors from May 1977 until March 1994. Mr. Murray
also served as president and chief operating officer of that corporation from
November 1984 until March 1993. He is also a director of Lockheed Martin
Corporation, Metropolitan Life Insurance Company and Minnesota Mining &
Manufacturing Company. Mr. Murray has been a director of Morgan Stanley since
November 1992.
PAUL J. RIZZO will become a Director of MSDWD upon consummation of the
Merger. Mr. Rizzo is retired. He served as vice chairman of the board of
directors of International Business Machines Corporation from January 1993
through December 1994 and from February 1983 to September 1987 and as a senior
vice president from 1974 until February 1983. He has been chairman of Franklin
Street Partners, Inc. since 1992. From September 1987 until 1992, he was dean
of Kenan-Flagler Business School at the University of North Carolina-Chapel
Hill. Mr. Rizzo is also a director of Cox Enterprises, Inc. Johnson & Johnson,
Kenan Transport Company, The McGraw-Hill Companies, Inc. and Ryder System, Inc.
Mr. Rizzo was a director of Morgan Stanley from July 1986 through December 1992
and has been a director since February 1995.
CLARENCE B. ROGERS, JR. will become a Director of MSDWD upon consummation of
the Merger. Mr. Rogers has served since October 1992 as Chairman of the Board
of Equifax, Inc. ("Equifax"), a provider of information-based administrative
services. Mr. Rogers served as Chief Executive Officer of Equifax for more than
five years until December 1995. He was also President of Equifax from October
1987 to October 1992. He has been a director of Dean Witter Discover since
February 1993 and is also a director of Sears, Briggs & Stratton Corporation,
Oxford Industries, Inc. and Teleport Communications Group, Inc.
LAURA D'ANDREA TYSON will become a Director of MSDWD upon consummation of the
Merger. Dr. Tyson has been professor of Economics and Business Administration,
holding the endowed Class of 1939 Chair at the University of California,
Berkeley, since January 1997. Prior to accepting this position, Dr. Tyson
served in the first Clinton Administration from January 1993 through March 1995
as the 16th Chair of the White House Council of Economic Advisers, and from
April 1995 through December 1996 as Chair of the President's National Economic
Council and his National Economic Adviser. Prior to joining the Administration,
Dr. Tyson was professor of Economics and Business Administration, Director of
the Institute of International Studies, and Research Director of the Berkeley
Roundtable on the International Economy at the University of California,
Berkeley. She is also a director of Ameritech Corporation and Eastman Kodak
Company. Dr. Tyson has been a director of Morgan Stanley since April 1997.
Committees of the MSDWD Board
The MSDWD By-Laws will provide for an executive committee, a nominating and
directors committee, an audit committee and a compensation committee, each of
whose members are elected by a three-quarters vote of the MSDWD Board. A three-
quarters vote is also required until December 31, 2000 to create any additional
committees, determine the number of directors comprising a committee, modify
any of the powers or authority of a committee, change the chairman of a
committee, remove a director from a committee or change any designated
alternate committee member.
The MSDWD Board will initially have four standing committees: Mr. Fisher will
be the chairman of the executive committee; Mr. Miles, currently a member of
the Dean Witter Discover Board, will be the chairman of the nominating and
directors committee; Mr. Burke, currently a member of the Morgan Stanley Board,
will be the chairman of the compensation committee; and Mr. Brennan, currently
a member of the Dean Witter Discover Board, will be the chairman of the audit
committee. The executive committee will be comprised of the four "inside"
directors of the MSDWD Board, and the other committees will be comprised
entirely of "outside"
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<PAGE>
directors. One-half of the initial members of each such committee (other than
the executive committee) will be designated by each of the Companies.
Executive Officers
In addition to Messrs. Purcell, Mack and Schneider, the other executive
officers of MSDWD will be:
<TABLE>
<CAPTION>
POSITION WITH MSDWD
NAME AGE FOLLOWING THE MERGER
- ---- --- --------------------
Philip N. Duff............ 40 Executive Vice President and Chief Financial
Officer
<S> <C> <C>
Christine A. Edwards...... 44 Executive Vice President and Chief Legal Officer
</TABLE>
PHILIP N. DUFF will become Executive Vice President and Chief Financial
Officer of MSDWD upon consummation of the Merger. Mr. Duff has been the Chief
Financial Officer of Morgan Stanley and Morgan Stanley & Co. since February
1994. He has been a Managing Director of Morgan Stanley since November 1995, a
director of Morgan Stanley & Co. from November 1995 and a Managing Director of
Morgan Stanley & Co. since February 1993. From January 1991 to February 1993,
he was a Principal of Morgan Stanley & Co.
CHRISTINE A. EDWARDS will become Executive Vice President and Chief Legal
Officer of MSDWD upon consummation of the Merger. She has served as Executive
Vice President, General Counsel and Secretary of Dean Witter Discover since
1991. Mrs. Edwards is also a nominee to be elected as a director of SPS at the
annual meeting of stockholders of SPS currently scheduled to be held on April
29, 1997.
Stock Ownership of Directors, Executive Officers and Five Percent Stockholders
No director or executive officer of MSDWD is expected to own more than 1.1%
of the outstanding shares of MSDWD Common Stock after giving effect to the
Merger. The directors and executive officers of MSDWD as a group are expected
to own 1.8% of the outstanding shares of MSDWD Common Stock after giving effect
to the Merger. After giving effect to the Merger, the Signatories to the Voting
Agreements are expected to own 79,546,500 shares of MSDWD Common Stock that
will be subject to the Voting Agreements (representing approximately 13.6% of
the outstanding shares of MSDWD Common Stock, after giving effect to the
Merger), based on conversion in the Merger of 48,210,000 shares of Morgan
Stanley Common Stock owned by the Signatories and subject to the Voting
Agreements at April 4, 1997. No other person is expected to beneficially own
more than 5% of the outstanding shares of MSDWD Common Stock after giving
effect to the Merger (based on publicly available information).
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<PAGE>
DESCRIPTION OF MSDWD
CAPITAL STOCK FOLLOWING THE MERGER
The following summary of the terms of the capital stock of MSDWD does not
purport to be complete and is qualified in its entirety by reference to the
MSDWD Certificate and the MSDWD By-Laws, in each case as amended pursuant to
the Merger as described in Exhibits A-1 and A-2 to the Merger Agreement, which
is attached hereto as Annex I.
Authorized Capital Stock
As of the Effective Time, the Dean Witter Discover Certificate will be
amended to, among other things, increase the number of authorized shares of
all classes of capital stock that MSDWD will have authority to issue to
1,780,000,000, of which 1,750,000,000 will be shares of MSDWD Common Stock
(par value $0.01 per share) and 30,000,000 will be shares of MSDWD Preferred
Stock (par value $0.01 per share). The MSDWD Certificate will provide that the
terms of the MSDWD Preferred Stock will be established when issued in one or
more series by the MSDWD Board.
The Dean Witter Discover Certificate currently authorizes the issuance of
500,000,000 shares of Dean Witter Discover Common Stock and 10,000,000 shares
of Dean Witter Discover Preferred Stock. On the Record Date, approximately
400,000,000 shares of Dean Witter Discover Common Stock were either issued and
outstanding or reserved for issuance. Dean Witter Discover expects to issue
approximately 260,714,243 shares of MSDWD Common Stock to holders of Morgan
Stanley Common Stock in the Merger. It is necessary for Dean Witter Discover
to authorize additional shares of MSDWD Common Stock and MSDWD Preferred Stock
so that there are sufficient shares to issue in the Merger. In addition, the
Morgan Stanley Board and Dean Witter Discover Board believe it is desirable to
authorize additional shares of MSDWD Stock so that there will be sufficient
shares available for issuance after the Merger for purposes that the MSDWD
Board may hereafter determine to be in the best interest of MSDWD and its
stockholders. Such purposes could include the offer of shares for cash,
acquisitions, employee benefit programs and other general corporate purposes.
In many situations, prompt action may be required that would not permit
seeking stockholder approval to authorize additional shares for the specific
transaction on a timely basis. The Morgan Stanley Board and Dean Witter
Discover Board believe the MSDWD Board should have the flexibility to act
promptly in the best interests of its stockholders. The terms of any future
issuance of shares of MSDWD Stock will be dependent largely on market and
financial conditions and other factors existing at the time of issuance.
Dean Witter Discover currently has no plans, understandings, agreements or
arrangements concerning the issuance of additional shares of Dean Witter
Discover Common Stock, except for the shares to be issued in connection with
the Merger and shares reserved or to be reserved for issuance by Dean Witter
Discover, including pursuant to the Dean Witter Discover Employees' Equity
Accumulation Plan, other Dean Witter Discover employee benefits plans and
Morgan Stanley's employee benefit plans which will be assumed in the Merger,
in each case as described herein in the Merger Agreement or in the documents
incorporated by reference herein. If any plans, understandings, arrangements
or agreements are made concerning the issuance of any such shares, holders of
the then outstanding shares of Dean Witter Discover's capital stock may or may
not be given the opportunity to vote thereon, depending upon the nature of any
such transaction, the law applicable thereto, the policy of the NYSE and the
judgment of the Dean Witter Discover Board regarding the submission thereof to
Dean Witter Discover's stockholders. The current rules of the NYSE, however,
would require stockholder approval if the number of shares of Dean Witter
Discover Common Stock to be issued would equal or exceed 20% of the number of
such shares of Dean Witter Discover Common Stock outstanding immediately prior
to such issuance.
It is not presently contemplated that such additional shares of Dean Witter
Discover Common Stock would be issued for the purpose of making the
acquisition by an unwanted suitor of a controlling interest in Dean Witter
Discover more difficult, time-consuming or costly. However, it should be noted
that shares of Dean Witter Discover Common Stock could be issued for that
purpose and to that effect, and the Dean Witter Discover Board
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<PAGE>
reserves its right (if consistent with its fiduciary responsibilities) to
issue Dean Witter Discover Common Stock for such purposes. For a description
of certain antitakeover effects of the Rights that are attached to the
existing Dean Witter Discover Common Stock and will be attached to the shares
of MSDWD Common Stock when issued, see "Comparison of Stockholders' Rights--
Rights Plan."
MSDWD Common Stock
Dividend Rights; Rights Upon Liquidation. Subject to any preferential rights
of holders of MSDWD Preferred Stock, holders of shares of MSDWD Common Stock
will be entitled to receive dividends on such stock out of assets legally
available for distribution when, as and if authorized and declared by the
MSDWD Board and to share ratably in the assets of MSDWD legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding-up. See "Comparative Per Share Market Price and Dividend
Information-- Dividends" with respect to the anticipated initial quarterly
dividend on MSDWD Common Stock.
Voting Rights. Holders of MSDWD Common Stock will be entitled to one vote
per share on all matters voted on generally by the stockholders, including the
election of directors, and except as otherwise required by law or except as
provided with respect to any series of MSDWD Preferred Stock (including the
MSDWD ESOP Preferred Stock), the holders of such shares, together with the
holders of MSDWD ESOP Preferred Stock, will possess all voting power. The
MSDWD Board will be divided into three classes of directors with the term of
one class expiring at each annual meeting of stockholders. Because the MSDWD
Certificate will not provide for cumulative voting rights, the holders of a
plurality of the voting power of the then outstanding shares of capital stock
entitled to be voted generally in the election of directors (the "Voting
Stock" of MSDWD) represented at a meeting will be able to elect all the
directors standing for election at such meeting. In addition, the Voting
Agreements will continue in effect following the Effective Time and the shares
of MSDWD Common Stock received in the Merger in exchange for the Morgan
Stanley Common Stock that is subject to the Voting Agreements will remain
subject to the Voting Agreements.
Miscellaneous. The shares of MSDWD Common Stock, when issued to holders of
outstanding shares of Morgan Stanley Common Stock in connection with the
Merger, will be duly authorized, validly issued, fully paid and non-
assessable. Holders of MSDWD Common Stock will have no preferences or
preemptive, conversion, or exchange rights. Shares of MSDWD Common Stock will
not be liable for further calls or assessments by MSDWD and the holders of
MSDWD Common Stock will not be liable for any liabilities of MSDWD. Dean
Witter Trust Company will act as transfer agent and registrar for the MSDWD
Common Stock.
Rights Plan. For a description of the Rights that will attach to each
outstanding share of MSDWD Common Stock, see "Comparison of Stockholders'
Rights--Rights Plan."
MSDWD Preferred Stock
The following summary of the terms of the MSDWD Preferred Stock does not
purport to be complete and is qualified in its entirety by reference to the
MSDWD Certificate as amended and to be in effect at the Effective Time,
including the certificates of designation of preferences and rights of the
MSDWD Preferred Stock (the "Certificates of Designation"), filed as an exhibit
to the Registration Statement of which this Joint Proxy Statement/Prospectus
is a part. The Certificates of Designation will be filed by Dean Witter
Discover with the Delaware Secretary of State as of the Effective Time to
establish the terms of the MSDWD Preferred Stock.
General
The MSDWD Certificate will authorize the MSDWD Board to provide for the
issuance, from time to time, of preferred stock in series, to fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereon. Because the MSDWD
Board will have the power to establish the preferences and rights of the
shares of any such series of preferred stock, it may afford holders of any
preferred stock voting rights and preferences, powers and rights senior to the
rights of MSDWD Common
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<PAGE>
Stock, which could adversely affect the rights of holders of MSDWD Common
Stock. In accordance with the terms of the Merger Agreement, the Dean Witter
Discover Board will authorize, as of the Effective Time, the following series
of MSDWD Preferred Stock, each issuable upon conversion of the corresponding
series of Morgan Stanley Preferred Stock: 3,681,881 shares of MSDWD ESOP
Preferred Stock, issued in connection with MSDWD's ESOP, 750,000 shares of 8
3/4% Cumulative Preferred Stock, with a stated value of $200.00 per share (the
"8 3/4% Preferred Stock"), 1,000,000 shares of 7 3/8% Cumulative Preferred
Stock, with a stated value of $200.00 per share (the "7 3/8% Preferred
Stock"), 1,000,000 shares of 7 3/4% Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "7 3/4% Preferred Stock") and 1,725,000 shares
of Series A Fixed/Adjustable Rate Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "Series A Fixed/Adjustable Rate Preferred
Stock"). The 8 3/4% Preferred Stock, the 7 3/8% Preferred Stock, the 7 3/4%
Preferred Stock and the Series A Fixed/Adjustable Rate Preferred Stock are
collectively referred to herein as the "MSDWD Cumulative Preferred Stock." In
addition, MSDWD and a wholly owned subsidiary will have outstanding capital
units that may result in the issuance of, and the Dean Witter Discover Board
will authorize as of the Effective Time, the following series of MSDWD
Preferred Stock: up to 611,238 shares of 7.82% Cumulative Preferred Stock,
with a stated value of $200.00 per share (the "7.82% Preferred Stock"), which
may be issued at any time, up to 1,150,000 shares of 7.80% Cumulative
Preferred Stock, with a stated value of $200.00 per share (the "7.80%
Preferred Stock"), which may be issued at any time, up to 720,900 shares of
9.00% Cumulative Preferred Stock, with a stated value of $200.00 per share
(the "9.00% Preferred Stock"), which may be issued at any time, up to 996,776
shares of 8.40% Cumulative Preferred Stock, with a stated value of $200.00 per
share (the "8.40% Preferred Stock"), which may be issued at any time, up to
847,500 shares of 8.20% Cumulative Preferred Stock, with a stated value of
$200.00 per share (the "8.20% Preferred Stock"), which may be issued at any
time, and up to 670,000 shares of 8.03% Cumulative Preferred Stock, with a
stated value of $200.00 per share (the "8.03% Preferred Stock"), which may be
issued at any time, on or after February 28, 1998. The 7.82% Preferred Stock,
the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40% Preferred
Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock are
collectively referred to herein as "MSDWD Capital Unit Preferred Stock."
The rights of holders of the MSDWD Preferred Stock described below will be
subject to, and may be adversely affected by, the rights of holders of any
MSDWD Preferred Stock that may be issued in the future, subject to any class
voting right which holders of MSDWD Preferred Stock may have (as described
below). The MSDWD Board may cause shares of MSDWD Preferred Stock to be issued
to obtain additional financing, in connection with acquisitions, to officers,
directors or employees of MSDWD and its subsidiaries pursuant to benefit plans
or otherwise and for other proper corporate purposes. Shares of MSDWD
Preferred Stock issued by MSDWD may have the effect, under certain
circumstances, alone or in combination with certain other provisions of the
MSDWD Certificate described below, of rendering more difficult or discouraging
an acquisition of MSDWD deemed undesirable by the MSDWD Board.
MSDWD ESOP Preferred Stock
Dividend Rights; Rights Upon Liquidation. The MSDWD ESOP Preferred Stock
will be senior to the MSDWD Common Stock and rank on a parity with the MSDWD
Cumulative Preferred Stock (and, if issued, the MSDWD Capital Unit Preferred
Stock) as to the payment of dividends and upon liquidation. The holders of
shares of the MSDWD ESOP Preferred Stock will be entitled to receive, when
declared out of funds legally available therefor, cash dividends in the amount
of $2.78 per share per annum, subject to adjustment, payable either annually
or semiannually, at the election of the MSDWD Board. Holders of MSDWD ESOP
Preferred Stock will be entitled to receive $35.875 per share, subject to
adjustment (the "MSDWD ESOP Preferred Stock Liquidation Price"), upon
dissolution or liquidation of MSDWD.
So long as any shares of MSDWD ESOP Preferred Stock are outstanding, no
dividend shall be declared or paid or set apart for payment on any other
series of stock ranking on a parity with the MSDWD ESOP Preferred Stock as to
dividends (which parity MSDWD Preferred Stock will include the MSDWD
Cumulative Preferred Stock and, if issued, the MSDWD Capital Unit Preferred
Stock), unless there shall also be or have been declared
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and paid or set apart for payment on the MSDWD ESOP Preferred Stock like
dividends for all dividend payment periods of the MSDWD ESOP Preferred Stock
ending on or before the dividend payment date of such parity stock, ratably in
proportion to the respective amounts of dividends (i) accumulated and unpaid
or payable on such parity stock, on the one hand, and (ii) accumulated and
unpaid through the dividend payment period or periods of the MSDWD ESOP
Preferred Stock next preceding such dividend payment date, on the other hand.
Voting Rights. Except as otherwise required by law, holders of MSDWD ESOP
Preferred Stock will be entitled to vote on all matters submitted to a vote of
the holders of shares of MSDWD Common Stock, voting together with the holders
of shares of MSDWD Common Stock as one class. Each share of MSDWD ESOP
Preferred Stock will be entitled to the number of votes equal to 1.35 times
the number of shares of MSDWD Common Stock into which such share of MSDWD ESOP
Preferred Stock could be converted on the record date for such vote. Shares of
MSDWD ESOP Preferred Stock will be allocated to each participant in the ESOP
on December 31 in each year.
Conversion. Each share of MSDWD ESOP Preferred Stock will be convertible
into shares of MSDWD Common Stock by the trustee of the ESOP at any time prior
to the date fixed for redemption of the MSDWD ESOP Preferred Stock at a
conversion rate of one share of MSDWD ESOP Preferred Stock to 3.3 shares of
MSDWD Common Stock, which rate is subject to adjustment.
Redemption. The MSDWD ESOP Preferred Stock will be redeemable at MSDWD's
option at the MSDWD ESOP Preferred Stock Liquidation Price plus accrued
dividends at any time after September 19, 2000 and prior thereto under certain
circumstances at specified prices. MSDWD may pay the redemption price of the
MSDWD ESOP Preferred Stock in cash, in shares of MSDWD Common Stock or a
combination thereof. Neither MSDWD ESOP Preferred Stock nor shares of MSDWD
Common Stock issued to participants in the ESOP will be subject to
restrictions on voting and disposition.
MSDWD Cumulative Preferred Stock
Other than as described below, the terms of the 8 3/4% Preferred Stock, the
7 3/8% Preferred Stock, the 7 3/4% Preferred Stock and the Series A
Fixed/Adjustable Rate Preferred Stock will be identical to each other. Unless
otherwise indicated, the terms and provisions described below relate to each
series of the MSDWD Cumulative Preferred Stock. Unless otherwise indicated
below, the terms and provisions described below for the MSDWD Cumulative
Preferred Stock also relate to each series of MSDWD Capital Unit Preferred
Stock, if issued.
Each series of the MSDWD Cumulative Preferred Stock and, if issued, the
MSDWD Capital Unit Preferred Stock, will rank on a parity with each other and
with the MSDWD ESOP Preferred Stock and prior to the MSDWD Common Stock as to
payment of dividends and amounts payable on liquidation. The shares of MSDWD
Cumulative Preferred Stock will, upon issuance, be fully paid and
nonassessable, will not be convertible into MSDWD Common Stock and will have
no preemptive rights.
Dividends. Holders of the shares of MSDWD Cumulative Preferred Stock (except
for the Series A Fixed/Adjustable Rate Preferred Stock) will be entitled to
receive, when and as declared by the MSDWD Board out of funds legally
available therefor, cumulative cash dividends payable quarterly at the rate of
8 3/4% per annum (with respect to the 8 3/4% Preferred Stock), 7 3/8% per
annum (with respect to the 7 3/8% Preferred Stock), 7 3/4% per annum (with
respect to the 7 3/4% Preferred Stock), 7.82% per annum (with respect to the
7.82% Preferred Stock, if issued), 7.80% per annum (with respect to the 7.80%
Preferred Stock, if issued), 9.00% per annum (with respect to the 9.00%
Preferred Stock, if issued), 8.40% per annum (with respect to the 8.40%
Preferred Stock, if issued), 8.20% per annum (with respect to the 8.20%
Preferred Stock, if issued) and 8.03% per annum (with respect to the 8.03%
Preferred Stock, if issued). Holders of the shares of Series A
Fixed/Adjustable Rate Preferred Stock will be entitled to receive, when and as
declared by the MSDWD Board out of funds legally available therefor,
cumulative cash dividends payable quarterly at a rate of 5.91% per annum
through November 30, 2001 and thereafter at a rate of 0.37% plus the highest
of the Treasury Bill Rate, the Ten-Year Constant Maturity Rate and the Thirty-
Year Constant Maturity Rate (each as defined in the applicable
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Certificate of Designation); provided, however, that the dividends so payable
will not be less than 6.41% nor greater than 12.41% per annum (subject to
certain adjustments described below). The amount of dividends payable in
respect of the 7 3/4% Preferred Stock and the Series A Fixed/Adjustable Rate
Preferred Stock will be adjusted in the event of certain amendments to the
Code in respect of the dividends received deduction. The MSDWD Cumulative
Preferred Stock will be junior as to dividends to any MSDWD Preferred Stock
that may be issued in the future that is expressly senior as to dividends to
the MSDWD Cumulative Preferred Stock. If at any time MSDWD has failed to pay
accrued dividends on any such senior shares at the time such dividends are
payable, MSDWD will not be permitted to pay any dividend on the MSDWD
Cumulative Preferred Stock or redeem or otherwise repurchase any shares of
MSDWD Cumulative Preferred Stock until such accumulated but unpaid dividends
on such senior shares have been paid (or set apart for payment) in full by
MSDWD.
No dividends will be permitted to be declared or paid or set apart for
payment on any MSDWD Preferred Stock ranking on a parity as to dividends with
the MSDWD Cumulative Preferred Stock unless there shall also be or have been
declared and paid or set apart for payment on each series of the MSDWD
Cumulative Preferred Stock dividends for all dividend payment periods of the
MSDWD Cumulative Preferred Stock ending on or before the dividend payment date
of such parity stock, ratably in proportion to the respective amounts of
dividends (i) accumulated and unpaid or payable on such parity stock, on the
one hand, and (ii) accumulated and unpaid or payable through the dividend
payment period or periods of the MSDWD Cumulative Preferred Stock next
preceding such dividend payment date, on the other hand.
Except as set forth above, unless full cumulative dividends on the MSDWD
Cumulative Preferred Stock have been paid, dividends (other than in MSDWD
Common Stock) will not be permitted to be paid or declared and set aside for
payment and other distributions will not be permitted to be made upon the
MSDWD Common Stock or on any other MSDWD Preferred Stock ranking junior to or
on a parity with the MSDWD Cumulative Preferred Stock as to dividends (which
parity MSDWD Preferred Stock currently includes the MSDWD ESOP Preferred
Stock), nor will any MSDWD Common Stock or such other MSDWD Preferred Stock be
permitted to be redeemed, purchased or otherwise acquired by MSDWD for any
consideration or any payment be made to or available for a sinking fund for
the redemption of any shares of such stock; provided, however, that any monies
previously deposited in any sinking fund with respect to any MSDWD Preferred
Stock in compliance with the provisions of such sinking fund may thereafter be
applied to the purchase or redemption of such MSDWD Preferred Stock in
accordance with the terms of such sinking fund regardless of whether at the
time of such application full cumulative dividends upon shares of each series
of the MSDWD Cumulative Preferred Stock outstanding on the last dividend
payment date shall have been paid or declared and set apart for payment; and
provided further that any such junior or parity MSDWD Preferred Stock or MSDWD
Common Stock may be converted into or exchanged for stock of MSDWD ranking
junior to the MSDWD Cumulative Preferred Stock as to dividends.
Optional Redemption. The MSDWD Cumulative Preferred Stock and, if issued,
the MSDWD Capital Unit Preferred Stock, will not be subject to any mandatory
redemption or sinking fund provision. The 8 3/4% Preferred Stock will not be
redeemable prior to May 30, 1997; the 7 3/8% Preferred Stock will not be
redeemable prior to August 30, 1998; the 7 3/4% Preferred Stock will not be
redeemable prior to August 30, 2001, except under certain circumstances, prior
thereto, and at specified prices; the Series A Fixed/Adjustable Rate Preferred
Stock will not be redeemable prior to November 30, 2001, except under certain
circumstances, prior thereto, and at specified prices; if issued, the 7.82%
Preferred Stock will not be redeemable prior to November 30, 1998; if issued,
the 7.80% Preferred Stock will not be redeemable prior to February 28, 1999;
if issued, the 9.00% Preferred Stock will not be redeemable prior to February
28, 2000; if issued, the 8.40% Preferred Stock will not be redeemable prior to
August 30, 2000; if issued, the 8.20% Preferred Stock will not be redeemable
prior to November 30, 2000; and, if issued, the 8.03% Preferred Stock will not
be redeemable prior to February 28, 2007, except under certain circumstances,
prior thereto, and at specified prices. On or after such dates, the applicable
series of MSDWD Cumulative Preferred Stock or MSDWD Capital Unit Preferred
Stock will be redeemable at the option of MSDWD, in whole or in part, upon not
less than 30 days' notice at a redemption price equal to $200.00 per
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share in the case of each of the series of MSDWD Cumulative Preferred Stock
and, if issued, the MSDWD Capital Unit Preferred Stock, in each case plus
accrued and accumulated but unpaid dividends to but excluding the date fixed
for redemption.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of MSDWD, the holders of shares of MSDWD Cumulative Preferred Stock will be
entitled to receive out of the assets of MSDWD available for distribution to
stockholders, before any distribution is made to holders of (i) any other
shares of MSDWD Preferred Stock ranking junior to the MSDWD Cumulative
Preferred Stock as to rights upon liquidation, dissolution or winding up which
may be issued in the future and (ii) MSDWD Common Stock, liquidating
distributions in the amount of $200.00 per share, in each case plus accrued
and accumulated but unpaid dividends to the date of final distribution, but
the holders of the shares of MSDWD Cumulative Preferred Stock will not be
entitled to receive the liquidation price of such shares until the liquidation
preference of any other shares of MSDWD capital stock ranking senior to the
MSDWD Cumulative Preferred Stock as to rights upon liquidation, dissolution or
winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. If upon any liquidation, dissolution or winding
up of MSDWD, the amounts payable with respect to the MSDWD Cumulative
Preferred Stock and any other MSDWD Preferred Stock ranking as to rights upon
liquidation, dissolution or winding up on a parity with the MSDWD Cumulative
Preferred Stock are not paid in full, the holders of the MSDWD Cumulative
Preferred Stock and of such other MSDWD Preferred Stock will share ratably in
any such distribution in proportion to the full respective preferential
amounts to which they will be entitled. After payment of the full amount of
the liquidating distribution to which they will be entitled, the holders of
MSDWD Cumulative Preferred Stock will not be entitled to any further
participation in any distribution of assets by MSDWD.
Voting Rights. Holders of MSDWD Cumulative Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. Whenever dividends on any series of MSDWD Cumulative
Preferred Stock or any other class or series of stock ranking on a parity with
such series of MSDWD Cumulative Preferred Stock with respect to the payment of
dividends shall be in arrears for dividend periods, whether or not
consecutive, containing in the aggregate a number of days equivalent to six
calendar quarters, the holders of shares of such series of MSDWD Cumulative
Preferred Stock (voting separately as a class with all other series of MSDWD
Preferred Stock upon which like voting rights will have been conferred and
will be exercisable) will be entitled to vote for the election of two of the
authorized number of directors of MSDWD at the next annual meeting of
stockholders and at each subsequent meeting until all dividends accumulated on
such series of MSDWD Cumulative Preferred Stock have been fully paid or set
aside for payment. The term of office of all directors elected by the holders
of MSDWD Cumulative Preferred Stock will terminate immediately upon the
termination of the right of the holders of MSDWD Cumulative Preferred Stock to
vote for directors. In connection with such voting rights, each holder of
shares of MSDWD Cumulative Preferred Stock will have one vote for each share
of MSDWD Cumulative Preferred Stock held.
So long as any shares of MSDWD Cumulative Preferred Stock remain
outstanding, MSDWD will not be permitted, without the consent of the holders
of at least two-thirds of the shares of all series of MSDWD Cumulative
Preferred Stock outstanding at the time, voting separately as a class with all
other series of MSDWD Preferred Stock upon which like voting rights will have
been conferred and will be exercisable, (i) to issue or increase the
authorized amount of any class or series of stock ranking prior to the MSDWD
Cumulative Preferred Stock as to dividends or upon liquidation or (ii) to
amend, alter or repeal the provisions of the MSDWD Certificate or of the
resolutions contained in the Certificate of Designation relating to such
series of MSDWD Cumulative Preferred Stock, whether by merger, consolidation
or otherwise, so as to materially and adversely affect any power, preference
or special right of such series of MSDWD Cumulative Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
authorized MSDWD Common Stock or authorized MSDWD Preferred Stock or the
creation and issuance of other series of MSDWD Common Stock or MSDWD Preferred
Stock ranking on a parity with or junior to the MSDWD Cumulative Preferred
Stock as to dividends and upon liquidation will not be deemed to materially
and adversely affect such powers, preferences or special rights.
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Depositary Shares
General. In connection with the issuance of each series of MSDWD Cumulative
Preferred Stock and, if issued, MSDWD Capital Unit Preferred Stock, MSDWD will
assume Morgan Stanley's obligations under deposit agreements (each a "Deposit
Agreement"), each among Morgan Stanley, The Bank of New York, as depositary
(the "Preferred Stock Depositary"), and the holders from time to time of
depositary receipts ("Depositary Receipts") issued thereunder, pursuant to
which MSDWD may issue receipts for depositary shares ("Depositary Shares"),
each of which will represent a fraction or a multiple of a share of each
series of MSDWD Cumulative Preferred Stock or, if issued, MSDWD Capital Unit
Preferred Stock, as described below. Depositary Shares for all series of MSDWD
Cumulative Preferred Stock and MSDWD Capital Unit Preferred Stock other than
the 7 3/4% Preferred Stock, the Series A Fixed/Adjustable Rate Preferred Stock
and the 8.03% Preferred Stock will represent 1/8 of a share of MSDWD Preferred
Stock deposited with the Preferred Stock Depositary. Depositary Shares for the
7 3/4% Preferred Stock and the Series A Fixed/Adjustable Rate Preferred Stock
will represent 1/4 of a share of such series of MSDWD Preferred Stock and, for
the 8.03% Preferred Stock, will represent five shares of 8.03% Preferred
Stock. Subject to the terms of the Deposit Agreement, each holder of a
Depositary Share will be entitled, in proportion to the applicable fraction or
multiple of a share of MSDWD Cumulative Preferred Stock or MSDWD Capital Unit
Preferred Stock represented by such Depositary Share, to all the rights and
preferences of the MSDWD Cumulative Preferred Stock or MSDWD Capital Unit
Preferred Stock represented thereby (including dividend, voting and
liquidation rights). Unless otherwise indicated below, the terms and
provisions of the Depositary Shares described below relate to each series of
MSDWD Cumulative Preferred Stock and, if issued, MSDWD Capital Unit Preferred
Stock ("MSDWD Deposited Preferred Stock").
Dividends and Other Distributions. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect
of the related series of MSDWD Deposited Preferred Stock to the record holders
of Depositary Shares relating to such series of MSDWD Deposited Preferred
Stock in proportion to the number of such Depositary Shares owned by such
holders.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Shares entitled thereto in proportion to the number of Depositary
Shares owned by such holders, unless the Preferred Stock Depositary determines
that such distribution cannot be made proportionately among such holders or
that it is not feasible to make such distribution, in which case the Preferred
Stock Depositary may, with the approval of MSDWD, sell such property and
distribute the net proceeds from such sale to such holders in proportion to
the number of Depositary Shares owned by such holders.
The amount distributed in any of the foregoing cases will be reduced by any
amounts required to be withheld by MSDWD or the Preferred Stock Depositary on
account of taxes or other governmental charges.
Withdrawal of Stock. Upon surrender of the Depositary Receipts at the
corporate trust office of the Preferred Stock Depositary and upon payment of
the taxes, charges and fees provided for in the Deposit Agreement and subject
to the terms thereof, the holder of the Depositary Shares evidenced thereby is
entitled to delivery at such office, to or upon his or her order, of the
number of whole shares of the related series of MSDWD Deposited Preferred
Stock and any money or other property, if any, represented by such Depositary
Shares. Holders of Depositary Shares will be entitled to receive whole shares
of the related series of MSDWD Deposited Preferred Stock, but holders of such
whole shares of MSDWD Deposited Preferred Stock will not thereafter be
entitled to deposit such shares of MSDWD Deposited Preferred Stock with the
Preferred Stock Depositary or to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
whole shares of the related series of MSDWD Deposited Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder, or upon
his or her order, at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
Voting the MSDWD Deposited Preferred Stock. Upon receipt of notice of any
meeting at which the holders of any series of the MSDWD Deposited Preferred
Stock are entitled to vote, the Preferred Stock
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Depositary will mail the information contained in such notice of meeting to
the record holders of the Depositary Shares relating to such series of MSDWD
Deposited Preferred Stock. Each record holder of such Depositary Shares on the
record date (which will be the same date as the record date for the related
series of MSDWD Deposited Preferred Stock) will be entitled to instruct the
Preferred Stock Depositary as to the exercise of the voting rights pertaining
to the number of shares of the series of MSDWD Deposited Preferred Stock
represented by such holder's Depositary Shares. The Preferred Stock Depositary
will endeavor, insofar as practicable, to vote or cause to be voted the number
of shares of the MSDWD Deposited Preferred Stock represented by such
Depositary Shares in accordance with such instructions; provided the Preferred
Stock Depositary receives such instructions sufficiently in advance of such
meeting to enable it to so vote or cause to be voted the shares of MSDWD
Deposited Preferred Stock, and MSDWD will agree to take all reasonable action
that may be deemed necessary by the Preferred Stock Depositary in order to
enable the Preferred Stock Depositary to do so. The Preferred Stock Depositary
will abstain from voting shares of the MSDWD Deposited Preferred Stock to the
extent it does not receive specific instructions from the holders of
Depositary Shares representing such MSDWD Deposited Preferred Stock.
Redemption of Depositary Shares. If a series of the MSDWD Deposited
Preferred Stock underlying the Depositary Shares is subject to redemption, the
Depositary Shares will be redeemed from the proceeds received by the Preferred
Stock Depositary resulting from any redemption, in whole or in part, of such
series of the MSDWD Deposited Preferred Stock held by the Preferred Stock
Depositary. The redemption price per Depositary Share will be equal to the
applicable fraction or multiple of the redemption price per share payable with
respect to such series of the MSDWD Deposited Preferred Stock. If MSDWD
redeems shares of a series of MSDWD Deposited Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of
the same redemption date the number of Depositary Shares representing the
shares of MSDWD Deposited Preferred Stock so redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected by lot or substantially equivalent method determined by the
Preferred Stock Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which
the holders of such Depositary Shares were entitled upon such redemption, upon
surrender to the Preferred Stock Depositary of the Depositary Receipts
evidencing such Depositary Shares. Any funds deposited by MSDWD with the
Preferred Stock Depositary for any Depositary Shares that the holders thereof
fail to redeem will be returned to MSDWD after a period of two years from the
date such funds are so deposited.
Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time and from time to time be amended by agreement
between MSDWD and the Preferred Stock Depositary. However, any amendment that
materially and adversely alters the rights of the holders of Depositary Shares
will not be effective unless such amendment has been approved by the holders
of at least a majority of the Depositary Shares then outstanding.
Notwithstanding the foregoing, in no event may any amendment impair the right
of any holder of any Depositary Shares, upon surrender of the Depositary
Receipts evidencing such Depositary Shares and subject to any conditions
specified in the Deposit Agreement, to receive shares of the related series of
MSDWD Deposited Preferred Stock and any money or other property represented
thereby, except in order to comply with mandatory provisions of applicable
law. The Deposit Agreement may be terminated by MSDWD at any time upon not
less than 60 days' prior written notice to the Depositary, in which case, on a
date that is not later than 30 days after the date of such notice, the
Preferred Stock Depositary shall deliver or make available for delivery to
holders of Depositary Shares, upon surrender of the Depositary Receipts
evidencing such Depositary Shares, such number of whole or fractional shares
of the related series of MSDWD Deposited Preferred Stock as are represented by
such Depositary Shares. The Deposit Agreement shall automatically terminate
after there has been a final distribution in respect of the related series of
MSDWD Deposited Preferred Stock in connection with any liquidation,
dissolution or winding up of MSDWD and such distribution has been distributed
to the holders of Depositary Shares.
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Charges of Preferred Stock Depositary. MSDWD will pay all transfer and other
taxes and governmental charges arising solely from the existence of the
depositary arrangements. MSDWD will pay charges of the Preferred Stock
Depositary, including charges in connection with the initial deposit of the
related series of MSDWD Deposited Preferred Stock and the initial issuance of
the Depositary Shares and all withdrawals of shares of the related series of
MSDWD Deposited Preferred Stock, except that holders of Depositary Shares will
pay other transfer and other taxes and governmental charges and such other
charges as are expressly provided in the Deposit Agreement to be for their
accounts.
Miscellaneous. The Preferred Stock Depositary will forward to the holders of
Depositary Shares all reports and communications from MSDWD that are delivered
to the Preferred Stock Depositary and which MSDWD is required to furnish to
the holders of the MSDWD Deposited Preferred Stock.
Neither the Preferred Stock Depositary nor MSDWD will be liable if it is
prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of
MSDWD and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performance with best judgment and in good faith of their duties
thereunder, except that they are liable for negligence and willful misconduct
in the performance of their duties thereunder, and they will not be obligated
to appear in, prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or series of MSDWD Deposited Preferred
Stock unless satisfactory indemnity is furnished. The Preferred Stock
Depositary and MSDWD may rely on advice of legal counsel or accountants of
their choice, or information provided by persons presenting MSDWD Deposited
Preferred Stock for deposit, holders of Depositary Shares or other persons
believed in good faith to be competent and on documents believed to be
genuine.
The Preferred Stock Depositary's corporate trust office is currently located
at 101 Barclay Street, New York, New York 10286. The Preferred Stock
Depositary will act as transfer agent and registrar for Depositary Receipts
and if shares of a series of MSDWD Deposited Preferred Stock are redeemable,
the Preferred Stock Depositary will act as redemption agent for the
corresponding Depositary Receipts.
Resignation and Removal of Preferred Stock Depositary. The Preferred Stock
Depositary may resign at any time by delivering to MSDWD written notice of its
election to do so, and MSDWD may at any time remove the Preferred Stock
Depositary, any such resignation or removal to take effect upon the
appointment of a successor Preferred Stock Depositary, which successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000.
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COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of Morgan Stanley stockholders are currently governed by the DGCL
and the certificate of incorporation and by-laws of Morgan Stanley (the
"Morgan Stanley Certificate" and "Morgan Stanley By-Laws," respectively). The
rights of Dean Witter Discover stockholders are currently governed by the
DGCL, the Dean Witter Discover Certificate and Dean Witter Discover By-Laws.
In accordance with the Merger Agreement, at the Effective Time, the Dean
Witter Discover Certificate and the Dean Witter Discover By-Laws will be
amended as described herein. Accordingly, upon consummation of the Merger, the
rights of Dean Witter Discover stockholders and Morgan Stanley stockholders
who become stockholders of MSDWD in the Merger will be governed by the DGCL,
the MSDWD Certificate and the MSDWD By-Laws. The following is a summary of the
material differences between the current rights of Morgan Stanley and Dean
Witter Discover stockholders and the rights of MSDWD stockholders following
the Merger. This summary does not purport to be complete and is qualified in
its entirety by reference to the relevant provisions of the DGCL, the Morgan
Stanley Certificate, the Morgan Stanley By-Laws, the Dean Witter Discover
Certificate, the Dean Witter Discover By-Laws, the MSDWD Certificate and the
MSDWD By-Laws. Copies of the amendments to the Dean Witter Discover
Certificate and the Dean Witter Discover By-Laws to be effected in the Merger
are set forth as Exhibits A-1 and A-2 to the Merger Agreement, attached to
this Joint Proxy Statement/Prospectus as Annex I, and are incorporated by
reference herein. Copies of the Morgan Stanley Certificate, the Morgan Stanley
By-Laws, the Dean Witter Discover Certificate and the Dean Witter Discover By-
Laws are incorporated by reference in this Joint Proxy Statement/Prospectus.
Authorized Capital
The total number of authorized shares of capital stock of Morgan Stanley is
630,000,000 shares, consisting of 30,000,000 shares of preferred stock of no
par value and 600,000,000 shares of common stock, par value $1.00 per share.
The total number of authorized shares of capital stock of Dean Witter Discover
is 510,000,000 shares, consisting of 10,000,000 shares of preferred stock, par
value $0.01 per share, and 500,000,000 shares of common stock, par value
$0.01. The total number of authorized shares of capital stock of MSDWD will be
1,780,000,000, consisting of 30,000,000 shares of preferred stock and
1,750,000,000 shares of common stock, par value $0.01 per share. See
"Description of MSDWD Capital Stock Following the Merger."
Board of Directors
The Morgan Stanley Certificate provides that the number of directors shall
be not fewer than four nor greater than 15 persons, as shall be established
from time to time by a majority of the Morgan Stanley Board, and the directors
are elected each year at the annual meeting of stockholders. Morgan Stanley
currently has ten directors. The Dean Witter Discover Certificate and Dean
Witter Discover By-Laws provide that the number of directors shall be not
fewer than three nor greater than 15 persons, as shall be established from
time to time by a majority of the Dean Witter Discover Board, and the
directors are elected each year at the annual meeting of stockholders. Dean
Witter Discover currently has ten directors, six of whom are standing for
election at the Dean Witter Discover Annual Meeting. The MSDWD Certificate
will provide for a Board of Directors initially consisting of 14 directors,
divided into classes initially consisting of four, four and six directors,
respectively, with initial terms expiring at the annual meetings of
stockholders to be held in 1998, 1999 and 2000, respectively. Thereafter,
directors shall hold office for a term expiring at the third succeeding annual
meeting of shareholders after their election. A majority of the MSDWD Board
may increase or decrease the number of directors, except that until December
31, 2000, a three-quarters vote of the MSDWD Board will be required to change
the number of directors to an odd number.
The Morgan Stanley Certificate provides that directors may be removed, with
or without cause, only with the approval of the holders of at least 80% of the
voting power of the Voting Stock of Morgan Stanley, voting together as a
single class. The Dean Witter Discover Certificate provides that directors can
be removed only with cause and with the approval of 66 2/3% of the voting
power of the Voting Stock of Dean Witter Discover. The MSDWD Certificate will
provide that directors may be removed only for cause and with the approval of
the holders of at least 80% of the voting power of the Voting Stock of MSDWD,
voting together as a single class.
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Committees
The Morgan Stanley By-Laws and Dean Witter Discover By-Laws each provide and
the MSDWD By-Laws will provide for the creation of committees by a majority
vote of their respective Boards of Directors. The By-Laws of each Company also
provide that the members of such committees may choose another director to act
as an alternate committee member in the case of the absence or
disqualification of any committee member. The MSDWD By-Laws will provide for
the creation of an executive committee, a nominating and directors committee,
an audit committee and a compensation committee. A three-quarters vote of the
MSDWD Board will also be required until December 31, 2000 to create any
additional committees, determine the number of directors comprising a
committee, modify any of the powers or authority of the committees, change the
chairman of a committee, remove a director from a committee or change any
designated alternate committee member.
Special Meetings of Stockholders
The Morgan Stanley By-Laws provide that special meetings of stockholders may
be called at any time and for any purpose by the Chairman of the Morgan
Stanley Board, by the President of Morgan Stanley or by order of the Morgan
Stanley Board, and shall be called by the Secretary of Morgan Stanley upon the
written request of the holders of at least 80% of the voting power of the
Voting Stock of Morgan Stanley, setting forth the purpose of such meeting. The
Dean Witter Discover By-Laws provide that special meetings may be called at
any time only by the Secretary of Dean Witter Discover at the direction of the
Dean Witter Discover Board. The MSDWD By-Laws will contain the same provision
as the Dean Witter Discover By-Laws.
Advance Notice of Stockholder-Proposed Business at Annual Meetings
The Dean Witter Discover By-Laws provide that a stockholder must give timely
written notice to the Secretary of Dean Witter Discover if the stockholder
intends to bring any business before a meeting of stockholders or to make
nominations for the Dean Witter Discover Board. Dean Witter Discover's advance
notice provisions require stockholders to give such written notice not less
than 90 days nor more than 120 days prior to the first anniversary of the
prior year's annual meeting. The Morgan Stanley By-Laws do not contain any
such provision. The MSDWD By-Laws will require stockholders to give such
notice to the Secretary of MSDWD not less than 90 days nor more than 120 days
prior to the first anniversary of the prior year's annual meeting; provided,
however, that with respect to the annual meeting to be held in 1998, the
anniversary date shall be deemed to be April 2, 1998; provided further that in
the event that the date of the meeting is advanced by more than 30 days, or
delayed by more than 90 days, from such date, notice by the stockholder to be
timely must be delivered not earlier than the 120th day prior to such meeting
and not later than the close of business on the later of the 90th day prior to
such meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made.
Action of Stockholders
The Morgan Stanley By-Laws provide that stockholders may act by written
consent provided that such consent is signed by the stockholders having not
less than the minimum number of votes that would be necessary to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. The Dean Witter Discover Certificate provides, and the MSDWD
Certificate will provide, that any action by stockholders must be effected at
an annual or special meeting of stockholders.
Amendment of Governing Documents
The Dean Witter Discover Certificate generally requires the approval of 66
2/3% of the voting power of the Voting Stock of Dean Witter Discover to amend
or repeal any provision of or adopt provisions inconsistent with the Dean
Witter Discover Certificate unless a higher percentage is specified in any
provision with respect to such provision. Provisions in the Dean Witter
Discover Certificate relating to the election of directors, actions by
stockholders, directors' liability, business combinations with interested
stockholders or their affiliates, payment of greenmail and amendments of such
provisions of the Dean Witter Discover Certificate require the approval of 80%
of the voting power of the Voting Stock of Dean Witter Discover to effect such
amendments, repeals or
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adoptions. The Morgan Stanley Certificate does not contain any provision which
generally addresses amendments thereto and, therefore, is governed by Section
242 of the DGCL. In accordance with Section 242, the Morgan Stanley Board may
propose, and the stockholders may adopt by a majority vote of the Voting Stock
of Morgan Stanley, an amendment to the Morgan Stanley Certificate. The Morgan
Stanley Certificate further provides that an affirmative vote of at least 80%
of the voting power of the Voting Stock of Morgan Stanley, voting together as
a single class, is required to adopt any provision in the Morgan Stanley
Certificate which is inconsistent with the Morgan Stanley By-Laws. The MSDWD
Certificate will provide that, generally, the MSDWD Certificate can be amended
under the default provisions of the laws of the State of Delaware. As
described above, under Section 242 of the DGCL, the MSDWD Board will be able
to propose, and the stockholders will be able to adopt by a majority vote of
the Voting Stock of MSDWD, an amendment to the MSDWD Certificate. However, the
MSDWD Certificate also will provide that the provisions in the MSDWD
Certificate relating to amendment of the MSDWD By-Laws, action of
Shareholders, the MSDWD Board and amendments of such provisions of the MSDWD
Certificate require the approval of 80% of the voting power of the Voting
Stock to amend, repeal or adopt any provision inconsistent with the provisions
described in this sentence.
Amendments or repeals to the Morgan Stanley By-Laws or the adoption of new
provisions may be effected either by the Morgan Stanley Board or with the
approval of at least 80% of the voting power of the Voting Stock of Morgan
Stanley, voting together as a single class, except that the Morgan Stanley
Board may not amend the provision under which Morgan Stanley elects not to be
governed by Section 203 of the DGCL relating to business combinations with
interested stockholders. The Dean Witter Discover By-Laws provide that the
Dean Witter Discover By-Laws may be altered, amended or repealed or new
provisions may be adopted by a majority of the Dean Witter Discover Board or
with the approval of 66 2/3% of the Voting Stock of Dean Witter Discover. The
MSDWD Certificate will provide that the MSDWD By-Laws may be altered, amended
or repealed or new provisions may be adopted by the MSDWD Board or with the
approval of at least 80% of the voting power of the Voting Stock of MSDWD.
Furthermore, the MSDWD By-Laws will provide that such By-Laws may be altered,
amended or repealed or new provisions may be adopted by the MSDWD Board or
with the approval of at least 80% of the voting power of the Voting Stock of
MSDWD; provided, however, that a three-quarters vote of the MSDWD Board will
be required for the MSDWD Board to amend, alter, repeal or adopt new By-Laws
in conflict with the provisions of the MSDWD By-Laws relating to the removal
of certain officers (as described below) and certain amendments of the MSDWD
By-Laws; and provided further, however, that until December 31, 2000, a three-
quarters vote of the MSDWD Board will be required for the MSDWD Board to
amend, alter, repeal or adopt new By-Laws in conflict with certain provisions
of the MSDWD By-Laws relating to committees, committee members and chairmen,
certain changes to the number of directors and certain other amendments of the
MSDWD By-Laws.
Interested Transactions
The Dean Witter Discover Certificate requires the approval of at least 80%
of the voting power of the Voting Stock of Dean Witter Discover held by
disinterested stockholders for the approval of certain business combinations
with interested stockholders or their affiliates, including mergers,
consolidations, certain sales, leases, exchanges, mortgages, pledges,
transfers or other dispositions having a fair market value greater than $5.0
million, certain issuances or transfers of securities in exchange for cash,
securities or other property having a fair market value greater than $5.0
million, the adoption of certain plans for liquidation or dissolution proposed
by such interested stockholder or affiliate and reclassification of securities
or recapitalization; provided that such higher vote will not be required if
the transaction either is approved by the Dean Witter Discover Board or meets
certain conditions related to price and procedure. The Dean Witter Discover
Certificate defines an interested stockholder as a person (other than Dean
Witter Discover, its subsidiaries or its employee benefits plans) who is a
beneficial owner of 5% or more of the voting power of the outstanding Voting
Stock of Dean Witter Discover or an affiliate of Dean Witter Discover who
within the last two years was such a 5% beneficial owner. The Morgan Stanley
Certificate contains no similar provisions with respect to certain
combinations with interested stockholders and, pursuant to the Morgan Stanley
By-Laws, Morgan Stanley has elected not to be governed by Section 203 of the
DGCL relating to such business combinations. The MSDWD By-Laws will not
contain any
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similar business combination provisions and, accordingly, MSDWD will also be
subject to Section 203 of the DGCL. None of the transactions contemplated by
the Merger are restricted by Section 203 of the DGCL.
Certain Restrictions on Repurchases of Securities
The Dean Witter Discover Certificate contains a provision requiring that any
direct or indirect purchase or other acquisition by Dean Witter Discover of
shares of any class of equity securities from any interested stockholder who
has beneficially owned 5% or more of Dean Witter Discover's outstanding
capital stock for less than two years prior to the date of such purchase must
first be approved by the affirmative vote of at least a majority of the voting
power of the then outstanding shares of Voting Stock of Dean Witter Discover
not owned by such person. The Morgan Stanley Certificate contains no similar
provision and the MSDWD Certificate will not contain any such provision.
Removal of Officers
The Morgan Stanley By-Laws permit the removal of any officer by a resolution
approved by a majority of the Morgan Stanley Board. The Dean Witter Discover
By-Laws permit the Chief Executive Officer, the Chief Operating Officer and
the heads of the business divisions to remove any officer appointed by any of
them at any time. The MSDWD By-Laws will permit the removal of any officer by
the MSDWD Board or authorized officers; provided, however that a three-
quarters vote of the MSDWD Board will be required to remove Mr. Purcell as
Chairman and Chief Executive Officer of MSDWD or Mr. Mack as President and
Chief Operating Officer of MSDWD or to modify either of their respective
roles, duties or authority.
Rights Plan
Morgan Stanley does not have a stockholders' rights plan. Dean Witter
Discover entered into a Rights Agreement (as amended, the "Rights Agreement"),
dated as of April 25, 1995 and amended as of February 4, 1997, with Chase
Manhattan Bank (as successor to Chemical Bank), as rights agent (the "Rights
Agent"), which will continue in effect as the rights plan for MSDWD (the
"Rights Plan"). All references in the following description to Dean Witter
Discover Common Stock, Dean Witter Discover Preferred Stock and the Dean
Witter Discover Board also refer to MSDWD Common Stock, MSDWD Preferred Stock
and the MSDWD Board following the Merger.
The following description of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the terms and
conditions of the Rights Agreement. See "Where You Can Find More Information."
Pursuant to the Rights Agreement, rights (each a "Right") attach to each
share of Dean Witter Discover Common Stock outstanding and entitle the
registered holder to purchase from Dean Witter Discover a unit (a "Unit")
consisting of one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share (the "Dean Witter Discover Series A
Preferred Stock"), at a purchase price of $175 per Unit (the "Purchase
Price"), subject to adjustment. At present, as a result of Dean Witter
Discover's stock split (in the form of a stock dividend), effective January
14, 1997, each share of Dean Witter Discover Common Stock outstanding has, and
each share of Dean Witter Discover's Common Stock will have, attached thereto
one-half Right.
The Rights will separate from the Dean Witter Discover Common Stock upon the
earlier of (i) 10 days following a public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Dean Witter Discover Common Stock (the "Stock
Acquisition Date") and (ii) 10 business days following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of Dean Witter
Discover Common Stock (the earlier of (i) and (ii), the "Distribution Date").
Until the Distribution Date, (i) the Rights will be evidenced by the Dean
Witter Discover Common Stock certificates and will be transferred with and
only with such Dean Witter Discover Common Stock certificates, (ii) new Dean
Witter Discover Common Stock certificates will contain a
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notation incorporating the Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Dean Witter Discover Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Dean Witter Discover Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on April 21, 2005 unless earlier redeemed by Dean
Witter Discover as described below. At no time will the Rights have any voting
power.
As soon as practicable after the Distribution Date, rights certificates (the
"Rights Certificates") will be mailed to holders of record of the Dean Witter
Discover Common Stock as of the close of business on the Distribution Date
and, thereafter, the separate Rights Certificates alone will represent the
Rights. Except as otherwise determined by the Dean Witter Discover Board, only
shares of Dean Witter Discover Common Stock issued prior to the Distribution
Date will be issued with Rights.
In the event that an Acquiring Person becomes the beneficial owner of 15% or
more of the then outstanding shares of Dean Witter Discover Common Stock
(unless such acquisition is made pursuant to a tender or exchange offer for
all outstanding shares of Dean Witter Discover Common Stock at a price
determined by a majority of the independent directors of Dean Witter Discover
who are not representatives, nominees, affiliates or associates of an
Acquiring Person to be fair and otherwise in the best interest of Dean Witter
Discover and its stockholders after receiving advice from one or more
investment banking firms (a "Qualifying Offer")), each holder of a Right will
thereafter have the right to receive, upon exercise, Dean Witter Discover
Common Stock (or, in certain circumstances, cash, property or other securities
of Dean Witter Discover) having a value equal to two times the Exercise Price
of the Right. The Exercise Price is the Purchase Price times the number of
shares of Dean Witter Discover Common Stock associated with each Right
(initially, one). Notwithstanding any of the foregoing, following the
occurrence of the event described in this paragraph (a "Flip-in Event"), all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable following the occurrence of the
Flip-in Event described above until such time as the Rights are no longer
redeemable by Dean Witter Discover as set forth below.
In the event that, following the Stock Acquisition Date, (i) Dean Witter
Discover engages in a merger or business combination transaction in which Dean
Witter Discover is not the surviving corporation (other than a merger
consummated pursuant to a Qualifying Offer), (ii) Dean Witter Discover engages
in a merger or business combination transaction in which Dean Witter Discover
is the surviving corporation and the Dean Witter Discover Common Stock is
changed or exchanged, or (iii) 50% or more of Dean Witter Discover's assets or
earning power is sold or transferred, each holder of a Right (except Rights
which have previously been voided as set forth above) shall thereafter have
the right to receive, upon exercise of the Right, common stock of the
acquiring company having a value equal to two times the Exercise Price of the
Right.
The Purchase Price payable and the number of Units of Dean Witter Discover
Series A Preferred Stock or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Dean Witter Discover Series A
Preferred Stock, (ii) if holders of the Dean Witter Discover Series A
Preferred Stock are granted certain rights or warrants or subscribe for Dean
Witter Discover Series A Preferred Stock or convertible securities at less
than the current market price of the Dean Witter Discover Series A Preferred
Stock, or (iii) upon the distribution to holders of the Dean Witter Discover
Series A Preferred Stock of evidences of indebtedness or assets (excluding
regular quarterly cash dividends) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Dean Witter Discover
Series A Preferred Stock on the last trading date prior to the date of
exercise.
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At any time until ten days following the Stock Acquisition Date, Dean Witter
Discover may redeem the Rights in whole, but not in part, at a price of $0.01
per Right. Under certain circumstances, the decision to redeem shall require
the concurrence of a majority of the Continuing Directors (as defined below).
Immediately upon the action of the Dean Witter Discover Board ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $0.01 redemption price.
The term "Continuing Director" means any member of the Dean Witter Discover
Board who was a member of the Dean Witter Discover Board prior to the adoption
of the Rights Agreement and any person who is subsequently elected to the Dean
Witter Discover Board if such person is recommended or approved by a majority
of the Continuing Directors, but shall not include an Acquiring Person, or an
affiliate or associate of an Acquiring Person, or any representative of the
foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Dean Witter Discover, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to Dean Witter Discover, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for Dean Witter Discover Common Stock (or
other consideration) as set forth above or if the Rights shall ever be
redeemed.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Dean Witter Discover Board prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by
the Dean Witter Discover Board (in certain circumstances, with the concurrence
of the Continuing Directors) in order to cure any ambiguity, to make changes
which do not adversely affect the interests of holders of Rights (excluding
the interest of any Acquiring Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
Pursuant to the Merger Agreement, Dean Witter Discover has amended the
Rights Agreement so as to render the Rights inapplicable to the Merger and the
other transactions contemplated by the Merger Agreement and the Stock Option
Agreements. See "Certain Provisions of the Merger Agreement--Amendment to
Rights Plan."
Certain Provisions Relating to Share Acquisitions
Section 203 of the DGCL prohibits a corporation which has voting stock
traded on a national securities exchange, designated on The NASDAQ Stock
Market or held of record by more than 2,000 stockholders from engaging in
certain business combinations, including a merger, sale of substantial assets,
loan or substantial issuance of stock, with an interested stockholder (defined
as the owner of 15% or more of the corporation's voting stock), or an
interested stockholder's affiliates or associates, for a three-year period
beginning on the date the interested stockholder acquires 15% or more of the
outstanding voting stock of the corporation. The restrictions on business
combinations do not apply if (i) prior to such date, the board of directors
gives prior approval to the business combination or the transaction in which
the 15% ownership level is exceeded, (ii) the interested stockholder acquires,
in the transaction pursuant to which the interested stockholder becomes the
owner of 15% or more of the outstanding stock, 85% of the corporation's stock
(excluding those shares owned by persons who are directors and also officers
as well as employee stock plans in which employees do not have a confidential
right to determine whether shares held subject to the plan will be tendered in
a tender or exchange offer) or (iii) the business combination is approved by
the board of directors and authorized at a meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock, excluding
shares owned by the interested stockholder. A Delaware corporation may elect,
pursuant to its certificate of incorporation or by-laws, not to be governed by
this provision; the Dean Witter Discover Certificate and the Dean Witter
Discover By-Laws contain no such election, the Morgan Stanley By-Laws contain
an election not to be subject to Section 203 of the DGCL and the MSDWD
Certificate and the MSDWD By-Laws will contain no such election.
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Anti-takeover Effect of Certain Provisions of MSDWD Certificate, MSDWD By-
Laws, the Rights Plan and Section 203 of the DGCL
Certain of the provisions of the MSDWD Certificate and MSDWD By-Laws
described above and Section 203 of the DGCL may have the effect of impeding
the acquisition of control of MSDWD by means of a tender offer, a proxy fight,
open market purchases or otherwise in a transaction not approved by the MSDWD
Board. These provisions are designed to reduce, or have the effect of
reducing, the vulnerability of MSDWD to an unsolicited proposal for the
restructuring or sale of all or substantially all the assets of MSDWD or an
unsolicited takeover attempt which is unfair to MSDWD stockholders. The shares
of authorized stock that will be available for issuance by MSDWD might be
issued at such times and under such circumstances as to have a dilutive effect
on earnings per share and on the equity ownership of the holders of MSDWD
Common Stock. The ability of the MSDWD Board to issue additional shares of
stock could enhance their ability to negotiate on behalf of the stockholders
in a takeover situation and also could be used by the MSDWD Board to make a
change in control more difficult, thereby denying stockholders the potential
to sell their shares at a premium and entrenching current management. The
Rights Plan also may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire, or merge
with, MSDWD without conditioning the offer on the Rights being rendered
inapplicable.
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OTHER INFORMATION FOR DEAN WITTER DISCOVER ANNUAL MEETING
PROPOSAL NO. 2--ELECTION OF DIRECTORS
Nominees for Election as Dean Witter Discover Directors
At the Dean Witter Discover Annual Meeting, the stockholders of Dean Witter
Discover will elect seven directors to hold office until the next annual
meeting of stockholders of Dean Witter Discover or, if the Merger is
consummated, until the expiration of their respective terms as described
herein, and, in each case until their successors are elected and qualify. The
MSDWD Board will initially consist of 14 members in three classes, half of
whom have been designated by each of Morgan Stanley and Dean Witter Discover,
and no more than two members appointed by each party shall be "inside"
directors. At the Effective Time, the Morgan Stanley designees will become
directors of the MSDWD Board pursuant to the Merger Agreement. See "Directors
and Executive Officers of MSDWD Following the Merger--Directors." If the
Merger is not approved, the directors of the Dean Witter Discover Board
elected at the Dean Witter Discover Annual Meeting may designate up to three
additional members to the Dean Witter Discover Board. Dean Witter Discover has
inquired of each nominee and has ascertained that each will serve if elected.
If any nominee shall become unavailable prior to the election, the
accompanying proxy card will be voted for the election in the nominee's stead
of such other person as the Dean Witter Discover Board may recommend.
Currently, there are ten members of the Dean Witter Discover Board. Sybil C.
Mobley, who became a director of Dean Witter Discover in February 1993 shortly
before its initial public offering, and Robert M. Gardiner, former chairman of
Dean Witter Discover, who became a director in March 1993, will be retiring
from the Dean Witter Discover Board as a result of attaining Dean Witter
Discover's mandatory retirement age for directors. In addition, in connection
with the Merger, Alfred C. DeCrane, Jr., who has been a director of Dean
Witter Discover since July 1993, and Nancy Kassebaum Baker, who joined the
Dean Witter Discover Board more recently, are not standing for reelection.
Dean Witter Discover wishes to express its gratitude for the valuable service
provided by all of these directors during their tenure on the Dean Witter
Discover Board.
All nominees (other than Thomas C. Schneider) are current directors of Dean
Witter Discover. Set forth below is a list of the nominees for election as
director and a brief description of the background of each nominee for
director:
PHILIP J. PURCELL
Mr. Purcell, age 53, has served as Chairman of the Board and Chief Executive
Officer of Dean Witter Discover, and of Dean Witter and NCSI since 1986. Mr.
Purcell has also been Chairman of the Board of SPS since 1991 and is a
director or trustee of each of the 85 registered investment companies for
which InterCapital serves as investment manager or investment advisor.
THOMAS C. SCHNEIDER
Mr. Schneider, age 59, has served as Executive Vice President and Chief
Financial Officer of Dean Witter Discover since 1987. Mr. Schneider is also a
director of SPS.
EDWARD A. BRENNAN
Mr. Brennan, age 63, is the former Chairman of the Board, President and
Chief Executive Officer of Sears, having served in such capacities for more
than five years until his retirement in August 1995. He has been a director of
Dean Witter Discover since February 1993. Mr. Brennan is also a director of
AMR Corporation, Minnesota Mining and Manufacturing Company, The Allstate
Corporation, Unicom Corporation, Dean Foods Company and The SABRE Group
Holdings Inc.
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C. ROBERT KIDDER
Mr. Kidder, age 52, has served since January 1995 as Chairman of the Board
and Chief Executive Officer of Borden, Inc., a consumer and specialty products
company. He served from June 1988 to August 1991 as President and Chief
Executive Officer, and from August 1991 to October 1994 as Chairman and Chief
Executive Officer, of Duracell. Mr. Kidder has been a director of Dean Witter
Discover since July 1993 and is also a director of AEP Industries Inc. and
Electronic Data Systems Corporation.
MILES L. MARSH
Mr. Marsh, age 49, has served as Chairman of James River, a manufacturer and
marketer of consumer paper products, since January 1996 and has been James
River's President and Chief Executive Officer since October 1995. Previously,
Mr. Marsh served as Chairman and Chief Executive Officer of Pet Inc., a
leading prepared foods company, from March 1991 to February 1995. He has been
a director of Dean Witter Discover since December 1996. Mr. Marsh is also a
director of GATX Corporation and Whirlpool Corporation.
MICHAEL A. MILES
Mr. Miles, age 57, has served since January 1995 as a special limited
partner in Forstmann Little & Company, a private investment firm with
interests in electronics, aerospace, publishing and other industries. From
September 1991 to July 1994, he was the Chairman of the Board and Chief
Executive Officer of Philip Morris. Previously, Mr. Miles was a Vice Chairman
and Chief Executive Officer of Philip Morris and Chairman and chief Operating
Officer of Kraft Foods, Inc., for more than five years. Mr. Miles was a
director of Dean Witter Discover from February 1993 until May 1994 and again
became a director of Dean Witter Discover from February 1993 until May 1994
and again became a director of Dean Witter Discover in January 1995. He is
also a director of Sears, The Allstate Corporation, Time Warner Inc. and Dell
Computer Corporation.
CLARENCE B. ROGERS, JR.
Mr. Rogers, age 67, has served since October 1992 as Chairman of the Board
of Equifax. Mr. Rogers served as Chief Executive Officer of Equifax for more
than five years until December 1995. He was also President of Equifax from
October 1987 to October 1992. He has been a director of Dean Witter Discover
since February 1993 and is also a director of Sears, Briggs & Stratton
Corporation, Oxford Industries, Inc. and Teleport Communications Group, Inc.
Committees and Meetings of the Dean Witter Discover Board
The Dean Witter Discover Board of Directors met eight times during 1996. The
Dean Witter Discover Board's committees, members and functions are described
below. Each current director attended 75% or more of Dean Witter Discover
Board meetings and the meetings of committees on which such director served
that were held during 1996 except Clarence B. Rogers, Jr., who attended 73% of
all such meetings.
Audit Committee. The current members of the audit committee of the Dean
Witter Discover Board (the "Audit Committee") are Sybil C. Mobley (Chair),
Alfred C. DeCrane, Jr. and Mr. Rogers. The Audit Committee met two times
during 1996 and is responsible for reviewing and recommending to the Dean
Witter Discover Board internal accounting and financial controls for Dean
Witter Discover and accounting principles and auditing practices to be
employed in the preparation and review of Dean Witter Discover's financial
statements. The Audit Committee is also responsible for recommending to the
Dean Witter Discover Board independent public accountants to audit the annual
financial statements of Dean Witter Discover and the scope of such audit.
Compensation Committee. The current members of the compensation committee of
the Dean Witter Discover Board (the "Compensation Committee") are Edward A.
Brennan (Chair), C. Robert Kidder, Michael A. Miles and Mr. Rogers. The
Compensation Committee, which met four times during 1996, is responsible for
compensation policies for, and the compensation of, officers of Dean Witter
Discover. Effective April 19, 1996, the Dean Witter Discover Board dissolved
its Stock Option Committee, which had been responsible for administering all
of Dean Witter Discover's stock plans for employees and Dean Witter Discover's
formula
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compensation plan for its executive officers, and delegated its
responsibilities and authority to the Compensation Committee. Compensation
Committee membership is limited to directors who are both "Non-Employee
Directors" within the meaning of Rule 16b-3 promulgated under the Exchange Act
and qualify as "outside directors" under section 162(m) of the Code and
regulations thereunder.
Committee on Directors. Effective April 19, 1996, the Dean Witter Discover
Board established the Committee on Directors (the "Committee on Directors"),
whose current members are Mr. Miles (Chair), Robert M. Gardiner and Mr.
Kidder. The committee is responsible for evaluating and recommending director
candidates to the Dean Witter Discover Board, assessing Dean Witter Discover
Board performance not less frequently than every three years, recommending
director compensation and benefits philosophy for Dean Witter Discover,
reviewing individual director performance as issues arise, periodically
reviewing Dean Witter Discover's corporate governance profile and such other
purposes as the Dean Witter Discover Board may determine. The Committee on
Directors met one time in 1996.
Director Compensation
During 1996, Directors who were not employees of Dean Witter Discover or a
Dean Witter Discover affiliate ("Non-Employee Directors") received annual cash
retainers and meeting fees. Retainers and fees were increased immediately
following the Dean Witter Discover 1996 Annual Meeting on April 19, 1996.
Annual retainers and fees for 1996 were as follows:
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE
JANUARY 1, APRIL 19,
ANNUAL RETAINER OR FEE 1996 1996
---------------------- ---------- ---------
<S> <C> <C>
Dean Witter Discover Board Member.................... $30,000 $35,000
Committee Chair...................................... 5,000 7,500
Committee Member..................................... 3,000 5,000
Attendance at Dean Witter Discover Board
or Committee Meeting................................ 1,000 1,000
</TABLE>
Non-Employee Directors also participated in Dean Witter Discover's 1993
Stock Plan for Non-Employee Directors (the "1993 Non-Employee Directors
Plan"). In addition, upon approval by Dean Witter Discover's stockholders at
the Dean Witter Discover 1996 Annual Meeting, the Directors' Equity Capital
Accumulation Plan ("DECAP") took effect, superseding the 1993 Non-Employee
Directors Plan. Under DECAP, Non-Employee Directors receive both formula-based
stock option awards covering 2,000 shares of Dean Witter Discover Common Stock
and formula-based grants of 300 shares of Dean Witter Discover Common Stock
upon initially joining the Dean Witter Discover Board and at each re-election
(adjusted in 1997 to awards covering 4,000 shares and grants of 600 shares of
Dean Witter Discover Common Stock to reflect a 2-for-1 stock split which
became effective January 14, 1997). DECAP further provides that each Non-
Employee Director may elect to receive all or a portion of annual cash
retainers and meeting fees, on a current or deferred basis, in shares of Dean
Witter Discover Common Stock at a fair market value equal to the cash
retainers or fees that would otherwise have been paid and may elect to defer
receipt of formula-based Dean Witter Discover Common Stock grants.
Dean Witter Discover matches certain charitable gifts made by Non-Employee
Directors up to a maximum of $2,000 per year. During 1996, Dean Witter
Discover matched charitable gifts in the amount of $2,000 each on behalf of
Messrs. DeCrane, Gardiner and Rogers.
Any Director who is also an employee of Dean Witter Discover or an affiliate
is not entitled to any compensation for serving as a Director of Dean Witter
Discover.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table includes compensation information on Mr. Purcell and the
four other most highly paid executive officers, determined using 1996
compensation (the "named executive officers") of Dean Witter Discover for the
three most recent fiscal years ended December 31.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION
-----------------------
OTHER SECURITIES
ANNUAL UNDERLYING
COMPENSA- OPTIONS ALL OTHER
NAME AND PRINCIPAL TION SARS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($)(1) ($)(2) (#)(3) ($)(4)
------------------ ---- ---------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Purcell 1996 750,000 3,200,000 310,579 -0- 3,633
Chairman and CEO of Dean 1995 725,000 2,800,000 129,228 850,000 4,902
Witter Discover 1994 700,000 2,500,000 128,316 -0- 4,395
Richard M. DeMartini
President, Dean Witter 1996 415,000 2,335,000 226,626 -0- 5,540
Capital and EVP of Dean 1995 405,000 1,945,000 89,768 400,000 5,540
Witter Discover 1994 400,000 1,700,000 87,255 -0- 5,558
James F. Higgins
President, Dean Witter 1996 400,000 2,350,000 228,082 -0- 5,540
Financial and EVP of 1995 390,000 1,960,000 140,760(5) 400,000 5,540
Dean Witter Discover 1994 380,000 1,720,000 88,281 -0- 5,558
Mitchell M. Merin
EVP and Chief 1996 285,000 700,000 67,939 -0- 3,633
Administrative Officer 1995 275,000 615,000 28,384 240,000 4,902
of Dean Witter Discover 1994 237,000 600,000 30,796 32,500 4,395
Thomas C. Schneider
EVP and Chief Financial 1996 335,000 1,115,000 258,078(6) -0- 3,633
Officer of Dean Witter 1995 325,000 985,000 45,461 300,000 4,902
Discover 1994 315,000 910,000 120,366(6) -0- 4,395
</TABLE>
- --------
(1) Amounts shown include 20% of the annual bonuses which was mandatorily
deferred by Dean Witter Discover under its Tax Deferred Equity
Participation Plan ("TDEPP"). Under the terms of TDEPP, Dean Witter
Discover effects this deferral by granting awards in lieu of cash payment
of 20% of the bonus. TDEPP awards are denominated in units and are
unsecured promises to pay to the employee a certain number of shares of
Dean Witter Discover Common Stock in the future. The awards vest two years
after the award date and are payable five years after the award date.
TDEPP awards are subject to a "change in control" provision pursuant to
which, upon the occurrence of certain events, the vesting and distribution
of TDEPP awards are accelerated. The Merger will not constitute a "change
in control" for purposes of TDEPP.
To determine the number of shares of Dean Witter Discover Common Stock
covered by a TDEPP award, Dean Witter Discover takes 20% of each eligible
employee's annual bonus and translates that amount into units by dividing
that amount by 80% of Dean Witter Discover's cost of acquiring shares of
its Common Stock during the fourth quarter of the prior year (the
"Acquisition Price").
(2) The Other Annual Compensation amounts equal the product of (a) the
difference between (x) the fair market value of the shares of Dean Witter
Discover Common Stock covered by the named executive officers' TDEPP
awards on the dates the awards were made (January 22, 1997, January 23,
1996 and January 24,
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<PAGE>
1995, respectively) and (y) the Acquisition Price multiplied by (b) the
number of shares awarded under TDEPP to each named executive officer, except
for Mr. Higgins for 1995 which amount is set forth in footnote 5 below and
for Mr. Schneider for 1996 and 1994 which amounts are set forth in footnote
6 below.
The fair market value of shares covered by TDEPP awards was determined,
pursuant to the terms of TDEPP, as the average of the high and low price
per share of Dean Witter Discover Common Stock as reported on the NYSE
Composite Transaction Tape for each award date ($37.6875 for January 22,
1997, $25.0313 for January 23, 1996 and $17.6563 for January 24, 1995). The
Acquisition Prices used to determine TDEPP awards for 1996, 1995 and 1994
were $25.374, $20.338 and $14.051, respectively, resulting in awards of
25,223, 27,535 and 35,586 shares to Mr. Purcell; 18,405, 19,127 and 24,198
shares to Mr. DeMartini; 18,523, 19,274 and 24,483 shares to Mr. Higgins;
5,517, 6,048 and 8,541 shares to Mr. Merin; and 8,789, 9,686 and 12,953
shares to Mr. Schneider, respectively. Both prices and shares awarded have
been adjusted to reflect Dean Witter Discover's 2-for-1 stock split
effective January 14, 1997. TDEPP awards are subject to the vesting and
"change in control" provisions discussed in footnote 1 above.
The values ascribed to the TDEPP awards have been reported in accordance
with the rules of the SEC. The value of such awards may never be realized
and will be dependent on the market value of Dean Witter Discover Common
Stock in the future.
(3) 1995 grants are awards of options to buy Dean Witter Discover Common Stock
under the Dean Witter Discover's 1994 Omnibus Equity Plan. The 1994 grant
to Mr. Merin was an award of an option to buy Dean Witter Discover Common
Stock under the Dean Witter Discover's Omnibus Equity Incentive Plan. Such
awards provide that in the event of a "change in control" of the Dean
Witter Discover, any unvested portion of an award will immediately vest and
become exercisable. The Merger will constitute a "change in control" for
these purposes. Pursuant to the plans, awards have been equitably adjusted
to reflect the 2-for-1 stock split, effective January 14, 1997.
(4) Represents amounts of the Dean Witter Discover's matching contribution
under the DW START.
(5) Includes $90,460 representing the value of the discount at which shares of
Dean Witter Discover Common Stock were awarded under TDEPP (see discussion
of TDEPP awards in footnotes 1 and 2 above) and $50,300 representing the
value of use of Dean Witter Discover-provided automobile to commute to and
from work.
(6) Includes the value of the discount at which shares of Dean Witter Discover
Common Stock were awarded under TDEPP (see discussion of TDEPP awards in
footnotes 1 and 2 above) and payments received upon the exercise of options
pursuant to tax benefit rights granted in connection with such options. The
tax benefit rights entitled the optionee to an amount equal to the amount
of compensation realized upon the exercise of the option multiplied by the
then applicable maximum federal corporate income tax rate. The values of
the discount and the benefit payment were $108,217 and $149,861 for 1996
and $46,707 and $73,659 for 1994, respectively.
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<PAGE>
Option Exercises and Year-End Option Holdings
The following table discloses information regarding stock options and SARs
(as defined below) exercised during 1996 or held at December 31, 1996 by the
named executive officers. The number of shares acquired during 1996, the
number of securities underlying unexercised options and SARs at fiscal year
end, the exercise or base price of each option and SAR and the value of Dean
Witter Discover Common Stock at fiscal year end have been adjusted to reflect
the 2-for-1 stock split effective on January 14, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)
ACQUIRE ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Philip J. Purcell....... -0- -0- 1,586,443(E) 31,008,001(E)
566,667(U)(2) 8,818,755(U)(2)
Richard M. DeMartini.... -0- -0- 723,539(E) 14,206,048(E)
266,667(U) 4,150,005(U)
James F. Higgins........ -0- -0- 711,355(E) 13,937,227(E)
266,667(U) 4,150,005(U)
Mitchell M. Merin....... 15,540 232,498 239,078(E) 4,343,843(E)
170,834(U) 2,656,573(U)
Thomas C. Schneider..... 34,600 428,175 483,604(E) 9,328,172(E)
200,000(U) 3,112,500(U)
</TABLE>
- --------
(1) Value is based on the price of Dean Witter Discover Common Stock as of
December 31, 1996 ($33.125 per share) minus the exercise or base price of
the option or SAR. These values have not been, and may never be, realized,
and actual gains, if any, on exercise will depend upon the value of Dean
Witter Discover Common Stock on the date of exercise.
(2)Includes exercisable tandem SARs for 113,826 shares with a value of
$2,295,968.
Pension Plans
The named executive officers are covered under different pension plans,
principally because of Dean Witter Discover's corporate history. The two
following paragraphs discuss estimated annual benefits payable upon retirement
to each of the named executive officers.
Mr. Purcell. The following table indicates the estimated annual benefits
payable upon retirement to Mr. Purcell, for the specified compensation and
years of service classifications, under the combined formulas of the Sears,
Roebuck and Co. Pension Plan (the "Sears Pension Plan"), the Dean Witter
Reynolds Inc. Pension Plan (the "DWR Pension Plan"), and the Dean Witter,
Discover & Co. Transferred Executives Pension Supplement (the "Dean Witter
Discover TEPS") as of December 31, 1996, assuming that Mr. Purcell remains in
service with Dean Witter Discover until his retirement at age 65. The Sears
Pension Plan and DWR Pension Plan are defined benefit pension plans intended
to qualify under Code section 401(a). The Dean Witter Discover TEPS is a
nonqualified, unfunded retirement plan which provides benefits to certain key
executives, including Mr. Purcell, who transferred employment from Sears to
Dean Witter Discover before June 30, 1993. Under the Dean Witter Discover
TEPS, participants are to receive a monthly retirement amount equal to the
excess, if any, of: (i) the amount that would have been payable from the Sears
Pension Plan had the transfer to Dean Witter Discover or a subsidiary of Dean
Witter Discover not occurred without regard to any limits imposed by the Code;
over (ii) the amount of any defined benefit pension benefits payable from any
pension plan qualified under the Code, or any
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<PAGE>
nonqualified pension benefits payable to or on account of a participant from
any plan of Sears, Dean Witter Discover or either of their subsidiaries;
provided, however, that the benefit payable under the Dean Witter Discover
TEPS shall not exceed the benefit that would be paid if the participant's
annual pension earnings used to calculate benefits were equal to the
participant's earnings for 1994.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
FINAL
AVERAGE
COMPENSATION 15 20 25 30 35
------------ ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 500,000 106,375 144,089 185,354 233,863 270,299
750,000 160,994 218,163 280,627 354,077 409,218
1,000,000 215,614 292,236 375,900 474,290 548,137
1,500,000 324,854 440,383 566,446 714,718 825,975
2,000,000 434,094 588,531 756,993 955,145 1,103,813
2,500,000 543,334 736,678 947,539 1,195,572 1,381,651
3,000,000 652,573 884,825 1,138,085 1,435,999 1,659,490
3,500,000 761,813 1,032,972 1,328,631 1,676,427 1,937,328
4,000,000 871,053 1,181,119 1,519,177 1,916,854 2,215,166
</TABLE>
"Compensation" or "earnings" under the Sears Pension Plan, the DWR Pension
Plan and the Dean Witter Discover TEPS in combination generally refers to
total annual cash compensation for services rendered to Dean Witter Discover
and its subsidiaries and affiliates, including pre-tax salary deferrals, but
excluding certain specified items such as incentive and long-term executive
compensation plan awards, the value of stock awards, and employer
contributions to profit sharing plans. "Earnings" used to calculate benefits
under the DWR Pension Plan also includes amounts deferred on and after January
1, 1995 under the TDEPP. Current covered compensation under the Sears Pension
Plan, the DWR Pension Plan and the Dean Witter Discover TEPS in 1996 for Mr.
Purcell was $3,200,000. As of December 31, 1996, Mr. Purcell had approximately
18.75 years of credited service. Benefits under the Sears Pension Plan, the
DWR Pension Plan and the Dean Witter Discover TEPS are computed on a straight
life annuity basis and are subject to a deduction for Social Security
benefits, and, in the case of the Dean Witter Discover TEPS, for accrued
benefits under the Sears Pension Plan and the DWR Pension Plan.
Messrs. DeMartini, Higgins, Merin & Schneider. Messrs. DeMartini, Higgins,
Merin and Schneider are participants in the DWR Pension Plan. The plan was
amended effective as of January 1, 1997 to provide that benefits for years
after 1996 generally equal: (i) 1 percent of the participant's compensation
plus (ii) 0.5 percent of the participant's compensation which exceeds the
Social Security covered compensation limit. Pursuant to the amendment,
benefits for years prior to 1997 generally equal the greater of: (i) benefits
accrued under the plan as of December 31, 1996 without regard to the
amendment; or (ii) the sum of (A) 1 percent of the participant's annual
compensation (up to $150,000 for all years) in 1990 through 1996, multiplied
by pre-1997 years of service, plus (B) 0.5 percent of the participant's
compensation (as determined under (A)), if any, that exceeds the Social
Security covered compensation limit, multiplied by pre-1997 years of service,
reduced by (C) the pension equivalent of the participant's August 31, 1980
account balance, if any, under the former Dean Witter Reynolds Inc. Profit
Sharing Plan. Up to 42.7 years of service may be taken into account under the
DWR Pension Plan for purposes of calculating that portion of the benefits
based upon compensation in excess of Social Security covered compensation. In
no event shall a participant receive a benefit in an amount less than the
benefit accrued under the terms of the plan in effect on December 31, 1996.
Mr. Merin's DWR Pension Plan benefit includes a supplemental benefit equal
to (i) the product of (A) the annual benefit he would be entitled to under the
Sears Pension Plan, as of the date he terminates employment with Dean Witter
Discover, if his years of service and compensation from Dean Witter Discover
were taken into account under the Sears Pension Plan, multiplied by (B) the
ratio of Mr. Merin's years of service credited under
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<PAGE>
the Sears Pension Plan divided by his total years of service with Sears and
Dean Witter Discover, minus (ii) the benefit payable to Mr. Merin under the
Sears Pension Plan.
Mr. Schneider is also a participant in the Dean Witter Reynolds Inc.
Supplemental Pension Plan (the "DWR Supplemental Plan"), a nonqualified,
unfunded retirement plan which provides benefits equal to the difference
between a target benefit (in Mr. Schneider's case, the benefit payable to him
under the DWR Pension Plan before any reduction made pursuant to Code section
415(e)) and benefits payable under the DWR Pension Plan and any other defined
benefit plan of Dean Witter Discover and its subsidiaries or other specified
retirement plans. Benefits are computed on the basis of a single life annuity,
payable at age 65, and generally commence as of the same date pension benefits
commence under the DWR Pension Plan.
As of December 31, 1996, the estimated annual benefits payable under the DWR
Pension Plan at the earliest age when a participant may retire with an
unreduced benefit (age 65) to Messrs. DeMartini, Higgins, Merin and Schneider
are $100,436, $95,250, $69,994 and $112,781, respectively, and the estimated
annual benefit payable to Mr. Schneider under the DWR Supplemental Plan at the
earliest age when a participant may retire with an unreduced benefit (age 65)
is $7,219.
Severance Arrangement
Dean Witter Discover's KEEP currently covers approximately 25 key
executives, including the named executive officers. KEEP provides for payments
and other benefits if, within two years of a change in control (as generally
defined below), Dean Witter Discover or its successor terminates a covered
employee's employment (other than for cause or disability) or if the employee
resigns for certain defined reasons such as an adverse change in
responsibilities, a reduction in total compensation or certain required
geographic relocations.
Under KEEP, a covered employee may receive a lump sum payment of up to two
times the covered employee's average salary plus total bonus for the three
years prior to either the occurrence of a change in control or the termination
of the covered employee's employment, whichever produces the greater benefit.
When combined with the value of employee stock options that vest and deferred
compensation that is paid as a result of a change in control, cash payments
under KEEP may not exceed an amount that would not be subject to the excise
tax provisions of the applicable sections of the Code. In addition to a cash
payment, covered employees may also receive continued healthcare coverage for
the employee and the employee's spouse and dependent children by continuing to
pay the then-current employee contribution to Dean Witter Discover's
healthcare plans.
For purposes of KEEP, a "change in control" generally includes: (i) the
acquisition by certain persons of beneficial ownership of 25% or more of Dean
Witter Discover Common Stock or all outstanding voting securities of Dean
Witter Discover; (ii) under certain conditions, a change in a majority of the
Dean Witter Discover Board; or (iii) under certain conditions, the approval of
a merger, consolidation, liquidation or a sale of all or substantially all of
Dean Witter Discover's assets by the stockholders. The Merger will constitute
a "change in control" for purposes of the KEEP.
Compensation Committee's Report on Executive Compensation
Compensation Governance. The Compensation Committee is composed of the four
Non-Employee Directors listed below. We are responsible to the Dean Witter
Discover Board, and to shareholders, for establishing and administering
compensation programs for Dean Witter Discover's executive officers, including
the chief executive officer, Mr. Purcell. The Stock Option Committee
administered the 1994 Formula Compensation Plan (the "Formula Plan") and Dean
Witter Discover's equity-based compensation plans until its dissolution and
the transfer of its responsibilities to the Compensation Committee on April
19, 1996.
Compensation Policies. Our fundamental policy is for executive officers to
receive competitive total compensation for competitive performance versus
selected peer companies. We believe that total compensation levels for
executive officers, including Mr. Purcell, should be competitive versus peers
by business segment, be
97
<PAGE>
equitable within and among business segments and link executive compensation
with pre-established corporate performance goals, some of which are
quantitative, such as return on equity and increases in market share, and
others of which are a combination of quantitative and qualitative factors,
such as the achievement of pre-established performance priorities and
operating goals. We believe that executive compensation (particularly
incentive compensation) should be influenced heavily by Dean Witter Discover's
financial performance and value created for shareholders. We believe Dean
Witter Discover should target cash compensation (salary plus annual incentive
compensation) below median levels of selected peer companies, but that long-
term, equity-based compensation should be above median levels, resulting in
total compensation that is targeted at fully competitive levels.
We review survey data from 43 peer companies (including data from all
companies in the Stock Performance Graph peer group) for purposes of
monitoring compensation levels for executive officers in relation to
performance. Competitive information comes to us from internally generated
studies. We also use the services of independent consultants who review
management's data and provide the Compensation Committee with independent
analyses and viewpoints.
Our policy is to maximize the tax deductibility of compensation payments to
executive officers, including Mr. Purcell, under Section 162(m) of the Code
and the regulations thereunder ("Section 162(m)"). To this end, we have
obtained shareholder approval for annual cash incentive and equity-based long-
term incentive plans designed and administered to qualify compensation awarded
thereunder as "performance-based." However, we retain the right to authorize
payments that may not be fully deductible if we believe it is in the interests
of shareholders to do so.
Compensation Program. Total compensation for executive officers and other
members of senior management is composed of four elements, excluding employee
benefits:
1. Base salaries;
2. Annual incentive compensation payments which are highly variable by
annual performance and paid 80% in cash;
3. Mandatory deferral of 20% of annual incentive compensation into Dean
Witter Discover Common Stock at a 20% discount which stock is forfeitable
for two years and deferred for three additional years; and
4. Above average stock options, which have been granted every other year
(in odd years) since Dean Witter Discover's initial public offering in
1993.
Base salaries are targeted at median competitive levels and administered
based upon evaluated job performance and changes in salary ranges.
The Compensation Committee administers the Formula Plan and determines the
annual incentive compensation payable under the Plan for all executive
officers, including Mr. Purcell. Annual incentive compensation for 1996 for
Mr. Purcell and the other named executives was (i) the amount determined under
the Formula Plan, or (ii) a lesser amount based on factors including change in
net income from prior year, performance versus peers, preset non-financial
performance-priority goals, individual business unit performance, where
applicable, and expected competitive compensation levels.
In determining the amount of annual incentive compensation for 1996, we made
a general year-end review of overall job performance for Mr. Purcell and
considered reviews made by Mr. Purcell of the other executive officers. Among
the factors considered in all such reviews were purely quantitative measures
such as profitability and return on equity of Dean Witter Discover and its
business segments when compared with its peer competitors, and measures that
included both quantitative and qualitative factors such as the achievement of
pre-established performance priorities and operating goals. The Compensation
Committee also considered current survey data and estimated changes to total
cash compensation in 1996 for selected competitors of Dean Witter Discover and
its Securities and NOVUS Services business segments.
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<PAGE>
The Compensation Committee based its awards of annual incentive compensation
for 1996 upon Dean Witter Discover's overall financial performance in an
excellent securities environment and a challenging credit services environment
characterized by an industry trend toward higher write-offs. We also
considered Dean Witter Discover's continuing high return on equity of 19
percent, which reflected above median peer group performance. In addition, the
Compensation Committee took into account Dean Witter Discover's increase in
net income of approximately 11.1 percent from 1995 levels, which resulted from
superior financial performance at Securities and good performance at NOVUS
Services. Important performance priorities achieved at Securities included
growth in the number of Account Executives to more than 9,000 at year-end and
increased market share in key measures of the Securities business. At NOVUS
Services, important performance priorities achieved included an increase in
transaction volume of approximately 15 percent and a reduction in fraud losses
of approximately 10 percent.
Based upon its review, the Compensation Committee awarded Formula
Compensation for 1996 to executive officers, including Mr. Purcell, in amounts
as shown on the Summary Compensation Table, which represented an overall
increase of approximately 16 percent from 1995 levels. We determined that all
annual incentive awards were within the maximum amounts available under the
Formula Plan.
Under Dean Witter Discover's TDEPP, a percentage of annual incentive
compensation to each executive officer, including Mr. Purcell, is deferred.
Deferred amounts are awarded in the form of units based on Dean Witter
Discover Common Stock valued at 80 percent of Dean Witter Discover's average
cost of acquiring such shares during the fourth quarter of each year. Twenty
percent of each executive officer's Formula Compensation, including Mr.
Purcell's, was deferred and units of stock awarded using a value, adjusted to
reflect Dean Witter Discover's 2-for-1 stock split, of $25.374 per share.
Under Dean Witter Discover's practice of granting stock options every other
year, no stock options were granted during 1996 to executive officers and
senior management.
CEO Compensation for 1996. Consistent with Dean Witter Discover's total
compensation strategy, the Compensation Committee determined to increase Mr.
Purcell's base salary for 1996 by 3.4 percent to $750,000. This was based upon
a review of salaries of chief executive officers of selected competitors, Mr.
Purcell's five-year salary history and a subjective assessment of Mr.
Purcell's overall performance.
Using the same factors cited previously for other executive officers, we
approved annual incentive compensation for Mr. Purcell of $3,200,000, 20
percent of which was mandatorily deferred into TDEPP shares as disclosed in
footnote (1) of the Summary Compensation Table on page 93. The Compensation
Committee would have shareholders note that Mr. Purcell's annual compensation
(salary plus annual incentive) increased 12.1 percent in 1996 from 1995 in
relation to a 11.1 percent increase in net income.
Changes for 1997. During 1996, the Compensation Committee undertook a study
of Dean Witter Discover's long-term incentive compensation practices. Based
upon its study, the Compensation Committee took several actions to enhance
Dean Witter Discover's strategy of aligning the interest of its key employees
and shareholders. Among the actions we took were the approval of a new, long-
term equity-based compensation plan, the Dean Witter Discover Employees'
Equity Accumulation Plan, which the Board has adopted and is submitting to
stockholders for approval. We urge you to approve this plan as a necessary
component of Dean Witter Discover's overall compensation strategy.
We further determined that, beginning in 1997, stock option grants to senior
managers, including the executive officers and Mr. Purcell, will be made on an
annual instead of a biennial basis, with appropriate adjustments in the number
of shares awarded. We also determined to award restoration option rights in
connection with outstanding stock option grants to senior managers as a
further means of encouraging share ownership among key employees.
Also, beginning in 1997, amounts deferred under TDEPP will be increased
based upon each participant's amount of annual incentive compensation. Amounts
deferred will equal 20 percent of bonus amounts up to
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$250,000; 30 percent of bonus amounts in excess of $250,000 but not over
$500,000; and 40 percent of bonus amounts in excess of $500,000. The
Compensation Committee believes the increased deferrals are an enhancement to
Dean Witter Discover's equity-based compensation philosophy.
Finally, we established stock ownership guidelines for executive officers
and senior management in the following multiples of their 1996 annual cash
compensation:
<TABLE>
<S> <C>
CEO......................................... 3.0
Other Executive Officers.................... 2.5
Other Senior Managers....................... 1.5-2
</TABLE>
Affected employees have five years to achieve the guidelines. Until the
guidelines are met, employees subject to the guidelines are subject to certain
restrictions on the disposition of Dean Witter Discover stock acquired under
certain benefit plans.
In Conclusion. The Compensation Committee and the Dean Witter Discover Board
believe that the caliber and motivation of employees at all levels, and the
quality of their leadership, are fundamentally important to maintaining a
high-performing organization which creates long-term value for its
shareholders. Offering a competitive, performance-based total compensation
program that has a large equity component helps to achieve this objective by
aligning the interests of executives and other key employees with those of
shareholders. We believe that Dean Witter Discover's compensation program
during 1996 has met the objectives identified above. Your approval of a new
stock plan, set forth in Annex VI, will allow us to maintain a competitive and
effective total compensation program going forward.
Respectively submitted,
Edward A. Brennan, Chair.
C. Robert Kidder
Michael A. Miles
Clarence B. Rogers, Jr.
100
<PAGE>
Stock Performance Graph
Set forth below is a graph comparing cumulative total stockholder returns of
Dean Witter Discover, the Standard & Poor's 500 Stock Index (S&P 500(R)), the
Standard & Poor's Financial Index (S&P Financial(R)) and a market
capitalization weighted peer group of the following 13 companies (the "Peer
Group"): A.G. Edwards, Inc., American Express Company, Banc One Corporation,
The Charles Schwab Corporation, Citicorp, The Equitable Companies Incorporated,
Franklin Resources, Inc., Household International, Inc., MBNA Corporation,
Merrill Lynch & Co., Inc., NationsBank Corporation, PaineWebber Group Inc. and
The Travelers Corporation. The graph assumes $100 invested on February 22, 1993
(the date of Dean Witter Discover's initial public offering) in Dean Witter
Discover Common Stock (using the initial public offering price of $27 per
share) and in each of the comparative indices with reinvestment of dividends on
the date of payment without commissions, and is rounded to the nearest whole
dollar.
Cumulative Total Return
February 22, 1993 - December 31, 1996
[CHART APPEARS HERE]
DWD Peer Group S&P 500 R S&P Financials R
------ ---------- --------- ----------------
100.00 100.00 100.00 100.00
122.69 101.55 101.87 102.33
Mar-93 142.13 110.10 104.48 106.89
143.52 105.98 101.82 103.26
127.69 107.52 104.14 102.80
Jun-93 139.29 115.65 104.98 108.61
138.36 119.69 104.42 110.61
144.77 124.12 108.01 113.33
Sep-93 163.86 131.50 107.68 116.07
153.15 118.31 109.77 109.20
141.89 118.42 108.35 105.28
Dec-93 129.28 120.01 110.17 107.86
143.29 127.48 113.75 113.44
134.87 118.55 110.33 106.99
Mar-94 122.22 111.11 106.08 103.16
140.95 115.04 107.30 106.52
146.55 118.12 108.63 111.91
Jun-94 140.92 112.34 106.49 109.27
150.76 116.93 109.85 111.60
160.61 124.35 113.90 115.23
Sep-94 141.77 115.94 111.70 107.50
145.54 117.18 114.00 108.98
132.35 113.49 109.54 102.30
Dec-94 128.09 112.34 111.66 104.07
141.33 118.71 114.40 110.46
152.33 128.44 118.52 116.27
Mar-95 154.70 129.40 122.57 117.41
160.87 135.01 126.00 121.36
180.94 146.54 130.58 130.44
Jun-95 179.03 149.59 134.24 131.83
192.36 159.48 138.50 135.36
195.83 168.80 138.46 145.21
Sep-95 214.93 172.36 145.45 152.01
190.10 171.26 143.70 148.95
195.49 183.33 150.06 157.94
Dec-95 180.15 175.71 153.58 160.28
207.46 189.30 158.46 168.24
206.87 193.48 159.56 171.04
Mar-96 220.34 200.70 160.82 172.69
209.76 197.02 163.88 170.34
228.88 202.40 167.62 173.62
Jun-96 220.68 203.28 168.88 177.13
196.55 198.92 161.23 172.29
194.01 205.49 164.25 177.73
Sep-96 213.41 219.90 173.12 189.52
228.43 235.34 178.62 204.36
266.15 259.42 191.73 223.61
Dec-96 257.88 255.87 187.61 217.53
CERTAIN TRANSACTIONS
Between January 1, 1996 and January 31, 1997, certain directors and executive
officers of Dean Witter Discover and their associates were indebted to DWR as
customers as a result of debit balances in margin accounts. Also, Mr. Merin was
indebted to NOVUS Financial Corporation, a subsidiary of Dean Witter Discover,
as a customer as a result of borrowing against a home equity credit line. The
greatest amount owed by Mr. Merin under the home equity credit line during 1996
was at an interest rate of 10.5 percent. Mr Merin paid the indebtedness in full
during 1996, and no new debt has been incurred. Transactions in such margin
accounts and the home equity credit line were in the ordinary course of
business, were substantially on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectability
or present other unfavorable features.
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BENEFICIAL OWNERSHIP OF DEAN WITTER DISCOVER COMMON STOCK
Five Percent Stockholders
The following table sets forth certain information as to the beneficial
ownership of each person known to Dean Witter Discover to own beneficially
more than 5 percent of the outstanding Dean Witter Discover Common Stock. The
information is based on filings with the Commission and Dean Witter Discover
records and reflects ownership by the Dean Witter START Plan as of February 3,
1997 and by Franklin Resources, Inc. as of December 31, 1996, adjusted to
reflect Dean Witter Discover's two-for-one stock split effective as of January
14, 1997.
<TABLE>
<CAPTION>
SHARES OF
DEAN WITTER
DISCOVER
COMMON STOCK
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------------------------ ------------ ----------
<S> <C> <C>
Dean Witter START Plan.................................. 23,283,522 7.2
(Saving Today Affords Retirement Tomorrow)
Dean Witter Reynolds Inc.-Benefits Department
Five World Trade Center, 6th Floor
New York, New York 10048
Franklin Resources, Inc................................. 16,754,826 5.2
777 Mariners Island Blvd.
San Mateo, California 94403
</TABLE>
Directors and Executive Officers
The following table sets forth, as of February 3, 1997, the beneficial
ownership of Dean Witter Discover Common Stock and common stock of SPS, par
value $.01 per share (the "SPS Common Stock"), by current directors, nominees
for director, the Chief Executive Officer, each of the four other named
executive officers and all directors and executive officers of Dean Witter
Discover as a group. Unless otherwise indicated, all persons listed below have
direct control over the investment and voting of such shares.
<TABLE>
<CAPTION>
AMOUNT BENEFICIALLY
OWNED (1)
--------------------------
DEAN WITTER
DISCOVER SPS COMMON
NAME OF BENEFICIAL OWNER COMMON STOCK STOCK
- ------------------------ ------------ ----------
<S> <C> <C>
Philip J. Purcell.................................. 2,226,443(2) 22,052(3)
Nancy Kassebaum Baker.............................. 4,600(4) -0-
Edward A. Brennan.................................. 126,008(5) -0-
Alfred C. DeCrane, Jr.............................. 15,485(6) -0-
Robert M. Gardiner................................. 251,003(7) 4,000
C. Robert Kidder................................... 15,593(8) -0-
Miles L. Marsh..................................... 4,767(9) -0-
Michael A. Miles................................... 22,428(10) -0-
Sybil C. Mobley.................................... 13,463(11) -0-
Clarence B. Rogers, Jr............................. 22,145(12) -0-
Richard M. DeMartini............................... 998,249(13) 5,200(14)
James F. Higgins................................... 1,020,764(15) 3,000(16)
Mitchell M. Merin.................................. 430,056(17) 500
Thomas C. Schneider................................ 963,526(18) 1,002
All executive officers and directors as a group (17
persons)........................................... 7,744,780(19) 38,758
</TABLE>
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<PAGE>
- --------
(1) In each case, less than 1% of shares outstanding based upon 321,405,207
shares of Dean Witter Discover Common Stock and 27,198,243 shares of SPS
Common Stock except that all executive officers and directors as a group
beneficially own approximately 2.4% of Dean Witter Discover Common Stock.
(2) Includes 1,869,776 shares that may be acquired upon the exercise of
options that are exercisable within 60 days of February 3, 1997. Also
includes 22,321 shares owned by Mr. Purcell's spouse and 10,214 shares
held in custodial accounts on behalf of Mr. Purcell's children for which
he is custodian, as to which Mr. Purcell disclaims beneficial ownership.
(3) Includes 2,000 shares held in custodial accounts on behalf of Mr.
Purcell's children for which he is custodian and 50 shares owned by a
child of Mr. Purcell, as to which Mr. Purcell disclaims beneficial
ownership.
(4) Includes 4,000 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997.
(5) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 15,534 shares
owned by Mr. Brennan's spouse as to which he has indirect investment and
voting control.
(6) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 841 stock
units awarded as a result of the deferral of compensation under DECAP.
(7) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997.
(8) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 992 stock
units awarded as a result of the deferral of compensation under DECAP.
(9) Includes 4,000 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 167 stock
units awarded as a result of the deferral of compensation under DECAP.
(10) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 1,033 stock
units awarded as a result of the deferral of compensation under DECAP.
(11) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997.
(12) Includes 12,001 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997 and 958 stock
units awarded as a result of the deferral of compensation under DECAP.
(13) Includes 856,872 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997. Also includes
8,000 shares held in trusts on behalf of Mr. DeMartini's children for
which his brother and father-in-law are trustees and 364 shares held in a
custodial account on behalf of a child of Mr. DeMartini for which his
father-in-law is custodian and as to which Mr. DeMartini disclaims
beneficial ownership. Also includes 2,000 shares held by Mr. DeMartini's
spouse over which he has direct investment and voting control.
(14) Shares held in trust accounts on behalf of Mr. DeMartini's children for
which his brother and father-in-law are trustees and as to which Mr.
DeMartini disclaims beneficial ownership.
(15) Includes 844,688 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997. Also includes
40,855 shares owned by Mr. Higgins' spouse, and 6,128 shares held in
custodial accounts on behalf of Mr. Higgins' children for which his wife
is custodian, over which Mr. Higgins has indirect investment and voting
control.
(16) Shares held in custodial accounts on behalf of Mr. Higgins' children for
which Mr. Higgins' spouse is custodian and over which Mr. Higgins has
indirect investment and voting control.
103
<PAGE>
(17) Includes 319,078 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997.
(18) Includes 583,604 shares that may be acquired upon the exercise of options
that are exercisable within 60 days of February 3, 1997.
(19) Includes 6,020,894 shares that may be acquired upon the exercise of
options that are exercisable within 60 days of February 3, 1997 and 3,992
stock units awarded as a result of the deferral of compensation under
DECAP.
PROPOSAL NO. 3--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Dean Witter Discover Board has appointed Deloitte & Touche llp as
independent auditors to examine the consolidated financial statements of Dean
Witter Discover for the year ending December 31, 1997 and to perform other
appropriate accounting services. No decision has been made as to the
independent auditors who will examine the financial statements of MSDWD if the
Merger is consummated.
A proposal will be presented at the Dean Witter Discover Annual Meeting to
ratify the appointment of Deloitte & Touche llp as Dean Witter Discover's
independent auditors. A representative of Deloitte & Touche llp is expected to
be present at the meeting and will be available to respond to appropriate
questions and make statements if the representative so desires. If the Dean
Witter Discover stockholders do not ratify this appointment, the Dean Witter
Discover Board will reconsider its appointment.
THE DEAN WITTER DISCOVER BOARD RECOMMENDS A VOTE "for" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS DEAN WITTER DISCOVER'S INDEPENDENT
AUDITORS.
PROPOSAL NO. 4--APPROVAL OF THE DEAN WITTER DISCOVER EMPLOYEES'
EQUITY ACCUMULATION PLAN
General
The Dean Witter Discover Board approved the Dean Witter, Discover & Co.
Employees' Equity Accumulation Plan ("Dean Witter Discover Employees' Equity
Accumulation Plan") on January 17, 1997 and recommended that the Dean Witter
Discover Employees' Equity Accumulation Plan be submitted to the stockholders
for approval at the Dean Witter Discover Annual Meeting. The purposes of the
Dean Witter Discover Employees' Equity Accumulation Plan are to attract,
retain and motivate key employees, to align key employees' interests with
stockholders' through equity-based compensation and to permit the granting of
awards that will constitute performance-based compensation for certain
executive officers under Section 162(m).
A proposal will be presented at the Dean Witter Discover Annual Meeting to
approve the Dean Witter Discover Employees' Equity Accumulation Plan.
Stockholder approval is required in order for the Dean Witter Discover
Employees' Equity Accumulation Plan to meet the requirements of Section
162(m), for ISOs (as hereinafter defined) to meet the requirements of Code
Section 422 and for Dean Witter Discover Common Stock issued under the Dean
Witter Discover Employees' Equity Accumulation Plan to be listed for trading
on the NYSE.
Background
During 1996, with the assistance of Frederic W. Cook and Co., Inc., an
executive compensation consulting firm, the Dean Witter Discover Board's
Compensation Committee conducted a comprehensive review of Dean Witter
Discover's long-term incentive compensation practices. After analyzing
compensation practices of Dean Witter Discover and its competitors, the
Compensation Committee determined that the number of remaining shares
authorized for issuance under Dean Witter Discover's existing equity-based
long-term compensation plans was insufficient for future purposes. The
Compensation Committee then designed the Dean Witter Discover Employees'
Equity Accumulation Plan, which affords Dean Witter Discover greater
flexibility in structuring its equity-based long-term incentive compensation
than prior Dean Witter Discover plans. Dean Witter Discover
104
<PAGE>
expects that the Dean Witter Discover Employees' Equity Accumulation Plan will
be its principal means of providing long-term equity-based compensation to key
employees in coming years.
During 1996, Dean Witter Discover also adopted share ownership guidelines
for its senior management group (approximately 70 senior managers of Dean
Witter Discover including its executive officers) to further align key
employees' interests with the interests of stockholders. Dean Witter Discover
believes that adoption of Dean Witter Discover Employees' Equity Accumulation
Plan is an important step in furthering the alignment of the interests of key
employees and stockholders.
Summary of the Dean Witter Discover Employees' Equity Accumulation Plan
The following summary of the Dean Witter Discover Employees' Equity
Accumulation Plan is qualified in its entirety by reference to the Dean Witter
Discover Employees' Equity Accumulation Plan, a copy of which is attached as
Annex VI to this Joint Proxy Statement/Prospectus. Capitalized terms not
otherwise defined in this summary have the meanings given to them in the text
of the Dean Witter Discover Employees' Equity Accumulation Plan.
Administration. Except when the Dean Witter Discover Board determines to
administer Dean Witter Discover Employees' Equity Accumulation Plan, the Dean
Witter Discover Employees' Equity Accumulation Plan shall be administered by a
committee of directors (the "Committee") designated by the Dean Witter
Discover Board consisting of at least two directors who are intended to be
"non-employee directors" as defined in Exchange Act Rule 16b-3 and "outside
directors" within the meaning of Section 162(m). The Dean Witter Discover
Board has designated the Compensation Committee to serve as the Committee. The
Committee has the authority to determine the Award (as defined below)
recipients, the timing of Awards, and the type, size and terms of each Award.
It also has the authority to construe, interpret and implement Dean Witter
Discover Employees' Equity Accumulation Plan, including prescribing rules
thereunder. The Committee may delegate its powers under Dean Witter Discover
Employees' Equity Accumulation Plan to Dean Witter Discover's Chief Executive
Officer, except with respect to any person subject to Exchange Act Section 16,
to a Section 162(m) Award (as defined below) or to any action which by law may
not be so delegated.
Shares Available Under the Dean Witter Discover Employees' Equity
Accumulation Plan. Under the Dean Witter Discover Employees' Equity
Accumulation Plan, Dean Witter Discover will issue an aggregate of not more
than 30,000,000 shares of Dean Witter Discover Common Stock. The following
additional shares of Dean Witter Discover Common Stock may also be issued
under the Dean Witter Discover Employees' Equity Accumulation Plan: (i) shares
covered by Awards that have expired, terminated or been canceled or forfeited,
other than by exercise or vesting; and (ii) shares delivered or withheld (or
deliverable or 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
Dean Witter Discover Employees' Equity Accumulation Plan or any other Dean
Witter Discover employee benefit plan. As of April 10, 1997, the closing price
of Dean Witter Discover Common Stock as reported on the NYSE Composite
Transaction Tape was $36 1/4 per share.
Assuming that the Merger is consummated, shares reserved for issuance under
the Dean Witter Discover Employees' Equity Accumulation Plan will be in
addition to the shares reserved for issuance pursuant to the Morgan Stanley
Stock Plans and the Morgan Stanley Outside Directors Plan. See "Certain
Provisions of the Merger Agreement--Assumption of Morgan Stanley Stock Plans"
above.
Eligibility. Awards (other than Section 162(m) Awards) under Dean Witter
Discover Employees' Equity Accumulation Plan may be made to any Dean Witter
Discover employee whom the Committee selects (each, a "Participant"). For this
reason, it is not possible to determine the benefits or amounts that will be
received by any particular employee or group of employees in the future.
Assuming that the Merger is consummated, following the Effective Time
employees of Morgan Stanley will be eligible to receive awards under Dean
Witter Discover Employees' Equity Accumulation Plan.
As of December 31, 1996, Dean Witter Discover estimates that there were
approximately 29,000 employees of Dean Witter Discover eligible to receive
awards under Dean Witter Discover Employees' Equity
105
<PAGE>
Accumulation Plan of whom approximately 70 are eligible to receive Section
162(m) Awards. If the Merger is consummated, Dean Witter Discover estimates
that following the Effective Time there will be approximately 41,000 employees
of MSDWD eligible to receive awards.
Awards Under the Dean Witter Discover Employees' Equity Accumulation
Plan. The Dean Witter Discover Employees' Equity Accumulation Plan provides,
in general, for grants of incentive stock options described in Code Section
422 to acquire Dean Witter Discover Common Stock ("ISOs"), options to acquire
Dean Witter Discover Common Stock not described in Code Section 422
("Nonqualified Options" and, together with ISOs, "Options"), stock
appreciation rights connected to Options ("Related SARs"), stock appreciation
rights not connected to Options ("Unrelated SARs" and, together with Related
SARs, "SARs"), restricted stock ("Restricted Stock"), restricted stock units
("RSUs"), Other Stock-Based Awards ("OSBAs"), restoration option rights
("RORs"), Section 162(m) awards ("Section 162(m) Awards") and any other type
of award deemed by the Committee to be consistent with the purposes of the
Dean Witter Discover Employees' Equity Accumulation Plan (each of the
foregoing, an "Award"). Awards may be granted alone or in tandem, and are
granted on such terms and conditions as the Committee determines, subject to
certain limitations contained in the Dean Witter Discover Employees' Equity
Accumulation Plan.
Options and SARs. Unless the applicable Award provides otherwise, no Option
may be transferred, pledged or otherwise conveyed by a Participant. An Option
shall be exercisable during such period as the Committee determines, but not
until at least 12 months after its grant date (except in the case of a
Participant's death and RORs) or during the 12-month period following a
Participant's hardship withdrawal from any plan described in Code Section
401(k) maintained by Dean Witter Discover or an Affiliate. Options may contain
restrictions on the transferability of and impose forfeiture conditions on
Dean Witter Discover Common Stock acquired by the Participant upon exercise.
If an ISO fails to qualify as an incentive stock option under the Code, to
the extent it otherwise meets the requirements of the Dean Witter Discover
Employees' Equity Accumulation Plan it shall be considered a properly granted
Nonqualified Option. ISOs may not be granted in respect of more than
20,000,000 shares of Dean Witter Discover Common Stock.
To exercise an Option or SAR, the Participant must deliver to Dean Witter
Discover written notice of exercise on such form and in such manner as the
Committee may prescribe. Unless the applicable Award certificate otherwise
provides or the Committee otherwise determines, any written notice of exercise
of an Option must be accompanied by payment in full of the purchase price for
the shares being purchased. Payment of an Option's exercise price may be made
in any combination of the following: (i) certified or official bank check;
(ii) personal check; (iii) if and to the extent authorized by the Committee,
in shares of Dean Witter Discover Common Stock owned by the Participant; and
(iv) if and to the extent authorized by the Committee, by assignment of
proceeds of the sale of shares acquired upon exercise of the Option.
Unless the applicable Award certificate provides otherwise, a Related SAR
shall be exercisable at any time that the related Option may be exercised.
Unrelated SARs shall become and remain exercisable under such terms as the
Committee determines, respectively. Upon exercise of a SAR, a Participant will
receive an amount equal to the excess of the Fair Market Value of a share of
Stock on the exercise date over the Option exercise price (in the case of a
Related SAR) or appreciation base (in the case of an Unrelated SAR),
multiplied by the number of shares of Dean Witter Discover Common Stock in
respect of which the SAR is exercised. Payment 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 Fair Market Value as of the exercise date),
currently or deferred, as the Committee determines. The exercise of Related
SARs results in the reduction of the number of shares subject to the connected
Options to the extent of such exercise.
Option and SAR grants to any Participant in any five consecutive years may
not be made in respect of more than 3,000,000 shares of Stock. The exercise
price of Options or appreciation base of SARs must not be less than 100
percent of the Fair Market Value of a share of Dean Witter Discover Common
Stock on the grant date. No Option or SAR shall remain exercisable for more
than 10 years after the grant date.
106
<PAGE>
RORs. An ROR gives a Participant the right to purchase a number of shares of
Dean Witter Discover Common Stock that were surrendered to pay the exercise
price of, and/or surrendered or withheld to pay the withholding taxes
applicable to exercise of, an underlying option granted under the Dean Witter
Discover Employees' Equity Accumulation Plan or any other Dean Witter Discover
employee benefit plan. The Committee may grant RORs when the original option
is granted or thereafter. The exercise price of an ROR may not be less than
the Fair Market Value of the Stock on the original option's exercise date.
RORs shall expire not later than the expiration date of the original option.
Restricted Stock, RSUs and OSBAs. RSUs are general unsecured obligations of
Dean Witter Discover to deliver one share of Stock, or the value thereof, to
the Participant. OSBAs are Awards of Stock and Awards valued in whole or in
part by reference to, or otherwise based on, the Fair Market Value of Stock.
The Committee shall determine whether OSBAs shall be denominated in Stock,
Stock Units, Cash or Cash Units or a combination thereof, and whether settled
on a current or deferred basis. The total aggregate number of shares of Dean
Witter Discover Common Stock subject to vested Awards of Restricted Stock,
RSUs and OSBAs may not exceed 10,000,000.
No Award of Restricted Stock or RSUs may vest less than one year after its
grant date. The vesting of Restricted Stock, RSUs or OSBAs may be conditioned
upon the completion of a period of employment with Dean Witter Discover, the
attainment of performance goals or such other conditions as the Committee
determines. Unless an Award otherwise provides, a Participant may vote and
receive dividends on Restricted Stock and OSBAs and will be credited with
dividend equivalents on RSUs.
The amount, if any, to be paid by a Participant with respect to an Award of
Restricted Stock, RSUs or OSBAs shall be set forth in the Award certificate
and any payment required shall be made in the manner described above for
Option exercises.
Section 162(m) Awards. In the Committee's discretion, any Award may be
designated a Section 162(m) Award. The Committee may also make "Cash-Based
Section 162(m) Awards," which are Section 162(m) Awards not valued by
reference to or otherwise based on the Fair Market Value of Dean Witter
Discover Common Stock. A Section 162(m) Award is an Award under which all
payments are intended to constitute qualified performance-based compensation
which, if recognized by a 162(m) Covered Employee (generally, Dean Witter
Discover's Chief Executive Officer and four other highest paid executive
officers), would be excluded from the Section 162(m) limit on deductibility.
The members of Dean Witter Discover's senior management group are eligible to
receive Section 162(m) Awards.
Section 162(m) Awards will be earned upon the attainment of one or more
objective performance goals established by the Committee, generally not later
than 90 days after the start of the period of service to which the goals
relate, based upon one or more of the following business criteria applicable
to the Participant, a business segment or Dean Witter Discover as a whole:
earnings per share; Dean Witter Discover Common Stock price per share; return
on average equity, assets or investments; pre-tax income; net revenue; net
income; book value per share; earnings available to Dean Witter Discover
stockholders; market share; operating income; cash flow; number of credit
cardholders or any group of cardholders identified by geographic area, income,
trade or occupation; number of merchants or any group of merchants identified
by geographic area, industry or trade, accepting Dean Witter Discover's
proprietary or general purpose credit cards or both; assets under management
and administration; and number or value of managed loans. Section 162(m)
Awards may also consist of Options and SARs granted with an exercise price or
appreciation base, as the case may be, not less than the Fair Market Value of
a share of Dean Witter Discover Common Stock on the grant date. The Committee
will not grant a Section 162(m) Award prior to shareholder approval of the
Dean Witter Discover Employees' Equity Accumulation Plan. The failure,
however, of any Section 162(m) Award to meet the requirements of Section
162(m) shall not invalidate such award provided such award meets the otherwise
applicable provisions of Dean Witter Discover Employees' Equity Accumulation
Plan.
When establishing the thresholds and targets that constitute the performance
goals and the amounts (which may be denominated in the Dean Witter Discover
Common Stock, Dean Witter Discover Common Stock Units,
107
<PAGE>
cash or Cash Units) payable to a Participant on attainment of the goals, the
Committee may specify that the Section 162(m) Award will be earned if the
applicable target is achieved for one goal, one of a number of goals or more
than one goal. The Committee may also specify that a Section 162(m) Award will
be earned in full only upon the attainment of a specified performance goal or
goals, or will vary based upon different levels of achievement of a goal or
goals.
After the end of each measuring period, the Committee shall certify whether
the applicable performance targets have been met for each Section 162(m) Award
(other than an Option or SAR) and determine the amount available to vest,
become exercisable or be delivered or paid under each such award. In its
discretion, the Committee may reduce such amount based on factors it
determines appropriate, such as the pay practices of competitors or
individual, Dean Witter Discover or business segment performance. If the
Committee determines that any Participant granted a Section 162(m) Award is
not or will not be a 162(m) Covered Employee in the year in which such
Participant is scheduled to receive compensation thereunder, the Committee may
determine to make an Award under the Dean Witter Discover Employees' Equity
Accumulation Plan or under any other plan or arrangement of Dean Witter
Discover in excess of, in addition to or in lieu of such Section 162(m) Award.
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 multiplied by the number of years in the measuring period, but in no
event more than 500,000. 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 measuring period but in no event more
than $10,000,000. The maximum number of shares of Stock underlying Options or
SARs (including Options and SARs that are Section 162(m) Awards) granted to a
participant in any five consecutive calendar years shall not exceed 3,000,000.
General. Whether an Award is denominated in whole or in part by reference to
shares of Stock, the Committee may provide that it may be paid at the election
of the Committee or the Participant in whole or in part in Stock, Stock Units,
cash, Cash Units or other Awards. Awards may be made in substitution, in whole
or in part, for any compensation that would otherwise become payable to the
Participant. An Award may provide that the Participant may elect to receive
one form of Award in lieu of any other form of Award, or may elect to receive
an Award in lieu of part or all of compensation that might otherwise have been
paid to such Participant. With respect to any dividend or distribution on
shares of Stock corresponding to an Award other than an Option or SAR, the
Committee may 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 Dean Witter Discover Common Stock or Stock
Units. Non-cash dividends shall be subject to the same restrictions as the
underlying Award. The Committee may cancel any Award and issue a new Award in
substitution therefor upon such terms as the Committee determines, but no new
Option or SAR may be granted conditioned on cancellation or surrender of the
existing Option or SAR if the new Award would have a lower Option exercise
price or appreciation base than the Award it replaces.
Deferred Compensation; Acceleration. Subject to limits described in the Dean
Witter Discover Employees' Equity Accumulation Plan, the Committee may grant a
Participant the ability to elect to defer Award payment. The Committee may
accelerate the payment of an Award, including any Award subject to a prior
deferral election, so long as the amount paid thereon is discounted to reflect
the acceleration. The Committee may also determine that a Participant's
salary, bonus or other compensation shall be deferred in conjunction with any
Award, and that deferred amounts may be forfeited and/or subject to increase
or decrease based on attainment of performance measures.
Change of Control. The Committee may include in any Award certificate a
provision pursuant to which the Award shall become exercisable, vest, be paid,
have restrictions on Dean Witter Discover Common 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).
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No Stockholder Rights. Except as an Award otherwise provides, no Participant
shall have any rights as a Dean Witter Discover stockholder with respect to
any Stock subject to the Award until the issuance of a stock certificate
therefor to the Participant, or in the case of Restricted Stock having
dividend and/or voting rights, to the escrow agent, custodian or trustee
designated to hold such shares. Nothing in the Dean Witter Discover Employees'
Equity Accumulation Plan or in any Award shall confer upon any person the
right to continue in the employment or other service of Dean Witter Discover.
Adjustments. The Committee may make equitable adjustment to the following
for any change in the issued number of shares of Stock resulting from the
subdivision or combination thereof or other capital adjustments, or the
payment of a stock dividend, or other change in the Stock effected without
receipt of consideration by Dean Witter Discover: (i) the number of shares of
Stock subject to Awards and/or that may be issued pursuant to Awards; (ii) the
maximum number of Options and unrelated SARs that may be granted to any one
person in any period; (iii) the maximum number of shares of Stock that may be
paid pursuant to a Section 162(m) Award and with respect to which the
aggregate of Awards consisting of Restricted Stock, RSUs or OSBAs may vest;
(iv) the exercise price of Options and the appreciation base price of SARs;
and (v) the amount payable by a Participant in respect of an Award.
Amendment; Termination. The Dean Witter Discover Board may from time to time
in its discretion amend or terminate the Dean Witter Discover Employees'
Equity Accumulation Plan; provided that no such amendment or termination shall
be made without stockholders' approval to the extent such approval is
necessary to comply with any applicable tax or regulatory requirement and
provided that no amendment shall impair any rights under any Award then
outstanding without the Participant's consent.
New Plan Benefits Table
Benefits under the Dean Witter Discover Employees' Equity Accumulation Plan
are not determinable in advance since awards under the Dean Witter Discover
Employees' Equity Accumulation Plan are at the discretion of the Committee.
However, in 1997, subject to stockholder approval of the Dean Witter Discover
Employees' Equity Accumulation Plan, Dean Witter Discover has awarded RORs
under the Dean Witter Discover Employees' Equity Accumulation Plan to members
of Dean Witter Discover's senior management group. The following table sets
forth the RORs that will be awarded to members of Dean Witter Discover's
senior management group if the stockholders approve the Dean Witter Discover
Employees' Equity Accumulation Plan.
DEAN WITTER DISCOVER EMPLOYEES' EQUITY ACCUMULATION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION UNITS*
----------------- ---------
<S> <C>
Philip J. Purcell.............................................. 1
Richard M. DeMartini........................................... 1
James F. Higgins............................................... 1
Mitchell M. Merin.............................................. 1
Thomas C. Schneider............................................ 1
Executive Officer Group........................................ 8
Non-Executive Director Group................................... 0
Non-Executive Officer Employee Group........................... 59
</TABLE>
- --------
(*) Each Unit consists of RORs (the right to purchase a number of shares of
Stock surrendered to pay the exercise price of, and/or surrendered or
withheld to pay the withholding taxes applicable to the exercise of,
underlying options held by the Participant). The prices, expiration dates
and other material terms upon which the RORs may be exercised depends upon
future events, except that (i) the exercise price of an ROR shall be not
less than the Fair Market Value (as defined in the Dean Witter Discover
Employees' Equity Accumulation Plan) of Dean Witter Discover Common Stock on
the original option's exercise date and (ii) all RORs shall expire not later
than the expiration date of the original option.
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Certain Federal Income Tax Consequences
Set forth below is a general summary of certain of the principal federal
income tax consequences to Participants and Dean Witter Discover of certain
Awards under the Dean Witter Discover Employees' Equity Accumulation Plan. The
following discussion is general in nature and is not intended to be a complete
analysis of all potential tax consequences to Participants or Dean Witter
Discover of such Awards. This discussion is based on the Code as currently in
effect.
Options. The grant of a Nonqualified Option will not result in the
recognition of taxable income by the Participant or a deduction to Dean Witter
Discover. Ordinary income generally will be recognized by Participants at the
time the Nonqualified Option is exercised. The amount of such income generally
will be equal to the excess of the fair market value of the shares on the
exercise date over the exercise price. Dean Witter Discover will be entitled
to a deduction at the same time and in the same amount as the Participant
recognizes ordinary income in connection with the exercise of a Nonqualified
Option (subject to the satisfaction of Section 162(m) in the case of Options
exercised by 162(m) Covered Employees). Gain or loss upon a subsequent sale of
any Stock received upon the exercise of a Nonqualified Option generally would
be taxed as capital gain or loss (long-term or short-term, depending upon the
holding period of the Stock sold).
ISOs are intended to be incentive stock options under the Code. Upon the
grant or exercise of an incentive stock option complying with the Code, the
Participant does not realize income and Dean Witter Discover is not entitled
to any deduction. However, the excess of the fair market value of the Stock as
of the exercise date over the exercise price will constitute an adjustment to
the Participant's taxable income for purposes of the alternative minimum tax.
If the shares of Dean Witter Discover Common Stock are not disposed of within
the one-year period beginning on the Option exercise date, or within the two-
year period beginning on the Option grant date, any profit realized by the
Participant upon such disposition will be taxed as long-term capital gain and
Dean Witter Discover will receive no deduction. If the shares of Dean Witter
Discover Common Stock are disposed of within the one-year period from the date
of Option exercise or within the two-year period from the Option grant date,
the excess of the fair market value of the share on the exercise date or, if
less, the fair market value on the disposition date, over the exercise price
will be taxable as ordinary income of the Participant at the disposition date,
and Dean Witter Discover will be entitled to a corresponding deduction.
If, in any year after 1993, a 162(m) Covered Employee's taxable compensation
from Dean Witter Discover (including compensation related to Options) exceeds
$1,000,000, such compensation in excess of $1,000,000 may not be tax-
deductible by Dean Witter Discover under Section 162(m). 162(m) Covered
Employees are determined at the end of Dean Witter Discover's taxable year.
Excluded from the calculation of taxable compensation for this purpose is
compensation that is "performance-based" within the meaning of Section 162(m).
Compensation realized upon the exercise of an Option granted under Dean Witter
Discover Employees' Equity Accumulation Plan is intended to qualify as
"performance-based" under Section 162(m) so that such compensation may be
deductible without regard to the limits of Section 162(m).
If an Option is exercised through the use of Dean Witter Discover Common
Stock previously owned by the employee, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to such shares upon such
exercise. However, if the previously owned shares were acquired by the
exercise of an ISO or other tax-qualified stock option and the holding period
requirement for those shares was not satisfied at the time they were used to
exercise an ISO, such use would constitute a disqualifying disposition of such
previously owned shares which may result in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional capital gain) in
the amount described above. If an otherwise qualifying ISO first becomes
exercisable in any one year for shares having a value in excess of $100,000
(grant date value), the portion of the option in respect of such excess shares
will be treated as a Nonqualified Option.
Stock Appreciation Rights. No income will be recognized by a Participant who
is awarded a SAR until cash, Cash Units, Stock or Stock Units representing the
amount of the appreciation are transferred to the
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<PAGE>
participant pursuant to exercise of the SAR. If settlement of Cash Units or
Stock Units or vesting of Stock transferred upon exercise is deferred
following the date of exercise, income recognition will generally be deferred
until the date of settlement or vesting. The amount of income will equal the
amount of cash or fair market value of Stock delivered to the Participant and
will be ordinary income. Dean Witter Discover will be entitled to a deduction
at the same time and in the same amount.
Restricted Stock. A Participant who is awarded Restricted Stock will not be
taxed at the time of grant unless the Participant makes a special election
with the Service pursuant to Code Section 83(b), as discussed below. Upon
lapse of the risk of forfeiture or restrictions on transferability applicable
to the Restricted Stock, the Participant will recognize ordinary income on the
then fair market value of the Restricted Stock (less any amount paid for the
Restricted Stock) and a corresponding deduction will be allowable to Dean
Witter Discover (subject to the satisfaction of an exclusion from the Section
162(m) limit in the case of Restricted Stock held by 162(m) Covered
Employees). In such case, the Participant's basis in the Stock will be equal
to the ordinary income so recognized plus any amount paid for the Restricted
Stock. Upon subsequent disposition of such Stock, the Participant will realize
long-term or short-term capital gain or loss.
Pursuant to Code Section 83(b), the Participant may elect within 30 days of
the grant of Restricted Stock to recognize ordinary income in an amount equal
to the fair market value of the Restricted Stock at the time of grant
(determined without regard to any restrictions which may lapse). In that case,
the Participant will acquire a tax basis in such Stock equal to the ordinary
income recognized by the Participant on the grant date. No tax will be payable
upon lapse or release of the restrictions or at the time the Restricted Stock
first becomes transferable, and any gain or loss upon subsequent disposition
will be a capital gain or loss. In the event of a forfeiture of Restricted
Stock with respect to which a Participant previously made a Section 83(b)
election, the Participant will not be entitled to a loss deduction.
RSUs. A Participant who receives RSUs will recognize ordinary income in an
amount equal to the then fair market value of the shares of Stock distributed
at the time of settlement of such RSUs (less any amount paid for the RSUs) and
a corresponding deduction will be allowable to Dean Witter Discover at that
time (subject to the satisfaction of an exclusion from the Section 162(m)
limit in the case of RSUs held by 162(m) Covered Employees). The Participant's
basis in the shares of Stock will be equal to the amount recognized as
ordinary income plus any amount paid for the RSUs, and on subsequent
disposition the Participant will realize long-term or short-term capital gain
or loss. If RSUs are settled in cash the Participant will recognize ordinary
income equal to the amount so paid less any amount the Participant paid for
the RSUs.
Change in Control Payments. If any payments under Dean Witter Discover
Employees' Equity Accumulation Plan are contingent on a change in control
within the meaning of Code Section 280G (which could include, for example, the
accelerated vesting of Options upon a change in control), then Dean Witter
Discover may be denied an income tax deduction and the Participant may be
subject to a 20 percent excise tax in addition to income taxes which may
otherwise be imposed on such payments.
THE DEAN WITTER DISCOVER BOARD RECOMMENDS A VOTE "for" THE DEAN WITTER
DISCOVER EMPLOYEES' EQUITY ACCUMULATION PLAN.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby and the Merger will be passed upon for Dean Witter Discover by Cravath,
Swaine & Moore. Certain legal matters in connection with the Merger will be
passed upon for Morgan Stanley by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of Dean Witter Discover incorporated
by reference in Dean Witter Discover's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 have been audited by Deloitte & Touche
llp, independent auditors, as set forth in their reports thereon and
incorporated herein by reference. Such consolidated financial statements have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Morgan Stanley incorporated by
reference in Morgan Stanley's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996 have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon and incorporated herein by
reference. Such consolidated financial statements have been incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting of
Stockholders of Dean Witter Discover must be received by the Secretary of Dean
Witter Discover (or, if the Merger is consummated prior thereto, by MSDWD) not
later than December 3, 1997 for inclusion in the proxy materials for such
meeting.
If the Merger is not consummated, Morgan Stanley will hold a 1997 Annual
Meeting of Stockholders. If such meeting is held, stockholder proposals
intended to be presented at such meeting must be received by Morgan Stanley a
reasonable time before the solicitation of proxies for such meeting is made
for inclusion in Morgan Stanley's proxy materials for such meeting.
112
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WHERE YOU CAN FIND MORE INFORMATION
Dean Witter Discover and Morgan Stanley file annual, quarterly and special
reports, proxy statements and other information with the Commission. You may
read and copy any reports, statements or other information we file at the
Commission's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Commission filings are
also available to the public from commercial document retrieval services and
at the web site maintained by the Commission at "http://www.sec.gov."
Dean Witter Discover filed a Registration Statement on Form S-4 to register
with the Commission the Morgan Stanley, Dean Witter, Discover & Co. Common
Stock to be issued to Morgan Stanley stockholders in the Merger. This Joint
Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of Dean Witter Discover in addition to being a proxy
statement of Dean Witter Discover and Morgan Stanley for their respective
Annual and Special Meetings. As allowed by Commission rules, this Joint Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The Commission allows us to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Joint Proxy Statement/Prospectus, except for any information
superseded by information in this Joint Proxy Statement/ Prospectus. This
Joint Proxy Statement/Prospectus incorporates by reference the documents set
forth below that we have previously filed with the Commission. These documents
contain important information about our companies and their financial
performance.
<TABLE>
<CAPTION>
DEAN WITTER DISCOVER SEC FILINGS (FILE
NO. 1-11758) PERIOD
-------------------------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1996
Current Reports on Form 8-K Dated January 22, 1997 and
February 4, 1997 (two Reports)
The Description of Dean Witter Discov- Dated April 26, 1995
er's Shareholder Rights Plan contained
in Dean Witter Discover's Registration
Statement
on Form 8-A
Registration Statement on Form 8-A/A Dated May 4, 1995
<CAPTION>
MORGAN STANLEY SEC FILINGS (FILE NO.
1-9085) PERIOD
------------------------------------ ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended November 30, 1996
Current Reports on Form 8-K Dated December 18, 1996,
December 26, 1996, January 7, 1997
January 24, 1997, February 4, 1997,
February 5, 1997, February 21, 1997
and March 27, 1997
</TABLE>
We are also incorporating by reference additional documents that we file
with the Commission between the date of this Joint Proxy Statement/Prospectus
and the dates of Dean Witter Discover's and Morgan Stanley's respective Annual
and Special Meetings of stockholders.
Dean Witter Discover has supplied all information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus relating to Dean Witter
Discover and Morgan Stanley has supplied all such information relating to
Morgan Stanley.
113
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If you are a stockholder, you may have previously received some of the
documents incorporated by reference. You may still obtain such documents
through us or the Commission. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this Joint Proxy
Statement/Prospectus. Stockholders may obtain documents incorporated by
reference in this Joint Proxy Statement/Prospectus by requesting them in
writing or by telephone from the appropriate party at the following addresses:
<TABLE>
<S> <C>
Dean Witter, Discover & Co. Morgan Stanley Group Inc.
Two World Trade Center, 56th Floor 1585 Broadway
New York, New York 10048 New York, New York 10036
Attention: Office of Investor Relations Attention: Investor Relations
Phone Number: (212) 392-6171 Phone Number: (212) 762-8131
</TABLE>
If you would like to request documents from us, please do so by May 20, 1997
to receive them before Dean Witter Discover's and Morgan Stanley's respective
Annual and Special Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED APRIL 11, 1997. WE HAVE TRIED TO MAKE THE
JOINT PROXY STATEMENT/PROSPECTUS AS ACCURATE AS POSSIBLE, BUT WE CANNOT ASSURE
THAT THIS DOCUMENT REMAINS ACCURATE AFTER SUCH DATE. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THE JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE
JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF MORGAN
STANLEY, DEAN WITTER, DISCOVER & CO. COMMON STOCK IN THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
By Order of the Board of Directors By Order of the Board of
of Dean Witter, Discover & Co., Directors of Morgan Stanley Group
Inc.,
Christine A. Edwards Executive Vice
President, General Counsel and Jonathan M. Clark General Counsel
Secretary and Secretary
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LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
1986 Stock Option Plan...................................................... 23
<S> <C>
1988 EICP................................................................... 23
1993 Non-Employee Directors Plan............................................ 92
1995 EICP................................................................... 23
7 3/4% Preferred Stock...................................................... 76
7 3/8% Preferred Stock...................................................... 76
7.80% Preferred Stock....................................................... 76
7.82% Preferred Stock....................................................... 76
8 3/4% Preferred Stock...................................................... 76
8.03% Preferred Stock....................................................... 76
8.20% Preferred Stock....................................................... 76
8.40% Preferred Stock....................................................... 76
9.00% Preferred Stock....................................................... 76
Acquiring Person............................................................ 86
AE Plan..................................................................... 24
Allstate Sub Trust.......................................................... 24
Appraisal Shares............................................................ 45
Audit Committee............................................................. 91
Award....................................................................... 106
Boards...................................................................... 25
boot........................................................................ 42
Branch Manager Plan......................................................... 24
broker non-votes............................................................ 24
Cash-Based Section 162(m) Award............................................. 107
Cash-Out Right.............................................................. 54
Certificates of Designation................................................. 75
Certificate of Merger....................................................... 18
Change in Control........................................................... 97
Closing Date................................................................ 41
Code........................................................................ 41
Commission.................................................................. 25
Committee................................................................... 105
Committee on Directors...................................................... 92
Common Shares Trust......................................................... 40
Companies................................................................... 18
Compensation................................................................ 96
Compensation Committee...................................................... 91
Continuing Director......................................................... 88
Dean Witter Discover........................................................ 18
Dean Witter Discover Annual Meeting......................................... 18
Dean Witter Discover Board.................................................. 25
Dean Witter Discover By-Laws................................................ 38
Dean Witter Discover Certificate............................................ 21
Dean Witter Discover Common Stock........................................... 18
Dean Witter Discover Employees' Equity Accumulation Plan.................... 104
Dean Witter Discover Series A Preferred Stock............................... 86
Dean Witter Discover Stock Option Agreement................................. 53
Dean Witter Discover TEPS................................................... 95
DECAP....................................................................... 92
Deposit Agreement........................................................... 80
</TABLE>
115
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<TABLE>
<S> <C>
Depositary Receipts......................................................... 80
Depositary Shares........................................................... 80
Distribution Date........................................................... 86
DGCL........................................................................ 39
Duracell.................................................................... 71
DW START.................................................................... 24
DWR......................................................................... 30
DWR Pension Plan............................................................ 95
DWR Supplemental Plan....................................................... 97
earnings.................................................................... 96
Effective Time.............................................................. 18
EICPs....................................................................... 23
Equifax..................................................................... 72
ERISA....................................................................... 24
ESOP........................................................................ 21
ESOP Trustee................................................................ 21
ESPP........................................................................ 24
Excess Shares............................................................... 40
Exchange Act................................................................ 46
Exchange Agent.............................................................. 40
Exchange Ratio.............................................................. 18
Fiscal 1996................................................................. 29
Flip-in Events.............................................................. 87
Formula Plan................................................................ 97
GAAP........................................................................ 32
Georgeson................................................................... 25
Grantee..................................................................... 54
HSR Act..................................................................... 43
IBES........................................................................ 34
ICS......................................................................... 30
InterCapital................................................................ 30
ISOs........................................................................ 106
Issuer...................................................................... 54
James River................................................................. 71
Joint Proxy Statement/Prospectus............................................ 18
KEEP........................................................................ 44
MAS Agreements.............................................................. 23
MAS Signatories............................................................. 23
Material Adverse Effect..................................................... 48
Material Adverse Change..................................................... 48
Merger...................................................................... 18
Merger Agreement............................................................ 18
Merger Consideration........................................................ 18
Miller Anderson & Sherrerd.................................................. 23
Morgan Stanley.............................................................. 18
Morgan Stanley & Co......................................................... 23
Morgan Stanley Asset Management............................................. 30
Morgan Stanley Board........................................................ 25
Morgan Stanley By-Laws...................................................... 83
Morgan Stanley Certificate.................................................. 83
Morgan Stanley Common Stock................................................. 18
Morgan Stanley ESOP Preferred Stock......................................... 21
</TABLE>
116
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Outside Directors Plan....................................... 51
Morgan Stanley Preferred Stock.............................................. 21
Morgan Stanley Special Meeting.............................................. 18
Morgan Stanley Stock Option Agreement....................................... 53
Morgan Stanley Stock Plans.................................................. 42
Morgan Stanley Voting Stock................................................. 21
MS & Co..................................................................... 56
MSDWD....................................................................... 18
MSDWD Board................................................................. 21
MSDWD By-Laws............................................................... 39
MSDWD Capital Unit Preferred Stock.......................................... 76
MSDWD Certificate........................................................... 39
MSDWD Common Stock.......................................................... 18
MSDWD Cumulative Preferred Stock............................................ 76
MSDWD Deposited Preferred Stock............................................. 80
MSDWD ESOP Preferred Stock.................................................. 39
MSDWD ESOP Preferred Stock Liquidation Price................................ 76
MSDWD Preferred Stock....................................................... 39
MSDWD Stock................................................................. 39
named executive officers.................................................... 93
NCSI........................................................................ 70
Non-Employee Directors...................................................... 92
Nonqualified Options........................................................ 106
NYSE........................................................................ 24
Options..................................................................... 106
OSBAs....................................................................... 105
Participant................................................................. 105
Peer Group.................................................................. 101
Performance Unit Plan....................................................... 23
Philip Morris............................................................... 71
Plan Agreements............................................................. 23
Preferred Stock Depositary.................................................. 80
Preliminary Vote............................................................ 23
Purchase Event.............................................................. 53
Purchase Price.............................................................. 86
Qualifying Offer............................................................ 87
Qualifying Takeover Proposal................................................ 50
Recapitalization Signatories................................................ 23
Record Date................................................................. 1
Registration Statement...................................................... 42
Related SARs................................................................ 106
Restraints.................................................................. 47
Restricted Stock............................................................ 106
Right....................................................................... 86
Rights Agent................................................................ 86
Rights Agreement............................................................ 86
Rights Certificates......................................................... 87
Rights Plan................................................................. 86
RORs........................................................................ 106
RSUs........................................................................ 106
SARs........................................................................ 106
Sears....................................................................... 56
</TABLE>
117
<PAGE>
<TABLE>
<S> <C>
Sears Pension Plan.......................................................... 95
Sears Sub Trust............................................................. 24
Section 162(m).............................................................. 98
Section 162(m) Awards....................................................... 106
Section 262................................................................. 45
Securities Act.............................................................. 46
Series A Fixed/Adjustable Rate Preferred Stock.............................. 76
Service..................................................................... 41
Signatories................................................................. 23
SPS......................................................................... 70
SPS Common Stock............................................................ 102
SPS START................................................................... 24
Stock Acquisition Date...................................................... 86
Stockholders' Agreement..................................................... 23
Stockholders' Meetings...................................................... 18
Stock Option Agreements..................................................... 27
Superior Proposal........................................................... 49
Takeover Proposal........................................................... 48
TDEPP....................................................................... 93
Termination Fee............................................................. 49
Unit........................................................................ 86
Unrelated SARs.............................................................. 106
Van Kampen American Capital................................................. 26
Voting Agreements........................................................... 23
Voting Stock................................................................ 75
Wasserstein Perella......................................................... 28
</TABLE>
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<PAGE>
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
Annex I Amended and Restated Agreement and Plan of Merger (including proposed MSDWD
Certificate of Incorporation and MSDWD By-Laws)
Annex II Dean Witter Discover Stock Option Agreement
Annex III Morgan Stanley Stock Option Agreement
Annex IV Opinion of Wasserstein Perella & Co., Inc.
Annex V Opinion of Morgan Stanley & Co. Incorporated
Annex VI Dean Witter, Discover & Co. Employees' Equity Accumulation Plan
Annex VII Certain Provisions of Section 262 of Delaware General Corporation Law
</TABLE>
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BETWEEN
DEAN WITTER, DISCOVER & CO.
AND
MORGAN STANLEY GROUP INC.
DATED AS OF APRIL 10, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<C> <S> <C>
SECTION 1.01. The Merger................................................. 1
SECTION 1.02. Closing.................................................... 2
SECTION 1.03. Effective Time............................................. 2
SECTION 1.04. Effects of the Merger...................................... 2
SECTION 1.05. Certificate of Incorporation and By-laws................... 2
SECTION 1.06. Boards, Committees and Officers............................ 2
ARTICLE II
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.................................... 2
SECTION 2.02. Exchange of Certificates................................... 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of MS....................... 6
SECTION 3.02. Representations and Warranties of DWD...................... 13
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business........................................ 21
SECTION 4.02. No Solicitation by MS...................................... 23
SECTION 4.03. No Solicitation by DWD..................................... 25
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings..................................... 26
SECTION 5.02. Letters of MS's Accountants................................ 27
SECTION 5.03. Letters of DWD's Accountants............................... 27
SECTION 5.04. Access to Information; Confidentiality..................... 27
SECTION 5.05. Best Efforts............................................... 28
SECTION 5.06. Stock Options and Restricted Stock Units................... 28
SECTION 5.07. MS Stock Plans and Certain Employee Matters................ 29
SECTION 5.08. Indemnification, Exculpation and Insurance................. 30
SECTION 5.09. Fees and Expenses.......................................... 30
SECTION 5.10. Public Announcements....................................... 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.11. Affiliates................................................................ 32
SECTION 5.12. NYSE Listing.............................................................. 32
SECTION 5.13. Stockholder Litigation.................................................... 32
SECTION 5.14. Tax Treatment............................................................. 32
SECTION 5.15. Pooling of Interests...................................................... 32
SECTION 5.16. DWD Rights Agreement...................................................... 32
SECTION 5.17. DWD Preferred Stock....................................................... 32
SECTION 5.18. Standstill Agreements; Confidentiality Agreements......................... 33
SECTION 5.19. Compliance with 1940 Act Section 15....................................... 33
SECTION 5.20. Consent Procedure......................................................... 34
SECTION 5.21. MS Capital Units, Etc. ................................................... 34
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger................ 34
SECTION 6.02. Conditions to Obligations of DWD.......................................... 35
SECTION 6.03. Conditions to Obligations of MS........................................... 35
SECTION 6.04. Frustration of Closing Conditions......................................... 36
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination............................................................... 36
SECTION 7.02. Effect of Termination..................................................... 37
SECTION 7.03. Amendment................................................................. 37
SECTION 7.04. Extension; Waiver......................................................... 37
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver................. 37
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties............................. 37
SECTION 8.02. Notices................................................................... 37
SECTION 8.03. Definitions............................................................... 38
SECTION 8.04. Interpretation............................................................ 39
SECTION 8.05. Counterparts.............................................................. 39
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries............................ 39
SECTION 8.07. Governing Law............................................................. 39
SECTION 8.08. Assignment................................................................ 39
SECTION 8.09. Enforcement............................................................... 40
SECTION 8.10. Headings.................................................................. 40
SECTION 8.11. Severability.............................................................. 40
Exhibit A-1 Certificate of Incorporation of Surviving Corporation
Exhibit A-2 Amended and Restated By-laws of the Surviving Corporation
Exhibit B Corporate Governance of Surviving Corporation Following the Effective Time
Exhibit C Form of Affiliate Letter
Exhibit D DWD Tax Representations
Exhibit E MS Tax Representations
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated
as of April 10, 1997, between DEAN WITTER, DISCOVER &
CO., a Delaware corporation ("DWD"), and MORGAN STANLEY
GROUP INC., a Delaware corporation ("MS").
WHEREAS, DWD and MS entered into an Agreement and Plan of Merger dated as of
February 4, 1997 (the "Original Merger Agreement"), and they now desire to
amend and restate the Original Merger Agreement to restate Exhibits A-1, A-2
and B thereto (it being understood that all references to this "Agreement"
refer to the Original Merger Agreement as amended and restated hereby and that
all references to the date hereof or the date of this Agreement refer to
February 4, 1997);
WHEREAS, the respective Boards of Directors of DWD and MS have approved the
merger of MS with and into DWD (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement, whereby (a) each issued and
outstanding share of common stock, par value $1.00 per share, of MS ("MS
Common Stock"), other than shares owned by DWD or MS, will be converted into
the right to receive the Merger Consideration (as defined in Section 2.01(b))
and (b) each issued and outstanding share of MS Preferred Stock (as defined in
Section 3.01(c)), other than shares owned by DWD or MS, will be converted into
the right to receive one share of the corresponding series of preferred stock,
with a par value of $.01 per share, of DWD pursuant to Article II
(collectively, "DWD Preferred Stock");
WHEREAS, the respective Boards of Directors of DWD and MS have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies
and goals;
WHEREAS, DWD and MS desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction;
WHEREAS, immediately following the execution and delivery of this Agreement,
MS and DWD will enter into a stock option agreement (the "MS Stock Option
Agreement"), pursuant to which MS will grant DWD the option (the "MS Option")
to purchase shares of MS Common Stock, upon the terms and subject to the
conditions set forth therein; and
WHEREAS, immediately following the execution and delivery of this Agreement,
DWD and MS will enter into a stock option agreement (the "DWD Stock Option
Agreement" and, together with the MS Stock Option Agreement, the "Option
Agreements"), pursuant to which DWD will grant MS the option (the "DWD
Option") to purchase shares of common stock, par value $.01 per share, of DWD
("DWD Common Stock") together with the associated DWD Rights (as defined in
Section 3.02(c)), upon the terms and subject to the conditions set forth
therein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), MS shall be merged with and into DWD at the
Effective Time (as defined in Section 1.03). Following the Effective Time, DWD
shall be the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of MS in accordance with
the DGCL.
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SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VI, unless
another time or date is agreed to by the parties hereto; provided that each of
DWD and MS by notice to the other party shall have the right to delay the
Closing by up to 90 days following the date on which the Closing would
otherwise have occurred hereunder to the extent necessary in order to obtain
any material governmental, regulatory or other third-party approvals,
consents, orders or authorizations required in connection with or as a result
of the transactions contemplated hereby (including the Board of Governors of
the Federal Reserve System, the Federal Communications Commission, applicable
state insurance authorities and mutual funds) that have not yet then been
obtained in connection with the Closing. The Closing will be held at such
location in the City of New York as is agreed to by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions
of the DGCL and shall make all other filings or recordings required under the
DGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or at such
subsequent date or time as DWD and MS shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The certificate
of incorporation of DWD, as in effect immediately prior to the Effective Time,
shall be amended as of the Effective Time as described in Exhibit A-1 and, as
so amended, such certificate of incorporation shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(b) The by-laws of DWD, as in effect immediately prior to the Effective
Time, shall be amended as of the Effective Time as described in Exhibit A-2
and, as so amended, such by-laws shall be the by-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.06. Boards, Committees and Officers. The Board of Directors,
committees of the Board of Directors, composition of such committees
(including chairmen thereof) and officers of the Surviving Corporation shall
be as set forth on or designated in accordance with Exhibit B hereto until the
earlier of the resignation or removal of any individual set forth on or
designated in accordance with Exhibit B or until their respective successors
are duly elected and qualified, as the case may be, it being agreed that if
any director shall be unable to serve as a director (including as a member or
chairman of any committee) at the Effective Time the party which designated
such individual as indicated in Exhibit B shall designate another individual
to serve in such individual's place. If any officer set forth on or designated
in accordance with Exhibit B ceases to be a full-time employee of either MS or
DWD at or before the Effective Time, the parties will agree upon another
person to serve in such person's stead.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares
of MS Common Stock, MS Preferred Stock or DWD Common Stock:
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(a) Cancellation of Treasury Stock and DWD-Owned Stock. Each share of MS
Common Stock and MS Preferred Stock that is owned by MS or DWD shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; provided, however,
that any shares of MS Common Stock and MS Preferred Stock (i) held by MS or
DWD in connection with any market making or proprietary trading activity or
for the account of another person, (ii) as to which MS or DWD is or may be
required to act as a fiduciary or in a similar capacity or (iii) the
cancellation of which would violate any legal duties or obligations of MS
or DWD shall not be cancelled but, instead, shall be treated as set forth
in Section 2.01(b) (in the case of MS Common Stock) or 2.01(c) (in the case
of MS Preferred Stock).
(b) Conversion of MS Common Stock. Subject to Section 2.02(e), each
issued and outstanding share of MS Common Stock (other than shares to be
cancelled in accordance with Section 2.01(a)) shall be converted into the
right to receive 1.65 (the "Exchange Ratio") fully paid and nonassessable
shares of DWD Common Stock (the "Merger Consideration"). As of the
Effective Time, all such shares of MS Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of MS Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration and any cash
in lieu of fractional shares of DWD Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 2.02, without interest.
(c) Conversion of MS Preferred Stock. Each issued and outstanding share
of MS Preferred Stock (other than shares to be cancelled in accordance with
Section 2.01(a) and shares of MS ESOP Preferred Stock (as defined in
Section 3.01(c) of the MS Disclosure Schedule), which shall be governed by
Section 2.01(d)) shall be converted into the right to receive one fully
paid and nonassessable share of the corresponding series of DWD Preferred
Stock, which DWD Preferred Stock (i) shall have terms that are identical to
the MS Preferred Stock (provided that, as a result of the Merger, the
issuer thereof shall be DWD rather than MS) and (ii) shall be issued
pursuant to action taken by the Board of Directors of DWD. In addition,
each authorized series of MS Preferred Stock as to which there are no
shares outstanding as of the Effective Time shall be replaced by the
corresponding authorized but unissued series of DWD Preferred Stock. As of
the Effective Time, all such shares of MS Preferred Stock shall no longer
be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of MS Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive one share of the corresponding series
of DWD Preferred Stock to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 2.02, without
interest.
(d) Conversion of ESOP Preferred Stock. Each issued and outstanding share
of MS ESOP Preferred Stock (other than shares to be cancelled in accordance
with Section 2.01(a)) shall be converted into the right to receive one
validly issued, fully paid and nonassessable share of a new series of
preferred stock to be issued by DWD at the Effective Time (the "DWD ESOP
Preferred Stock"). Each share of DWD ESOP Preferred Stock shall have terms
that are identical to the MS ESOP Preferred Stock, provided that, (x) as a
result of the Merger the issuer thereof shall be DWD rather than MS, (y)
the number of shares of DWD Common Stock into which each share of DWD ESOP
Preferred Stock shall be convertible (at the same times and subject to the
same terms and conditions under which MS ESOP Preferred Stock is
convertible into shares of MS Common Stock immediately prior to the
Effective Time) shall equal two times the Exchange Ratio and (z) each share
of DWD ESOP Preferred Stock shall be entitled to a number of votes equal to
1.35 times the number of shares of DWD Common Stock into which one share of
DWD ESOP Preferred Stock will be convertible immediately following the
Merger.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, DWD shall enter into an agreement with such bank or trust
company as may be designated by DWD and reasonably satisfactory to MS (the
"Exchange Agent"), which shall provide that DWD shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
shares of MS Common Stock and MS Preferred Stock, for exchange in accordance
with this Article II, through the Exchange Agent, certificates representing
the
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shares of DWD Common Stock and DWD Preferred Stock (such shares of DWD Common
Stock and DWD Preferred Stock, together with any dividends or distributions
with respect thereto with a record date after the Effective Time, any Excess
Shares (as defined in Section 2.02(e)) and any cash (including cash proceeds
from the sale of the Excess Shares) payable in lieu of any fractional shares
of DWD Common Stock being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.01 in exchange for outstanding shares of MS
Common Stock and MS Preferred Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of MS Common Stock or MS Preferred Stock (the
"Certificates") whose shares were converted into the right to receive the
Merger Consideration or shares of DWD Preferred Stock, as applicable, pursuant
to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as DWD and MS may
reasonably specify) and (ii) instructions for use in surrendering the
Certificates in exchange for the Merger Consideration or shares of DWD
Preferred Stock, as applicable. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
DWD Common Stock or DWD Preferred Stock which such holder has the right to
receive pursuant to the provisions of this Article II, certain dividends or
other distributions in accordance with Section 2.02(c) and cash in lieu of any
fractional share of DWD Common Stock in accordance with Section 2.02(e), and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of MS Common Stock or MS Preferred Stock which is not
registered in the transfer records of MS, a certificate representing the
proper number of shares of DWD Common Stock or DWD Preferred Stock may be
issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such
issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of DWD Common Stock or DWD Preferred Stock to a person
other than the registered holder of such Certificate or establish to the
satisfaction of DWD that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration or shares of DWD
Preferred Stock, as applicable, which the holder thereof has the right to
receive in respect of such Certificate pursuant to the provisions of this
Article II, certain dividends or other distributions in accordance with
Section 2.02(c) and cash in lieu of any fractional share of DWD Common Stock
in accordance with Section 2.02(e). No interest shall be paid or will accrue
on any cash payable to holders of Certificates pursuant to the provisions of
this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to DWD Common Stock or DWD Preferred Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of DWD Common Stock or
DWD Preferred Stock represented thereby, and, in the case of Certificates
representing MS Common Stock, no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.02(e), and all such
dividends, other distributions and cash in lieu of fractional shares of DWD
Common Stock shall be paid by DWD to the Exchange Agent and shall be included
in the Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat
or similar laws, following surrender of any such Certificate there shall be
paid to the holder of the certificate representing whole shares of DWD Common
Stock or DWD Preferred Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of DWD Common Stock or DWD Preferred Stock,
and, in the case of Certificates representing MS Common Stock, the amount of
any cash payable in lieu of a fractional share of DWD Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior
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to such surrender and with a payment date subsequent to such surrender payable
with respect to such whole shares of DWD Common Stock or DWD Preferred Stock.
(d) No Further Ownership Rights in MS Common Stock or MS Preferred
Stock. All shares of DWD Common Stock or DWD Preferred Stock issued upon the
surrender for exchange of Certificates in accordance with the terms of this
Article II (including any cash paid pursuant to this Article II) shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of MS Common Stock or MS Preferred Stock, as
applicable, theretofore represented by such Certificates, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by MS on such shares of MS Common Stock or MS Preferred
Stock which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of MS Common Stock or MS Preferred Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or the Exchange
Agent for any reason, they shall be cancelled and exchanged as provided in
this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of DWD Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of DWD shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of DWD.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (A) the number of whole shares of DWD
Common Stock delivered to the Exchange Agent by DWD pursuant to Section
2.02(a) over (B) the aggregate number of whole shares of DWD Common Stock to
be distributed to former holders of MS Common Stock pursuant to Section
2.02(b) (such excess being herein called the "Excess Shares"). Following the
Effective Time, the Exchange Agent shall, on behalf of former stockholders of
MS, sell the Excess Shares at then-prevailing prices on the New York Stock
Exchange, Inc. ("NYSE"), all in the manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. The Exchange Agent shall use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in
light of prevailing market conditions. Until the net proceeds of such sale or
sales have been distributed to the holders of Certificates formerly
representing MS Common Stock, the Exchange Agent shall hold such proceeds in
trust for such holders (the "Common Shares Trust"). The Surviving Corporation
shall pay all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent incurred
in connection with such sale of the Excess Shares. The Exchange Agent shall
determine the portion of the Common Shares Trust to which each former holder
of MS Common Stock is entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Common Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which
such former holder of MS Common Stock is entitled (after taking into account
all shares of MS Common Stock held at the Effective Time by such holder) and
the denominator of which is the aggregate amount of fractional share interests
to which all former holders of MS Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii), the
Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments hereinabove contemplated, to pay each former holder of
MS Common Stock an amount in cash equal to the product obtained by multiplying
(A) the fractional share interest to which such former holder (after taking
into account all shares of MS Common Stock held at the Effective Time by such
holder) would otherwise be entitled by (B) the closing price for a share of
DWD Common Stock as reported on the NYSE Composite Transaction Tape (as
reported in The Wall Street Journal, or, if not reported thereby, any other
authoritative source) on the Closing Date, and, in such case, all references
herein to the cash proceeds of the sale of the Excess
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Shares and similar references shall be deemed to mean and refer to the
payments calculated as set forth in this Section 2.02(e)(iv).
(v) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Certificates formerly representing MS Common
Stock with respect to any fractional share interests, the Exchange Agent shall
make available such amounts to such holders of Certificates formerly
representing MS Common Stock subject to and in accordance with the terms of
Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to DWD, upon demand, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to DWD for payment of their claim for Merger
Consideration or shares of DWD Preferred Stock, any dividends or distributions
with respect to DWD Common Stock or DWD Preferred Stock, as applicable, and
any cash in lieu of fractional shares of DWD Common Stock.
(g) No Liability. None of DWD, MS or the Exchange Agent shall be liable to
any person in respect of any shares of DWD Common Stock or DWD Preferred
Stock, any dividends or distributions with respect thereto, any cash in lieu
of fractional shares of DWD Common Stock or any cash from the Exchange Fund,
in each case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate shall not have
been surrendered prior to two years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration or shares of DWD
Preferred Stock, any dividends or distributions payable to the holder of such
Certificate or any cash payable to the holder of such Certificate formerly
representing MS Common Stock pursuant to this Article II, would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.01(d)), any such Merger Consideration or shares of DWD Preferred
Stock, dividends or distributions in respect of such Certificate or such cash
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by DWD, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
DWD.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration or shares of DWD Preferred Stock and, if applicable,
any unpaid dividends and distributions on shares of DWD Common Stock or DWD
Preferred Stock deliverable in respect thereof and any cash in lieu of
fractional shares, in each case pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of MS. Except as disclosed in
the MS Filed SEC Documents (as defined in Section 3.01(g)) or as set forth on
the Disclosure Schedule delivered by MS to DWD prior to the execution of this
Agreement (the "MS Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, MS
represents and warrants to DWD as follows:
(a) Organization, Standing and Corporate Power. Each of MS and its
subsidiaries (as defined in Section 8.03) is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect
to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its
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business as now being conducted, except, as to subsidiaries, for those
jurisdictions where the failure to be so organized, existing or in good
standing individually or in the aggregate would not have a material adverse
effect (as defined in Section 8.03) on MS. Each of MS and its subsidiaries
is duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership, leasing or operation
of its properties makes such qualification or licensing necessary, except
for those jurisdictions where the failure to be so qualified or licensed or
to be in good standing individually or in the aggregate would not have a
material adverse effect on MS. MS has made available to DWD prior to the
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws, as amended to date.
(b) Subsidiaries. Exhibit 21 to MS's Annual Report on Form 10-K for the
fiscal year ended November 30, 1995 includes all the subsidiaries of MS
which as of the date of this Agreement are Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC")). All the outstanding shares of capital stock of, or
other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned directly
or indirectly by MS, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of MS consists of
600,000,000 shares of MS Common Stock and 30,000,000 shares of preferred
stock, without par value, of MS ("MS Authorized Preferred Stock"), of which
3,902,438 shares have been designated as MS ESOP Preferred Stock, 1,725,000
shares have been designated as MS Series A Preferred Stock, 1,000,000
shares have been designated as MS 7 3/4% Preferred Stock, 750,000 shares
have been designated as MS 8 3/4% Preferred Stock, 1,000,000 shares have
been designated as MS 7 3/8% Preferred Stock, 611,238 shares have been
designated as MS 7.82% Preferred Stock, 1,150,000 shares have been
designated as MS 7.80% Preferred Stock, 720,900 shares have been designated
as MS 9.00% Preferred Stock, 996,776 shares have been designated as MS
8.40% Preferred Stock, 847,500 shares have been designated as MS 8.20%
Preferred Stock and 670,000 shares have been designated as MS 8.03%
Preferred Stock (in each case, as defined in Section 3.01(c) of the MS
Disclosure Schedule). "MS Preferred Stock" means MS Authorized Preferred
Stock that is issued and outstanding from time to time. "MS Capital Units"
means capital units of MS that are issued and outstanding from time to
time. At the close of business on January 20, 1997, (i) 158,324,534 shares
of MS Common Stock were issued and outstanding; (ii) 5,306,259 shares of MS
Common Stock were held by MS in its treasury; (iii) 8,169,679 shares of MS
Authorized Preferred Stock were issued and outstanding, as follows: (1)
3,694,679 shares of MS ESOP Preferred Stock, (2) 1,725,000 shares of MS
Series A Preferred Stock, (3) 1,000,000 shares of MS 7 3/4% Preferred
Stock, (4) 750,000 shares of MS 8 3/4% Preferred Stock and (5) 1,000,000
shares of MS 7 3/8% Preferred Stock; (iv) 34,745,312 MS Capital Units were
issued and outstanding, as follows: (1) 4,889,904 MS 7.82% Capital Units,
(2) 9,200,000 MS 7.80% Capital Units, (3) 5,767,200 MS 9.00% Capital Units,
(4) 7,974,208 MS 8.40% Capital Units, (5) 6,780,000 MS 8.20% Capital Units
and (6) 134,000 MS 8.03% Capital Units (in each case, as defined in Section
3.01(c) of the MS Disclosure Schedule); (v) no shares of MS Preferred Stock
or MS Capital Units were held by MS in its treasury, other than shares held
for purposes of market making, proprietary trading or otherwise on behalf
of customers; (vi) 78,711,412 shares of MS Common Stock were reserved for
issuance pursuant to the MS 1986 Stock Option Plan, as amended, the MS 1988
Equity Incentive Plan, as amended (the "MS 1988 EICP"), the MS 1995 Equity
Incentive Plan (the "MS 1995 EICP") and the MS 1993 Stock Plan for Outside
Directors (such plans, collectively, the "MS Stock Plans"); (vii) 7,804,976
shares and 532,494 shares of MS Common Stock were reserved for issuance
upon conversion of MS ESOP Preferred Stock and MS Subsidiary Convertible
Preferred Stock (as defined in Section 3.01(c) of the MS Disclosure
Schedule), respectively (collectively, "MS Convertible Securities"); and
(viii) other than the MS Preferred Stock, no other shares of MS Authorized
Preferred Stock have been designated or issued. Section 3.01(c) of the MS
Disclosure Schedule sets forth a complete and correct list, as of January
20, 1997, of the number of shares of MS Common Stock subject to employee
stock options or other rights to purchase or receive MS
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Common Stock granted under the MS Stock Plans (collectively, "MS Employee
Stock Options") and the exercise prices thereof. All outstanding shares of
capital stock of MS are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth in this Section
3.01(c) and except for changes since January 20, 1997 resulting from the
issuance of shares of MS Common Stock pursuant to the MS Employee Stock
Options, MS Convertible Securities and other rights referred to above in
this Section 3.01(c) or as permitted by Section 4.01(a)(i)(y) and
4.01(a)(ii), (x) there are not issued, reserved for issuance or outstanding
(A) any shares of capital stock or other voting securities of MS, (B) any
securities of MS convertible into or exchangeable or exercisable for shares
of capital stock or voting securities of MS, (C) any warrants, calls,
options or other rights to acquire from MS or any MS subsidiary, and no
obligation of MS or any MS subsidiary to issue, any capital stock, voting
securities or securities convertible into or exchangeable or exercisable
for capital stock or voting securities of MS and (y) other than the MS
Capital Units, the MS Subsidiary Convertible Preferred Stock or agreements
entered into with respect to the MS Stock Plans as of the close of business
on January 20, 1997, there are not any outstanding obligations of MS or any
MS subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities. MS is not a party to any voting agreement
with respect to the voting of any such securities, other than the MS
Stockholders' Agreement (as defined in Section 3.02(r)) and similar voting
agreements contained in the awards made under MS's employee benefit plans
(collectively, the "MS Voting Arrangements"). Schedule 3.01(c) of the MS
Disclosure Schedule sets forth the maximum number of shares of MS Common
Stock subject to the MS Voting Arrangements as of January 20, 1997. There
are no outstanding (A) securities of MS or any MS subsidiary convertible
into or exchangeable or exercisable for shares of capital stock or other
voting securities or ownership interests in any MS subsidiary, (B)
warrants, calls, options or other rights to acquire from MS or any MS
subsidiary, and no obligation of MS or any MS subsidiary to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any MS subsidiary or
(C) except pursuant to the provisions of the MS Subsidiary Convertible
Preferred Stock outstanding on the date hereof, obligations of MS or any MS
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of MS subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. Other than the MS
subsidiaries, MS does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity
other than in the ordinary course of trading, underwriting, asset
management, merchant banking, securitization or market making activities of
MS or the MS subsidiaries or the MS Funds or ownership of the MS Funds. "MS
Fund" means (i) any investment account advised or managed by MS on behalf
of third parties, and (ii) any partnership, limited liability company, or
other similar investment vehicle or entity engaged in the business of
making investments of which MS or a MS subsidiary acts as the general
partner, managing member, manager, advisor or the equivalent or as the
general partner of another MS Fund.
(d) Authority; Noncontravention. MS has all requisite corporate power and
authority to enter into this Agreement and, subject to the MS Stockholder
Approval (as defined in Section 3.01(l)), to consummate the transactions
contemplated by this Agreement. MS has all requisite corporate power and
authority to enter into the Option Agreements and to consummate the
transactions contemplated thereby. The execution and delivery of this
Agreement and the Option Agreements by MS and the consummation by MS of the
transactions contemplated by this Agreement and the Option Agreements have
been duly authorized by all necessary corporate action on the part of MS,
subject, in the case of the Merger, to the MS Stockholder Approval. This
Agreement and the Option Agreements have been duly executed and delivered
by MS and, assuming the due authorization, execution and delivery by each
of the other parties thereto, constitute legal, valid and binding
obligations of MS, enforceable against MS in accordance with their terms.
The execution and delivery of this Agreement and the Option Agreements do
not, and the consummation of the transactions contemplated by this
Agreement and the Option Agreements and compliance with the provisions of
this Agreement and the Option Agreements will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination,
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cancellation or acceleration of any obligation or loss of a benefit under,
or result in the creation of any Lien upon any of the properties or assets
of MS or any of its subsidiaries under, (i) the certificate of
incorporation or by-laws of MS or the comparable organizational documents
of any of its subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to MS or
any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to MS or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on MS or (y) reasonably be expected to impair the ability of
MS to perform its obligations under this Agreement or the Option
Agreements. No consent, approval, order or authorization of, action by or
in respect of, or registration, declaration or filing with, any federal,
state, local or foreign government, any court, administrative, regulatory
or other governmental agency, commission or authority or any non-
governmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to MS or any of its
subsidiaries in connection with the execution and delivery of this
Agreement or the Option Agreements by MS or the consummation by MS of the
transactions contemplated by this Agreement or the Option Agreements,
except for (1) the filing of a premerger notification and report form by MS
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"); (2) the filing with the SEC of (A) a proxy statement
relating to the MS Stockholders Meeting (as defined in Section 5.01(b))
(such proxy statement, together with the proxy statement relating to the
DWD Stockholders Meeting (as defined in Section 5.01(c)), in each case as
amended or supplemented from time to time, the "Joint Proxy Statement"),
and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement, the Option Agreements and the
transactions contemplated by this Agreement and the Option Agreements; (3)
the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant authorities of other
states in which MS is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; (4) such filings with and approvals of the
NYSE to permit the shares of MS Common Stock that are to be issued pursuant
to the MS Stock Option Agreement to be listed on the NYSE; (5) the
consents, approvals and notices required under the Investment Company Act
of 1940, as amended (the "1940 Act") and the Investment Advisors Act of
1940, as amended (the "Advisors Act"); (6) filings in respect of, and
approvals and authorizations of, any Governmental Entity having
jurisdiction over the securities, commodities, banking, insurance, other
financial services or communications businesses; and (7) such consents,
approvals, orders or authorizations the failure of which to be made or
obtained individually or in the aggregate would not have a material adverse
effect on MS.
(e) SEC Documents; Undisclosed Liabilities. MS has filed all required
reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
December 1, 1994 (the "MS SEC Documents"). As of their respective dates,
the MS SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such MS SEC
Documents, and none of the MS SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any MS SEC Document has
been revised or superseded by a later filed MS SEC Document, none of the MS
SEC Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of MS included in
the MS SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in
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the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of MS and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement
or the Option Agreements or the transactions contemplated hereby or
thereby, neither MS nor any of its subsidiaries has any material
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on MS.
(f) Information Supplied. None of the information supplied or to be
supplied by MS specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by DWD
in connection with the issuance of DWD Common Stock and DWD Preferred Stock
in the Merger (the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Joint Proxy Statement will, at the date it is first mailed to MS's
stockholders or at the time of the MS Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is
made by MS with respect to statements made or incorporated by reference
therein based on information supplied by DWD specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the Option Agreements or the
transactions contemplated hereby or thereby, since August 31, 1996, MS and
its subsidiaries have conducted their business only in the ordinary course,
and there has not been (1) any material adverse change (as defined in
Section 8.03) in MS, (2) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of MS's capital stock, other than regular quarterly cash
dividends of $.20 per share on the MS Common Stock and dividends payable on
MS Preferred Stock in accordance with their terms as of the date of this
Agreement (or as of their date of issue if subsequent to the date of this
Agreement), (3) any split, combination or reclassification of any of MS's
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
MS's capital stock, except for issuances of MS Common Stock upon conversion
of MS Convertible Securities or upon the exercise of MS Employee Stock
Options or in connection with restricted stock units under the MS Stock
Plans, in each case awarded prior to the date hereof in accordance with
their present terms or issued pursuant to Section 4.01(a), (4) (A) any
granting by MS or any of its subsidiaries to any current or former
director, executive officer or other key employee of MS or its subsidiaries
of any increase in compensation, bonus or other benefits, except for normal
increases in the ordinary course of business or as was required under any
employment agreements in effect as of the date of the most recent audited
financial statements included in the MS SEC Documents filed and publicly
available prior to the date of this Agreement (as amended to the date of
this Agreement, the "MS Filed SEC Documents"), (B) any granting by MS or
any of its subsidiaries to any such current or former director, executive
officer or key employee of any increase in severance or termination pay,
except in the ordinary course of business, or (C) any entry by MS or any of
its subsidiaries into, or any amendments of, any employment, deferred
compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, executive officer or
key employee, other than in the ordinary course of business, (5) except
insofar as may have been disclosed in the MS Filed SEC Documents or
required by a change in generally accepted accounting principles, any
change in accounting methods, principles or practices by MS materially
affecting its assets, liabilities or business or (6) except insofar as may
have been disclosed in the MS Filed SEC Documents, any tax election that
individually or in the aggregate would have a material adverse effect on MS
or any of its tax attributes or any settlement or compromise of any
material income tax liability.
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(h) Compliance with Applicable Laws. MS, its subsidiaries and employees
hold all permits, licenses, variances, exemptions, orders, registrations
and approvals of all Governmental Entities which are required for the
operation of the businesses of MS and its subsidiaries (the "MS Permits"),
except where the failure to have any such MS Permits individually or in the
aggregate would not have a material adverse effect on MS. MS and its
subsidiaries are in compliance with the terms of the MS Permits and all
applicable statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would not have a
material adverse effect on MS. As of the date of this Agreement, except as
disclosed in the MS Filed SEC Documents, no action, demand, requirement or
investigation by any Governmental Entity and no suit, action or proceeding
by any person, in each case with respect to MS or any of its subsidiaries
or any of their respective properties is pending or, to the knowledge (as
defined in Section 8.03) of MS, threatened, other than, in each case, those
the outcome of which individually or in the aggregate would not (i) have a
material adverse effect on MS or (ii) reasonably be expected to impair the
ability of MS to perform its obligations under this Agreement or the Option
Agreements or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement or the Option Agreements.
(i) Absence of Changes in Benefit Plans. Since the date of the most
recent audited financial statements included in the MS Filed SEC Documents,
there has not been any adoption or amendment in any material respect by MS
or any of its subsidiaries of any collective bargaining agreement or any
material bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director
of MS or any of its wholly owned subsidiaries (collectively, the "MS
Benefit Plans"), or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any MS
pension plans, or any change in the manner in which contributions to any MS
pension plans are made or the basis on which such contributions are
determined.
(j) ERISA Compliance. (i) With respect to the MS Benefit Plans, no event
has occurred and, to the knowledge of MS, there exists no condition or set
of circumstances, in connection with which MS or any of its subsidiaries
could be subject to any liability that individually or in the aggregate
would have a material adverse effect on MS under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Code or any other
applicable law.
(ii) Each MS Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any MS Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on MS. MS, its subsidiaries and all the MS Benefit Plans are in compliance
with the applicable provisions of ERISA, the Code and all other applicable
laws and the terms of all applicable collective bargaining agreements,
except for any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on MS. Each MS
Benefit Plan that is intended to be qualified under Section 401(a) or
401(k) of the Code has received a favorable determination letter from the
IRS that it is so qualified and each trust established in connection with
any MS Benefit Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination
letter from the IRS that such trust is so exempt. To the knowledge of MS,
no fact or event has occurred since that date of any determination letter
from the IRS which is reasonably likely to affect adversely the qualified
status of any such MS Benefit Plan or the exempt status of any such trust.
(iii) Neither MS nor any of its subsidiaries has incurred any liability
under Title IV of ERISA (other than liability for premiums to the Pension
Benefit Guaranty Corporation arising in the ordinary course). No MS Benefit
Plan has incurred an "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA or Section 412 of the Code) whether or not waived.
To the knowledge of MS, there are not any facts or circumstances that would
materially change the funded status of any MS Benefit Plan that is a
"defined benefit" plan (as defined in Section 3(35) of ERISA) since the
date of the most recent actuarial report for such plan. No MS Benefit Plan
is a "multiemployer plan" within the meaning of Section 3(37) of ERISA.
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(iv) Neither MS nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons employed by
MS or any of its subsidiaries and no collective bargaining agreement is
being negotiated by MS or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against MS or
any of its subsidiaries pending or, to the knowledge of MS, threatened
which may interfere with the respective business activities of MS or any of
its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on MS. As of the date of this Agreement, to the knowledge of MS, none of
MS, any of its subsidiaries or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective business of MS or any of its subsidiaries, and
there is no charge or complaint against MS or any of its subsidiaries by
the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
(v) No employee of MS will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any MS
Benefit Plan as a result of the transactions contemplated by this Agreement
or the Option Agreements.
(k) Taxes. (i) Each of MS and its subsidiaries has filed all material tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect
on MS. MS and each of its subsidiaries has paid (or MS has paid on its
behalf) all taxes (as defined in Section 3.01(k)(v)) shown as due on such
returns, and the most recent financial statements contained in the MS Filed
SEC Documents reflect an adequate reserve for all taxes payable by MS and
its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against MS or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on MS. The federal income tax
returns of MS and each of its subsidiaries consolidated in such returns
have closed by virtue of the applicable statute of limitations.
(iii) Neither MS nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) The MS Benefit Plans and other MS compensation arrangements in
effect as of the date of this Agreement have been designed so that the
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by MS or any of
its subsidiaries under any such plan or arrangement and, to the knowledge
of MS, no fact or circumstance exists that would cause such disallowance to
apply to any such amount.
(v) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y); provided, however, that to the extent MS is
entitled to be indemnified for an amount pursuant to the Stock Purchase
Agreement between CDV Acquisition Corporation and Xerox Financial Services,
Inc. dated as of October 13, 1992 or the Stock Purchase Agreement among the
Van Kampen Merritt Companies, Inc., VKM Holding, Inc., The Travelers Inc.
and Associated Madison Companies Inc. dated as of August 24, 1994, such
amount shall not be considered a "tax" for purposes of this Section 3.01(k)
and to the extent DWD is entitled to be indemnified for an amount pursuant
to the tax sharing agreement between Sears, Roebuck & Co. and DWD dated
February 19, 1993, such amount shall not be considered a "tax" for purposes
of Section 3.02(k) of this Agreement.
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(l) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of MS Common Stock
and MS ESOP Preferred Stock, voting as a single class (with each share of
MS Common Stock having one vote per share and each share of MS ESOP
Preferred Stock having 2.7 votes per share), at the MS Stockholders Meeting
to adopt this Agreement (the "MS Stockholder Approval") is the only vote of
the holders of any class or series of MS's capital stock necessary to
approve and adopt this Agreement, the Option Agreements and the
transactions contemplated hereby and thereby.
(m) State Takeover Statutes. MS has caused Section 203 of the DGCL not to
be applicable to MS by opting out of the provisions of such Section 203 in
its By-laws in accordance with the DGCL. To the knowledge of MS, no other
state takeover statute is applicable to the Merger or the other
transactions contemplated hereby and by the Option Agreements.
(n) Accounting Matters. Neither MS nor any of its affiliates (as defined
in Section 8.03) has taken or agreed to take any action that would prevent
the business combination to be effected by the Merger to be accounted for
as a pooling of interests.
(o) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement and the Option Agreements based upon arrangements made by
or on behalf of MS.
(p) Opinion of Financial Advisor. MS has received the opinion of Morgan
Stanley & Co. Incorporated, dated the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair from a financial point of
view to holders of shares of MS Common Stock (other than DWD and its
affiliates), a signed copy of which opinion has been delivered to DWD.
(q) Ownership of DWD Common Stock. Other than pursuant to the DWD Stock
Option Agreement and except for shares owned by MS Benefit Plans or shares
held or managed for the account of another person or as to which MS is
required to act as a fiduciary or in a similar capacity, as of the date
hereof, neither MS nor, to its knowledge without independent investigation,
any of its affiliates, (i) beneficially owns (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, or (ii) is party to any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of capital stock of
DWD.
(r) Intellectual Property. MS and its subsidiaries own or have a valid
license to use all trademarks, service marks and trade names (including any
registrations or applications for registration of any of the foregoing)
(collectively, the "MS Intellectual Property") necessary to carry on its
business substantially as currently conducted except for such MS
Intellectual Property the failure of which to own or validly license
individually or in the aggregate would not have a material adverse effect
on MS. Neither MS nor any such subsidiary has received any notice of
infringement of or conflict with, and, to MS's knowledge, there are no
infringements of or conflicts with, the rights of others with respect to
the use of any MS Intellectual Property that individually or in the
aggregate, in either such case, would have a material adverse effect on MS.
(s) Certain Contracts. Except as set forth in the MS Filed SEC Documents,
neither MS nor any of its subsidiaries is a party to or bound by any non-
competition agreement or any other agreement or obligation which purports
to limit in any material respect the manner in which, or the localities in
which, all or any material portion of the business of MS and its
subsidiaries, taken as a whole, is or would be conducted.
SECTION 3.02. Representations and Warranties of DWD. Except as disclosed in
the DWD Filed SEC Documents (as defined in Section 3.02(g)) or as set forth on
the Disclosure Schedule delivered by DWD to MS prior to the execution of this
Agreement (the "DWD Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, DWD
represents and warrants to MS as follows:
(a) Organization, Standing and Corporate Power. Each of DWD and its
subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions
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which recognize such concept) under the laws of the jurisdiction in which
it is organized and has the requisite corporate or other power, as the case
may be, and authority to carry on its business as now being conducted,
except, as to subsidiaries, for those jurisdictions where the failure to be
so organized, existing or in good standing individually or in the aggregate
would not have a material adverse effect on DWD. Each of DWD and its
subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate would not have a material adverse effect on DWD. DWD has made
available to MS prior to the execution of this Agreement complete and
correct copies of its certificate of incorporation and by-laws, as amended
to date.
(b) Subsidiaries. Exhibit 21 to DWD's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 includes all the subsidiaries of DWD
which as of the date of this Agreement are Significant Subsidiaries. All
the outstanding shares of capital stock of, or other equity interests in,
each such Significant Subsidiary have been validly issued and are fully
paid and nonassessable and are owned directly or indirectly by DWD, free
and clear of all Liens and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or otherwise ownership interests).
(c) Capital Structure. The authorized capital stock of DWD consists of
500,000,000 shares of DWD Common Stock and 10,000,000 shares of preferred
stock, par value $.01 per share, of DWD ("DWD Authorized Preferred Stock").
At the close of business on January 31, 1997, (i) 321,218,945 shares of DWD
Common Stock were issued and outstanding, (ii) 20,754,691 shares of DWD
Common Stock were held by DWD in its treasury, (iii) 59,498,133 shares of
DWD Common Stock were reserved for issuance pursuant to the DWD Omnibus
Equity Incentive Plan, DWD 1994 Omnibus Equity Plan, DWD Employees
Replacement Stock Plan, DWD 1993 Stock Plan for Non-Employee Directors, DWD
Directors' Equity Capital Accumulation Plan, DWD Employee Stock Purchase
Plan, DWD Tax Deferred Equity Participation Plan, DWD-Dean Witter Reynolds
Inc. Branch Manager Compensation Plan, DWD-Dean Witter Reynolds Inc.
Account Executive Productivity Compensation Plan, and DWD Savings Today
Affords Retirement Tomorrow Plan (such plans, collectively with the SPS
Transaction Services, Inc. ("SPS") Amended and Restated 1992 Employees
Stock Plan, SPS 1995 Omnibus Equity Plan, SPS Formula Plan for Non-
Affiliate Directors of 1992, 1994 and 1996, the SPS Tax Deferred Equity
Participation Plan, the SPS Savings Today Affords Retirement Tomorrow Plan
and SPS Employee Stock Purchase Plan, the "DWD Stock Plans"), (iv) no
shares of Series A Junior Participating Preferred Stock (the "DWD Junior
Preferred Stock") were issued and outstanding and (v) other than the DWD
Junior Preferred Stock, no other shares of DWD Authorized Preferred Stock
have been designated or issued. Section 3.02(c) of the DWD Disclosure
Schedule sets forth a complete and correct list, as of January 31, 1997, of
the number of shares of DWD Common Stock and common stock, par value $.01
per share, of SPS ("SPS Common Stock") subject to employee stock options or
other rights to purchase or receive DWD Common Stock or SPS Common Stock
granted under the DWD Stock Plans (collectively, "DWD Employee Stock
Options") and the exercise prices thereof. All outstanding shares of
capital stock of DWD are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth in this Section
3.02(c) and except for changes since January 31, 1997 resulting from the
issuance of shares of DWD Common Stock pursuant to the options and other
rights referred to above in this Section 3.02(c), for issuance of DWD
Rights or DWD Common Stock in respect of DWD Rights pursuant to the DWD
Rights Agreement (as defined below) or as permitted by Section
4.01(b)(i)(y) and 4.01(b)(ii), (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of DWD, (B) any securities of DWD convertible into or
exchangeable or exercisable for shares of capital stock or voting
securities of DWD, (C) any warrants, calls, options or other rights to
acquire from DWD, or any DWD subsidiary and no obligation of DWD or any DWD
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of DWD, (y) there are no outstanding obligations of DWD or any
DWD subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause
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to be issued, delivered or sold, any such securities. DWD is not a party to
any voting agreement with respect to the voting of any such securities.
Except pursuant to agreements entered into with respect to the DWD Stock
Plans as of the close of business of January 31, 1997, there are no
outstanding (A) securities of DWD or any DWD subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any DWD subsidiary, (B) warrants,
calls, options or other rights to acquire from DWD or any DWD subsidiary,
and no obligation of DWD or any DWD subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock,
voting securities or ownership interests in, any DWD subsidiary or (C)
obligations of DWD or any DWD subsidiary to repurchase, redeem or otherwise
acquire any such outstanding securities of DWD subsidiaries or to issue,
deliver or sell, or cause to be issued, delivered or sold, any such
securities. Other than the DWD subsidiaries, DWD does not directly or
indirectly beneficially own any securities or other beneficial ownership
interests in any other entity other than in the ordinary course of trading,
underwriting, asset management, merchant banking, securitization or market
making activities of DWD or the DWD subsidiaries or the DWD Funds or
ownership of the DWD Funds. "DWD Fund" means (i) any investment account
advised or managed by DWD on behalf of third parties, and (ii) any
partnership, limited liability company, or other similar investment vehicle
or entity engaged in the business of making investments of which DWD or a
DWD subsidiary acts as the general partner, managing member, manager,
advisor or the equivalent or the general partner of another DWD Fund. DWD
has made available to MS a complete and correct copy of the Rights
Agreement dated as of April 25, 1995 (the "DWD Rights Agreement") between
DWD and Chase Manhattan Bank (as successor to Chemical Bank) relating to
rights ("DWD Rights") to purchase DWD Junior Preferred Stock.
(d) Authority; Noncontravention. DWD has all requisite corporate power
and authority to enter into this Agreement and, subject to the DWD
Stockholder Approval (as defined in Section 3.02(l)), to consummate the
transactions contemplated by this Agreement. DWD has all requisite
corporate power and authority to enter into the Option Agreements and to
consummate the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by DWD and the
consummation by DWD of the transactions contemplated by this Agreement and
the Option Agreements have been duly authorized by all necessary corporate
action on the part of DWD, subject, in the case of the issuance of DWD
Common Stock and DWD Preferred Stock in connection with the Merger, to the
DWD Stockholder Approval. This Agreement and the Option Agreements have
been duly executed and delivered by DWD and, assuming the due
authorization, execution and delivery by each of the other parties thereto,
constitute legal, valid and binding obligations of DWD, enforceable against
DWD in accordance with their terms. The execution and delivery of this
Agreement and the Option Agreements do not, and the consummation of the
transactions contemplated by this Agreement and the Option Agreements and
compliance with the provisions of this Agreement and the Option Agreements
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of DWD or any of its subsidiaries under, (i) the
certificate of incorporation or by-laws of DWD or the comparable
organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to DWD or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to DWD or any of its subsidiaries or their respective properties
or assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on DWD or
(y) reasonably be expected to impair the ability of DWD to perform its
obligations under this Agreement or the Option Agreements. No consent,
approval, order or authorization of, action by, or in respect of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to DWD or any of its subsidiaries in connection
with the execution and delivery of this Agreement or the Option Agreements
by DWD or the consummation by DWD of the transactions contemplated by this
Agreement or the Option Agreements, except for (1) the
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filing of a premerger notification and report form by DWD under the HSR
Act; (2) the filing with the SEC of (A) the Joint Proxy Statement relating
to the DWD Stockholders Meeting, (B) the Form S-4 and (C) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement, the Option Agreements and the
transactions contemplated by this Agreement and the Option Agreements; (3)
the filing of the Certificate of Merger and the Certificates of
Designations with respect to the DWD Preferred Stock (the "Certificate of
Designations") with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which DWD is
qualified to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or "blue sky" laws;
(4) such filings with and approvals of the NYSE to permit the shares of DWD
Common Stock that are to be issued in the Merger, under the MS Stock Plans,
pursuant to the DWD Stock Option Agreement and pursuant to the conversion
of the DWD Convertible Preferred Stock, and to permit the depositary shares
and capital units representing shares of DWD Preferred Stock that are to be
issued in the Merger in exchange for like securities representing MS
Preferred Stock that are listed on the NYSE as of the date hereof, in each
case (a "DWD Listed Security") to be listed on the NYSE; (5) the consents,
approvals and notices required under the 1940 Act and the Advisors Act; (6)
filings in respect of, and approvals and authorizations of, any
Governmental Entity having jurisdiction over the securities, commodities,
banking, insurance, other financial services or communications businesses;
and (7) such consents, approvals, orders or authorizations the failure of
which to be made or obtained individually or in the aggregate would not
have a material adverse effect on DWD.
(e) SEC Documents; Undisclosed Liabilities. DWD has filed all required
reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
January 1, 1995 (the "DWD SEC Documents"). As of their respective dates,
the DWD SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such DWD SEC Documents, and none of the DWD SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
any DWD SEC Document has been revised or superseded by a later filed DWD
SEC Document, none of the DWD SEC Documents contains any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of DWD included in the DWD SEC Documents comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of DWD and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement
or the Option Agreements or the transactions contemplated hereby or
thereby, neither DWD nor any of its subsidiaries has any material
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on DWD.
(f) Information Supplied. None of the information supplied or to be
supplied by DWD specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Joint Proxy Statement
will, at the date it is first mailed to DWD's stockholders or at the time
of the DWD Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material
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fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Form S-4 and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by DWD with respect to statements made
or incorporated by reference therein based on information supplied by MS
specifically for inclusion or incorporation by reference in the Form S-4 or
the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the Option Agreements or the
transactions contemplated hereby or thereby, since September 30, 1996, DWD
and its subsidiaries have conducted their business only in the ordinary
course, and there has not been (1) any material adverse change in DWD, (2)
any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
DWD's capital stock, other than regular quarterly cash dividends of $.14
per share (which was $.22 prior to this Stock Split (as defined below)) on
the DWD Common Stock, (3) any split, combination or reclassification of any
of DWD's capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for
shares of DWD's capital stock, except for the DWD two-for-one stock split
in December 1996 (the "Stock Split") and except for issuances of DWD Common
Stock or SPS Common Stock upon the exercise of DWD Employee Stock Options
awarded prior to the date hereof in accordance with their present terms or
issued pursuant to Section 4.01(b) or for issuances of DWD Rights or DWD
Common Stock in respect of DWD Rights pursuant to the DWD Rights Agreement,
(4) (A) any granting by DWD or any of its subsidiaries to any current or
former director, executive officer or other key employee of DWD or its
subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases in the ordinary course of business or as was
required under any employment agreements in effect as of the date of the
most recent audited financial statements included in the DWD SEC Documents
filed and publicly available prior to the date of this Agreement (as
amended to the date of this Agreement, the "DWD Filed SEC Documents"), (B)
any granting by DWD or any of its subsidiaries to any such current or
former director, executive officer or key employee of any increase in
severance or termination pay, except in the ordinary course of business, or
(C) any entry by DWD or any of its subsidiaries into, or any amendment of,
any employment, deferred compensation consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or key employee, other than in the ordinary course of
business, (5) except insofar as may have been disclosed in the DWD Filed
SEC Documents or required by a change in generally accepted accounting
principles, any change in accounting methods, principles or practices by
DWD materially affecting its assets, liabilities or business or (6) except
insofar as may have been disclosed in the DWD Filed SEC Documents, any tax
election that individually or in the aggregate would have a material
adverse effect on DWD or any of its tax attributes or any settlement or
compromise of any material income tax liability.
(h) Compliance with Applicable Laws. DWD, its subsidiaries and employees
hold all permits, licenses, variances, exemptions, orders, registrations
and approvals of all Governmental Entities which are required for the
operation of the businesses of DWD and its subsidiaries (the "DWD Permits")
except where the failure to have any such DWD Permits individually or in
the aggregate would not have a material adverse effect on DWD. DWD and its
subsidiaries are in compliance with the terms of the DWD Permits and all
applicable statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would not have a
material adverse effect on DWD. As of the date of this Agreement, except as
disclosed in the DWD Filed SEC Documents, no action, demand, requirement or
investigation by any Governmental Entity and no suit, action or proceeding
by any person, in each case with respect to DWD or any of its subsidiaries
or any of their respective properties is pending or, to the knowledge of
DWD, threatened, other than, in each case, those the outcome of which
individually or in the aggregate would not (i) have a material adverse
effect on DWD or (ii) reasonably be expected to impair the ability of DWD
to perform its obligations under this Agreement or the Option Agreements or
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement or the Option Agreements.
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(i) Absence of Changes in Benefit Plans. Since the date of the most
recent audited financial statements included in the DWD Filed SEC
Documents, there has not been any adoption or amendment in any material
respect by DWD or any of its subsidiaries of any collective bargaining
agreement or any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan, arrangement or
understanding providing benefits to any current or former employee, officer
or director of DWD or any of its wholly owned subsidiaries (collectively,
the "DWD Benefit Plans"), or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any DWD
pension plans, or any change in the manner in which contributions to any
DWD pension plans are made or the basis on which such contributions are
determined.
(j) ERISA Compliance. (i) With respect to the DWD Benefit Plans, no event
has occurred and, to the knowledge of DWD, there exists no condition or set
of circumstances, in connection with which DWD or any of its subsidiaries
could be subject to any liability that individually or in the aggregate
would have a material adverse effect on DWD under ERISA, the Code or any
other applicable law.
(ii) Each DWD Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any DWD Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on DWD. DWD, its subsidiaries and all the DWD Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect
on DWD. Each DWD Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable determination
letter from the IRS that it is so qualified and each trust established in
connection with any DWD Benefit Plan that is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that such trust is so exempt. To the
knowledge of DWD, no fact or event has occurred since that date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such DWD Benefit Plan or the exempt
status of any such trust.
(iii) Neither DWD nor any of its subsidiaries has incurred any liability
under Title IV of ERISA (other than liability for premiums to the Pension
Benefit Guaranty Corporation arising in the ordinary course). No DWD
Benefit Plan has incurred an "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA or Section 412 of the Code) whether or not
waived. To the knowledge of DWD, there are not any facts or circumstances
that would materially change the funded status of any DWD Benefit Plan that
is a "defined benefit" plan (as defined in Section 3(35) of ERISA) since
the date of the most recent actuarial report for such plan. No DWD Benefit
Plan is a "multiemployer plan" within the meaning of Section 3(37) of
ERISA.
(iv) Neither DWD nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons employed by
DWD or any of its subsidiaries and no collective bargaining agreement is
being negotiated by DWD or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against DWD
or any of its subsidiaries pending or, to the knowledge of DWD, threatened
which may interfere with the respective business activities of DWD or any
of its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on DWD. As of the date of this Agreement, to the knowledge of DWD, none of
DWD, any of its subsidiaries or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective businesses of DWD or any of its subsidiaries,
and there is no charge or complaint against DWD or any of its subsidiaries
by the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
(v) No employee of DWD will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any
DWD Benefit Plan as a result of the transactions contemplated by this
Agreement or the Option Agreements, except that DWD Employee Stock Options
awarded under
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the DWD 1994 Omnibus Equity Plan covering a maximum of 4,231,222 shares of
DWD Common Stock will vest as of the Effective Time as a result of the
Merger. Without limiting the generality of the preceding sentence, no DWD
Employee Stock Options awarded in January 1997 will vest as a result of the
transactions contemplated by this Agreement and the Option Agreement.
(k) Taxes. (i) Each of DWD and its subsidiaries has filed all material
tax returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect
on DWD. DWD and each of its subsidiaries has paid (or DWD has paid on its
behalf) all taxes shown as due on such returns, and the most recent
financial statements contained in the DWD Filed SEC Documents reflect an
adequate reserve for all taxes payable by DWD and its subsidiaries for all
taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against DWD or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on DWD. The federal income tax
returns of DWD and each of its subsidiaries consolidated in such returns
have closed by virtue of the applicable statute of limitations.
(iii) Neither DWD nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) The DWD Benefit Plans and other DWD compensation arrangements in
effect as of the date of this Agreement have been designed so that the
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by DWD or any of
its subsidiaries under any such plan or arrangement and, to the knowledge
of DWD, no fact or circumstance exists that would cause such disallowance
to apply to any such amount.
(l) Voting Requirements. The affirmative vote at the DWD Stockholders
Meeting (the "DWD Stockholder Approval") of (i) the holders of a majority
of the voting power of all outstanding shares of DWD Common Stock is the
only vote of the holders of any class or series of DWD's capital stock
necessary to approve and adopt this Agreement, the Option Agreements and
the transactions contemplated hereby and thereby and (ii) the holders of a
majority of all shares of DWD Common Stock casting votes is the only vote
of the holders of any class or series of DWD's capital stock necessary to
approve, in accordance with the applicable rules of the NYSE, the issuance
of DWD Common Stock pursuant to the Merger.
(m) State Takeover Statutes; Certificate of Incorporation. The Board of
Directors of DWD (including the disinterested directors thereof (as defined
in Article 11 of the DWD Certificate of Incorporation)) has unanimously
approved the terms of this Agreement and the Option Agreements and the
consummation of the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and, assuming the accuracy of MS's
representation and warranty contained in Section 3.01(q), such approval
constitutes approval of the Merger and the other transactions contemplated
by this Agreement and the Option Agreements by the DWD Board of Directors
under the provisions of Section 203 of the DGCL and Section 11.2A of the
DWD Certificate of Incorporation, and represents all the actions necessary
to ensure that such Section 203 and the provisions of Section 11.1.A of the
DWD Certificate of Incorporation do not apply to MS in connection with the
Merger and the other transactions contemplated hereby and by the Option
Agreements. To its knowledge, no other state takeover statute is applicable
to the Merger or the other transactions contemplated hereby and by the
Option Agreements.
(n) Accounting Matters. Neither DWD nor any of its affiliates has taken
or agreed to take any action that would prevent the business combination to
be effected by the Merger to be accounted for as a pooling of interests.
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(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Wasserstein Perella & Co., Inc., the fees and expenses
of which will be paid by DWD or, if the Merger occurs, the Surviving
Corporation, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Option Agreements based upon
arrangements made by or on behalf of DWD. DWD has furnished to MS true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisor. DWD has received the opinion of
Wasserstein Perella & Co., Inc., dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio for the conversion of MS
Common Stock into DWD Common Stock pursuant to the Merger is fair to DWD
and, accordingly, to DWD's stockholders from a financial point of view, a
signed copy of which opinion has been delivered to MS.
(q) Ownership of MS Common Stock. Other than pursuant to the MS Stock
Option Agreement and except for shares owned by DWD Benefit Plans or shares
held or managed for the account of another person or as to which DWD is
required to act as a fiduciary or in a similar capacity, as of the date
hereof, neither DWD nor, to its knowledge without independent
investigation, any of its affiliates, (i) beneficially owns (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, or (ii) is
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of MS.
(r) DWD Rights Agreement. The DWD Rights Agreement has been amended (the
"DWD Rights Plan Amendment") to (i) render the DWD Rights Agreement
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and (ii) ensure that (y) none of MS,
its wholly owned subsidiaries, its permitted assignees or transferees under
the DWD Stock Option Agreement or the parties to the Stockholders'
Agreement dated February 14, 1986, as amended, to which MS is a party (the
"Stockholders Agreement") or the other Voting Agreements (as defined in
MS's Proxy Statement dated as of February 26, 1996) is an Acquiring Person
(as defined in the DWD Rights Agreement) pursuant to the DWD Rights
Agreement and (z) a Distribution Date, a Triggering Event or Stock
Acquisition Date (as such terms are defined in the DWD Rights Agreement)
does not occur solely by reason of the execution of this Agreement and the
Option Agreements, the consummation of the Merger, or the consummation of
the other transactions contemplated by this Agreement and the Option
Agreements, and such amendment may not be further amended by DWD without
the prior consent of MS in its sole discretion.
(s) Intellectual Property. DWD and its subsidiaries own or have a valid
license to use all trademarks, service marks and trade names (including any
registrations or applications for registration of any of the foregoing)
(collectively, the "DWD Intellectual Property") necessary to carry on its
business substantially as currently conducted, except for such DWD
Intellectual Property the failure of which to own or validly license
individually or in the aggregate would not have a material adverse effect
on DWD. Neither DWD nor any such subsidiary has received any notice of
infringement of or conflict with, and, to DWD's knowledge, there are no
infringements of or conflicts with, the rights of others with respect to
the use of any DWD Intellectual Property that individually or in the
aggregate, in either such case, would have a material adverse effect on
DWD.
(t) Certain Contracts. Except as set forth in the DWD Filed SEC
Documents, neither DWD nor any of its subsidiaries is a party to or bound
by any non-competition agreement or any other agreement or obligation which
purports to limit in any material respect the manner in which, or the
localities in which, all or any material portion of the business of DWD and
its subsidiaries (including MS and its subsidiaries, assuming the Merger
had taken place), taken as a whole, is or would be conducted.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by MS. Except as
set forth in Section 4.01(a) of the MS Disclosure Schedule, as otherwise
expressly contemplated by this Agreement or the Option Agreements or as
consented to by DWD, such consent not to be unreasonably withheld or delayed,
during the period from the date of this Agreement to the Effective Time, MS
shall, and shall cause its subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts
to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing (but subject to the above exceptions), during the period from the
date of this Agreement to the Effective Time, MS shall not, and shall not
permit any of its subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of MS to its
parent, or by a subsidiary that is partially owned by MS or any of its
subsidiaries, provided that MS or any such subsidiary receives or is to
receive its proportionate share thereof, and other than the regular
quarterly cash dividends of $.20 per share with respect to the MS Common
Stock and dividends payable on MS Preferred Stock in accordance with their
terms as of the date of this Agreement (or as of their date of issue if
subsequent to the date of this Agreement), (x) declare, set aside or pay
any dividends on, or make any other distributions in respect of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, except for
issuances of MS Common Stock upon conversion of MS Convertible Securities
or upon the exercise of MS Employee Stock Options or in connection with
restricted stock units under the MS Stock Plans, in each case, outstanding
as of the date hereof in accordance with their present terms or issued
pursuant to Section 4.01(a)(ii) or (z) except pursuant to the provisions of
the MS Subsidiary Convertible Preferred Stock or agreements entered into
with respect to the MS Stock Plans as of the close of business on January
20, 1997, purchase, redeem or otherwise acquire any shares of capital stock
of MS or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities (other than
(x) the issuance of MS Common Stock upon conversion of MS Convertible
Securities in accordance with their present terms at the option of the
holders thereof, (y) the issuance of MS Common Stock upon the exercise of
MS Employee Stock Options or in connection with restricted stock units
under the MS Stock Plans, in each case outstanding as of the date hereof in
accordance with their present terms or, after consulting with DWD, granted
after the date hereof in the ordinary course of business consistent with
past practice for new employees (so long as such additional amount of MS
Common Stock subject to MS Employee Stock Options and/or restricted stock
units issued to new employees does not exceed 565,000 shares of MS Common
Stock in the aggregate) and (z) the issuance of MS Common Stock pursuant to
the MS Stock Option Agreement) and other than in connection with the
issuance of nonvoting MS Preferred Stock in the ordinary course of business
consistent with past practice;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents, other than in connection with the issuance of
nonvoting MS Preferred Stock in the ordinary course of business consistent
with past practice;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any person, except for such acquisitions made in the
ordinary course of business consistent with past practice;
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(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent
with past practice;
(vi) take any action that would cause the representations and warranties
set forth in Section 3.01(g) (with each reference therein to "ordinary
course of business" being deemed for purposes of this Section 4.01(a)(vi)
to be immediately followed by "consistent with past practice") to no longer
be true and correct;
(vii) take any action to cause or permit additional shares of MS Common
Stock to become subject to the MS Voting Arrangements, other than in the
ordinary course of business consistent with past practice; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.01(a) (other than
clause (iii)) shall not apply to any transaction between MS and any wholly
owned subsidiary or between any wholly owned subsidiaries of MS.
(b) Conduct of Business by DWD. Except as set forth in Section 4.01(b) of
the DWD Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or the Option Agreement or as consented to by MS, such consent not
to be unreasonably withheld or delayed, during the period from the date of
this Agreement to the Effective Time, DWD shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith,
use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons having business dealings with them to the end that their
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement to the
Effective Time, DWD shall not, and shall not permit any of its subsidiaries
to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of DWD to
its parent, or by a subsidiary that is partially owned by DWD or any of its
subsidiaries, provided that DWD or any such subsidiary receives or is to
receive its proportionate share thereof, and other than the regular
quarterly cash dividends of $.14 per share with respect to the DWD Common
Stock, (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of DWD Common Stock or
SPS Common Stock upon the exercise of DWD Employee Stock Options
outstanding as of the date hereof in accordance with their present terms or
issued pursuant to Section 4.01(b)(ii) or (z) except pursuant to agreements
entered into with respect to the DWD Stock Plans as of the close of
business on January 31, 1997, purchase, redeem or otherwise acquire any
shares of capital stock of DWD or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities (other than
(x) the issuance of DWD Common Stock or SPS Common Stock upon the exercise
of DWD Employee Stock Options outstanding as of the date hereof in
accordance with their present terms or, after consulting with MS, granted
after the date hereof in the ordinary course of business consistent with
past practice for new employees (so long as such additional amount of DWD
Common Stock or SPS Common Stock subject to DWD Employee Stock Options
issued to new employees does not exceed 565,000 shares of DWD Common Stock
and SPS Common Stock in the aggregate), (y) in accordance with the DWD
Rights Agreement or (z) the issuance of DWD Common Stock pursuant to the
DWD Stock Option Agreement);
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
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(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any person, except for such acquisitions made in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent
with past practice;
(vi) take any action that would cause the representations and warranties
set forth in Section 3.02(g) (with each reference therein to "ordinary
course of business" being deemed for purposes of this Section 4.01(b)(vi)
to be immediately followed by "consistent with past practice") to no longer
be true and correct; or
(vii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.01(b) (other than
clause (iii)) shall not apply to any transaction between DWD and any wholly
owned subsidiary or between any wholly owned subsidiaries of DWD.
(c) Coordination of Dividends. Each of DWD and MS shall coordinate with the
other regarding the declaration and payment of dividends in respect of the DWD
Common Stock and the MS Common Stock and the record dates and payment dates
relating thereto, it being the intention of DWD and MS that any holder of MS
Common Stock shall not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to its shares of MS Common Stock
and/or any shares of DWD Common Stock any such holder receives in exchange
therefor pursuant to the Merger.
(d) Other Actions. Except as required by law, MS and DWD shall not, and
shall not permit any of their respective subsidiaries to, voluntarily take any
action that would, or that could reasonably be expected to, result in (i) any
of the representations and warranties of such party set forth in this
Agreement or the Option Agreements that are qualified as to materiality
becoming untrue at the Effective Time, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect
at the Effective Time, or (iii) any of the conditions to the Merger set forth
in Article VI not being satisfied.
(e) Advice of Changes. MS and DWD shall promptly advise the other party
orally and in writing to the extent it has knowledge of (i) any representation
or warranty made by it contained in this Agreement or the Option Agreements
that is qualified as to materiality becoming untrue or inaccurate in any
respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii) the failure by it
to comply in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or the Option Agreements and (iii) any change or event having,
or which, insofar as can reasonably be foreseen, could reasonably be expected
to have a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions set
forth in Article VI to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement or the Option
Agreements.
SECTION 4.02. No Solicitation by MS. (a) MS shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed to facilitate, any inquiries or the making of any
proposal which constitutes any MS Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any MS Takeover
Proposal; provided, however, that if, at any time during the 20 business days
prior to the publicly announced date of the MS Stockholders Meeting (as
defined in Section 5.01(b)) (the "MS Applicable Period"), the Board of
Directors of MS determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to MS's stockholders under applicable law, MS may, in
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response to a MS Superior Proposal (as defined in Section 4.02(b)) which was
not solicited by it or which did not otherwise result from a breach of this
Section 4.02(a), and subject to providing prior written notice of its decision
to take such action to DWD (the "MS Notice") and compliance with Section
4.02(c), for a period of five business days following delivery of the MS
Notice (x) furnish information with respect to MS and its subsidiaries to any
person making an MS Superior Proposal pursuant to a customary confidentiality
agreement (as determined by MS after consultation with its outside counsel)
and (y) participate in discussions or negotiations regarding such MS Superior
Proposal. For purposes of this Agreement, "MS Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of MS and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of MS or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of MS or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving MS or any of its subsidiaries, other than the
transactions contemplated by this Agreement. MS shall be permitted to deliver
only one MS Notice with respect to each person making a MS Superior Proposal.
(b) Except as expressly permitted by this Section 4.02, neither the Board of
Directors of MS nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to DWD, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any MS Takeover Proposal, or (iii) cause MS to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "MS Acquisition Agreement") related to any MS
Takeover Proposal. Notwithstanding the foregoing, in the event that during the
MS Applicable Period the Board of Directors of MS determines in good faith
that there is a substantial probability that the adoption of this Agreement by
holders of MS Common Stock will not be obtained due to the existence of a MS
Superior Proposal, the Board of Directors of MS may (subject to this and the
following sentences) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause MS to enter into any MS Acquisition
Agreement with respect to any MS Superior Proposal), but only at a time that
is during the MS Applicable Period and is after the fifth business day
following DWD's receipt of written notice advising DWD that the Board of
Directors of MS is prepared to accept a MS Superior Proposal, specifying the
material terms and conditions of such MS Superior Proposal and identifying the
person making such MS Superior Proposal. For purposes of this Agreement, a "MS
Superior Proposal" means any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the shares of
MS Common Stock then outstanding or all or substantially all the assets of MS
and otherwise on terms which the Board of Directors of MS determines in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to MS's stockholders than the
Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of MS, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of MS set forth in paragraphs (a) and (b)
of this Section 4.02, MS shall immediately advise DWD orally and in writing of
any request for information or of any MS Takeover Proposal, the material terms
and conditions of such request or MS Takeover Proposal and the identity of the
person making such request or MS Takeover Proposal. MS will keep DWD
reasonably informed of the status and details (including amendments or
proposed amendments) of any such request or MS Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit MS from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to MS's
stockholders if, in the good faith judgment of the Board of Directors of MS,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however,
that neither MS nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or recommend, or
propose publicly to approve or recommend, a MS Takeover Proposal.
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SECTION 4.03. No Solicitation by DWD. (a) DWD shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed to facilitate, any inquiries or the making of any
proposal which constitutes any DWD Takeover Proposal (as defined below) or
(ii) participate in any discussions or negotiations regarding any DWD Takeover
Proposal; provided, however, that if, at any time during the 20 business days
prior to the publicly announced date of the DWD Stockholders Meeting (as
defined in Section 5.01(c)) (the "DWD Applicable Period"), the Board of
Directors of DWD determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to DWD's stockholders under applicable law, DWD may, in response to a
DWD Superior Proposal (as defined in Section 4.03(b)) which was not solicited
by it or which did not otherwise result from a breach of this Section 4.03(a),
and subject to providing prior written notice of its decision to take such
action to MS (the "DWD Notice") and compliance with Section 4.03(c), for a
period of five business days following delivery of the DWD Notice (x) furnish
information with respect to DWD and its subsidiaries to any person making a
DWD Superior Proposal pursuant to a customary confidentiality agreement (as
determined by DWD after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such DWD Superior
Proposal. For purposes of this Agreement, "DWD Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of DWD and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of DWD or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of DWD or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving DWD or any of its subsidiaries, other than the
transactions contemplated by this Agreement. DWD shall be permitted to deliver
only one DWD Notice with respect to each person making a DWD Superior
Proposal.
(b) Except as expressly permitted by this Section 4.03, neither the Board of
Directors of DWD nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to MS, the
approval or recommendation by such Board of Directors or such committee of the
Merger, this Agreement or the issuance of DWD Common Stock and DWD Preferred
Stock in connection with the Merger, (ii) approve or recommend, or propose
publicly to approve or recommend, any DWD Takeover Proposal, or (iii) cause
DWD to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement (each, a "DWD Acquisition Agreement")
related to any DWD Takeover Proposal. Notwithstanding the foregoing, in the
event that during the MS Applicable Period the Board of Directors of DWD
determines in good faith that there is a substantial probability that the
adoption of this Agreement by holders of DWD Common Stock will not be obtained
due to the existence of a DWD Superior Proposal, the Board of Directors of DWD
may (subject to this and the following sentences) terminate this Agreement
(and concurrently with or after such termination, if it so chooses, cause DWD
to enter into any DWD Acquisition Agreement with respect to any DWD Superior
Proposal), but only at a time that is during the MS Applicable Period and is
after the fifth business day following MS's receipt of written notice advising
MS that the Board of Directors of DWD is prepared to accept a DWD Superior
Proposal, specifying the material terms and conditions of such DWD Superior
Proposal and identifying the person making such DWD Superior Proposal. For
purposes of this Agreement, a "DWD Superior Proposal" means any proposal made
by a third party to acquire, directly or indirectly, including pursuant to a
tender offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of DWD Common Stock then outstanding or
all or substantially all the assets of DWD and otherwise on terms which the
Board of Directors of DWD determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be more
favorable to DWD's stockholders than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith judgment of
the Board of Directors of DWD, is reasonably capable of being obtained by such
third party.
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(c) In addition to the obligations of DWD set forth in paragraphs (a) and
(b) of this Section 4.03, DWD shall immediately advise MS orally and in
writing of any request for information or of any DWD Takeover Proposal, the
material terms and conditions of such request or DWD Takeover Proposal and the
identity of the person making such request or DWD Takeover Proposal. DWD will
keep MS reasonably informed of the status and details (including amendments or
proposed amendments) of any such request or DWD Takeover Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit DWD from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to DWD's
stockholders if, in the good faith judgment of the Board of Directors of DWD,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however,
that neither DWD nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement, the Merger, the issuance of DWD Common Stock
and DWD Preferred Stock in connection with the Merger, or approve or
recommend, or propose publicly to approve or recommend, a DWD Takeover
Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, MS and DWD shall prepare and file with the SEC the Joint Proxy
Statement and DWD shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of MS and DWD
shall use best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. MS will use all
best efforts to cause the Joint Proxy Statement to be mailed to MS's
stockholders, and DWD will use all best efforts to cause the Joint Proxy
Statement to be mailed to DWD's stockholders, in each case as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
DWD shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a general consent
to service of process) required to be taken under any applicable state
securities laws in connection with the issuance of DWD Common Stock and DWD
Preferred Stock in the Merger and MS shall furnish all information concerning
MS and the holders of MS Common Stock as may be reasonably requested in
connection with any such action. No filing of, or amendment or supplement to,
the Form S-4 or the Joint Proxy Statement will be made by DWD without
providing MS the opportunity to review and comment thereon. DWD will advise
MS, promptly after it receives notice thereof, of the time when the Form S-4
has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the DWD
Common Stock issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information. If at any time prior to the
Effective Time any information relating to MS or DWD, or any of their
respective affiliates, officers or directors, should be discovered by MS or
DWD which should be set forth in an amendment or supplement to any of the Form
S-4 or the Joint Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such
information shall promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be promptly filed
with the SEC and, to the extent required by law, disseminated to the
stockholders of MS and DWD.
(b) MS shall, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"MS Stockholders Meeting") for the purpose of obtaining the MS Stockholder
Approval and shall, through its Board of Directors, recommend to its
stockholders the approval and
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adoption of this Agreement, the Merger and the other transactions contemplated
hereby. Without limiting the generality of the foregoing but subject to its
rights to terminate this Agreement pursuant to Section 4.02(b), MS agrees that
its obligations pursuant to the first sentence of this Section 5.01(b) shall
not be affected by the commencement, public proposal, public disclosure or
communication to MS of any MS Takeover Proposal.
(c) DWD shall, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"DWD Stockholders Meeting") for the purpose of obtaining the DWD Stockholder
Approval and shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.03(b), DWD agrees that its obligations pursuant to the first
sentence of this Section 5.01(c) shall not be affected by the commencement,
public proposal, public disclosure or communication to DWD of any DWD Takeover
Proposal.
(d) DWD and MS will use best efforts to hold the MS Stockholders Meeting and
the DWD Stockholders Meeting on the same date and as soon as practicable after
the date hereof.
SECTION 5.02. Letters of MS's Accountants. (a) MS shall use best efforts to
cause to be delivered to DWD two letters from MS's independent accountants,
one dated a date within two business days before the date on which the Form S-
4 shall become effective and one dated a date within two business days before
the Closing Date, each addressed to DWD, in form and substance reasonably
satisfactory to DWD and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
(b) MS shall use best efforts to cause to be delivered to DWD a letter from
MS's independent accountants addressed to DWD and MS, dated as of the Closing
Date, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations.
SECTION 5.03. Letters of DWD's Accountants. (a) DWD shall use best efforts
to cause to be delivered to MS two letters from DWD's independent accountants,
one dated a date within two business days before the date on which the Form S-
4 shall become effective and one dated a date within two business days before
the Closing Date, each addressed to MS, in form and substance reasonably
satisfactory to MS and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
(b) DWD shall use best efforts to cause to be delivered to MS a letter from
DWD's independent accountants, addressed to MS and DWD, dated as of the
Closing Date, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations.
SECTION 5.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement dated August 22, 1995, as amended, between DWD and
MS (the "Confidentiality Agreement"), each of MS and DWD shall, and shall
cause each of its respective subsidiaries to, afford to the other party and to
the officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of MS and DWD shall, and shall cause each of its respective
subsidiaries to, furnish promptly to the other party (a) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws
and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. No review pursuant to
this Section 5.04 shall have an effect for the purpose of determining the
accuracy of any representation or warranty given by either party hereto to the
other party hereto. Each of MS and DWD will hold, and will cause its
respective officers, employees, accountants, counsel,
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financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement.
SECTION 5.05. Best Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and
filings and the taking of all steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals or waivers
from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Option Agreements or the consummation of the transactions contemplated by
this Agreement or the Option Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Option Agreements.
Nothing set forth in this Section 5.05(a) will limit or affect actions
permitted to be taken pursuant to Sections 4.02 and 4.03.
(b) In connection with and without limiting the foregoing, MS and DWD shall
(i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger, this
Agreement, the Option Agreements or any of the other transactions contemplated
by this Agreement or the Option Agreements and (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger,
this Agreement, the Option Agreements or any other transaction contemplated by
this Agreement or the Option Agreements, take all action necessary to ensure
that the Merger and the other transactions contemplated by this Agreement and
the Option Agreements may be consummated as promptly as practicable on the
terms contemplated by this Agreement and the Option Agreements and otherwise
to minimize the effect of such statute or regulation on the Merger and the
other transactions contemplated by this Agreement and the Option Agreements.
(c) The parties shall cooperate to assure that neither the Surviving
Corporation, any of its subsidiaries, nor any other person or group of
persons, will be required, as a result of the Merger, to register as a bank
holding company under the Bank Holding Company Act of 1956, as amended.
SECTION 5.06. Stock Options and Restricted Stock Units. (a) As soon as
practicable following the date of this Agreement, the Board of Directors of MS
(or, if appropriate, any committee administering the MS Stock Plans) shall
adopt such resolutions or take such other actions as may be required to effect
the following:
(i) adjust the terms of all outstanding MS Employee Stock Options granted
under MS Stock Plans, whether vested or unvested, as necessary to provide
that, at the Effective Time, each MS Employee Stock Option outstanding
immediately prior to the Effective Time shall be amended and converted into
an option to acquire, on the same terms and conditions as were applicable
under such MS Employee Stock Option, including vesting, the same number of
shares of DWD Common Stock as the holder of such MS Employee Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such MS Employee Stock Option in full immediately prior to the
Effective Time, at a price per share of DWD Common Stock equal to (A) the
aggregate exercise price for the shares of MS Common Stock otherwise
purchasable pursuant to such MS Employee Stock Option divided by (B) the
aggregate number of shares of DWD Common Stock deemed purchasable pursuant
to such MS Employee Stock Option (each, as so adjusted, an "Adjusted
Option");
(ii) adjust the terms of each restricted stock unit outstanding under the
MS 1988 EICP or the MS 1995 EICP, whether or not vested, to cause it to be
converted into a stock unit (a "Substitute Unit") that will entitle the
holder thereof to receive, and will represent an obligation of DWD to
deliver to such holder, upon the same terms and conditions as those
applicable to such restricted stock unit immediately prior to
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the Effective Time, the Merger Consideration. Any Substitute Units
resulting from the adjustments provided for in the preceding sentence which
have identical terms as to vesting and settlement and which would entitle
the holder to receive upon settlement a fractional share of DWD Common
Stock shall be aggregated, and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount in cash determined by multiplying the closing sale price of the DWD
Common Stock as reported on the NYSE Composite Transaction Tape (as
reported in The Wall Street Journal or, if not reported thereby, any other
authoritative source) on the Closing Date by the fraction of a share of DWD
Common Stock to which such holder would otherwise have been entitled; and
(iii) make such other changes to the MS Stock Plans as MS and DWD may
agree are appropriate to give effect to the Merger, including as provided
in Section 5.07.
(b) As soon as practicable after the Effective Time, DWD shall deliver to
the holders of MS Employee Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective MS Stock Plans and the
agreements evidencing the grants of such MS Employee Stock Options and that
such MS Employee Stock Options and agreements shall be assumed by DWD and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 5.06 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to DWD, together with the consideration therefor
and the federal withholding tax information, if any, required in accordance
with the related MS Stock Plan.
(d) Except as otherwise contemplated by this Section 5.06 and except to the
extent required under the respective terms of the MS Employee Stock Options,
all restrictions or limitations on transfer and vesting with respect to MS
Employee Stock Options awarded under the MS Stock Plans or any other plan,
program or arrangement of MS or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain
in full force and effect with respect to such options after giving effect to
the Merger and the assumption by DWD as set forth above.
SECTION 5.07. MS Stock Plans and Certain Employee Matters. (a) At the
Effective Time, by virtue of the Merger, the MS Stock Plans shall be assumed
by DWD, with the result that all obligations of MS under the MS Stock Plans,
including with respect to awards outstanding at the Effective Time under each
MS Stock Plan, shall be obligations of DWD following the Effective Time. Prior
to the Effective Time, DWD shall take all necessary actions (including, if
required to comply with Section 162(m) of the Code (and the regulations
thereunder) or applicable law or rule of the NYSE, obtaining the approval of
its stockholders at the DWD Stockholders Meeting) for the assumption of the MS
Stock Plans, including the reservation, issuance and listing of DWD Common
Stock in a number at least equal to (x) the number of shares of DWD Common
Stock that will be subject to Substitute Units and Adjusted Options and (y)
the product of the Exchange Ratio and the number of shares of MS Common Stock
available for future awards under the MS 1995 EICP and the MS 1993 Stock Plan
for Outside Directors immediately prior to the Effective Time. No later than
the Effective Time, DWD shall prepare and file with the SEC a registration
statement on Form S-8 (or another appropriate form) registering a number of
shares of DWD Common Stock determined in accordance with the preceding
sentence. Such registration statement shall be kept effective (and the current
status of the prospectus or prospectuses required thereby shall be maintained)
at least for so long as Substitute Units or Adjusted Options or any unsettled
awards granted under the MS Stock Plans after the Effective Time remain
outstanding.
(b) Prior to the Effective Time, MS and DWD shall amend the terms of (i) the
grantor trust established pursuant to the Trust Agreement, dated as of March
5, 1991, between MS and State Street Bank and Trust Company and (ii) the
grantor trust established pursuant to the Trust Agreement, dated as of April
1, 1994 between MS and State Street Trust Bank and Trust Company, in each case
as amended (collectively, the "MS Rabbi Trusts") to provide that (x) at the
Effective Time, DWD shall be substituted for MS as the "grantor" (within the
meaning of the Code) of each Rabbi Trust and (y) in the event that DWD or a
material subsidiary of
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DWD becomes "insolvent" (within the meaning of the Rabbi Trusts) following the
Effective Time, the assets of each such Rabbi Trust shall be available to
satisfy the claims of the general creditors of DWD or such material
subsidiary, on the same terms and conditions that such assets would be
available to satisfy the claims of general creditors or MS or any material
subsidiary of MS in the event of insolvency.
(c) At the Effective Time, by virtue of the Merger, the MS and Subsidiaries
Amended and Restated Employee Stock Ownership Plan (the "MS ESOP") shall be
assumed by DWD, with the result that all obligations of MS under the MS ESOP
shall be obligations of DWD following the Effective Time. Prior to the
Effective Time, MS shall to the extent necessary amend the ESOP and the trust
agreement relating thereto to permit the ESOP to hold DWD ESOP Preferred Stock
following the Effective Time.
(d) Following the Effective Time, DWD, as the Surviving Corporation in the
Merger, will honor all obligations under employment agreements of MS or DWD
the existence of which does not constitute a violation of this Agreement in
accordance with the terms thereof.
SECTION 5.08. Indemnification, Exculpation and Insurance. (a) DWD agrees
that all rights to indemnification and exculpation from liabilities for acts
or omissions occurring at or prior to the Effective Time now existing in favor
of the current or former directors or officers of MS and its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of MS,
the existence of which does not constitute a breach of this Agreement, shall
be assumed by DWD, as the Surviving Corporation in the Merger, without further
action, as of the Effective Time and shall survive the Merger and shall
continue in full force and effect in accordance with their terms. In addition,
from and after the Effective Time, directors and officers of MS who become
directors or officers of DWD will be entitled to the same indemnity rights and
protections as are afforded to other directors and officers of DWD.
(b) In the event that DWD or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of DWD assume the obligations set forth in this
Section 5.08.
(c) For six years after the Effective Time, DWD shall maintain in effect
MS's current directors' and officers' liability insurance covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who are currently covered by MS's directors' and officers' liability insurance
policy on terms with respect to such coverage and amount no less favorable
than those of such policy in effect on the date hereof.
(d) The provisions of this Section 5.08 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.09. Fees and Expenses. (a) Except as provided in this Section
5.09, all fees and expenses incurred in connection with the Merger, this
Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that each
of DWD and MS shall bear and pay one-half of the costs and expenses incurred
in connection with (1) the filing, printing and mailing of the Form S-4 and
the Joint Proxy Statement (including SEC filing fees) and (2) the filings of
the premerger notification and report forms under the HSR Act (including
filing fees). DWD shall file any return with respect to, and shall pay, any
state or local taxes (including any penalties or interest with respect
thereto), if any, which are attributable to the transfer of the beneficial
ownership of MS's real property (collectively, the "Real Estate Transfer
Taxes") as a result of the Merger. MS shall cooperate with DWD in the filing
of such returns including, in the case of MS, supplying in a timely manner a
complete list of all real property interests held by MS and any information
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with respect to such property that is reasonably necessary to complete such
returns. The fair market value of any real property of MS subject to the Real
Estate Transfer Taxes shall be as agreed to between DWD and MS.
(b) In the event that (i) a MS Takeover Proposal shall have been made known
to MS or any of its subsidiaries or has been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a MS Takeover Proposal and thereafter this Agreement
is terminated by either DWD or MS pursuant to Section 7.01(b)(i) or (ii) or
(ii) this Agreement is terminated (x) by MS pursuant to Section 7.01(g) or (y)
by DWD pursuant to Section 7.01(e), then MS shall promptly, but in no event
later than two days after the date of such termination, pay DWD a fee equal to
$250 million (the "Termination Fee"), payable by wire transfer of same day
funds; provided, however, that no Termination Fee shall be payable to DWD
pursuant to clause (i) of this paragraph (b) or pursuant to a termination by
DWD pursuant to Section 7.01(e) unless and until within 18 months of such
termination MS or any of its subsidiaries enters into any MS Acquisition
Agreement or consummates any MS Takeover Proposal (for the purposes of the
foregoing proviso the terms "MS Acquisition Agreement" and "MS Takeover
Proposal" shall have the meanings assigned to such terms in Section 4.02
except that the references to "15%" in the definition of "MS Takeover
Proposal" in Section 4.02(a) shall be deemed to be references to "35%" and "MS
Takeover Proposal" shall only be deemed to refer to a transaction involving
MS, or with respect to assets (including the shares of any subsidiary), MS and
its subsidiaries, taken as a whole, and not any of its subsidiaries alone), in
which event the Termination Fee shall be payable upon the first to occur of
such events. MS acknowledges that the agreements contained in this Section
5.09(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, DWD would not enter into this
Agreement; accordingly, if MS fails promptly to pay the amount due pursuant to
this Section 5.09(b), and, in order to obtain such payment, DWD commences a
suit which results in a judgment against MS for the fee set forth in this
Section 5.09(b), MS shall pay to DWD its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
(c) In the event that (i) a DWD Takeover Proposal shall have been made known
to DWD or any of its subsidiaries or has been made directly to its
stockholders generally or any person shall have publicly announced an
intention (whether or not conditional) to make a DWD Takeover Proposal and
thereafter this Agreement is terminated by either DWD or MS pursuant to
Section 7.01(b)(i) or (iii) or (ii) this Agreement is terminated (x) by DWD
pursuant to Section 7.01(d) or (y) by MS pursuant to Section 7.01(h), then DWD
shall promptly, but in no event later than two days after the date of such
termination, pay MS the Termination Fee, payable by wire transfer of same day
funds; provided, however, that no Termination Fee shall be payable to MS
pursuant to clause (i) of this paragraph (c) or pursuant to a termination by
MS pursuant to Section 7.01(h) unless and until within 18 months of such
termination DWD or any of its subsidiaries enters into any DWD Acquisition
Agreement or consummates any DWD Takeover Proposal (for the purposes of the
foregoing proviso the terms "DWD Acquisition Agreement" and "DWD Takeover
Proposal" shall have the meanings assigned to such terms in Section 4.03
except that the references to "15%" in the definition of "DWD Takeover
Proposal" in Section 4.03(a) shall be deemed to be references to "35%" and
"DWD Takeover Proposal" shall only be deemed to refer to a transaction
involving DWD, or with respect to assets (including the shares of any
subsidiary), DWD and its subsidiaries, taken as a whole, and not any of its
subsidiaries alone), in which event the Termination Fee shall be payable upon
the first to occur of such events. DWD acknowledges that the agreements
contained in this Section 5.09(c) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, MS would
not enter into this Agreement; accordingly, if DWD fails promptly to pay the
amount due pursuant to this Section 5.09(c), and, in order to obtain such
payment, MS commences a suit which results in a judgment against DWD for the
fee set forth in this Section 5.09(c), DWD shall pay to MS its costs and
expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
SECTION 5.10. Public Announcements. DWD and MS will consult with each other
before issuing, and provide each other the opportunity to review, comment upon
and concur with, any press release or other public
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statements with respect to the transactions contemplated by this Agreement,
including the Merger, and the Option Agreements, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement and the
Option Agreements shall be in the form heretofore agreed to by the parties.
SECTION 5.11. Affiliates. As soon as practicable after the date hereof, MS
shall deliver to DWD a letter identifying all persons who are, at the time
this Agreement is submitted for adoption by the stockholders of MS,
"affiliates" of MS for purposes of Rule 145 under the Securities Act or for
purposes of qualifying the Merger for pooling of interests accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations. MS shall use best efforts to cause each such person
to deliver to DWD as of the Closing Date, a written agreement substantially in
the form attached as Exhibit C hereto. DWD shall use best efforts to cause all
persons who are "affiliates" of DWD for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations to comply with the
fourth paragraph of Exhibit C hereto.
SECTION 5.12. NYSE Listing. DWD shall use best efforts to cause the DWD
Listed Securities to be approved for listing on the NYSE, subject to official
notice of issuance, as promptly as practicable after the date hereof, and in
any event prior to the Closing Date. MS shall use best efforts to cause the
shares of MS Common Stock to be issued pursuant to the MS Stock Option
Agreement to be approved for listing on the NYSE, subject to official notice
of issuance, as promptly as practicable after the date hereof, and in any
event prior to the Closing Date.
SECTION 5.13. Stockholder Litigation. Each of MS and DWD shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against MS or DWD, as applicable, and its directors
relating to the transactions contemplated by this Agreement and the Option
Agreements.
SECTION 5.14. Tax Treatment. Each of DWD and MS shall use best efforts to
cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.02(c) and 6.03(c).
SECTION 5.15. Pooling of Interests. Each of MS and DWD shall use best
efforts to cause the transactions contemplated by this Agreement, including
the Merger, and the Option Agreements to be accounted for as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations, and such accounting treatment to be accepted by
each of MS's and DWD's independent certified public accountants, and by the
SEC, respectively, and each of MS and DWD agrees that it shall voluntarily
take no action that would cause such accounting treatment not to be obtained.
SECTION 5.16. DWD Rights Agreement. The Board of Directors of DWD shall take
all further action (in addition to that referred to in Section 3.02(r))
reasonably requested in writing by MS in order to render the DWD Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements to the extent provided herein and in the
DWD Rights Plan Amendment. Except as provided above with respect to the Merger
and the other transactions contemplated by this Agreement and the Option
Agreements, the Board of Directors of DWD shall not, without the consent of MS
(a) amend the DWD Rights Agreement or (b) take any action with respect to, or
make any determination under, the DWD Rights Agreement, including a redemption
of the DWD Rights or any action to facilitate a DWD Takeover Proposal.
SECTION 5.17. DWD Preferred Stock. Prior to the Effective Time, the Board of
Directors of DWD shall take all necessary action to establish the terms of the
DWD Preferred Stock as contemplated by this Agreement and file the
Certificates of Designations with the Delaware Secretary of State, all in
accordance with the applicable provisions of the DGCL. The Certificates of
Designations shall in all respects be identical to the
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existing certificates of designations for the MS Preferred Stock except (a) as
set forth in Sections 2.01(c)(i) and 2.01(d), and (b) that the Certificates of
Designations shall state that DWD's obligations to pay dividends thereunder,
if any, shall commence on the first dividend payment date that occurs
following the Effective Time.
SECTION 5.18. Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, neither MS
nor DWD shall terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
subsidiaries is a party. During such period, MS or DWD, as the case may be,
shall enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreement, including by obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States of America or of any
state having jurisdiction.
SECTION 5.19. Compliance with 1940 Act Section 15. (a) No Unfair Burden,
Etc. MS and DWD acknowledge that each of MS and DWD has entered into this
Agreement in reliance upon the benefits and protections provided by Section
15(f) of the 1940 Act. Each of MS and DWD shall not take, and each of them
shall cause its affiliates not to take, any action not contemplated by this
Agreement that would have the effect, directly or indirectly, of causing the
requirements of any of the provisions of Section 15(f) of the 1940 Act not to
be met in respect of this Agreement and the transactions contemplated hereby,
and each of them shall not fail to take, and each of them shall cause its
affiliates not to fail to take, and after the Closing Date shall not cause the
Surviving Corporation to fail to take any action if the failure to take such
action would have the effect, directly or indirectly, of causing the
requirements of any of the provisions of Section 15(f) of the 1940 Act not to
be met in respect of this Agreement and the transactions contemplated hereby.
In that regard, each of MS and DWD shall conduct its business and shall,
subject to applicable fiduciary duties, use its reasonable best efforts to
cause each of its affiliates to conduct its business so as to assure that,
insofar as within the control of MS and DWD or their respective affiliates:
(i) for a period of three years after the Closing Date, at least 75% of
the members of the Board of Directors or trustees of each fund that is
registered under the 1940 Act, and that continues after the Closing Date
its existing or a replacement investment advisory contract with any of MS
and DWD or any affiliate of MS and DWD, are not (A) "interested persons" of
the investment manager of such Fund after the Closing Date, or (B)
"interested persons" of the present investment manager of such fund;
(ii) until October 31, 1998, the investment advisory fee paid by any fund
that was advised or sub-advised by Van Kampen American Capital or its
affiliates prior to October 31, 1996 and that is registered under the 1940
Act shall not be increased, nor shall any waiver in effect on October 31,
1996 of any portion of such an investment advisory fee be allowed to expire
except in accordance with the terms of such waiver and except, in each
case, (x) pursuant to an exemptive order naming such funds as parties
issued by the Commission, subject in each case to each of the conditions
set forth in such exemptive order having been satisfied in the reasonable
judgment of The Clayton & Dubilier Private Equity Fund IV Limited
Partnership, or (y) with the prior written consent of The Clayton &
Dubilier Private Equity Fund IV Limited Partnership; and
(iii) for a period of two years after the Closing Date, there shall not
be imposed on any of the funds or sub-advisory funds that is registered
under the 1940 Act an "unfair burden" as a result of the transactions
contemplated by this Agreement, or any terms, conditions or understandings
applicable thereto.
(b) Certain Terms. The terms and quotations in this Section 5.19 shall have
the meanings set forth in Section 15(f) or Section 2(a)(19) of the 1940 Act.
(c) No Assignment of Investment Advisory Contracts. Until October 31, 1999,
none of MS, DWD, the Surviving Corporation, nor any of their respective
affiliates will voluntarily engage in any transaction which would constitute
an assignment of any investment advisory contract with any fund that is
registered under the 1940 Act and was managed by Van Kampen American Capital
or its affiliates prior to October 31, 1996 to which
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MS, DWD, the Surviving Corporation or any such affiliate is a party without
first obtaining a covenant in all material respects the same as that contained
in this Section 5.19.
SECTION 5.20. Consent Procedure. In connection with obtaining consents from
investment advisory clients, each of MS and DWD shall (i) keep the other party
informed of the status of obtaining consents, (ii) facilitate the other
party's communication with clients regarded consents, (iii) provide to the
other party draft proxy statements and (iv) to the extent applicable, deliver
to the other party prior to the Closing copies of all executed client consents
and make available for inspection the originals of such consent prior to the
Closing.
SECTION 5.21. MS Capital Units, Etc. DWD agrees that, at the Effective Time,
it will expressly assume the obligations of MS under the agreements relating
to the MS Capital Units and certain other indentures, guarantees and other
securities in accordance with the requirements of such agreements, indentures,
guarantees and other securities.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. Each of the MS Stockholder Approval and the
DWD Stockholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger (ii) prohibiting or limiting the ownership or operation by MS or DWD
and their respective subsidiaries of any material portion of the business
or assets of MS or DWD and their respective subsidiaries taken as a whole,
or compelling MS or DWD and their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of MS or DWD
and their respective subsidiaries taken as a whole, as a result of the
Merger or any of the other transactions contemplated by this Agreement or
the Option Agreements or (iii) which otherwise is reasonably likely to have
a material adverse effect on MS or DWD, as applicable; provided, however,
that each of the parties shall have used its best efforts to prevent the
entry of any such Restraints and to appeal as promptly as possible any such
Restraints that may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) NYSE Listing. The shares of DWD Listed Securities issuable to MS's
stockholders as contemplated by this Agreement shall have been approved for
listing on the NYSE, subject to official notice of issuance.
(f) Pooling Letters. DWD and MS shall have received letters from each of
MS's independent accountants and DWD's independent accountants, dated as of
the Closing Date, in each case addressed to DWD and MS, stating in
substance that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
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SECTION 6.02. Conditions to Obligations of DWD. The obligation of DWD to
effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
MS set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not
have, and is not likely to have, individually or in the aggregate, a
material adverse effect on MS.
(b) Performance of Obligations of MS. MS shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) Tax Opinions. DWD shall have received from Cravath, Swaine & Moore,
counsel to DWD, on a date immediately prior to the mailing of the Joint
Proxy Statement and on the Closing Date, opinions, in each case dated as of
such respective dates and stating that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that DWD and MS will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and that no
gain or loss will be recognized by the stockholders of MS upon their
exchange of MS stock for DWD stock under Section 354 of the Code (except to
the extent such a stockholder receives cash in lieu of fractional shares
and to the extent of a payment of transfer taxes made on behalf of such
stockholder, if any). In rendering such opinions, counsel for DWD shall be
entitled to rely upon representations of officers of DWD, MS and
stockholders of MS substantially in the form of Exhibits D and E hereto.
(d) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to MS; provided that this condition shall no longer be applicable
following the DWD Stockholder Approval.
SECTION 6.03. Conditions to Obligations of MS. The obligation of MS to
effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
DWD set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not
have, and is not likely to have, individually or in the aggregate, a
material adverse effect on DWD.
(b) Performance of Obligations of DWD. DWD shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) Tax Opinions. MS shall have received from Davis Polk & Wardwell,
counsel to MS, on a date immediately prior to the mailing of the Joint
Proxy Statement and on the Closing Date, opinions, in each case dated as of
such respective dates and stating that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that DWD and MS will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and that no
gain or loss will be recognized by the stockholders of MS upon their
exchange of MS stock for DWD stock under Section 354 of the Code (except to
the extent such a stockholder receives cash in lieu of fractional shares
and to the extent of a payment of transfer taxes made on behalf of such
stockholder, if any). In rendering such opinions, counsel for MS shall be
entitled to rely upon representations of officers of DWD, MS and
stockholders of MS substantially in the form of Exhibits D and E hereto.
(d) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to DWD; provided that this condition shall no longer be applicable
following the MS Stockholder Approval.
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SECTION 6.04. Frustration of Closing Conditions. Neither DWD nor MS may rely
on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as
the case may be, to be satisfied if such failure was caused by such party's
failure to use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.05.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the MS Stockholder
Approval or the DWD Stockholder Approval:
(a) by mutual written consent of DWD and MS;
(b) by either DWD or MS:
(i) if the Merger shall not have been consummated by the later of
September 30, 1997 or such date as the Closing may have been extended
by either party pursuant to the proviso to Section 1.02; provided,
however, that the right to terminate this Agreement pursuant to this
Section 7.01(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the MS Stockholder Approval shall not have been obtained at a
MS Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the DWD Stockholder Approval shall not have been obtained at
a DWD Stockholders Meeting duly convened therefor or at any adjournment
or postponement thereof; or
(iv) if any Restraint having any of the effects set forth in Section
6.01(c) shall be in effect and shall have become final and
nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iv) shall have used best
efforts to prevent the entry of and to remove such Restraint;
(c) by DWD, if MS shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.02(a) or (b), and (B) is incapable of being cured by MS;
(d) by DWD in accordance with Section 4.03(b); provided that, in order
for the termination of this Agreement pursuant to this paragraph (d) to be
deemed effective, DWD shall have complied with all provisions contained in
Section 4.03, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of Section
5.09;
(e) by DWD, if MS or any of its directors or officers shall participate
in discussions or negotiations in breach of Section 4.02;
(f) by MS, if DWD shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.03(a) or (b), and (B) is incapable of being cured by DWD;
(g) by MS in accordance with Section 4.02(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (g) to be
deemed effective, MS shall have complied with all provisions of Section
4.02, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of Section
5.09; or
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<PAGE>
(h) by MS, if DWD or any of its directors or officers shall participate
in discussions or negotiations in breach of Section 4.03.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either MS or DWD as provided in Section 7.01, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of DWD or MS, other than the provisions of Section
3.01(o), Section 3.02(o), the last sentence of Section 5.04, Section 5.09,
this Section 7.02 and Article VIII, which provisions survive such termination,
and except to the extent that such termination results from the willful and
material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after the MS Stockholder Approval or the DWD Stockholder
Approval; provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders
of MS or DWD without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 7.03, waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such
rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of DWD or
MS, action by its Board of Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to DWD, to
Dean Witter, Discover & Co.
Two World Trade Center
New York, New York 10048
Telecopy No.: (212) 392-8404
Attention: Christine A. Edwards
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with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: Allen Finkelson
Robert A. Kindler; and
(b) if to MS, to
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Telecopy No.: (212) 761-8815
Attention: Jonathan M. Clark
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Stephen R. Volk; and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy No.: (212) 450-4800
Attention: John R. Ettinger
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with MS or DWD, any change, effect, event, occurrence or
state of facts that is, or would reasonably be expected to be, materially
adverse to the business or financial condition of such party and its
subsidiaries taken as a whole other than any change, effect, event or
occurrence relating to (i) the United States economy or securities markets
in general, (ii) this Agreement or the transactions contemplated hereby or
the announcement thereof, (iii) the failure to obtain applicable regulatory
or other third party consents that may be required in connection with this
Agreement or the transactions contemplated hereby or (iv) the financial
services industry in general, and not specifically relating to MS or DWD or
their respective subsidiaries, and the terms "material" and "materially"
have correlative meanings;
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(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; provided that "subsidiary" shall not
include (x) with respect to MS, any MS Fund or any person in which a MS
Fund holds an ownership interest and (y) with respect to DWD, any DWD Fund
or any person in which a DWD Fund holds an ownership interest; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry.
SECTION 8.04. Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement. All terms
defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), the Option
Agreements and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Article II, Section 5.06 and
Section 5.08, are not intended to confer upon any person other than the
parties any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by either of the parties hereto
without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
two sentences, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns.
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SECTION 8.09. Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court sitting
in the State of Delaware or a Delaware state court.
SECTION 8.10. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent
possible.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. and Morgan Stanley Group
Inc. have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
DEAN WITTER, DISCOVER & CO.,
/s/ Philip J. Purcell
By __________________________________
Name: Philip J. Purcell
Title: Chairman and Chief Executive
Officer
MORGAN STANLEY GROUP INC.,
/s/ Richard B. Fisher
By __________________________________
Name: Richard B. Fisher
Title: Chairman
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<PAGE>
EXHIBIT A-1
TO THE MERGER AGREEMENT
CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION
As of the Effective Time, the Certificate of Incorporation of the Surviving
Corporation shall be amended by deleting Articles 1 through 13 thereof in
their entirety and replacing them with the following:
"ARTICLE I
NAME
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Morgan Stanley, Dean Witter, Discover & Co.
ARTICLE II
ADDRESS
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
CAPITALIZATION
The total number of shares of stock which the Corporation shall have
authority to issue is one billion seven hundred and eighty million
(1,780,000,000), consisting of thirty million (30,000,000) shares of Preferred
Stock, par value $0.01 per share (hereinafter referred to as "Preferred
Stock"), and one billion seven hundred and fifty million (1,750,000,000)
shares of Common Stock, par value $0.01 per share (hereinafter referred to as
"Common Stock").
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to provide for the issuance of
shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing number,
letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) The amounts payable on, and the preferences, if any, of shares of the
series in respect of dividends, and whether such dividends, if any, shall
be cumulative or noncumulative.
A-1-1
<PAGE>
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of the
series.
(6) The terms and amount of any sinking fund provided for the purchase or
redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other
security, of the Corporation or any other corporation, and, if so, the
specification of such other class or series of such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion
or exchange may be made.
(9) Restrictions on the issuance of shares of the same series or of any
other class or series.
(10) The voting rights, if any, of the holders of shares of the series.
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Except as may be provided in this Certificate of
Incorporation or in a Preferred Stock Designation or by applicable law, the
holders of shares of Common Stock shall be entitled to one vote for each such
share upon all questions presented to the stockholders, the Common Stock shall
have the exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled to
receive notice of any meeting of stockholders at which they are not entitled
to vote. The holders of the shares of Common Stock shall at all times, except
as otherwise provided in this Certificate of Incorporation or as required by
law, vote as one class, together with the holders of any other class or series
of stock of the Corporation accorded such general voting rights.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
BY-LAWS
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that the Bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by
the stockholders having voting power with respect thereto, provided further
that, in the case of amendments by stockholders, the affirmative vote of
the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be
required in order for the stockholders to alter, amend or repeal any
provision of the Bylaws or to adopt any additional Bylaw; and
(2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by applicable law.
The Corporation may in its Bylaws confer powers upon the Board of Directors
in addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
A-1-2
<PAGE>
ARTICLE VI
ACTION OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock or any
other series or class of stock as set forth in this Certificate of
Incorporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing in lieu of a meeting of such stockholders.
ARTICLE VII
BOARD OF DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock, or
any other series or class of stock as set forth in this Certificate of
Incorporation, to elect additional directors under specified circumstances,
the number of directors of the Corporation shall be fixed in such manner as
prescribed by the Bylaws of the Corporation and may be increased or decreased
from time to time in such manner as prescribed by the Bylaws.
Unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
The directors, other than those who may be elected by the holders of any
series of Preferred Stock or any other series or class of stock as set forth
in this Certificate of Incorporation, shall be divided into three classes,
initially consisting of 6, 4 and 4 directors. One class of directors initially
consisting of 4 directors shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 1998, another class initially
consisting of 4 directors shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 1999, and another class
initially consisting of 6 directors shall be initially elected for a term
expiring at the annual meeting of stockholders to be held in 2000. Members of
each class shall hold office until their successors are elected and qualified.
At each annual meeting of the stockholders of the Corporation commencing with
the 1998 annual meeting, directors elected to succeed those directors whose
terms then expire shall be elected by a plurality vote of all votes cast at
such meeting to hold office for a term expiring at the third succeeding annual
meeting of stockholders after their election, with each director to hold
office until his or her successor shall have been duly elected and qualified.
Subject to the rights of the holders of any series of Preferred Stock, or
any other series or class of stock as set forth in this Certificate of
Incorporation, to elect additional directors under specified circumstances,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Subject to the rights of the holders of any series of Preferred Stock, or
any other series or class of stock as set forth in this Certificate of
Incorporation, to elect additional directors under specified circumstances,
any director may be removed from office at any time, but only for cause and by
the affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class.
A-1-3
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Each person who is or was a director or officer of the Corporation shall be
indemnified by the Corporation to the fullest extent permitted from time to
time by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, if permitted by applicable law, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment) or any other
applicable laws as presently or hereafter in effect. The Corporation may, by
action of the Board of Directors, provide indemnification to employees and
agents (other than a director or officer) of the Corporation, to directors,
officers, employees or agents of a subsidiary, and to each person serving as a
director, officer, partner, member, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust or other
enterprise, at the request of the Corporation, with the same scope and effect
as the foregoing indemnification of directors and officers of the Corporation.
The Corporation shall be required to indemnify any person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors or is a proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by this Certificate of
Incorporation or otherwise by the Corporation. Without limiting the generality
or the effect of the foregoing, the Corporation may enter into one or more
agreements with any person which provide for indemnification greater or
different than that provided in this Article VIII. Any amendment or repeal of
this Article VIII shall not adversely affect any right or protection existing
hereunder in respect of any act or omission occurring prior to such amendment
or repeal.
ARTICLE IX
DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the General Corporation Law
of the State of Delaware, or (4) for any transaction from which the director
derived an improper personal benefit. Any amendment or repeal of this Article
IX shall not adversely affect any right or protection of a director of the
Corporation existing hereunder in respect of any act or omission occurring
prior to such amendment or repeal.
If the General Corporation Law of the State of Delaware shall be amended, to
authorize corporate action further eliminating or limiting the liability of
directors, then a director of the Corporation, in addition to the
circumstances in which he is not liable immediately prior to such amendment,
shall be free of liability to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
ARTICLE X
AMENDMENTS
Except as may be expressly provided in this Certificate of Incorporation,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of
A-1-4
<PAGE>
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Article X; provided, however, that any amendment
or repeal of Article VIII or Article IX of this Certificate of Incorporation
shall not adversely affect any right or protection existing thereunder in
respect of any act or omission occurring prior to such amendment or repeal,
and provided further that no Preferred Stock Designation shall be amended
after the issuance of any shares of the series of Preferred Stock created
thereby, except in accordance with the terms of such Preferred Stock
Designation and the requirements of applicable law.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, and in addition to approval by the Board of Directors, the
affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with paragraph
(1) of Article V, Article VI, Article VII or this second paragraph of this
Article X. For the purposes of this Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors."
Except as provided above, the Certificate of Incorporation of the Surviving
Corporation (including the certificates of designations thereof) shall remain
in full force and effect.
A-1-5
<PAGE>
EXHIBIT A-2
TO THE MERGER AGREEMENT
AMENDED AND RESTATED BY-LAWS OF THE SURVIVING CORPORATION
The DWD By-laws shall be amended and restated as of the Effective Time so
that they read in their entirety as follows:
AMENDED AND RESTATED
BYLAWS
OF
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE 1
OFFICES AND RECORDS
SECTION 1.01. Delaware Office. The principal office of the Corporation in
the State of Delaware shall be located in the City of Wilmington, County of
New Castle.
SECTION 1.02. Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
ARTICLE 2
STOCKHOLDERS
SECTION 2.01. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such date, place and time as may be fixed by
resolution of the Board of Directors.
SECTION 2.02. Special Meeting. Subject to the rights of the holders of any
series of preferred stock of the Corporation (the "Preferred Stock") or any
other series or class of stock as set forth in the Amended and Restated
Certificate of Incorporation, special meetings of the stockholders may be
called at any time only by the Secretary at the direction of the Board of
Directors pursuant to a resolution adopted by the Board of Directors.
SECTION 2.03. Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is
made by the Board of Directors, the place of meeting shall be the principal
office of the Corporation, which will be 1585 Broadway, New York, New York.
SECTION 2.04. Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and, in the case of special meetings, the
purpose or purposes for which such special meeting is called, shall be
prepared and delivered by the Corporation not less than ten days nor more than
sixty days before the date of the meeting, either personally, or by mail, to
each stockholder of record entitled to vote at such meeting. Such further
notice shall be given as may be required by law. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Any
previously scheduled meeting of the stockholders may be postponed, and (unless
the Amended and Restated Certificate of Incorporation otherwise provides) any
special meeting of the stockholders may be canceled, by resolution of the
Board of Directors upon public notice given prior to the time previously
scheduled for such meeting of stockholders.
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<PAGE>
SECTION 2.05. Quorum and Adjournment. Except as otherwise provided by law or
by the Amended and Restated Certificate of Incorporation, the holders of a
majority of the voting power of the outstanding shares of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders, except that when specified business is to be voted on by a class
or series voting as a class, the holders of a majority of the voting power of
the shares of such class or series shall constitute a quorum for the
transaction of such business. The Chairman of the Board or the holders of a
majority of the voting power of the shares of Voting Stock so represented may
adjourn the meeting from time to time, whether or not there is such a quorum
(or, in the case of specified business to be voted on by a class or series,
the Chairman of the Board or the holders of a majority of the voting power of
the shares of such class or series so represented may adjourn the meeting with
respect to such specified business). No notice of the time and place of
adjourned meetings need be given except as required by law. The stockholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
SECTION 2.06. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy as may be permitted by law; provided, that no proxy shall be
voted after three years from its date, unless the proxy provides for a longer
period. Any proxy to be used at a meeting of stockholders must be filed with
the Secretary of the Corporation or his representative at or before the time
of the meeting.
SECTION 2.07. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (A) pursuant to the
Corporation's notice of meeting delivered pursuant to Section 2.04 of these
Amended and Restated Bylaws, (B) by or at the direction of the Board of
Directors or (C) by any stockholder of the Corporation who is entitled to vote
at the meeting, who complied with the notice procedures set forth in clauses
(ii) and (iii) of this Section 2.07(a) and who was a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation.
(ii) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of paragraph (a) (i) of
this Bylaw, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation and, in the case of business other than
nominations, such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not less
than ninety days nor more than one hundred and twenty days prior to the first
anniversary of the preceding year's annual meeting; provided however, that
with respect to the annual meeting to be held in 1998, the anniversary date
shall be deemed to be April 2, 1998; provided further, that in the event that
the date of the annual meeting is advanced by more than thirty days, or
delayed by more than ninety days, from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the one hundred
and twentieth day prior to such annual meeting and not later than the close of
business on the later of the ninetieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. In no event shall the public announcement of an
adjournment or postponement of an annual meeting commence a new time period
for the giving of a stockholder's notice as described in this Section 2.07(a).
Such stockholder's notice shall set forth (A) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is other-wise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-
11 thereunder, including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (B) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf
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the proposal is made; and (C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(1) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (2) the class and number
of shares of the Corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of clause (ii) of this
Section 2.07(a) to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the
Corporation at least one hundred days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting pursuant to Section 2.04 of these Amended and Restated
Bylaws. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (i) by or at the direction of
the Board of Directors or (ii) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complies with the notice procedures set
forth in this Bylaw and who is a stockholder of record at the time such notice
is delivered to the Secretary of the Corporation. In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or
more directors to the Board of Directors, any such stockholder may nominate
such number of persons for election to such position(s) as are specified in
the Corporation's Notice of Meeting, if the stockholder's notice as required
by clause (ii) of Section 2.07(a) of these Amended and Restated Bylaws shall
be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the one hundred and twentieth day prior to such
special meeting and not later than the close of business on the later of the
ninetieth day prior to such special meeting or the tenth day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment or
postponement of a special meeting commence a new time period for the giving of
a stockholder's notice as described above.
(c) General
(i) Only persons who are nominated in accordance with the procedures set
forth in this Bylaw shall be eligible to be elected as directors at a meeting
of stockholders and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Bylaw. Except as otherwise provided by law,
the Amended and Restated Certificate of Incorporation or these Amended and
Restated Bylaws, the Chairman of the Board shall have the power and duty to
determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in this Bylaw
and, if any proposed nomination or business is not in compliance with this
Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(ii) For purposes of this Bylaw, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
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SECTION 2.08. Procedure For Election of Directors; Voting. The election of
directors submitted to stockholders at any meeting shall be decided by a
plurality of the votes cast thereon, except as otherwise set forth in the
Amended and Restated Certificate of Incorporation with respect to the right of
the holders of any series of Preferred Stock or any other series or class of
stock to elect additional directors under specified circumstances. Except as
otherwise provided by law, the Amended and Restated Certificate of
Incorporation or these Amended and Restated Bylaws, all matters other than the
election of directors submitted to the stockholders at any meeting shall be
decided by the affirmative vote of a majority of the voting power of the
shares present in person or represented by proxy at the meeting and entitled
to vote thereon, and where a separate vote by class is required, a majority of
the voting power of the shares of that class present in person or represented
by proxy at the meeting and entitled to vote thereon.
The vote on any matter, including the election of directors, shall be by
written ballot. Each ballot shall be signed by the stockholder voting, or by
such stockholder's proxy, and shall state the number of shares voted.
SECTION 2.09. Inspectors of Elections; Opening and Closing the Polls.
(a) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may not be directors, officers or
employees of the Corporation, to act at the meeting and make a written report
thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act, or if all inspectors or alternates who have been appointed
are unable to act, at a meeting of stockholders, the Chairman of the Board
shall appoint one or more inspectors to act at the meeting. Each inspector,
before discharging his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to
the best of his or her ability. The inspectors shall have the duties
prescribed by the General Corporation Law of the State of Delaware.
(b) The Chairman of the Board shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at the meeting.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Amended and Restated Bylaws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Amended and Restated Certificate of Incorporation or by these
Amended and Restated Bylaws required to be exercised or done by the
stockholders.
SECTION 3.02. Number, Tenure and Qualifications. Subject to Section 3.12 of
these Amended and Restated Bylaws and to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth
in the Amended and Restated Certificate of Incorporation, to elect directors
under specified circumstances, the number of directors shall be fixed from
time to time exclusively pursuant to a resolution adopted by the Board of
Directors, but shall consist of not less than three nor more than fourteen
directors. However, no decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. The
directors, other than those who may be elected by the holders of any series of
Preferred Stock, or any other series or class of stock as set forth in the
Amended and Restated Certificate of Incorporation, shall be divided into such
classes and hold office for such terms as set forth in, and may be removed
only in accordance with, the Amended and Restated Certificate of
Incorporation.
Each director shall be required to become a stockholder of the Corporation
within 60 days after the date such director is first elected to the Board of
Directors.
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SECTION 3.03. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at
the same place as, each annual meeting of stockholders. The Board of Directors
may, by resolution, provide the time and place for the holding of additional
regular meetings without other notice than such resolution. Unless otherwise
determined by the Board of Directors, the Secretary of the Corporation shall
act as secretary at all regular meetings of the Board of Directors and in the
Secretary's absence a temporary secretary shall be appointed by the chairman
of the meeting.
SECTION 3.04. Special Meetings. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board and the President,
acting together, or a majority of the Board of Directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place and time of the meetings. Unless otherwise determined by the Board
of Directors, the Secretary of the Corporation shall act as secretary at all
special meetings of the Board of Directors and in the Secretary's absence a
temporary secretary shall be appointed by the chairman of the meeting.
SECTION 3.05. Notice. Notice of any special meeting shall be mailed to each
director at his business or residence not later than three days before the day
on which such meeting is to be held or shall be sent to either of such places
by telegraph or facsimile or other electronic transmission, or be communicated
to each director personally or by telephone, not later than the day before
such day of meeting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice of such meeting, except for amendments to these Amended and
Restated Bylaws as provided pursuant to Section 8.01 hereof. A meeting may be
held at any time without notice if all the directors are present (except as
otherwise provided by law) or if those present waive notice of the meeting in
accordance with Section 6.04 hereof, either before or after such meeting.
SECTION 3.06. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written
consent is filed with the records of the proceedings of the Board or such
committee.
SECTION 3.07. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.08. Quorum. At all meetings of the Board of Directors or any
committee, a majority of the entire Board of Directors (as defined in Section
3.09(a)) or the entire committee (assuming no vacancies), as the case may be,
shall constitute a quorum for the transaction of business and the act of a
majority of the directors or members, as the case may be, present at any
meeting at which there is a quorum shall be the act of the Board of Directors
or such committee, as the case may be, except as otherwise provided in the
Delaware General Corporation Law, the Amended and Restated Certificate of
Incorporation or these Amended and Restated Bylaws. If a quorum shall not be
present at any meeting of the Board of Directors or any committee, a majority
of the directors or members, as the case may be, present thereat may adjourn
the meeting from time to time without further notice other than announcement
at the meeting. If permitted by applicable law, the directors or members, as
the case may be, present at a duly authorized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough directors
to leave less than a quorum.
SECTION 3.09. Committees. (a) The Corporation shall have four standing
committees: the executive committee, the nominating and directors committee,
the audit committee and the compensation committee. The executive committee
shall have those powers and authority as are delegated to it from time to time
pursuant to a resolution passed by a three-quarters vote of the total number
of directors specified in the resolution pursuant to Section 3.02 of these
Amended and Restated Bylaws which the Corporation would have if there were no
vacancies (the "entire Board of Directors").
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(b) The nominating and directors committee shall have the following
exclusive powers and authority: (i) evaluating and recommending director
candidates to the Board of Directors, (ii) assessing Board of Directors
performance not less frequently than every three years, (iii) recommending
director compensation and benefits philosophy for the Corporation, (iv)
reviewing individual director performance as issues arise and (v) periodically
reviewing the Corporation's corporate governance profile. None of the members
of the nominating and directors committee shall be a member of the executive
committee or an officer or full-time employee of the Corporation or of any
subsidiary or affiliate of the Corporation.
(c) The audit committee shall have the following powers and authority: (i)
employing independent public accountants to audit the books of account,
accounting procedures, and financial statements of the Corporation and to
perform such other duties from time to time as the audit committee may
prescribe, (ii) receiving the reports and comments of the Corporation's
internal auditors and of the independent public accountants employed by the
committee and to take such action with respect thereto as may seem
appropriate, (iii) requesting the Corporation's consolidated subsidiaries and
affiliated companies to employ independent public accountants to audit their
respective books of account, accounting procedures, and financial statements,
(iv) requesting the independent public accountants to furnish to the
compensation committee the certifications required under any present or future
stock option, incentive compensation or employee benefit plan of the
Corporation, (v) reviewing the adequacy of internal financial controls, (vi)
approving the accounting principles employed in financial reporting, (vii)
approving the appointment or removal of the Corporation's general auditor, and
(viii) reviewing the accounting principles employed in financial reporting.
None of the members of the audit committee shall be a member of the executive
committee or an officer or full-time employee of the Corporation or of any
subsidiary or affiliate of the Corporation.
(d) The compensation committee shall have the following powers and
authority: (i) determining and fixing the compensation for all senior officers
of the Corporation and those of its Subsidiaries (as defined in Section
6.07(f)) that the compensation committee shall from time to time consider
appropriate, as well as all employees of the Corporation and its Subsidiaries
compensated at a rate in excess of such amount per annum as may be fixed or
determined from time to time by the Board of Directors, (ii) performing the
duties of the committees of the Board of Directors provided for in any present
or future stock option, incentive compensation or employee benefit plan of the
Corporation or, if the compensation committee shall so determine, any such
plan of any Subsidiary and (iii) reviewing the operations of and policies
pertaining to any present or future stock option, incentive compensation or
employee benefit plan of the Corporation or any Subsidiary that the
compensation committee shall from time to time consider appropriate. None of
the members of the compensation committee shall be a member of the executive
committee or an officer or full-time employee of the Corporation or of any
subsidiary or affiliate of the Corporation.
(e) In addition, the Board of Directors may, by resolution passed by a
three-quarters vote of the entire Board of Directors, designate one or more
additional committees, with each such committee consisting of one or more
directors of the Corporation and having such powers and authority as the Board
of Directors shall designate by such resolutions.
(f) Any modification to the powers and authority of any committee shall
require the adoption of a resolution by a three-quarters vote of the entire
Board of Directors.
(g) All acts done by any committee within the scope of its powers and
authority pursuant to these Amended and Restated Bylaws and the resolutions
adopted by the Board of Directors in accordance with the terms hereof shall be
deemed to be, and may be certified as being, done or conferred under authority
of the Board of Directors. The Secretary or any Assistant Secretary is
empowered to certify that any resolution duly adopted by any such committee is
binding upon the Corporation and to execute and deliver such certifications
from time to time as may be necessary or proper to the conduct of the business
of the Corporation.
(h) Regular meetings of committees shall be held at such times as may be
determined by resolution of the Board of Directors or the committee in
question and no notice shall be required for any regular meeting other than
such resolution. A special meeting of any committee shall be called by
resolution of the Board of Directors, or by the Secretary or an Assistant
Secretary upon the request of the chairman or a majority of the members of
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any committee. Notice of special meetings shall be given to each member of the
committee in the same manner as that provided for in Section 3.05 of these
Amended and Restated Bylaws.
SECTION 3.10. Committee Members. (a) Each member of any committee of the
Board of Directors shall hold office until such member's successor is elected
and has qualified, unless such member sooner dies, resigns or is removed. The
number of directors which shall constitute any committee shall be determined
by resolution adopted by a three-quarters vote of the entire Board of
Directors.
(b) The Board of Directors may remove a director from a committee or change
the chairmanship of a committee only by resolution adopted by a three-quarters
vote of the entire Board of Directors.
(c) The Board of Directors may designate one or more directors as alternate
members of any committee to fill any vacancy on a committee and to fill a
vacant chairmanship of a committee, occurring as a result of a member or
chairman leaving the committee, whether through death, resignation, removal or
otherwise; provided, that any such designation may only be amended by a three-
quarters vote of the entire Board of Directors.
SECTION 3.11. Committee Secretary. The Board of Directors may elect a
secretary of any such committee. If the Board of Directors does not elect such
a secretary, the committee shall do so. The secretary of any committee need
not be a member of the committee, but shall be selected from a member of the
staff of the office of the Secretary of the Corporation, unless otherwise
provided by the Board of Directors or the committee, as applicable.
SECTION 3.12. Certain Modifications. Except as otherwise provided in the
Amended and Restated Certificate of Incorporation, any action by the Board of
Directors to change the number of directors comprising the Board or comprising
any class of directors to other than an even number of directors shall require
a three-quarters vote of the entire Board of Directors.
SECTION 3.13. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid
compensation as director or chairman of any committee and for attendance at
each meeting of the Board of Directors. Members of special or standing
committees may be allowed like compensation and payment of expenses for
attending committee meetings.
ARTICLE 4
OFFICERS
SECTION 4.01. General. The officers of the Corporation shall be elected by
the Board of Directors and shall consist of: a Chairman of the Board and Chief
Executive Officer; a President and Chief Operating Officer; a Chief Financial
Officer; a Chief Strategic and Administrative Officer; a Chief Legal Officer;
one or more Senior Executive Vice Presidents; one or more Executive Vice
Presidents; one or more Senior Vice Presidents; one or more First Vice
Presidents; one or more Vice Presidents; a Secretary; one or more Assistant
Secretaries; a Treasurer; one or more Assistant Treasurers; a Controller; and
such other officers as in the judgment of the Board of Directors may be
necessary or desirable. All officers chosen by the Board of Directors shall
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article 4. Such officers shall also
have powers and duties as from time to time may be conferred by the Board of
Directors or any committee thereof. Any number of offices may be held by the
same person, unless otherwise prohibited by law, the Amended and Restated
Certificate of Incorporation or these Amended and Restated Bylaws. The
officers of the Corporation need not be stockholders or directors of the
Corporation.
SECTION 4.02. Election and Term of Office. Subject to Section 4.08 of these
Amended and Restated Bylaws, the elected officers of the Corporation shall be
elected annually by the Board of Directors at the regular meeting of the Board
of Directors held after each annual meeting of the stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Subject to Section
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4.08 of these Amended and Restated Bylaws, each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or be removed.
SECTION 4.03. Chairman of the Board and Chief Executive Officer. The
Chairman of the Board shall be a member of the Board of Directors and shall be
an officer of the Corporation. The Chairman of the Board shall be the Chief
Executive Officer of the Corporation and shall supervise, coordinate and
manage the Corporation's business and activities and supervise, coordinate and
manage its operating expenses and capital allocation, shall have general
authority to exercise all the powers necessary for the Chief Executive Officer
of the Corporation and shall perform such other duties and have such other
powers as may be prescribed by the Board of Directors or these Amended and
Restated Bylaws, all in accordance with basic policies as established by and
subject to the oversight of the Board of Directors. The Chairman of the Board,
if present, shall preside at all meetings of the Board of Directors.
SECTION 4.04. President and Chief Operating Officer. The President and Chief
Operating Officer shall be a member of the Board of Directors and an officer
of the Corporation. The President and Chief Operating Officer shall supervise,
coordinate and manage the Corporation's business and activities and supervise,
coordinate and manage its operating expenses and capital allocation, shall
have general authority to exercise all the powers necessary for the President
and Chief Operating Officer of the Corporation and shall perform such other
duties and have such other powers as may be prescribed by the Board of
Directors or these Amended and Restated Bylaws, all in accordance with basic
policies as established by and subject to the oversight of the Board of
Directors and the Chairman and Chief Executive Officer. In the absence or
disability of the Chairman of the Board and Chief Executive Officer, the
duties of the Chairman of the Board shall be performed and the Chairman of the
Board's authority may be exercised by the President and Chief Operating
Officer, and in the event the President and Chief Operating Officer is absent
or disabled, such duties shall be performed and such authority may be
exercised by a director designated for this purpose by the Board of Directors.
SECTION 4.05. Chief Financial Officer. The Chief Financial Officer shall
have responsibility for the financial affairs of the Corporation and shall
exercise supervisory responsibility for the performance of the duties of the
Treasurer and the Controller. The Chief Financial Officer shall perform such
other duties and have such other powers as may be prescribed by the Board of
Directors or these Amended and Restated Bylaws, all in accordance with basic
policies as established by and subject to the oversight of the Board of
Directors, the Chairman and Chief Executive Officer and the President and
Chief Operating Officer.
SECTION 4.06. Chief Strategic and Administrative Officer. The Chief
Strategic and Administrative Officer shall have the responsibility for the
business strategy and strategic planning for the Corporation and shall have
the responsibility for making recommendations regarding the capital allocation
of the Corporation. The Chief Strategic and Administrative Officer shall
perform such other duties and have such other powers as may be prescribed by
the Board of Directors or these Amended and Restated Bylaws, all in accordance
with basic policies as established by and subject to the oversight of the
Board of Directors, the Chairman and Chief Executive Officer and the President
and Chief Operating Officer.
SECTION 4.07. Chief Legal Officer. The Chief Legal Officer shall have
responsibility for the legal affairs of the Corporation and for the
performance of the duties of the Secretary. The Chief Legal Officer shall
perform such other duties and have such other powers as may be prescribed by
the Board of Directors or these Amended and Restated Bylaws, all in accordance
with basic policies as established by and subject to the oversight of the
Board of Directors, the Chairman and Chief Executive Officer and the President
and Chief Operating Officer.
SECTION 4.08. Certain Actions. Notwithstanding anything to the contrary
contained in these Amended and Restated Bylaws, the removal of the current
Chairman and Chief Executive Officer or the current President and Chief
Operating Officer as of [date of the Effective Time], or any modification to
either of their respective roles, duties or authority shall require a three-
quarters vote of the entire Board of Directors.
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SECTION 4.09. Vacancies. A newly created office and a vacancy in any office
because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the terms at any meeting of the Board
of Directors.
ARTICLE 5
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.01. Stock Certificates and Transfers. (a) The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares
of stock in such form as the appropriate officers of the Corporation may from
time to time prescribe; provided that the Board of Directors may provide by
resolution or resolutions that all or some of all classes or series of the
stock of the Corporation shall be represented by uncertificated shares.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every
holder of uncertificated shares shall be entitled to have a certificate signed
by, or in the name of the Corporation by the Chairman of the Board of
Directors, or the President or any other authorized officer and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation representing the number of shares registered in
certificate form. Except as otherwise expressly provided by law, the rights
and obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
(b) The certificates of stock shall be signed, countersigned and registered
in such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be
in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to
be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
(c) The shares of the stock of the Corporation represented by certificates
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. Upon receipt of proper transfer instructions from the registered
owner of uncertificated shares such uncertificated shares shall be canceled
and issuance of new equivalent uncertificated shares or certificated shares
shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation. Within a reasonable time after the
issuance or transfer of uncertificated stock, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to the Delaware
General Corporation Law or, unless otherwise provided by the Delaware General
Corporation Law, a statement that the Corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 5.02. Lost, Stolen or Destroyed Certificates. No certificate for
shares or uncertificated shares of stock in the Corporation shall be issued in
place of any certificate alleged to have been lost, destroyed or stolen,
except on production of such evidence of such loss, destruction or theft and
on delivery to the Corporation of a bond of indemnity in such amount, upon
such terms and secured by such surety, as the Board of Directors or its
designee may in its or his discretion require.
A-2-9
<PAGE>
ARTICLE 6
MISCELLANEOUS PROVISIONS
SECTION 6.01. Fiscal Year. The fiscal year of the Corporation shall be as
specified by the Board of Directors.
SECTION 6.02. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its Amended
and Restated Certificate of Incorporation.
SECTION 6.03. Seal. The corporate seal shall have thereon the name of the
Corporation and shall be in such form as may be approved from time to time by
the Board of Directors.
SECTION 6.04. Waiver of Notice. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or any meeting of the Board of
Directors or committee thereof need be specified in any waiver of notice of
such meeting.
SECTION 6.05. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the audit committee, and it shall be
the duty of the audit committee to cause such audit to be made annually.
SECTION 6.06. Resignations. Any director or any officer, whether elected or
appointed, may resign at any time upon notice of such resignation to the
Corporation.
SECTION 6.07. Indemnification and Insurance.
(a) Each person who was or is made a party or is threatened to be made a
party to or is involved in any manner in any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director or officer of the Corporation or a director or elected officer of a
Subsidiary, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted from time to time by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended (but, if
permitted by applicable law, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment) or any other applicable laws as presently or
hereafter in effect, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors and administrators; provided however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors
or is a proceeding to enforce such person's claim to indemnification pursuant
to the rights granted by this Bylaw. The Corporation shall pay the expenses
incurred by such person in defending any such proceeding in advance of its
final disposition upon receipt (unless the Corporation upon authorization of
the Board of Directors waives such requirement to the extent permitted by
applicable law) of an undertaking by or on behalf of such person to repay such
amount if it shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation as authorized in this Bylaw or otherwise.
(b) The indemnification and the advancement of expenses incurred in
defending a proceeding prior to its final disposition provided by, or granted
pursuant to this Bylaw shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Amended and Restated Certificate of Incorporation, other provision of these
Amended and Restated Bylaws, agreement, vote of stockholders or
A-2-10
<PAGE>
Disinterested Directors or otherwise. No repeal, modification or amendment of,
or adoption of any provision inconsistent with, this Section 6.07, nor to the
fullest extent permitted by applicable law, any modification of law, shall
adversely affect any right or protection of any person granted pursuant hereto
existing at, or with respect to any events that occurred prior to, the time of
such repeal, amendment, adoption or modification.
(c) The Corporation may maintain insurance, at its expense, to protect
itself and any person who is or was a director, officer, partner, member,
employee or agent of the Corporation or a Subsidiary or of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of
Delaware.
(d) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any person who is or was an employee or agent
(other than a director or officer) of the Corporation or a Subsidiary and to
any person who is or was serving at the request of the Corporation or a
Subsidiary as a director, officer, partner, member, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans maintained or sponsored by the Corporation or a Subsidiary, to the
fullest extent of the provisions of this Bylaw with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(e) If any provision or provisions of this Bylaw shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
the legality and enforceability of the remaining provisions of this Bylaw
(including, without limitation, each portion of any paragraph or clause of
this Bylaw containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (2)
to the fullest extent possible, the provisions of this Bylaw (including,
without limitation, each such portion of any paragraph of this Bylaw
containing any such provision held to be invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
(f) For purposes of these Amended and Restated Bylaws:
(1) "Disinterested Director" means a director of the Corporation who is
not and was not a party to the proceeding or matter in respect of which
indemnification is sought by the claimant.
(2) "Subsidiary" means a corporation, a majority of the capital stock of
which is owned directly or indirectly by the Corporation, other than
directors' qualifying shares.
(g) Any notice, request, or other communication required or permitted to be
given to the Corporation under this Bylaw shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
ARTICLE 7
CONTRACTS, PROXIES, ETC.
SECTION 7.01. Contracts. Except as otherwise required by law, the Amended
and Restated Certificate of Incorporation or these Amended and Restated
Bylaws, any contracts or other instruments may be executed and delivered in
the name and on the behalf of the Corporation by such officer or officers of
the Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. Subject to the control and direction of the Board of Directors, the
Chairman of the Board, the President, the Chief Financial Officer, the Chief
Strategic and Administrative Officer, the Chief Legal Officer and the
Treasurer may execute bonds, promissory notes, contracts, agreements, deeds,
A-2-11
<PAGE>
leases, guarantees, loans, commitments, obligations, liabilities and other
instruments to be made or executed for or on behalf of the Corporation.
Subject to any restrictions imposed by the Board of Directors, such officers
of the Corporation may delegate such powers to others under his or her
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise
of such delegated power.
SECTION 7.02. Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board or the President may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation or entity, any of whose stock or other
securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other corporation or entity, or to consent
in writing, in the name of the Corporation as such holder, to any action by
such other corporation or entity, and may instruct the person or persons so
appointed as to the manner of casting such vote or giving such consent, and
may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
ARTICLE 8
AMENDMENTS
SECTION 8.01. Amendments. These Amended and Restated Bylaws may be altered,
amended or repealed, in whole or in part, or new Amended and Restated Bylaws
may be adopted by the stockholders or by the Board of Directors at any meeting
thereof; provided however, that notice of such alteration, amendment, repeal
or adoption of new Amended and Restated Bylaws is contained in the notice of
such meeting of stockholders or in the notice of such meeting of the Board of
Directors and, in the latter case, such notice is given not less than twenty-
four hours prior to the meeting. Unless a higher percentage is required by the
Amended and Restated Certificate of Incorporation as to any matter which is
the subject of these Amended and Restated Bylaws, all such amendments must be
approved by either the holders of eighty percent (80%) of the Voting Stock or
by a majority of the Board of Directors; provided further, notwithstanding the
foregoing, the Board of Directors may alter, amend or repeal, or adopt new
Amended and Restated Bylaws in conflict with, (i) any provision of these
Amended and Restated Bylaws which requires a three-quarters vote of the entire
Board of Directors for action to be taken thereunder, (ii) subsection (c) of
Section 3.10 of these Amended and Restated Bylaws and (iii) this proviso to
this Section 8.01 of these Amended and Restated Bylaws only by a resolution
adopted by a three-quarters vote of the entire board of Directors until
December 31, 2000; provided further, that, notwithstanding the foregoing, the
Board of Directors may alter, amend or repeal, or adopt new Amended and
Restated Bylaws in conflict with, (i) Section 4.08 of these Amended and
Restated Bylaws and (ii) this further proviso to this Section 8.01 of these
Amended and Restated Bylaws only by a resolution adopted by a three-quarters
vote of the entire Board of Directors.
A-2-12
<PAGE>
EXHIBIT B
TO THE MERGER AGREEMENT
CORPORATE GOVERNANCE OF SURVIVING CORPORATION
FOLLOWING THE EFFECTIVE TIME
BOARD OF DIRECTORS
The Board of Directors of the Surviving Corporation will initially consist
of the following people (half of whom have been designated by DWD and half of
whom have been designated by MS; no more than two members designated by each
party being "inside" directors (i.e., current or former employees of such
party)):
<TABLE>
<CAPTION>
CLASS (INITIAL TERM
NAME TITLE EXPIRING IN)
- ---- ----- -------------------
<S> <C> <C>
Philip J. Purcell....... Chairman of the Board,
Chief Executive Officer and Director 2000
John J. Mack............ President, Chief Operating Officer and Director 2000
Thomas C. Schneider..... Executive Vice President, Chief Strategic
and Administrative Officer and Director 1999
Richard B. Fisher....... Chairman of the Executive Committee of the
Board of Directors and Director 1999
Robert P. Bauman........ Director 1998
Edward A. Brennan....... Director 1998
Daniel B. Burke......... Director 2000
C. Robert Kidder........ Director 2000
Miles L. Marsh.......... Director 1999
Michael A. Miles........ Director 2000
Allen E. Murray......... Director 2000
Paul J. Rizzo........... Director 1998
Clarence B. Rogers,
Jr. ................... Director 1998
Laura D'Andrea Tyson.... Director 1999
</TABLE>
The current chairman and chief executive officer of DWD will serve as
chairman of the Board of Directors of the Surviving Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS AND CHAIRMEN OF COMMITTEES
The Board of Directors shall initially have four committees: the executive
committee, the audit committee, the nominating and directors committee and the
compensation committee. The executive committee will be comprised of the four
inside directors, and will be chaired by the current chairman of MS. Each
other committee will be comprised of an even number of directors, all of whom
shall be outside directors and half of whom shall be designated by each of DWD
and MS. DWD will designate the chairman of the audit committee and the
nominating and directors committee and MS will designate the chairman of the
compensation committee.
OFFICERS
The current chief executive officer of DWD and the current president and
chief operating officer of MS will continue in their respective positions in
the Surviving Corporation. Certain other officers of the Surviving Corporation
and its operating divisions and/or subsidiaries, and certain other related
matters with respect hereto will be as set forth in a memorandum between DWD
and MS of even date herewith.
B-1
<PAGE>
EXHIBIT C
TO THE MERGER AGREEMENT
FORM OF AFFILIATE LETTER
Dear Sirs:
The undersigned, a holder of shares of common stock, par value $1.00 per
share ("MS Common Stock"), of Morgan Stanley Group Inc., a Delaware
corporation ("MS"), is entitled to receive in connection with the merger (the
"Merger") of MS with and into Dean Witter, Discover & Co., a Delaware
corporation ("DWD"), securities (the "DWD Securities") of DWD. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of MS within
the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act of
1933, as amended (the "Securities Act"), by the Securities and Exchange
Commission (the "SEC") and may be deemed an "affiliate" of MS for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, although nothing contained herein should be construed as an
admission of either such fact.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the DWD Securities received
by the undersigned in exchange for any shares of MS Common Stock in connection
with the Merger may be restricted unless such transaction is registered under
the Securities Act or an exemption from such registration is available. The
undersigned understands that such exemptions are limited and the undersigned
has obtained or will obtain advice of counsel as to the nature and conditions
of such exemptions, including information with respect to the applicability to
the sale of such securities of Rules 144 and 145(d) promulgated under the
Securities Act. The undersigned understands that DWD will not be required to
maintain the effectiveness of any registration statement under the Securities
Act for the purposes of resale of DWD Securities by the undersigned.
The undersigned hereby represents to and covenants with DWD that the
undersigned will not sell, assign or transfer any of the DWD Securities
received by the undersigned in exchange for shares of MS Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion
of the general counsel of DWD or other counsel reasonably satisfactory to DWD
or as described in a "no-action" or interpretive letter from the Staff of the
SEC specifically issued with respect to a transaction to be engaged in by the
undersigned, is not required to be registered under the Securities Act;
provided, however, that in any such case, such sale, assignment or transfer
shall only be permitted if, in the opinion of counsel of DWD, such transaction
would not have, directly or indirectly, any adverse consequences for DWD with
respect to the treatment of the Merger for tax purposes.
The undersigned hereby further represents to and covenants with DWD that the
undersigned has not, within the preceding 30 days, sold, transferred or
otherwise disposed of any shares of MS Common Stock held by the undersigned
and that the undersigned will not sell, transfer or otherwise dispose of any
DWD Securities received by the undersigned in connection with the Merger until
after such time as results covering at least 30 days of post-Merger combined
operations of MS and DWD have been published by DWD, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes such combined results of operations, except as
would not otherwise reasonably be expected to adversely affect the
qualification of the Merger as a pooling-of-interests.
In the event of a sale or other disposition by the undersigned of DWD
Securities pursuant to Rule 145, the undersigned will supply DWD with evidence
of compliance with such Rule, in the form of a letter in the form of Annex I
hereto and the opinion of counsel or no-action letter referred to above. The
undersigned understands that DWD may instruct its transfer agent to withhold
the transfer of any DWD Securities disposed of by the undersigned, but that
(provided such transfer is not prohibited by any other provision of this
letter agreement)
C-1
<PAGE>
upon receipt of such evidence of compliance, DWD shall cause the transfer
agent to effectuate the transfer of the DWD Securities sold as indicated in
such letter.
DWD covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of DWD Securities by
the undersigned under Rule 145 in accordance with the terms thereof.
The undersigned acknowledges and agrees that the legends set forth below
will be placed on certificates representing DWD Securities received by the
undersigned in connection with the Merger or held by a transferee thereof,
which legends will be removed by delivery of substitute certificates upon
receipt of an opinion in form and substance reasonably satisfactory to DWD
from independent counsel reasonably satisfactory to DWD to the effect that
such legends are no longer required for purposes of the Securities Act.
There will be placed on the certificates for DWD Securities issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is being accounted for as a pooling of
interests, in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933. The shares may
not be sold, pledged or otherwise transferred (i) until such time as Morgan
Stanley, Dean Witter, Discover & Co. shall have published financial results
covering at least 30 days of combined operations after the Effective Time
and (ii) except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of DWD
Securities and (ii) the receipt by DWD of this letter is an inducement to
DWD's obligations to consummate the Merger.
Very truly yours,
Dated:
C-2
<PAGE>
ANNEX I
TO EXHIBIT C
[Name] [Date]
On , the undersigned sold the securities of Morgan Stanley, Dean
Witter, Discover & Co., formerly named Dean Witter, Discover & Co. ("DWD"),
described below in the space provided for that purpose (the "Securities"). The
Securities were received by the undersigned in connection with the merger of
Morgan Stanley Group Inc., a Delaware corporation, with and into DWD.
Based upon the most recent report or statement filed by DWD with the
Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Securities Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such
sale.
Very truly yours,
[Space to be provided for description of the Securities.]
<PAGE>
EXHIBIT D
TO THE MERGER AGREEMENT
[LETTERHEAD OF]
[DEAN WITTER, DISCOVER & CO.]
, 1997
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of February 4,
1997, between Dean Witter, Discover & Co., a Delaware corporation ("DWD"), and
Morgan Stanley Group Inc., a Delaware corporation ("MS"), I certify, as of the
date hereof, to my knowledge and belief, after due inquiry, as follows:
1. The facts relating to the contemplated merger (the "Merger") of MS with
and into DWD pursuant to the Merger Agreement, as described in the Merger
Agreement, the documents described in Section 8.06 of the Merger Agreement and
the joint proxy statement/prospectus prepared by DWD and MS, are, insofar as
such facts pertain to DWD, true, correct and complete in all material
respects.
2. Except in the Merger or in the ordinary course of business including,
without limitation, as an underwriter, trader or dealer in such stock, neither
DWD nor any subsidiary of DWD has acquired or will acquire, or has owned in
the past five years, any shares of common stock, par value $1.00 per share, of
MS ("MS Common Stock"), or MS Preferred Stock (as defined in the Merger
Agreement).
3. Cash payments to be made to stockholders of MS in lieu of fractional
shares of Common Stock, par value $.01 per share, of DWD ("DWD Common Stock")
that would otherwise be issued to such stockholders in the Merger will be made
for the purpose of saving DWD the expense and inconvenience of issuing and
transferring fractional shares of DWD Common Stock, and do not represent
separately bargained for consideration.
4. DWD has no plan or intention, following the Merger, to reacquire any of
the DWD Common Stock issued in the Merger.
5. DWD has no plan or intention, following the Merger, to sell or otherwise
dispose of any of the assets held by MS at the time of the Merger, except for
dispositions of such assets in the ordinary course of business; provided,
however, that DWD may transfer assets of MS in a manner that is consistent
with Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended
(the "Code") or with Proposed Treasury Regulation Section 1.368-1(d).
D-1
<PAGE>
6. DWD, MS and the stockholders of MS will each pay their respective
expenses, if any, incurred in connection with the Merger the payment of which
is not specifically provided for in the Merger Agreement.
7. Following the Merger, DWD will continue the historic business of MS or
use a significant portion of MS's historic business assets in a business.
8. DWD is not an investment company as defined in Section 368(a)(2)(F)(iii)
and (iv) of the Code.
9. DWD will not take any position on any federal, state or local income or
franchise tax return, or take any other action or reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code or with the representations made
in this letter, unless otherwise required by a "determination" (as defined in
Section 1313(a)(1) of the Code).
10. None of the compensation received by any stockholder-employee of MS
represents separate consideration for, or is allocable to, any of their MS
Common Stock. None of the DWD Common Stock that will be received by MS
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
The compensation paid to any shareholder-employees will be for services
actually rendered and will be determined by bargaining at arm's-length.
11. There is no intercorporate indebtedness existing between DWD and MS that
was issued or acquired, or will be settled, at a discount.
12. The Merger Agreement and the documents described in Section 8.06 of the
Merger Agreement represent the entire understanding of MS and DWD with respect
to the Merger.
13. References in this letter to MS, DWD or any subsidiary thereof shall not
be considered to refer to any MS Benefit Plan or DWD Benefit Plan (each as
defined in the Merger Agreement).
14. Any terms not defined herein shall have the meanings assigned to them by
the Merger Agreement.
DEAN WITTER, DISCOVER & CO.,
By: _________________________________
D-2
<PAGE>
EXHIBIT E
TO THE MERGER AGREEMENT
[LETTERHEAD OF]
[MORGAN STANLEY GROUP INC.]
, 1997
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of February 4,
1997, between Dean Witter, Discover & Co., a Delaware corporation ("DWD"), and
Morgan Stanley Group Inc., a Delaware corporation ("MS"), I certify, as of the
date hereof, to my knowledge and belief, after due inquiry, as follows:
1. The facts relating to the contemplated merger (the "Merger") of MS with
and into DWD pursuant to the Merger Agreement, as described in the Merger
Agreement, the documents described in Section 8.06 of the Merger Agreement and
the joint proxy statement/prospectus prepared by DWD and MS, are, insofar as
such facts pertain to MS, true, correct and complete in all material respects.
2. Neither MS nor any of its subsidiaries has issued or acquired any shares
of Common Stock, par value $1.00 per share, of MS ("MS Common Stock") or MS
Preferred Stock (as defined in the Merger Agreement) (together with MS Common
Stock, "MS Stock"), in contemplation of the Merger, or otherwise as part of a
plan of which the Merger is a part.
3. To the knowledge of MS, there is no present plan or intention on the part
of the stockholders of MS to sell, exchange or otherwise dispose of shares of
stock of DWD ("DWD Stock") received (a) in the Merger in exchange for MS Stock
or (b) upon conversion of DWD ESOP Preferred Stock that would reduce the
ownership of DWD Stock by former holders of MS Stock to a number of shares
having a value, as of immediately prior to the Merger, of less than 40% of the
value of all of the outstanding shares of MS Stock as of such date; provided
that the conversion of DWD ESOP Preferred Stock into DWD Common Stock will not
be treated as a sale, exchange or other disposition for purposes of this
representation. For purposes of this representation, shares of MS Stock
exchanged by holders of MS Stock for cash in lieu of fractional shares of DWD
Stock will be treated as outstanding MS Stock immediately prior to the Merger.
In addition, for purposes of this representation, shares of MS Stock that are
received (i)(a) pursuant to the terms of a purchase contract that comprises a
part of the MS Capital Units, (b) upon exercise of MS Employee Stock Options
or (c) upon exchange of the MS Subsidiary Convertible Preferred Stock, but in
each case only if such purchase, exercise or exchange occurred on or after the
date of signing or otherwise in contemplation of the Merger, or (ii) upon
exercise of the MS Options, shall not be treated as outstanding MS Stock
immediately prior to the Merger.
E-1
<PAGE>
4. MS, DWD and the stockholders of MS and DWD will each pay their respective
expenses, if any, incurred in connection with the Merger the payment of which
is not specifically provided for in the Merger Agreement.
5. MS is not an investment company as defined in Section 368(a)(2)(F)(iii)
and (iv) of the Internal Revenue Code of 1986, as amended (the "Code").
6. MS will not take any position on any federal, state or local income or
franchise tax return, or take any other action or reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code or with the representations made
in this letter, unless otherwise required pursuant to a "determination" (as
defined in Section 1313(a)(1) of the Code).
7. None of the compensation received by any stockholder-employee of MS
represents separate consideration for, or is allocable to, any of their MS
Common Stock. None of the DWD Common Stock that will be received by MS
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
The compensation paid to any shareholder-employees will be for services
actually rendered and will be determined by bargaining at arm's-length.
8. There is no intercorporate indebtedness existing between DWD and MS that
was issued or acquired, or will be settled, at a discount.
9. MS is not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
10. The Merger Agreement and the documents described in Section 8.06 of the
Merger Agreement represent the entire understanding of MS and DWD with respect
to the Merger.
11. References in this letter to MS, DWD or any subsidiary thereof shall not
be considered to refer to any MS Benefit Plan or DWD Benefit Plan (each as
defined in the Merger Agreement).
12. Any terms not defined herein shall have the meanings assigned to them by
the Merger Agreement, including the schedules thereto.
MORGAN STANLEY GROUP INC.
By: _________________________________
E-2
<PAGE>
ANNEX II
STOCK OPTION AGREEMENT dated as of February 4, 1997 (the
"Agreement"), by and between DEAN WITTER, DISCOVER & CO.,
a Delaware corporation ("Issuer"), and MORGAN STANLEY
GROUP INC., a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"; defined terms used but
not defined herein have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Grantee with and into Issuer
with Issuer as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's willingness to enter into the
Merger Agreement and the MS Stock Option Agreement, Grantee has requested that
Issuer agree, and Issuer has agreed, to grant Grantee the Option (as defined
below); and
C. As a condition and inducement to Issuer's willingness to enter into the
Merger Agreement and this Agreement, Issuer has requested that Grantee agree,
and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 63,922,570 (as adjusted as set forth herein) shares (the
"Option Shares") of Common Stock, par value $0.01 per share ("Issuer Common
Stock"), of Issuer at a purchase price of $38.125 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, with respect to
any or all of the Option Shares at any one time, subject to the provisions of
Section 2(c), after the occurrence of any event as a result of which the
Grantee is entitled to receive the Termination Fee pursuant to Section 5.09(c)
of the Merger Agreement (a "Purchase Event"); provided, however, that (i)
except as provided in the last sentence of this Section 2(a), the Option will
terminate and be of no further force and effect upon the earliest to occur of
(A) the Effective Time, (B) 18 months after the first occurrence of a Purchase
Event, and (C) termination of the Merger Agreement in accordance with its
terms prior to the occurrence of a Purchase Event, unless, in the case of
clause (C), the Grantee has the right to receive a Termination Fee following
such termination upon the occurrence of certain events, in which case the
Option will not terminate until the later of (x) six months following the time
such Termination Fee becomes payable and (y) the expiration of the period in
which the Grantee has such right to receive a Termination Fee, and (ii) any
purchase of Option Shares upon exercise of the Option will be subject to
compliance with the HSR Act and the obtaining or making of any consents,
approvals, orders, notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the issuance of Option
Shares illegal (the "Regulatory Approvals"). Notwithstanding the termination
of the Option, Grantee will be entitled to purchase the Option Shares if it
has exercised the Option in accordance with the terms hereof prior to the
termination of the Option and the termination of the Option will not affect
any rights hereunder which by their terms do not terminate or expire prior to
or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will send to
Issuer a written notice (an "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") to that effect which Exercise Notice also
specifies the number of Option Shares, if any, Grantee wishes to purchase
pursuant to this Section 2(b), the number of Option Shares, if any, with
respect to which Grantee wishes to exercise its Cash-Out Right (as defined
herein) pursuant to Section 6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee wishes to purchase
pursuant to this Section 2(b) and a date not earlier than three business days
nor later than 20 business days from the Notice Date for the closing of such
purchase (an
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"Option Closing Date"). Any Option Closing will be at an agreed location and
time in New York, New York on the applicable Option Closing Date or at such
later date as may be necessary so as to comply with clause (ii) of Section
2(a).
(c) Notwithstanding anything to the contrary contained herein, any exercise
of the Option and purchase of Option Shares shall be subject to compliance
with applicable laws and regulations, which may prohibit the purchase of all
the Option Shares specified in the Exercise Notice without first obtaining or
making certain Regulatory Approvals. In such event, if the Option is otherwise
exercisable and Grantee wishes to exercise the Option, the Option may be
exercised in accordance with Section 2(b) and Grantee shall acquire the
maximum number of Option Shares specified in the Exercise Notice that Grantee
is then permitted to acquire under the applicable laws and regulations, and if
Grantee thereafter obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then Grantee
shall be entitled to acquire such remaining balance. Issuer agrees to use its
best efforts to assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice that a Regulatory Approval
required for the purchase of any Option Shares will not be issued or granted
or (ii) such Regulatory Approval has not been issued or granted within six
months of the date of the Exercise Notice, Grantee shall have the right to
exercise its Cash-Out Right pursuant to Section 6(c) with respect to the
Option Shares for which such Regulatory Approval will not be issued or granted
or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing, Grantee
will pay to Issuer in immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased at such Option
Closing.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer will deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Option Closing, which Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If at the time of
issuance of Option Shares pursuant to an exercise of the Option hereunder,
Issuer shall not have redeemed the DWD Rights, or shall have issued any
similar securities, then each Option Share issued pursuant to such exercise
will also represent a corresponding DWD Right or new rights with terms
substantially the same as and at least as favorable to Grantee as are provided
under the DWD Rights Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF FEBRUARY
4, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF DEAN WITTER,
DISCOVER & CO. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in accordance with Rule 144 under the Securities Act
or Grantee has delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to restrictions pursuant
to this Agreement in the above legend will be removed by delivery of
substitute certificate(s) without such reference if the Option Shares
evidenced by certificate(s) containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
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4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to permit it
to issue, and, at all times from the date hereof until the obligation to
deliver Option Shares upon the exercise of the Option terminates, shall
have reserved for issuance, upon exercise of the Option, shares of Issuer
Common Stock necessary for Grantee to exercise the Option, and Issuer will
take all necessary corporate action to authorize and reserve for issuance
all additional shares of Issuer Common Stock or other securities which may
be issued pursuant to Section 6 upon exercise of the Option. The shares of
Issuer Common Stock to be issued upon due exercise of the Option, including
all additional shares of Issuer Common Stock or other securities which may
be issuable upon exercise of the Option or any other securities which may
be issued pursuant to Section 6, upon issuance pursuant hereto, will be
duly and validly issued, fully paid and nonassessable, and will be
delivered free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever, including without limitation any preemptive
rights of any stockholder of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Purchase Not for Distribution. Any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be transferred or
otherwise disposed of except in a transaction registered, or exempt from
registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares, or similar transaction, the
type and number of shares or securities subject to the Option, and the
Purchase Price thereof, will be adjusted appropriately, and proper provision
will be made in the agreements governing such transaction, so that Grantee
will receive upon exercise of the Option the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable. Subject to Section 1, and
without limiting the parties' relative rights and obligations under the Merger
Agreement, if any additional shares of Issuer Common Stock are issued after
the date of this Agreement (other than pursuant to an event described in the
first sentence of this Section 6(a)), the number of shares of Issuer Common
Stock subject to the Option will be adjusted so that, after such issuance, it
equals 19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the
consummation of such merger will be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property,
or the shares of Issuer Common Stock outstanding immediately prior to the
consummation of such merger will, after such merger, represent less than 50%
of the outstanding voting securities of the merged company, or (iii) to sell
or otherwise transfer all or substantially all of its assets to any person,
other than Grantee or one of its subsidiaries, then, and in each such case,
the agreement governing such transaction will make proper provision so that
the Option will, upon the consummation of any such transaction and upon the
terms and conditions set forth herein, be converted into, or exchanged for, an
option with identical terms appropriately adjusted to acquire the number and
class of shares or other securities or property that Grantee would have
received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such consolidation, merger, sale, or transfer, or the
record date therefor, as applicable and make any other necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event and
ending on the termination of the Option in accordance with Section 2, Grantee
sends to Issuer an Exercise Notice indicating Grantee's election to exercise
its right (the "Cash-Out Right") pursuant to this Section 6(c), then Issuer
shall pay to Grantee, on the
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Option Closing Date, in exchange for the cancellation of the Option with
respect to such number of Option Shares as Grantee specifies in the Exercise
Notice, an amount in cash equal to such number of Option Shares multiplied by
the difference between (i) the average closing price, for the 10 NYSE trading
days commencing on the 12th NYSE trading day immediately preceding the Notice
Date, per share of Issuer Common Stock as reported on the NYSE Composite
Transaction Tape (or, if not listed on the NYSE, as reported on any other
national securities exchange or national securities quotation system on which
the Issuer Common Stock is listed or quoted, as reported in The Wall Street
Journal (Northeast edition), or, if not reported thereby, any other
authoritative source) (the "Closing Price") and (ii) the Purchase Price;
provided, however, that for purposes of this Section 6(c) only, the Closing
Price used to calculate the amount in cash payable per Option Share pursuant
to this Section 6(c) shall in no event exceed the "Fair Market Value" of such
Option Share (as defined and determined in accordance with Section 12.2.G of
Issuer's Certificate of Incorporation). Notwithstanding the termination of the
Option, Grantee will be entitled to exercise its rights under this Section
6(c) if it has exercised such rights in accordance with the terms hereof prior
to the termination of the Option.
7. Registration Rights. Issuer will, if requested by Grantee at any time and
from time to time within three years of the exercise of the Option, as
expeditiously as possible prepare and file up to three registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer will use its best
efforts to qualify such shares or other securities under any applicable state
securities laws. Grantee agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition to cause, any sale or
other disposition pursuant to such registration statement to be effected on a
widely distributed basis so that upon consummation thereof no purchaser or
transferee will own beneficially more than 4.9% of the then-outstanding voting
power of Issuer. Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from
the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 60 calendar days in the aggregate if
the Board of Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
premature disclosure of material nonpublic information that would materially
and adversely affect Issuer or otherwise interfere with or adversely affect
any pending or proposed offering of securities of Issuer or any other material
transaction involving Issuer. Any registration statement prepared and filed
under this Section 7, and any sale covered thereby, will be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto. Grantee will
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 7, Issuer effects a
registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee the right to
participate in such registration, and such participation will not affect the
obligation of Issuer to effect demand registration statements for Grantee
under this Section 7; provided that, if the managing underwriters of such
offering advise Issuer in writing that in their opinion the number of shares
of Issuer Common Stock requested to be included in such registration exceeds
the number which can be sold in such offering, Issuer will include the shares
requested to be included therein by Grantee pro rata with the shares intended
to be included therein by Issuer. In connection with any registration pursuant
to this Section 7, Issuer and Grantee will provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with such
registration.
8. Transfers. The Option Shares may not be sold, assigned, transferred, or
otherwise disposed of except (i) in an underwritten public offering as
provided in Section 7 or (ii) to any purchaser or transferee who would not, to
the knowledge of the Grantee after reasonable inquiry, immediately following
such sale, assignment, transfer or disposal beneficially own more than 4.9% of
the then-outstanding voting power of the Issuer; provided, however, that
Grantee shall be permitted to sell any Option Shares if such sale is made
pursuant to a
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<PAGE>
tender or exchange offer that has been approved or recommended by a majority
of the members of the Board of Directors of Issuer (which majority shall
include a majority of directors who were directors as of the date hereof).
9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), Issuer, upon the
request of Grantee, will promptly file an application to list the shares of
Issuer Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to
obtain approval of such listing as promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed, or mutilated shall at any
time be enforceable by anyone.
11. Miscellaneous. (a) Expenses. Except as otherwise provided in the Merger
Agreement, each of the parties hereto will bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an instrument in
writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Merger Agreement (including the documents and instruments attached thereto as
exhibits or schedules or delivered in connection therewith) and the
Confidentiality Agreement (i) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter of this Agreement, and (ii) except
as provided in Section 8.06 of the Merger Agreement, are not intended to
confer upon any person other than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement must be in writing and will be deemed
given if delivered personally, telecopied (which is confirmed), or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
If to Issuer to:
Dean Witter, Discover & Co.
Two World Trade Center
New York, NY 10048
Attention: Christine A. Edwards
Fax: (212) 392-8404
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<PAGE>
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson
Robert Kindler
Fax: (212) 474-3700
If to Grantee to:
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Attention: Jonathan M. Clark
Fax: (212) 761-8815
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Stephen R. Volk
Fax: (212) 848-7179; and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John R. Ettinger
Fax: (212) 450-4800
(g) Assignment. Neither this Agreement, the Option nor any of the rights,
interests, or obligations under this Agreement may be assigned or delegated,
in whole or in part, by operation of law or otherwise, by Issuer or Grantee
without the prior written consent of the other. Any assignment or delegation
in violation of the preceding sentence will be void. Subject to the first and
second sentences of this Section 11(g), this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other actions that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any Federal court located in the State of
Delaware or in Delaware state court, the foregoing being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
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<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEAN WITTER, DISCOVER & CO.,
/s/ Philip J. Purcell
By: _________________________________
Name: Philip J. Purcell
Title: Chairman and Chief
Executive Officer
MORGAN STANLEY GROUP INC.,
/s/ Richard B. Fisher
By: _________________________________
Name: Richard B. Fisher
Title: Chairman
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<PAGE>
ANNEX III
STOCK OPTION AGREEMENT dated as of February 4, 1997
(the "Agreement"), by and between MORGAN STANLEY GROUP
INC., a Delaware corporation ("Issuer"), and DEAN WITTER,
DISCOVER & CO., a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"; defined terms used but
not defined herein have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Issuer with and into Grantee
with Grantee as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's willingness to enter into the
Merger Agreement and the DWD Stock Option Agreement, Grantee has requested
that Issuer agree, and Issuer has agreed, to grant Grantee the Option (as
defined below); and
C. As a condition and inducement to Issuer's willingness to enter into the
Merger Agreement and this Agreement, Issuer has requested that Grantee agree,
and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 31,506,582 (as adjusted as set forth herein) shares (the
"Option Shares") of Common Stock, par value $1.00 per share ("Issuer Common
Stock"), of Issuer at a purchase price of $62.906 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, with respect to
any or all of the Option Shares at any one time, subject to the provisions of
Section 2(c), after the occurrence of any event as a result of which the
Grantee is entitled to receive the Termination Fee pursuant to Section 5.09(b)
of the Merger Agreement (a "Purchase Event"); provided, however, that (i)
except as provided in the last sentence of this Section 2(a), the Option will
terminate and be of no further force and effect upon the earliest to occur of
(A) the Effective Time, (B) 18 months after the first occurrence of a Purchase
Event, and (C) termination of the Merger Agreement in accordance with its
terms prior to the occurrence of a Purchase Event, unless, in the case of
clause (C), the Grantee has the right to receive a Termination Fee following
such termination upon the occurrence of certain events, in which case the
Option will not terminate until the later of (x) six months following the time
such Termination Fee becomes payable and (y) the expiration of the period in
which the Grantee has such right to receive a Termination Fee, and (ii) any
purchase of Option Shares upon exercise of the Option will be subject to
compliance with the HSR Act and the obtaining or making of any consents,
approvals, orders, notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the issuance of Option
Shares illegal (the "Regulatory Approvals"). Notwithstanding the termination
of the Option, Grantee will be entitled to purchase the Option Shares if it
has exercised the Option in accordance with the terms hereof prior to the
termination of the Option and the termination of the Option will not affect
any rights hereunder which by their terms do not terminate or expire prior to
or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will send to
Issuer a written notice (an "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") to that effect which Exercise Notice also
specifies the number of Option Shares, if any, Grantee wishes to purchase
pursuant to this Section 2(b), the number of Option Shares, if any, with
respect to which Grantee wishes to exercise its Cash-Out Right (as defined
herein) pursuant to Section 6(c), the denominations of the certificate or
certificates evidencing
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the Option Shares which Grantee wishes to purchase pursuant to this Section
2(b) and a date not earlier than three business days nor later than 20
business days from the Notice Date for the closing of such purchase (an
"Option Closing Date"). Any Option Closing will be at an agreed location and
time in New York, New York on the applicable Option Closing Date or at such
later date as may be necessary so as to comply with clause (ii) of Section
2(a).
(c) Notwithstanding anything to the contrary contained herein, any exercise
of the Option and purchase of Option Shares shall be subject to compliance
with applicable laws and regulations, which may prohibit the purchase of all
the Option Shares specified in the Exercise Notice without first obtaining or
making certain Regulatory Approvals. In such event, if the Option is otherwise
exercisable and Grantee wishes to exercise the Option, the Option may be
exercised in accordance with Section 2(b) and Grantee shall acquire the
maximum number of Option Shares specified in the Exercise Notice that Grantee
is then permitted to acquire under the applicable laws and regulations, and if
Grantee thereafter obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then Grantee
shall be entitled to acquire such remaining balance. Issuer agrees to use its
best efforts to assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice that a Regulatory Approval
required for the purchase of any Option Shares will not be issued or granted
or (ii) such Regulatory Approval has not been issued or granted within six
months of the date of the Exercise Notice, Grantee shall have the right to
exercise its Cash-Out Right pursuant to Section 6(c) with respect to the
Option Shares for which such Regulatory Approval will not be issued or granted
or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing, Grantee
will pay to Issuer in immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased at such Option
Closing.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer will deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Option Closing, which Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If at the time of
issuance of Option Shares pursuant to an exercise of the Option hereunder,
Issuer shall not have issued any securities similar to rights under a
shareholder rights plan, then each Option Share issued pursuant to such
exercise will also represent such a corresponding right with terms
substantially the same as and at least as favorable to Grantee as are provided
under any Issuer shareholders rights agreement or similar agreement then in
effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF FEBRUARY
4, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF MORGAN
STANLEY GROUP INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in accordance with Rule 144 under the Securities Act
or Grantee has delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to restrictions
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pursuant to this Agreement in the above legend will be removed by delivery of
substitute certificate(s) without such reference if the Option Shares
evidenced by certificate(s) containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to permit it
to issue, and, at all times from the date hereof until the obligation to
deliver Option Shares upon the exercise of the Option terminates, shall
have reserved for issuance, upon exercise of the Option, shares of Issuer
Common Stock necessary for Grantee to exercise the Option, and Issuer will
take all necessary corporate action to authorize and reserve for issuance
all additional shares of Issuer Common Stock or other securities which may
be issued pursuant to Section 6 upon exercise of the Option. The shares of
Issuer Common Stock to be issued upon due exercise of the Option, including
all additional shares of Issuer Common Stock or other securities which may
be issuable upon exercise of the Option or any other securities which may
be issued pursuant to Section 6, upon issuance pursuant hereto, will be
duly and validly issued, fully paid and nonassessable, and will be
delivered free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever, including without limitation any preemptive
rights of any stockholder of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Purchase Not for Distribution. Any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be transferred or
otherwise disposed of except in a transaction registered, or exempt from
registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares, or similar transaction, the
type and number of shares or securities subject to the Option, and the
Purchase Price thereof, will be adjusted appropriately, and proper provision
will be made in the agreements governing such transaction, so that Grantee
will receive upon exercise of the Option the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable. Subject to Section 1, and
without limiting the parties' relative rights and obligations under the Merger
Agreement, if any additional shares of Issuer Common Stock are issued after
the date of this Agreement (other than pursuant to an event described in the
first sentence of this Section 6(a)), the number of shares of Issuer Common
Stock subject to the Option will be adjusted so that, after such issuance, it
equals 19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the
consummation of such merger will be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property,
or the shares of Issuer Common Stock outstanding immediately prior to the
consummation of such merger will, after such merger, represent less than 50%
of the outstanding voting securities of the merged company, or (iii) to sell
or otherwise transfer all or substantially all of its assets to any person,
other than Grantee or one of its subsidiaries, then, and in each such case,
the agreement governing such transaction will make proper provision so that
the Option will, upon the consummation of any such transaction and upon the
terms and conditions set forth herein, be converted into, or exchanged for, an
option with identical terms appropriately adjusted to acquire the number and
class of shares or other securities or property that Grantee would have
received in respect of Issuer Common Stock if the Option
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<PAGE>
had been exercised immediately prior to such consolidation, merger, sale, or
transfer, or the record date therefor, as applicable and make any other
necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event and
ending on the termination of the Option in accordance with Section 2, Grantee
sends to Issuer an Exercise Notice indicating Grantee's election to exercise
its right (the "Cash-Out Right") pursuant to this Section 6(c), then Issuer
shall pay to Grantee, on the Option Closing Date, in exchange for the
cancellation of the Option with respect to such number of Option Shares as
Grantee specifies in the Exercise Notice, an amount in cash equal to such
number of Option Shares multiplied by the difference between (i) the average
closing price, for the 10 NYSE trading days commencing on the 12th NYSE
trading day immediately preceding the Notice Date, per share of Issuer Common
Stock as reported on the NYSE Composite Transaction Tape (or, if not listed on
the NYSE, as reported on any other national securities exchange or national
securities quotation system on which the Issuer Common Stock is listed or
quoted, as reported in The Wall Street Journal (Northeast edition), or, if not
reported thereby, any other authoritative source) (the "Closing Price") and
(ii) the Purchase Price; provided, however, that for purposes of this Section
6(c) only, the Closing Price used to calculate the amount in cash payable per
Option Share pursuant to this Section 6(c) shall in no event exceed the "Fair
Market Value" of such Option Share (as defined and determined in accordance
with Section 12.2.G of Grantee's Certificate of Incorporation).
Notwithstanding the termination of the Option, Grantee will be entitled to
exercise its rights under this Section 6(c) if it has exercised such rights in
accordance with the terms hereof prior to the termination of the Option.
7. Registration Rights. Issuer will, if requested by Grantee at any time and
from time to time within three years of the exercise of the Option, as
expeditiously as possible prepare and file up to three registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer will use its best
efforts to qualify such shares or other securities under any applicable state
securities laws. Grantee agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition to cause, any sale or
other disposition pursuant to such registration statement to be effected on a
widely distributed basis so that upon consummation thereof no purchaser or
transferee will own beneficially more than 4.9% of the then-outstanding voting
power of Issuer. Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from
the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 60 calendar days in the aggregate if
the Board of Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
premature disclosure of material nonpublic information that would materially
and adversely affect Issuer or otherwise interfere with or adversely affect
any pending or proposed offering of securities of Issuer or any other material
transaction involving Issuer. Any registration statement prepared and filed
under this Section 7, and any sale covered thereby, will be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto. Grantee will
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 7, Issuer effects a
registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee the right to
participate in such registration, and such participation will not affect the
obligation of Issuer to effect demand registration statements for Grantee
under this Section 7; provided that, if the managing underwriters of such
offering advise Issuer in writing that in their opinion the number of shares
of Issuer Common Stock requested to be included in such registration exceeds
the number which can be sold in such offering, Issuer will include the shares
requested to be included therein by Grantee pro rata with the shares intended
to be included therein by Issuer. In connection with any registration pursuant
to
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<PAGE>
this Section 7, Issuer and Grantee will provide each other and any underwriter
of the offering with customary representations, warranties, covenants,
indemnification, and contribution in connection with such registration.
8. Transfers. The Option Shares may not be sold, assigned, transferred, or
otherwise disposed of except (i) in an underwritten public offering as
provided in Section 7 or (ii) to any purchaser or transferee who would not, to
the knowledge of the Grantee after reasonable inquiry, immediately following
such sale, assignment, transfer or disposal beneficially own more than 4.9% of
the then-outstanding voting power of the Issuer; provided, however, that
Grantee shall be permitted to sell any Option Shares if such sale is made
pursuant to a tender or exchange offer that has been approved or recommended
by a majority of the members of the Board of Directors of Issuer (which
majority shall include a majority of directors who were directors as of the
date hereof).
9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), Issuer, upon the
request of Grantee, will promptly file an application to list the shares of
Issuer Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to
obtain approval of such listing as promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed, or mutilated shall at any
time be enforceable by anyone.
11. Miscellaneous. (a) Expenses. Except as otherwise provided in the Merger
Agreement, each of the parties hereto will bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an instrument in
writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Merger Agreement (including the documents and instruments attached thereto as
exhibits or schedules or delivered in connection therewith) and the
Confidentiality Agreement (i) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter of this Agreement, and (ii) except
as provided in Section 8.06 of the Merger Agreement, are not intended to
confer upon any person other than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement must be in writing and will be deemed
given if delivered personally, telecopied (which is confirmed), or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
If to Issuer to:
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Attention: Jonathan M. Clark
Fax: (212) 761-8815
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<PAGE>
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Stephen R. Volk
Fax: (212) 848-7179; and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John R. Ettinger
Fax: (212) 450-4800
If to Grantee to:
Dean Witter, Discover & Co.
Two World Trade Center
New York, NY 10048
Attention: Christine A. Edwards
Fax: (212) 392-8404
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson
Robert Kindler
Fax: (212) 474-3700
(g) Assignment. Neither this Agreement, the Option nor any of the rights,
interests, or obligations under this Agreement may be assigned or delegated,
in whole or in part, by operation of law or otherwise, by Issuer or Grantee
without the prior written consent of the other. Any assignment or delegation
in violation of the preceding sentence will be void. Subject to the first and
second sentences of this Section 11(g), this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other actions that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any Federal court located in the State of
Delaware or in Delaware state court, the foregoing being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
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<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first written above.
MORGAN STANLEY GROUP INC.,
/s/ Richard B. Fisher
By___________________________________
Name: Richard B. Fisher
Title: Chairman
DEAN WITTER, DISCOVER & CO.,
/s/ Philip J. Purcell
By___________________________________
Name: Philip J. Purcell
Title: Chairman and Chief
Executive Officer
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<PAGE>
ANNEX IV
[WASSERSTEIN PERELLA & CO. LETTERHEAD]
February 4, 1997
Board of Directors
Dean Witter, Discover & Co.
Two World Trade Center
New York, NY 10048
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the stockholders of Dean Witter, Discover & Co.
(the "Company") of the Exchange Ratio (as defined below) provided for pursuant
to the terms of the Agreement and Plan of Merger, dated as of February 4, 1997
(the "Merger Agreement"), between the Company and Morgan Stanley Group Inc.
("Morgan Stanley"). The Merger Agreement provides for, among other things, a
merger of Morgan Stanley with and into the Company ("the Merger") pursuant to
which each outstanding share of common stock, par value $1.00 per share, of
Morgan Stanley will be converted into 1.65 shares of common stock, par value
$.01 per share, of the Company (the "Exchange Ratio").
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company and Morgan Stanley
for recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, prepared
by or on behalf of the Company and Morgan Stanley and provided to us for
purposes of our analysis, and we have met with management of the Company and
certain members of management of Morgan Stanley to review and discuss such
information and, among other matters, the Company's and Morgan Stanley's
business, operations, assets, financial condition and future prospects.
We have also reviewed and considered certain financial and stock market data
relating to the Company and Morgan Stanley, and we have compared that data
with similar data for certain other companies, the securities of which are
publicly traded, that we believe may be relevant or comparable in certain
respects to the Company and Morgan Stanley or one or more of their businesses
or assets, and we have reviewed and considered certain financial terms of
certain recent business combinations that we believe to be reasonably
comparable to the Merger or otherwise relevant to our inquiry. We also
performed such other financial studies, analyses and investigations and
reviewed such other information as we considered appropriate.
We have assumed that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. In addition, in our
review and analysis and in formulating our opinion, we have assumed and relied
upon the accuracy and completeness of all the financial and other information
provided to or discussed with us or publicly available, and we have not
assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial forecasts provided to us and we have assumed, with your consent,
that the financial forecasts provided to us were reasonably prepared in good
faith and on bases reflecting the best currently available judgments and
estimates of the
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<PAGE>
managements of the Company and Morgan Stanley, and we express no opinion with
respect to such forecasts or the assumptions upon which they are based. We
have not reviewed any of the books and records of the Company or Morgan
Stanley or assumed any responsibility for conducting a physical inspection of
the properties or facilities of the Company or Morgan Stanley, or for making
or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company or Morgan Stanley, nor have we been furnished with
any such valuation or appraisal. In addition, we have not performed a review
of the securities inventories of the Company or of Morgan Stanley. Our opinion
is necessarily based on economic and market conditions and other circumstances
as they exist and can be evaluated by us as of the date hereof.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a major portion of which is
contingent upon the consummation of the Merger. WP&Co. has performed advisory
services for the Company in the past and has received customary fees for those
services.
Our opinion addresses only the fairness from a financial point of view to
the stockholders of the Company of the Exchange Ratio provided for pursuant to
the Merger Agreement and does not address the Company's underlying business
decision to effect the Merger.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may
not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time or in any manner without our prior written consent,
except that it may be disclosed in its entirety in any proxy statement
circulated to stockholders of the Company in connection with the Merger. This
opinion does not constitute a recommendation to any stockholder with respect
to how such holder should vote with respect to the Merger and should not be
relied upon as such, and we are expressing no opinion herein as to the prices
at which any security of the Company or Morgan Stanley may trade following the
announcement or completion of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Exchange Ratio provided for pursuant to the Merger Agreement is
fair to the stockholders of the Company from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
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<PAGE>
ANNEX V
[Letterhead of MORGAN STANLEY]
February 4, 1997
Board of Directors
Morgan Stanley Group Inc.
1585 Broadway
New York, NY 10036
Members of the Board:
We understand that Morgan Stanley Group Inc. ("Morgan Stanley") and Dean
Witter, Discover & Co. ("Dean Witter") have entered into an Agreement and Plan
of Merger, dated February 4, 1997 (the "Merger Agreement"), which provides,
among other things, for the merger of Morgan Stanley with and into Dean Witter
(the "Merger"). Pursuant to the Merger, each outstanding share of common
stock, par value $1.00 per share of Morgan Stanley (the "Morgan Stanley Common
Stock"), other than shares held in treasury or held by Dean Witter or any
affiliate of Dean Witter or as to which dissenters' rights have been
perfected, will be converted into the right to receive 1.65 shares (the
"Exchange Ratio") of common stock, par value $0.01 per share, of Dean Witter
(the "Dean Witter Common Stock"). The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Morgan Stanley Common Stock (other than Dean Witter and its
affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Morgan Stanley and Dean Witter, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Morgan Stanley and Dean Witter prepared by
the managements of Morgan Stanley and Dean Witter, respectively;
(iii) analyzed certain financial projections of Morgan Stanley and Dean
Witter prepared by the managements of Morgan Stanley and Dean Witter,
respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of Morgan Stanley and Dean Witter with senior executives
of Morgan Stanley and Dean Witter, respectively;
(v) analyzed the pro forma impact of the Merger on the combined company's
earnings per share, consolidated capitalization and financial ratios;
(vi) reviewed the reported prices and trading activity for the Morgan
Stanley Common Stock and the Dean Witter Common Stock;
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<PAGE>
MORGAN STANLEY
(vii) compared the financial performance of Morgan Stanley and Dean
Witter and the prices and trading activity of the Morgan Stanley Common
Stock and the Dean Witter Common Stock with that of certain other
comparable publicly traded companies and their securities;
(viii) discussed the strategic objectives of the Merger and the plan for
the combined company with senior executives of Morgan Stanley and Dean
Witter;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable precedent merger transactions;
(x) participated in discussions and negotiations among representatives of
Morgan Stanley and Dean Witter and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related documents; and
(xii) considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or otherwise made
available to us by Morgan Stanley and Dean Witter for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Morgan Stanley
and Dean Witter. We have not made any independent valuation or appraisal of
the assets or liabilities of Morgan Stanley and Dean Witter, nor have we been
furnished with any such appraisals. In addition, we have assumed the Merger
will be consummated in accordance with the terms set forth in the Merger
Agreement. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof.
We have acted as financial advisor to the Board of Directors of Morgan
Stanley in connection with this transaction. Morgan Stanley & Co. Incorporated
is an affiliate of Morgan Stanley Group Inc. It is understood that this letter
is for the information of the Board of Directors of Morgan Stanley and may not
be used for any other purpose without our prior written consent, except that
this opinion may be included in its entirety in any filing with the Securities
and Exchange Commission in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of Morgan Stanley Common Stock (other than
Dean Witter and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Bruce D. Fiedorek
-----------------------------
Bruce D. Fiedorek
Managing Director
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ANNEX VI
DEAN WITTER, DISCOVER & CO.
EMPLOYEES' EQUITY ACCUMULATION PLAN
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 "Board" shall mean the Board of Directors of Dean Witter Discover.
2.5 "Cash" shall mean United States currency.
2.6 "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.
2.7 "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 Dean
Witter Discover, as described in Section 3.1.
2.9 "Company" shall mean Dean Witter Discover 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 Dean Witter Discover.
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 organization 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 "Dean Witter Discover" shall mean Dean Witter, Discover & Co., a
Delaware corporation, or any successor thereto.
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2.12 "Disability" shall mean the termination of a Participant's employment
with the Company under circumstances that (i) 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 Dean Witter Discover Long Term
Disability Plan or any successor thereto.
2.13 "Executive Officer" shall mean an executive officer of Dean Witter
Discover 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 (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 20 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 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.
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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 Dean Witter Discover, 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 administering 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 and (vi) to delegate any of its powers to
Dean Witter Discover's chief executive officer, except with respect to any
person subject to the provisions 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;
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(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 and (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); and (ii)
shares of Stock delivered or withheld (or deliverable or 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.
6.2 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, Dean Witter Discover'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 Section 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.
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(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; (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 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
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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 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 the payment or settlement of any Award granted under
the Plan, including, without limitation, any Award subject to a prior deferral
election, provided,
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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
combination thereof under certain circumstances (which may include but need
not be limited to, certain types of termination of employment 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.
(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 non-qualified 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,
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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 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.
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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 prescribe, 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 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 acceptable 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 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 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.
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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).
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 Awards 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 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.
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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 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.
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.
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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.
(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
simultaneously 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 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
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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.
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 Dean Witter Discover.
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.
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.
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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.
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ANNEX VII
DELAWARE GENERAL CORPORATION LAW
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class of
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title.
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system of the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement or merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by a
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall not
be more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or
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after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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<PAGE>
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
VII-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL allows a corporation to eliminate the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except in cases where the
director breached his or her duty of loyalty to the corporation or its
stockholders, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of the law, willfully or negligently authorized the
unlawful payment of a dividend or approved an unlawful stock redemption or
repurchase or obtained an improper personal benefit. The Registrant's Amended
and Restated Certificate of Incorporation, as amended, contains a provision
which eliminates directors' personal liability as set forth above.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended, and the Registrant's Amended and Restated By-Laws provide in effect
that the Registrant shall indemnify its directors and officers, and may
indemnify its employees and agents, to the extent permitted by the DGCL.
Section 145 of the DGCL provides that a Delaware corporation has the power to
indemnify its directors, officers, employees and agents in certain
circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director, officer, employee or agent, or former director,
officer, employee or agent, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding provided that such
director, officer, employee or agent acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such director, officer, employee or agent had no reasonable cause to
believe that his or her conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any director, officer, employee or agent, or former director,
officer, employee or agent, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth above, against
expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit provided that
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery shall determine that
despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
or employee of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith; that indemnification provided by Section 145
shall not be deemed exclusive of any other rights to which the party seeking
indemnification may be entitled; and the corporation is empowered to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or her or incurred
by him or her in any such capacity or arising out of his or her status as such
whether or not the corporation would have the power to indemnify him or her
against such liabilities under Section 145; and that, unless indemnification
is ordered by a court, the determination that indemnification under
subsections (a) and (b) or Section 145 is proper because the director,
officer, employee or agent has met the applicable standard of conduct under
such subsections shall be made by (1) a majority vote of the directors who are
not parties to such
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<PAGE>
action, suit or proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
The Registrant has in effect insurance policies in the amount of $75 million
for general officers' and directors' liability insurance and $25 million for
fiduciary liability insurance covering all of the Registrant's directors and
officers in certain instances where by law they may not be indemnified by the
Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") dated as of April 10, 1997, between the Registrant and Morgan
Stanley Group Inc. ("Morgan Stanley") (included as Annex I to the Joint
Proxy Statement/Prospectus which is a part of this Registration Statement
on Form S-4).
2.2 Stock Option Agreement dated as of February 4, 1997, between the
Registrant, as issuer, and Morgan Stanley, as grantee (included as Annex
II to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
2.3 Stock Option Agreement dated as of February 4, 1997, between Morgan
Stanley, as issuer, and the Registrant, as grantee (included as Annex III
to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
3.1* Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement (No. 33-56104) on Form S-1, filed with the
Commission on December 21, 1992 (the "1992 S-1 Registration Statement")).
3.2* Certificate of Designation of the Registrant relating to the Registrant's
Series A Junior Participating Preferred Stock (incorporated by reference
to Exhibit 3(b) to the Registrant's Registration Statement (No. 33-92172)
on Form S-3, filed with the Commission on May 11, 1995 (the "1995 S-3
Registration Statement")).
3.3* Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant as filed with the Secretary of State of
the State of Delaware on May 24, 1995 (incorporated by reference to
Exhibit 3(c) to the 1995 S-3 Registration Statement).
3.4 Form of Restated Certificate of Incorporation of the Registrant (included
as Exhibit A-1 to the Merger Agreement in Annex I to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on
Form S-4).
3.5* Amended and Restated By-laws of the Registrant (incorporated by reference
to Exhibit 3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
4.1* Specimen certificate representing the Registrant's Common Stock
(incorporated by reference to Exhibit 4 to the 1992 S-1 Registration
Statement).
4.2* Rights Agreement dated as of April 25, 1995, between the Registrant and
The Chase Manhattan Bank (formerly Chemical Bank), as Rights Agent, which
includes as Exhibit B thereto the Form of Rights Certificate
(incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A, filed with the Commission on April 25, 1995).
4.3* Amendment dated as of February 4, 1997, to the Rights Agreement dated as
of April 25, 1995, as amended, between the Registrant and The Chase
Manhattan Bank (formerly Chemical Bank), as Rights Agent (incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K
dated February 4, 1997).
4.4* Indenture dated as of February 24, 1993, between the Registrant and The
First National Bank of Chicago~, as Trustee (incorporated by reference to
Exhibit 4 to the Registrant's Registration Statement (No. 33-57202) on
Form S-3, filed with the Commission on January 21, 1993).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
4.5* Form of the Registrant's Medium-Term Note Series I (Fixed Rate)
(incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated November 18, 1993).
4.6* Form of the Registrant's Medium-Term Note Series I (Floating Rate)
(incorporated by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated November 18, 1993).
4.7* Form of the Registrant's 6 1/2% Notes due November 1, 2005
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated November 2, 1993).
4.8* Form of the Registrant's 6 3/4% Debentures due October 15, 2013
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated October 21, 1993).
4.9* Form of the Registrant's 6 1/4% Notes due March 15, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated March 9, 1993).
4.10* Form of the Registrant's 6% Notes due March 1, 1998 (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form
8-K dated February 25, 1993).
4.11* Form of the Registrant's 6 7/8% Notes due March 1, 2003 (incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated February 25, 1993).
4.12* Form of the Registrant's LIBOR Floating Rate Notes due March 1, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated February 22, 1995).
4.13* Form of the Registrant's 6.75% Notes due August 15, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated August 16, 1995).
4.14* Form of the Registrant's 6.75% Debentures due January 1, 2016
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated January 4, 1996).
4.15* Form of the Registrant's 6.30% Notes due January 15, 2006
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated January 18, 1996).
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of
securities being issued.
8.1 Opinion of Cravath, Swaine & Moore as to tax matters.
8.2 Opinion of Davis Polk & Wardwell as to tax matters.
10.1* Guaranty of Lease dated March 19, 1992, by the Registrant in favor of
Harborside Exchange Place Limited Partnership and Plaza II and III
Urban Renewal Associates L.P. (incorporated by reference to Exhibit
10.1 to the 1992 S-1 Registration Statement).
10.2* Lease Agreement dated March 19, 1979, between the Port Authority of
New York and New Jersey and Dean Witter Reynolds Inc. (incorporated
by reference to Exhibit 10.2 to the l992 S-1 Registration Statement).
10.3* Master Separation Agreement between the Registrant and Sears, Roebuck
and Co. (incorporated by reference to Exhibit 10.3 to the 1992 S-1
Registration Statement).
10.4* Master Agreement for Systems Operations Services dated as of January
1, 1996, by and between the Registrant and Advantis, a New York
general partnership (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Form 10-K")).
10.5* Form of Pooling and Servicing Agreement used in connection with the
securitization of Discover Card receivables (incorporated by
reference to Exhibit 10.6 to the 1992 S-1 Registration Statement).
10.6* Pooling and Servicing Agreement between Greenwood Trust Company as
Master Servicer, Servicer and Seller and Continental Bank, National
Association, as Trustee, dated as of October 1, 1993 (incorporated by
reference to Exhibit 4.1 to the Discover Card Master Trust I
Registration Statement (No. 33-71502) on Form S-1, filed with the
Commission on November 10, 1993).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.7* First Amendment to Pooling and Servicing Agreement dated as of August
15, 1994, between Greenwood Trust Company, as Master Servicer,
Servicer and Seller and Bank of America Illinois (formerly
Continental Bank, National Association), as Trustee (incorporated by
reference to Exhibit 4.4 to the Discover Card Master Trust I Current
Report on Form 8-K dated August 1, 1995).
10.8* Second Amendment to Pooling and Servicing Agreement dated as of
February 29, 1996, between Greenwood Trust Company as Master
Servicer, Servicer and Seller and First Bank National Association
(successor trustee to Bank of America Illinois, formerly Continental
Bank, National Association), as Trustee (incorporated by reference to
Exhibit 4.4 in the Discover Card Master Trust I Current Report on
Form 8-K dated April 30, 1996).
10.9* Dean Witter START Plan (Saving Today Affords Retirement Tomorrow),
Amended and Restated as of January 1, 1997 (incorporated by reference
to Exhibit 10.9 to the 1996 Form 10-K).
10.10* Dean Witter Financial Services Group Inc. Capital Accumulation Plan
(currently known as the Dean Witter, Discover & Co. Capital
Accumulation Plan), Amended and Restated as of December 31, 1991
(incorporated by reference to Exhibit 10.24 to the 1992 S-1
Registration Statement).
10.11* First Amendment to the Dean Witter, Discover & Co. Capital
Accumulation Plan (adopted November 10, 1993) (incorporated by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 (the "1993 Form 10-K")).
10.12* Dean Witter Reynolds Inc. Supplemental Pension Plan (formerly known
as the Dean Witter Reynolds Financial Services Inc. Supplemental
Pension Plan for Executives), Amended and Restated as of December 14,
1993 (incorporated by reference to Exhibit 10.32 to the 1993 Form 10-
K).
10.13* Dean Witter, Discover & Co. Omnibus Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement (No. 33-63024) on Form S-8, filed with the
Commission on May 19, 1993 (the "1993 S-8 Registration Statement")).
10.14* Dean Witter, Discover & Co. Employees Replacement Stock Plan
(incorporated by reference to Exhibit 4.2 to the 1993 S-8
Registration Statement).
10.15* First Amendment to Dean Witter, Discover & Co. Employees Replacement
Stock Plan (adopted June 18, 1993) (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
November 18, 1993).
10.16* Dean Witter, Discover & Co. 1993 Stock Plan for Non-Employee
Directors (incorporated by reference to Exhibit 4.3 to the 1993 S-8
Registration Statement).
10.17* Amendment to the Dean Witter, Discover & Co. 1993 Stock Plan for Non-
Employee Directors (incorporated by reference to Exhibit 10.37 to the
1993 Form 10-K).
10.18* Sears Consumer Financial Corporation Supplemental Retirement Income
Plan (currently known as the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan), effective as of January 1, 1989
(incorporated by reference to Exhibit 10.36 to the 1992 S-1
Registration Statement).
10.19* First Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted December 8, 1992) (incorporated by
reference to Exhibit 10.41 to the 1993 Form 10-K).
10.20* Second Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted June 15, 1993) (incorporated by
reference to Exhibit 10.42 to the 1993 Form 10-K).
10.21* Third Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted February 13, 1995) (incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (the "1994 Form 10-K")).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.22* Dean Witter, Discover & Co. Transferred Executives Pension
Supplement, Amended and Restated as of January 1, 1995 (incorporated
by reference to Exhibit 10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995).
10.23* Tax Sharing Agreement between the Registrant and Sears, Roebuck and
Co. (incorporated by reference to Exhibit 10.40 to the 1992 S-1
Registration Statement).
10.24* Lease Agreement dated July 8, 1985, by and between Fund for Regional
Development acting by and through The Port Authority of New York and
New Jersey and Dean Witter Reynolds Inc. (incorporated by reference
to Exhibit 10.41 to the 1992 S-1 Registration Statement).
10.25* Employee Benefits Allocation Agreement between the Registrant and
Sears, Roebuck and Co. (incorporated by reference to Exhibit 10.44 to
the 1992 S-1 Registration Statement).
10.26* Dean Witter, Discover & Co. 1994 Omnibus Equity Plan (incorporated by
reference to Exhibit 10.52 to the 1993 Form 10-K).
10.27* Dean Witter, Discover & Co. Tax Deferred Equity Participation Plan,
Amended and Restated October 21, 1994 (incorporated by reference to
Exhibit 4.1 to the Post-Effective Amendment No. 1 to the Registrant's
Registration Statement (No. 33-82240) on Form S-8, filed with the
Commission on August 1, 1994).
10.28* Dean Witter, Discover & Co. 1994 Formula Compensation Plan, as
amended (incorporated by reference to Exhibit 10.40 to the 1994 Form
10-K).
10.29* Dean Witter, Discover & Co. Employee Stock Purchase Plan, Amended and
Restated as of January 1, 1996 (incorporated by reference to Exhibit
10.42 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 Form 10-K")).
10.30* $3.25 billion Credit Agreement dated May 5, 1995, among the
Registrant, Morgan Guaranty Trust Company of New York, as
Documentation Agent, Chemical Bank, as Administrative Agent, and the
other banks named therein (incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
10.31* $4.0 billion Credit Agreement, dated April 19, 1996, among the
Registrant and Morgan Guaranty Trust Company of New York, The Chase
Manhattan Bank (formerly Chemical Bank) and other banks named therein
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.32* Key Executive Employment Plan, as amended April 19, 1996
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.33* Dean Witter, Discover & Co. Directors' Equity Capital Accumulation
Plan (incorporated by reference to Exhibit 10.45 to the 1995 Form 10-
K).
10.34* Dean Witter, Discover & Co. Employees' Equity Accumulation Plan
(incorporated by reference to Exhibit 10.34 to the 1996 Form 10-K).
11.1* Statement re: Computation of per share earnings of Registrant
(incorporated by reference to Exhibit 11 to the 1996 Form 10-K).
12.1* Statement re: Ratio of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12 to the 1996 Form 10-K).
13.1* Annual Report to Shareholders of the Registrant (incorporated by
reference to Exhibit 13 to the 1996 Form 10-K).
21.1* Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to the 1996 Form 10-K).
23.1 Consent of Deloitte & Touche LLP.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibits 5.1 and
8.1).
23.4 Consent of Davis Polk & Wardwell (contained in Exhibit 8.2).
23.5 Consent of Wasserstein Perella & Co., Inc.
23.6 Consent of Morgan Stanley & Co. Incorporated.
24.1 Powers of Attorney (included on the signature page of this
Registration Statement on Form S-4).
99.1 Consents of persons named to become directors of the Registrant who
have not signed this Registration Statement on Form S-4.
99.2 Form of Proxy for the Annual Meeting of Stockholders of the
Registrant.
99.3 Form of Proxy for the Special Meeting of Stockholders of Morgan
Stanley.
</TABLE>
- --------
* Incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
[None]
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes: (a) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar amount of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(2) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through the use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(3) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used
II-6
<PAGE>
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(7) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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<PAGE>
SIGNATURES OF DEAN WITTER, DISCOVER & CO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK AND STATE OF NEW YORK, ON
THE 11TH DAY OF APRIL, 1997.
Dean Witter, Discover & Co.
(Registrant)
/s/ Philip J. Purcell
By: _________________________________
PHILIP J. PURCELL CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each persons whose signature appears
below hereby constitutes and appoints Christine A. Edwards, Mitchell M. Merin,
Ronald T. Carman and Michael T. Gregg, and each of them singly, his or her
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement (any of which amendments may make
such changes and additions to this Registration Statement as such attorneys-
in-fact may deem necessary or appropriate) and to file the same, with all
exhibits thereto, and any other documents that may be required in connection
therewith, granting unto said attorneys-in-fact and agents full power and
authority to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 11TH DAY OF APRIL, 1997.
SIGNATURES TITLE
/s/ Philip J. Purcell Chairman of the Board, Chief
- ------------------------------------- Executive Officer and Director
PHILIP J. PURCELL (Principal Executive Officer)
/s/ Thomas C. Schneider Executive Vice President and Chief
- ------------------------------------- Financial Officer (Principal
THOMAS C. SCHNEIDER Financial Officer)
/s/ Robert P. Seass Senior Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
ROBERT P. SEASS
/s/ Nancy Kassebaum Baker Director
- -------------------------------------
NANCY KASSEBAUM BAKER
/s/ Edward A. Brennan Director
- -------------------------------------
EDWARD A. BRENNAN
/s/ Alfred C. DeCrane, Jr. Director
- -------------------------------------
ALFRED C. DECRANE, JR.
II-8
<PAGE>
SIGNATURES TITLE
/s/ Robert M. Gardiner Director
- -------------------------------------
ROBERT M. GARDINER
/s/ C. Robert Kidder Director
- -------------------------------------
C. ROBERT KIDDER
/s/ Miles L. Marsh Director
- -------------------------------------
MILES L. MARSH
/s/ Michael A. Miles Director
- -------------------------------------
MICHAEL A. MILES
/s/ Sybil C. Mobley Director
- -------------------------------------
SYBIL C. MOBLEY
/s/ Clarence B. Rogers, Jr. Director
- -------------------------------------
CLARENCE B. ROGERS, JR.
II-9
<PAGE>
EXHIBIT INDEX
EXHIBITS
<TABLE>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") dated as of April 10, 1997, between the Registrant and Morgan
Stanley Group Inc. ("Morgan Stanley") (included as Annex I to the Joint
Proxy Statement/Prospectus which is a part of this Registration Statement
on Form S-4).
2.2 Stock Option Agreement dated as of February 4, 1997, between the
Registrant, as issuer, and Morgan Stanley, as grantee (included as Annex
II to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
2.3 Stock Option Agreement dated as of February 4, 1997, between Morgan
Stanley, as issuer, and the Registrant, as grantee (included as Annex III
to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
3.1* Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement (No. 33-56104) on Form S-1, filed with the
Commission on December 21, 1992 (the "1992 S-1 Registration Statement")).
3.2* Certificate of Designation of the Registrant relating to the Registrant's
Series A Junior Participating Preferred Stock (incorporated by reference
to Exhibit 3(b) to the Registrant's Registration Statement (No. 33-92172)
on Form S-3, filed with the Commission on May 11, 1995 (the "1995 S-3
Registration Statement")).
3.3* Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant as filed with the Secretary of State of
the State of Delaware on May 24, 1995 (incorporated by reference to
Exhibit 3(c) to the 1995 S-3 Registration Statement).
3.4 Form of Restated Certificate of Incorporation of the Registrant (included
as Exhibit A-1 to the Merger Agreement in Annex I to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on
Form S-4).
3.5* Amended and Restated By-laws of the Registrant (incorporated by reference
to Exhibit 3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
4.1* Specimen certificate representing the Registrant's Common Stock
(incorporated by reference to Exhibit 4 to the 1992 S-1 Registration
Statement).
4.2* Rights Agreement dated as of April 25, 1995, between the Registrant and
The Chase Manhattan Bank (formerly Chemical Bank), as Rights Agent, which
includes as Exhibit B thereto the Form of Rights Certificate
(incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A, filed with the Commission on April 25, 1995).
4.3* Amendment dated as of February 4, 1997, to the Rights Agreement dated as
of April 25, 1995, as amended, between the Registrant and The Chase
Manhattan Bank (formerly Chemical Bank), as Rights Agent (incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K
dated February 4, 1997).
4.4* Indenture dated as of February 24, 1993, between the Registrant and The
First National Bank of Chicago~, as Trustee (incorporated by reference to
Exhibit 4 to the Registrant's Registration Statement (No. 33-57202) on
Form S-3, filed with the Commission on January 21, 1993).
4.5* Form of the Registrant's Medium-Term Note Series I (Fixed Rate)
(incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated November 18, 1993).
4.6* Form of the Registrant's Medium-Term Note Series I (Floating Rate)
(incorporated by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated November 18, 1993).
4.7* Form of the Registrant's 6 1/2% Notes due November 1, 2005 (incorporated
by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K
dated November 2, 1993).
4.8* Form of the Registrant's 6 3/4% Debentures due October 15, 2013
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated October 21, 1993).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
4.9* Form of the Registrant's 6 1/4% Notes due March 15, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated March 9, 1993).
4.10* Form of the Registrant's 6% Notes due March 1, 1998 (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form
8-K dated February 25, 1993).
4.11* Form of the Registrant's 6 7/8% Notes due March 1, 2003 (incorporated
by reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated February 25, 1993).
4.12* Form of the Registrant's LIBOR Floating Rate Notes due March 1, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated February 22, 1995).
4.13* Form of the Registrant's 6.75% Notes due August 15, 2000
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated August 16, 1995).
4.14* Form of the Registrant's 6.75% Debentures due January 1, 2016
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated January 4, 1996).
4.15* Form of the Registrant's 6.30% Notes due January 15, 2006
(incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated January 18, 1996).
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of
securities being issued.
8.1 Opinion of Cravath, Swaine & Moore as to tax matters.
8.2 Opinion of Davis Polk & Wardwell as to tax matters.
10.1* Guaranty of Lease dated March 19, 1992, by the Registrant in favor of
Harborside Exchange Place Limited Partnership and Plaza II and III
Urban Renewal Associates L.P. (incorporated by reference to Exhibit
10.1 to the 1992 S-1 Registration Statement).
10.2* Lease Agreement dated March 19, 1979, between the Port Authority of
New York and New Jersey and Dean Witter Reynolds Inc. (incorporated
by reference to Exhibit 10.2 to the l992 S-1 Registration Statement).
10.3* Master Separation Agreement between the Registrant and Sears, Roebuck
and Co. (incorporated by reference to Exhibit 10.3 to the 1992 S-1
Registration Statement).
10.4* Master Agreement for Systems Operations Services dated as of January
1, 1996, by and between the Registrant and Advantis, a New York
general partnership (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Form 10-K")).
10.5* Form of Pooling and Servicing Agreement used in connection with the
securitization of Discover Card receivables (incorporated by
reference to Exhibit 10.6 to the 1992 S-1 Registration Statement).
10.6* Pooling and Servicing Agreement between Greenwood Trust Company as
Master Servicer, Servicer and Seller and Continental Bank, National
Association, as Trustee, dated as of October 1, 1993 (incorporated by
reference to Exhibit 4.1 to the Discover Card Master Trust I
Registration Statement (No. 33-71502) on Form S-1, filed with the
Commission on November 10, 1993).
10.7* First Amendment to Pooling and Servicing Agreement dated as of August
15, 1994, between Greenwood Trust Company, as Master Servicer,
Servicer and Seller and Bank of America Illinois (formerly
Continental Bank, National Association), as Trustee (incorporated by
reference to Exhibit 4.4 to the Discover Card Master Trust I Current
Report on Form 8-K dated August 1, 1995).
10.8* Second Amendment to Pooling and Servicing Agreement dated as of
February 29, 1996, between Greenwood Trust Company as Master
Servicer, Servicer and Seller and First Bank National Association
(successor trustee to Bank of America Illinois, formerly Continental
Bank, National Association), as Trustee (incorporated by reference to
Exhibit 4.4 in the Discover Card Master Trust I Current Report on
Form 8-K dated April 30, 1996).
10.9* Dean Witter START Plan (Saving Today Affords Retirement Tomorrow),
Amended and Restated as of January 1, 1997 (incorporated by reference
to Exhibit 10.9 to the 1996 Form 10-K).
10.10* Dean Witter Financial Services Group Inc. Capital Accumulation Plan
(currently known as the Dean Witter, Discover & Co. Capital
Accumulation Plan), Amended and Restated as of December 31, 1991
(incorporated by reference to Exhibit 10.24 to the 1992 S-1
Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.11* First Amendment to the Dean Witter, Discover & Co. Capital
Accumulation Plan (adopted November 10, 1993) (incorporated by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 (the "1993 Form 10-K").
10.12* Dean Witter Reynolds Inc. Supplemental Pension Plan (formerly known
as the Dean Witter Reynolds Financial Services Inc. Supplemental
Pension Plan for Executives), Amended and Restated as of December 14,
1993 (incorporated by reference to Exhibit 10.32 to the 1993 Form 10-
K).
10.13* Dean Witter, Discover & Co. Omnibus Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement (No. 33-63024) on Form S-8, filed with the
Commission on May 19, 1993 (the "1993 S-8 Registration Statement")).
10.14* Dean Witter, Discover & Co. Employees Replacement Stock Plan
(incorporated by reference to Exhibit 4.2 to the 1993 S-8
Registration Statement).
10.15* First Amendment to Dean Witter, Discover & Co. Employees Replacement
Stock Plan (adopted June 18, 1993) (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
November 18, 1993).
10.16* Dean Witter, Discover & Co. 1993 Stock Plan for Non-Employee
Directors (incorporated by reference to Exhibit 4.3 to the 1993 S-8
Registration Statement).
10.17* Amendment to the Dean Witter, Discover & Co. 1993 Stock Plan for Non-
Employee Directors (incorporated by reference to Exhibit 10.37 to the
1993 Form 10-K).
10.18* Sears Consumer Financial Corporation Supplemental Retirement Income
Plan (currently known as the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan), effective as of January 1, 1989
(incorporated by reference to Exhibit 10.36 to the 1992 S-1
Registration Statement).
10.19* First Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted December 8, 1992) (incorporated by
reference to Exhibit 10.41 to the 1993 Form 10-K).
10.20* Second Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted June 15, 1993) (incorporated by
reference to Exhibit 10.42 to the 1993 Form 10-K).
10.21* Third Amendment to the NOVUS Credit Services Inc. Supplemental
Retirement Income Plan (adopted February 13, 1995) (incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (the "1994 Form 10-K").
10.22* Dean Witter, Discover & Co. Transferred Executives Pension
Supplement, Amended and Restated as of January 1, 1995 (incorporated
by reference to Exhibit 10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995).
10.23* Tax Sharing Agreement between the Registrant and Sears, Roebuck and
Co. (incorporated by reference to Exhibit 10.40 to the 1992 S-1
Registration Statement).
10.24* Lease Agreement dated July 8, 1985, by and between Fund for Regional
Development acting by and through The Port Authority of New York and
New Jersey and Dean Witter Reynolds Inc. (incorporated by reference
to Exhibit 10.41 to the 1992 S-1 Registration Statement).
10.25* Employee Benefits Allocation Agreement between the Registrant and
Sears, Roebuck and Co. (incorporated by reference to Exhibit 10.44 to
the 1992 S-1 Registration Statement).
10.26* Dean Witter, Discover & Co. 1994 Omnibus Equity Plan (incorporated by
reference to Exhibit 10.52 to the 1993 Form 10-K).
10.27* Dean Witter, Discover & Co. Tax Deferred Equity Participation Plan,
Amended and Restated October 21, 1994 (incorporated by reference to
Exhibit 4.1 to the Post-Effective Amendment No. 1 to the Registrant's
Registration Statement (No. 33-82240) on Form S-8, filed with the
Commission on August 1, 1994).
10.28* Dean Witter, Discover & Co. 1994 Formula Compensation Plan, as
amended (incorporated by reference to Exhibit 10.40 to the 1994 Form
10-K).
10.29* Dean Witter, Discover & Co. Employee Stock Purchase Plan, Amended and
Restated as of January 1, 1996 (incorporated by reference to Exhibit
10.42 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 Form 10-K")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.30* $3.25 billion Credit Agreement dated May 5, 1995, among the
Registrant, Morgan Guaranty Trust Company of New York, as
Documentation Agent, Chemical Bank, as Administrative Agent, and the
other banks named therein (incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
10.31* $4.0 billion Credit Agreement, dated April 19, 1996, among the
Registrant and Morgan Guaranty Trust Company of New York, The Chase
Manhattan Bank (formerly Chemical Bank) and other banks named therein
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.32* Key Executive Employment Plan, as amended April 19, 1996
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.33* Dean Witter, Discover & Co. Directors' Equity Capital Accumulation
Plan (incorporated by reference to Exhibit 10.45 to the 1995 Form 10-
K).
10.34* Dean Witter, Discover & Co. Employees' Equity Accumulation Plan
(incorporated by reference to Exhibit 10.34 to the 1996 Form 10-K).
11.1* Statement re: Computation of per share earnings of Registrant
(incorporated by reference to Exhibit 11 to the 1996 Form 10-K).
12.1* Statement re: Ratio of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12 to the 1996 Form 10-K).
13.1* Annual Report to Shareholders of the Registrant (incorporated by
reference to Exhibit 13 to the 1996 Form 10-K).
21.1* Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to the 1996 Form 10-K).
23.1 Consent of Deloitte & Touche llp.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibits 5.1 and
8.1).
23.4 Consent of Davis Polk & Wardwell (contained in Exhibit 8.2).
23.5 Consent of Wasserstein Perella & Co., Inc.
23.6 Consent of Morgan Stanley & Co. Incorporated.
24.1 Powers of Attorney (included on the signature page of this
Registration Statement on Form S-4).
99.1 Consents of persons named to become directors of the Registrant who
have not signed this Registration Statement on Form S-4.
99.2 Form of Proxy for the Annual Meeting of Stockholders of the
Registrant.
99.3 Form of Proxy for the Special Meeting of Stockholders of Morgan
Stanley.
</TABLE>
- --------
* Incorporated herein by reference.
<PAGE>
EXHIBIT 5.1
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
April , 1997
Dean Witter, Discover & Co.
---------------------------
Merger with Morgan Stanley Group Inc.
-------------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel for Dean Witter, Discover & Co., a Delaware
corporation ("Dean Witter Discover"), in connection with the Agreement and Plan
of Merger dated as of February 4, 1997, as amended and restated on April ,
1997 (as amended and restated, the "Merger Agreement"), between Dean Witter
Discover and Morgan Stanley Group Inc., a Delaware corporation ("Morgan
Stanley"). The Merger Agreement provides for, among other things, the merger of
Morgan Stanley with and into Dean Witter Discover (the "Merger"). Dean Witter
Discover will be the surviving corporation in the Merger (the "Surviving
Corporation") and will be renamed Morgan Stanley, Dean Witter, Discover & Co.
Pursuant to the Merger Agreement, each outstanding share of common stock, par
value $1.00 per share, of Morgan Stanley ("Morgan Stanley Common Stock") (other
than certain shares of Morgan Stanley Common Stock owned by Dean Witter Discover
or Morgan Stanley, which will be cancelled) will be converted, upon the
effectiveness of the Merger (the "Effective Time"), into 1.65 shares of common
stock, par value $0.01 per share, of Dean Witter Discover ("Dean Witter Discover
Common Stock"). In addition, pursuant to the Merger Agreement, each outstanding
share of preferred stock, without par value, of Morgan Stanley ("Morgan Stanley
Preferred Stock") (other than certain shares of Morgan Stanley Preferred Stock
owned by Dean Witter Discover or Morgan Stanley, which will be cancelled) will
be converted, at the Effective Time, into one share of a corresponding series of
preferred stock, par value $0.01 per share, of Dean Witter Discover ("Dean
Witter Discover Preferred Stock"). The shares of Dean Witter Discover Common
Stock and Dean Witter Preferred Stock that are to be issued at the
<PAGE>
Effective Time in connection with the Merger are referred to herein as the
"Shares".
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for the purposes of this opinion.
In such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
originals of all documents submitted to us as copies. We have relied upon the
opinion of Richards, Layton & Finger, Delaware counsel to Dean Witter Discover
as to the due authorization of the Shares. We have also relied, to the extent
that we deemed such reliance proper, upon certificates of public officials with
respect to the accuracy of material factual matters contained therein which were
not independently established.
Based on such examination, we are of opinion that the Shares, when issued
at the Effective Time in accordance with the Merger Agreement, will be legally
issued, fully paid and nonassessable.
We hereby consent to the inclusion of this opinion as an exhibit to the
registration statement on Form S-4 filed with the Securities and Exchange
Commission with respect to the Merger and the issuance of the Shares in
connection therewith and consent to the reference to this opinion under the
heading "Legal Matters" in the Joint Proxy Statement/Prospectus included
therein.
Very truly yours,
Dean Witter, Discover & Co.
Two World Trade Center
New York, New York 10048
O
<PAGE>
EXHIBIT 8.1
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
April 10, 1997
Amended and Restated Agreement and Plan of Merger
-------------------------------------------------
Dated as of April 10, 1997
--------------------------
Between Dean Witter, Discover & Co. and Morgan Stanley
------------------------------------------------------
Group Inc.
----------
Dear Ladies and Gentlemen:
We have acted as counsel for Dean Witter, Discover & Co., a Delaware
corporation ("DWD"), in connection with the proposed merger (the "Merger") of
Morgan Stanley Group Inc., a Delaware corporation ("MS"), with and into DWD
pursuant to an Amended and Restated Agreement and Plan of Merger dated as of
April 10, 1997 (the "Merger Agreement"), between DWD and MS under which each
issued and outstanding share of MS common stock will be converted into DWD
common stock and each issued and outstanding share of MS preferred stock will be
converted into a corresponding series of DWD preferred stock.
In that connection, you have requested our opinion regarding certain
Federal income tax consequences of the Merger. In providing our opinion, we
have examined the Merger Agreement, the joint proxy statement/prospectus of DWD
and MS to be dated as of April [ ], 1997 (the "Proxy Statement-Prospectus"), and
such other documents and corporate records as we have deemed necessary or
appropriate for purposes of our opinion. In addition, we have assumed that (i)
the Merger will be consummated in the manner contemplated by the Proxy
Statement-Prospectus and in accordance with the provisions of the Merger
Agreement and (ii) the representations made to us by DWD and MS in their
respective letters to us dated April 9, 1997, and delivered to us for purposes
of this opinion are accurate and complete.
<PAGE>
2
Based upon the foregoing, in our opinion, the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), DWD and MS
will each be a party to that reorganization within the meaning of Section 368(b)
of the Code and no gain or loss will be recognized by the stockholders of MS
upon their exchange of MS stock for DWD stock under Section 354 of the Code
(except to the extent such a stockholder receives cash in lieu of fractional
shares and to the extent of a payment of transfer taxes made on behalf of such
stockholder, if any).
The opinions expressed herein are based upon existing statutory, regulatory
and judicial authority, any of which may be changed at any time with retroactive
effect. In addition, our opinions are based solely on the documents that we have
examined, the additional information that we have obtained, and the statements
contained in the letters from DWD and MS referred to above, which we have
assumed will be true as of the effective time of the Merger. Our opinions
cannot be relied upon if any of the facts pertinent to the Federal income tax
treatment of the Merger stated in such documents or in such additional
information is, or later becomes, inaccurate, or if any of the statements
contained in the letters from DWD or MS referred to above are, or later become,
inaccurate. Finally, our opinions are limited to the tax matters specifically
covered hereby, and we have not been asked to address, nor have we addressed,
any other tax consequences of the Merger or any other transactions.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Proxy Statement-
Prospectus under the caption "The Merger--Federal Income Tax Considerations".
<PAGE>
3
This opinion is being provided solely for the benefit of DWD. No other
person or party shall be entitled to rely on this opinion.
Very truly yours,
Dean Witter, Discover & Co.
Two World Trade Center
New York, New York 10048
387a
O
<PAGE>
EXHIBIT 8.2
212-450-4000
[Letterhead of]
DAVIS POLK& WARDWELL
[New York Office]
April __, 1997
Re: Amended and Restated Agreement and Plan of Merger
Dated as of April __, 1997 between Morgan Stanley
Group Inc. and Dean Witter, Discover & Co.
-------------------------------------------------
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
We have acted as counsel for Morgan Stanley Group Inc., a Delaware
corporation ("MS"), in connection with the proposed merger (the "Merger") of MS
with and into Dean Witter, Discover & Co., a Delaware corporation ("DWD"),
pursuant to an Amended and Restated Agreement and Plan of Merger dated as of
April __, 1997 (the "Merger Agreement") between MS and DWD pursuant to which
each issued and outstanding share of MS common stock will be converted into DWD
common stock and each issued and outstanding share of MS preferred stock will be
converted into a corresponding series of DWD preferred stock.
In that connection, you have requested our opinion regarding certain United
States federal income tax consequences of the Merger. In providing our opinion,
we have examined the Merger Agreement, the joint proxy statement/prospectus of
MS and DWD to be dated as of April [ ], 1997 (the "Proxy Statement-Prospectus"),
and such other documents and corporate records as we have deemed necessary or
appropriate for purposes of our opinion. In addition, we have assumed that (i)
the Merger will be
<PAGE>
consummated in the manner contemplated by the Proxy Statement-Prospectus and in
accordance with the provisions of the Merger Agreement and (ii) the
representations made to us by MS and DWD in their respective letters to us dated
April [ ], 1997, and delivered to us for purposes of this opinion are accurate
and complete.
Based upon the foregoing, in our opinion, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); MS and DWD
will each be a party to that reorganization within the meaning of Section 368(b)
of the Code; no gain or loss will be recognized by the stockholders of MS
upon their exchange of MS stock for DWD stock under Section 354 of the Code
(except to the extent such a stockholder receives cash in lieu of fractional
shares and to the extent of a payment of transfer taxes made on behalf of such
stockholder, if any); and no gain or loss will be recognized by MS upon the
Merger.
We are members of the Bar of the State of New York. The opinions expressed
herein are based upon existing statutory, regulatory and judicial authority, any
of which may be changed at any time with retroactive effect. In addition, our
opinions are based solely on the documents that we have examined, the additional
information that we have obtained, and the statements contained in the letters
from MS and DWD referred to above, which we have assumed will be true as of the
effective time of the Merger. Our opinions cannot be relied upon if any of the
facts pertinent to the United States federal income tax treatment of the Merger
stated in such documents or in such additional information is, or later becomes,
inaccurate, or if any of the statements contained in the letters from MS or DWD
referred to above are, or later become, inaccurate. Finally, our opinions are
limited to the tax matters specifically covered hereby, and we have not been
asked to address, nor have we addressed, any other tax consequences of the
Merger or any other transactions.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Proxy Statement-
Prospectus under the caption "The Merger--Federal Income Tax Considerations."
This opinion is rendered solely to MS in connection with the Merger. No
other person or party shall be entitled to rely on this opinion.
Very truly yours,
[Davis Polk & Wardwell]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
of Dean Witter, Discover & Co. (the "Registrant") on Form S-4 of our reports
dated February 21, 1997, appearing in and incorporated by reference in the
Annual Report on Form 10-K of the Registrant for the year ended December 31,
1996 and to the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
April 11, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 7, 1997, incorporated by reference in the
Joint Proxy Statement/Prospectus of Dean Witter, Discover & Co. and Morgan
Stanley Group Inc. that is made part of the Registration Statement on Form S-4
for the registration of securities of Dean Witter, Discover & Co.
ERNST & YOUNG LLP
New York, New York
April 11, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the use in the Registration Statement on Form S-4, and
in the related Prospectus, of Dean Witter, Discover & Co. (the "Registrant"),
covering the securities of the Registrant to be issued in connection with the
merger of Morgan Stanley Group Inc. ("Morgan Stanley") with and into the
Registrant, and in the related Joint Proxy Statement of the Registrant and
Morgan Stanley, of our opinion dated February 4, 1997 appearing as Annex IV to
such Joint Proxy Statement/Prospectus, and to the description therein of such
opinion; and to the references therein to us under the headings "Summary--
Fairness Opinions of Financial Advisors", "The Merger--Background to the
Merger" and "--Opinions of Financial Advisors". In giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Securities Act"), or the rules and regulations promulgated thereunder,
nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act or the rules and regulations promulgated thereunder.
WASSERSTEIN PERELLA & CO., INC.
New York, New York
April 10, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
April 11, 1997
Dean Witter, Discover & Co.
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of Dean
Witter, Discover & Co. ("Dean Witter Discover") relating to the proposed
merger of Morgan Stanley Group Inc. with and into Dean Witter Discover, of our
opinion letter in the Joint Proxy Statement/Prospectus which is a part of the
Registration Statement, and to the references of our firm name therein. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Bruce D. Fiedorek
By:
----------------------------------
Bruce D. Fiedorek
<PAGE>
EXHIBIT 99.1
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Richard B. Fisher, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 11, 1997 /s/ Richard B. Fisher
_____________________________________
Richard B. Fisher
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, John J. Mack, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 11, 1997 /s/ John J. Mack
_____________________________________
John J. Mack
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Robert P. Bauman, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 11, 1997 /s/ Robert P. Bauman
_____________________________________
Robert P. Bauman
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Daniel B. Burke, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 9, 1997 /s/ Daniel B. Burke
_____________________________________
Daniel B. Burke
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Allen E. Murray, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 11, 1997 /s/ Allen E. Murray
_____________________________________
Allen E. Murray
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Paul J. Rizzo, hereby consent to be named as a person about to
become a director of Morgan Stanley, Dean Witter, Discover & Co. in the
Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated April
11, 1997.
Dated: April 11, 1997 /s/ Paul J. Rizzo
_____________________________________
Paul J. Rizzo
<PAGE>
EXHIBIT 99.1
(CONTINUED)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Dr. Laura D'Andrea Tyson, hereby consent to be named as a person
about to become a director of Morgan Stanley, Dean Witter, Discover & Co. in
the Registration Statement on Form S-4 of Dean Witter, Discover & Co. dated
April 11, 1997.
Dated: April 11, 1997 /s/ Laura D'Andrea Tyson
_____________________________________
Dr. Laura D'Andrea Tyson
<PAGE>
DEAN WITTER, DISCOVER & CO.
Two World Trade Center
New York, New York 10048
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DEAN WITTER,
DISCOVER & CO
The undersigned hereby appoints Christine A. Edwards, Mitchell M. Merin and
Ronald T. Carman, and each of them with full power to act without the others, as
proxies with full power of substitution, to represent and to vote on behalf of
the undersigned all of the shares of common stock of Dean Witter, Discover & Co.
("Dean Witter Discover") which the undersigned is entitled in any capacity to
vote if personally present at the 1997 Annual Meeting of Stockholders of Dean
Witter Discover to be held on May 28, 1997 at 9:00 A.M., local time, and at any
and all adjournments or postponements thereof, upon the proposals listed on the
reverse side of this Proxy and more fully described in the Notice of Annual
Meeting of Stockholders dated April 11, 1997 and the Dean Witter Discover and
Morgan Stanley Group Inc. ("Morgan Stanley") Joint Proxy Statement/Prospectus
dated April 11, 1997 and, in their discretion, for the election of a person to
the Board of Directors if any nominee named herein becomes unable to serve or
for good cause will not serve, upon all matters incident to the conduct of the
Annual Meeting and upon all matters presented at the Annual Meeting but which
were not known to the Board of Directors at a reasonable time before the
solicitation of this proxy.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED AND, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH
PROPOSAL SET FORTH ON THE REVERSE HEREOF AND IN THE DISCRETION OF THE PROXIES ON
ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. YOUR VOTE
SHALL BE KEPT CONFIDENTIAL SUBJECT TO DEAN WITTER DISCOVER'S BY-LAWS.
IMPORTANT - This Proxy must be signed and dated on the reverse side.
(Continued on reverse side)
<PAGE>
THE DEAN WITTER DISCOVER BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE
FOLLOWING PROPOSALS:
1. Proposal to adopt the Amended and Restated Agreement and Plan of Merger,
dated as of April 10, 1997, between Dean Witter Discover and Morgan Stanley,
providing for the merger of Morgan Stanley with and into Dean Witter
Discover.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to elect as directors all nominees listed (except as marked to the
contrary below):
Philip J. Purcell, Thomas C. Schneider, Edward A. Brennan, C. Robert Kidder,
Miles L. Marsh, Michael A. Miles, Clarence B. Rogers, Jr.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and strike a line through the nominee's name.
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
3. Proposal to ratify the appointment of Deloitte & Touche LLP as Dean Witter
Discover's independent auditors for the fiscal year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the Dean Witter Discover Employees' Equity Accumulation
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE CHECK THIS BOX [ ]
Dated ___________________________________________, 1997
Please sign name exactly as imprinted (do not print). If shares are held
jointly, EACH holder should sign. Executors, administrators, trustees, guardians
and others signing in a representative capacity should indicate the capacity in
which they sign. An authorized officer may sign on behalf of a corporation and
should indicate the name of the corporation and his or her capacity.
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature if held jointly
Please indicate any changes in address below.
PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
<PAGE>
PROXY/VOTING INSTRUCTION
MORGAN STANLEY GROUP INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MORGAN STANLEY
FOR THE SPECIAL MEETING OF STOCKHOLDERS, MAY 28, 1997
The undersigned hereby appoints Jonathan M. Clark and Philip N. Duff and
each of them, attorneys and proxies with full power of substitution, to
represent and to vote on behalf of the undersigned all of the shares of common
stock of Morgan Stanley Group Inc. ("Morgan Stanley") which the undersigned is
entitled in any capacity to vote if personally present at the Special Meeting of
Stockholders of Morgan Stanley to be held at 1585 Broadway, New York, New York,
on Wednesday, May 28, 1997 at 9:30 A.M., local time, and at any and all
adjournments or postponements thereof, upon the following proposal more fully
described in the Notice of Special Meeting of Stockholders dated April 11, 1997
and the Dean Witter, Discover & Co. ("Dean Witter Discover") and the Morgan
Stanley Joint Proxy Statement/Prospectus dated April 11, 1997 and, in their
discretion, upon all matters incident to the conduct of the Special Meeting and
all matters presented at the Special Meeting but which were not known to the
Morgan Stanley Board of Directors a reasonable time before the solicitation of
this proxy.
With respect to the shares of common stock of Morgan Stanley, if any,
allocated to my account pursuant to the Morgan Stanley Group Inc. 1988 Equity
Incentive Compensation Plan, as amended, and 1995 Equity Incentive Compensation
Plan (the "EICP Stock") not subject to any voting agreement, the undersigned
hereby directs State Street Bank and Trust Company, as trustee (the "Trustee")
under the Trust Agreement dated as of April 1, 1994 and amended as of April 3,
1996, (a) to vote such shares of EICP Stock at the Special Meeting and at any
and all adjournments or postponements thereof in accordance with the directions
set forth on the reverse side and (b) to grant a proxy to Jonathan M. Clark and
Philip N. Duff, and each of them, giving them discretion to vote such shares of
EICP Stock in connection with such other business as may come before the Special
Meeting. I understand that the Trustee will not vote any allocated shares of
EICP Stock for which no instruction is received.
With respect to the shares of preferred stock ("ESOP Stock") of Morgan
Stanley allocated to my stock account pursuant to the Morgan Stanley Group Inc.
and Subsidiaries Employee Stock Ownership Plan (the "ESOP Plan") and a
proportion of shares of ESOP Stock held in the trust which has not been
allocated to participants in the ESOP Plan, if any, the undersigned hereby
directs Northern Trust Company, as trustee (the "ESOP Trustee"), (a) to vote
such allocated shares of ESOP Stock at the Special Meeting and at any and all
adjournments or postponements thereof in accordance with the directions set
forth on the reverse side, (b) to vote such unallocated shares of ESOP Stock in
accordance with the provisions of the ESOP Plan and (c) to grant a proxy to
Jonathan M. Clark and Philip N. Duff, and each of them, giving them discretion
to vote such shares of ESOP Stock in connection with such other business as may
come before the Special Meeting. I understand that the ESOP Trustee will not
vote any allocated shares of ESOP Stock for which no instruction is received.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED AND, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY, WHEN PROPERLY EXECUTED, WILL
BE VOTED FOR PROPOSAL 1 AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. THE UNDERSIGNED
HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND
THE JOINT PROXY STATEMENT/PROSPECTUS (WITH ALL ENCLOSURES AND ATTACHMENTS) DATED
APRIL 11, 1997 RELATED TO THE SPECIAL MEETING.
IMPORTANT - This Proxy must be signed and dated on the reverse side.
(Continued on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
[X] Please mark your When OK to Print--Remove ALL Red Items 0306
votes as in this
example
THE MORGAN STANLEY BOARD OF DIRECTORS PROPOSES AND RECOMMENDS A VOTE FOR THE
FOLLOWING PROPOSAL:
FOR AGAINST ABSTAIN
1. Proposal to approve and adopt the Amended [ ] [ ] [ ]
and Restated Agreement and Plan of
Merger, dated as of April 10, 1997
between Morgan Stanley and Dean Witter
Discover, providing for the merger of
Morgan Stanley with and into Dean
Witter Discover.
NO TEXT PRINT IN THIS ADDRESS AREA
Dated__________________________________________________________________, 1997
- -------------------------------------------------------------------------------
Signature of Stockholder(s)--please sign name exactly as imprinted (do not
print). Please indicate any changes in address.
NOTE: Executors, administrators, trustees and others signing in a representative
capacity should indicate the capacity in which they sign. An authorized officer
may sign on behalf of a corporation and should indicate the name of the
corporation and his or her capacity. If shares are held jointly, EACH holder
should sign.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
