<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11758
Morgan Stanley Dean Witter & Co.
(Exact Name of Registrant as Specified in its Charter)
----------------
<TABLE>
<C> <S>
Delaware 36-3145972
(I.R.S. Employer
(State of Incorporation) Identification No.)
1585 Broadway 10036
New York, NY (Zip Code)
(Address of Principal
Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (212) 761-4000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of March 31, 2000 there were 1,131,822,142 shares of Registrant's Common
Stock, par value $.01 per share, outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Quarter Ended February 29, 2000
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I--Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition--February 29,
2000 (unaudited) and November 30, 1999............................... 1
Condensed Consolidated Statements of Income (unaudited)--Three Months
Ended February 29, 2000 and February 28, 1999........................ 2
Condensed Consolidated Statements of Comprehensive Income
(unaudited)--Three Months Ended February 29, 2000 and February 28,
1999................................................................. 3
Condensed Consolidated Statements of Cash Flows (unaudited)--Three
Months Ended February 29, 2000 and February 28, 1999................. 4
Notes to Condensed Consolidated Financial Statements (unaudited)...... 5
Independent Accountants' Report....................................... 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 32
Part II--Other Information
Item 1. Legal Proceedings............................................... 33
Item 2. Changes in Securities and Use of Proceeds....................... 33
Item 4. Submission of Matters to a Vote of Security Holders............. 33
Item 6. Exhibits and Reports on Form 8-K................................ 34
</TABLE>
i
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in millions, except share and per share data)
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents........................... $ 15,329 $ 12,325
Cash and securities deposited with clearing
organizations or segregated under federal and other
regulations (including securities at fair value of
$13,183 at February 29, 2000 and $6,925 at November
30, 1999).......................................... 16,045 9,713
Financial instruments owned:
U.S. government and agency securities............. 23,564 25,646
Other sovereign government obligations............ 15,664 17,522
Corporate and other debt.......................... 27,696 30,443
Corporate equities................................ 20,523 14,843
Derivative contracts.............................. 26,672 22,769
Physical commodities.............................. 218 819
Securities purchased under agreements to resell..... 76,121 70,366
Receivable for securities provided as collateral.... 6,783 9,007
Securities borrowed................................. 107,138 85,064
Receivables:
Consumer loans (net of allowances of $771 at
February 29, 2000 and $769 at November 30,
1999)............................................ 22,986 20,229
Customers, net.................................... 31,278 29,299
Brokers, dealers and clearing organizations....... 2,566 2,252
Fees, interest and other.......................... 3,845 5,371
Office facilities, at cost (less accumulated
depreciation and amortization of $1,748 at February
29, 2000 and $1,667 at November 30, 1999).......... 2,231 2,204
Aircraft under operating leases (less accumulated
depreciation of $126 at February 29, 2000 and $86
at November 30, 1999).............................. 1,902 886
Other assets........................................ 7,511 8,209
-------- --------
Total assets........................................ $408,072 $366,967
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper and other short-term borrowings.... $ 48,019 $ 38,242
Deposits............................................ 10,845 10,397
Financial instruments sold, not yet purchased:
U.S. government and agency securities............. 10,469 12,285
Other sovereign government obligations............ 7,530 7,812
Corporate and other debt.......................... 3,837 2,322
Corporate equities................................ 21,595 15,402
Derivative contracts.............................. 23,047 23,228
Physical commodities.............................. 1,044 919
Securities sold under agreements to repurchase...... 106,026 104,450
Obligation to return securities received as
collateral......................................... 13,603 14,729
Securities loaned................................... 36,530 30,080
Payables:
Customers......................................... 57,626 45,775
Brokers, dealers and clearing organizations....... 3,423 1,335
Interest and dividends............................ 1,933 2,951
Other liabilities and accrued expenses.............. 10,964 10,439
Long-term borrowings................................ 32,890 28,604
-------- --------
389,381 348,970
-------- --------
Capital Units....................................... 439 583
-------- --------
Preferred Securities Issued by Subsidiaries......... 400 400
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock................................... 545 670
Common stock(1) ($0.01 par value, 1,750,000,000
shares authorized, 1,211,685,904 and
1,211,685,904 shares issued, 1,134,181,285 and
1,104,630,098 shares outstanding at February 29,
2000 and November 30, 1999)...................... 12 12
Paid-in capital(1)................................ 3,253 3,836
Retained earnings................................. 17,592 16,285
Employee stock trust.............................. 2,414 2,426
Cumulative translation adjustments................ (39) (27)
-------- --------
Subtotal........................................ 23,777 23,202
Note receivable related to ESOP................... (55) (55)
Common stock held in treasury, at cost(1) ($0.01
par value, 77,504,619 and 107,055,806 shares at
February 29, 2000 and November 30, 1999)......... (3,456) (4,355)
Common stock issued to employee trust............. (2,414) (1,778)
-------- --------
Total shareholders' equity...................... 17,852 17,014
-------- --------
Total liabilities and shareholders' equity.......... $408,072 $366,967
======== ========
</TABLE>
- -------
(1) Fiscal 1999 amounts have been retroactively adjusted to give effect for a
two-for-one common stock split, effected in the form of a 100% stock
dividend, which became effective on January 26, 2000.
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
February 29, February 28,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Revenues:
Investment banking................................. $ 1,335 $ 957
Principal transactions:
Trading.......................................... 2,277 1,659
Investments...................................... 431 265
Commissions........................................ 1,037 653
Fees:
Asset management, distribution and administra-
tion............................................ 910 729
Merchant and cardmember.......................... 443 341
Servicing........................................ 287 253
Interest and dividends............................. 4,797 3,763
Other.............................................. 97 56
------------- -------------
Total revenues................................... 11,614 8,676
Interest expense................................... 3,980 3,160
Provision for consumer loan losses................. 223 177
------------- -------------
Net revenues..................................... 7,411 5,339
------------- -------------
Non-interest expenses:
Compensation and benefits........................ 3,408 2,363
Occupancy and equipment.......................... 175 146
Brokerage, clearing and exchange fees............ 121 114
Information processing and communications........ 346 309
Marketing and business development............... 471 395
Professional services............................ 183 162
Other............................................ 275 178
------------- -------------
Total non-interest expenses.................... 4,979 3,667
------------- -------------
Income before income taxes......................... 2,432 1,672
Provision for income taxes......................... 888 635
------------- -------------
Net income......................................... $ 1,544 $ 1,037
============= =============
Preferred stock dividend requirements.............. $ 9 $ 11
============= =============
Earnings applicable to common shares(1)............ $ 1,535 $ 1,026
============= =============
Earnings per share(2):
Basic............................................ $ 1.40 $ 0.93
============= =============
Diluted.......................................... $ 1.34 $ 0.88
============= =============
Average common shares outstanding(2):
Basic............................................ 1,093,904,751 1,107,871,156
============= =============
Diluted.......................................... 1,146,854,036 1,169,186,312
============= =============
</TABLE>
- --------
(1) Amounts shown are used to calculate basic earnings per common share.
(2) Fiscal 1999 amounts have been retroactively adjusted to give effect for a
two-for-one common stock split, effected in the form of a 100% stock
dividend, which became effective on January 26, 2000.
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Net income............................................. $1,544 $1,037
Other comprehensive income, net of tax:
Foreign currency translation adjustment............... (12) (19)
------ ------
Comprehensive income................................... $1,532 $1,018
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income........................................... $ 1,544 $ 1,037
Adjustments to reconcile net income to net cash
used for operating activities:
Non-cash charges included in net income.......... 466 367
Changes in assets and liabilities:
Cash and securities deposited with clearing
organizations or segregated under federal and
other regulations............................... (6,332) (3,964)
Financial instruments owned, net of financial
instruments sold, not yet purchased............. 4,305 (11,549)
Securities borrowed, net of securities loaned.... (15,624) (3,263)
Receivables and other assets..................... (761) (3,286)
Payables and other liabilities................... 13,165 (2,750)
-------- --------
Net cash used for operating activities............... (3,237) (23,408)
-------- --------
Cash flows from investing activities
Net (payments for) proceeds from:
Office facilities................................ (112) (357)
Net principal disbursed on consumer loans........ (4,284) (298)
Sales of consumer loans.......................... 1,314 525
-------- --------
Net cash used for investing activities............... (3,082) (130)
-------- --------
Cash flows from financing activities
Net proceeds from (payments for) short-term
borrowings........................................ 9,740 (8,110)
Securities sold under agreements to repurchase, net
of securities purchased under agreements to
resell............................................ (4,179) 21,128
Net proceeds from:
Deposits......................................... 448 225
Issuance of common stock......................... 145 64
Issuance of put options.......................... 16 --
Issuance of long-term borrowings................. 6,027 3,056
Payments for:
Repurchases of common stock...................... (726) (272)
Repayments of long-term borrowings............... (1,771) (3,060)
Redemption of Capital Units...................... (144) --
Cash dividends................................... (233) (146)
-------- --------
Net cash provided by financing activities............ 9,323 12,885
-------- --------
Net increase (decrease) in cash and cash equiva-
lents............................................... 3,004 (10,653)
Cash and cash equivalents, at beginning of period.... 12,325 16,878
-------- --------
Cash and cash equivalents, at end of period.......... $ 15,329 $ 6,225
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Introduction and Basis of Presentation
The Company
Morgan Stanley Dean Witter & Co. (the "Company") is a pre-eminent global
financial services firm that maintains leading market positions in each of its
three business segments--Securities, Asset Management and Credit Services. Its
Securities business includes securities underwriting, distribution and
trading; merger, acquisition, restructuring, real estate, project finance and
other corporate finance advisory activities; full-service and online brokerage
services; research services; the trading of foreign exchange and commodities,
as well as derivatives on a broad range of asset categories, rates and
indices; securities lending; and private equity activities. The Company's
Asset Management business provides global asset management advice and services
to investors through a variety of product lines and brand names, including
Morgan Stanley Dean Witter Advisors, Van Kampen Investments, Morgan Stanley
Dean Witter Investment Management and Miller Anderson & Sherrerd. The
Company's Credit Services business includes the issuance of the Discover(R)
Card and the Morgan Stanley Dean WitterSM Card; and the operation of Discover
Business Services (formerly the Discover/NOVUS(R) Network) a proprietary
network of merchant and cash access locations.
The condensed consolidated financial statements include the accounts of the
Company and its U.S. and international subsidiaries, including Morgan Stanley
& Co. Incorporated ("MS&Co."), Morgan Stanley & Co. International Limited
("MSIL"), Morgan Stanley Dean Witter Japan Limited ("MSDWJL"), Dean Witter
Reynolds Inc. ("DWR"), Morgan Stanley Dean Witter Advisors Inc. and NOVUS
Credit Services Inc.
Basis of Financial Information
The condensed consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to
make estimates and assumptions regarding certain trading inventory valuations,
consumer loan loss levels, the potential outcome of litigation and other
matters that affect the financial statements and related disclosures.
Management believes that the estimates utilized in the preparation of the
condensed consolidated financial statements are prudent and reasonable. Actual
results could differ materially from these estimates.
Certain reclassifications have been made to prior year amounts to conform to
the current presentation. All material intercompany balances and transactions
have been eliminated.
The condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K (the "Form 10-K")
for the fiscal year ended November 30, 1999. The condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
the fair statement of the results for the interim period. The results of
operations for interim periods are not necessarily indicative of results for
the entire year.
Financial instruments, including derivatives, used in the Company's trading
activities are recorded at fair value, and unrealized gains and losses are
reflected in trading revenues. Interest and dividend revenue and interest
expense arising from financial instruments used in trading activities are
reflected in the condensed consolidated statements of income as interest and
dividend revenue or interest expense. The fair values of trading positions
generally are based on listed market prices. If listed market prices are not
available or if liquidating the Company's positions would reasonably be
expected to impact market prices, fair value is determined based on other
relevant factors, including dealer price quotations and price quotations for
similar instruments traded in different markets, including markets located in
different geographic areas. Fair values for certain derivative contracts are
derived from pricing models which consider current market and contractual
prices for the underlying financial instruments or commodities, as well as
time value and yield curve or volatility factors underlying the positions.
Purchases and
5
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sales of financial instruments are recorded in the accounts on trade date.
Unrealized gains and losses arising from the Company's dealings in over-the-
counter ("OTC") financial instruments, including derivative contracts related
to financial instruments and commodities, are presented in the accompanying
condensed consolidated statements of financial condition on a net-by-
counterparty basis, when appropriate.
Equity securities purchased in connection with private equity and other
principal investment activities are initially carried in the condensed
consolidated financial statements at their original costs. The carrying value
of such equity securities is adjusted when changes in the underlying fair
values are readily ascertainable, generally as evidenced by listed market
prices or transactions which directly affect the value of such equity
securities. Downward adjustments relating to such equity securities are made
in the event that the Company determines that the eventual realizable value is
less than the carrying value. The carrying value of investments made in
connection with principal real estate activities which do not involve equity
securities are adjusted periodically based on independent appraisals,
estimates prepared by the Company of discounted future cash flows of the
underlying real estate assets or other indicators of fair value.
Loans made in connection with private equity and investment banking
activities are carried at cost plus accrued interest less reserves, if deemed
necessary, for estimated losses.
The Company has entered into various contracts as hedges against specific
assets, liabilities or anticipated transactions. These contracts include
interest rate swaps, foreign exchange forwards and foreign currency swaps. The
Company uses interest rate and currency swaps to manage the interest rate and
currency exposure arising from certain borrowings and to match the repricing
characteristics of consumer loans with those of the borrowings that fund these
loans. For contracts that are designated as hedges of the Company's assets and
liabilities, gains and losses are deferred and recognized as adjustments to
interest revenue or expense over the remaining life of the underlying assets
or liabilities. For contracts that are hedges of asset securitizations, gains
and losses are recognized as adjustments to servicing fees. Gains and losses
resulting from the termination of hedge contracts prior to their stated
maturity are recognized ratably over the remaining life of the instrument
being hedged. The Company also uses foreign exchange forward contracts to
manage the currency exposure relating to its net monetary investment in non-
U.S. dollar functional currency operations. The gain or loss from revaluing
these contracts is deferred and reported within cumulative translation
adjustments in shareholders' equity, net of tax effects, with the related
unrealized amounts due from or to counterparties included in receivables from
or payables to brokers, dealers and clearing organizations.
On December 20, 1999, the Company declared a two-for-one common stock split,
effected in the form of a 100% stock dividend, payable to shareholders of
record on January 12, 2000 and distributable on January 26, 2000. All share,
per share and shareholders' equity data have been retroactively restated to
reflect this split.
On April 6, 2000, shareholders of the Company approved an amendment to
increase the number of authorized common stock shares to 3.5 billion.
As of February 29, 2000, approximately $0.9 billion of the Company's
aircraft assets were owned by Morgan Stanley Aircraft Finance, a bankruptcy-
remote subsidiary of the Company. Such aircraft assets are not available to
satisfy claims of potential creditors of the Company.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. As issued, SFAS No. 133 was effective for fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 for one year to fiscal years beginning after June 15, 2000. The
Company is in the process of evaluating the impact of adopting SFAS No. 133.
6
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998 and
provides specific guidance as to when certain costs incurred in connection
with an internal-use software project should be capitalized and when they
should be expensed. The Company has adopted SOP 98-1 effective December 1,
1999.
2. Consumer Loans
Activity in the allowance for consumer loan losses was as follows (dollars
in millions):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Balance, beginning of period.......................... $769 $787
Provision for loan losses............................. 223 177
Less deductions:
Charge-offs......................................... 257 271
Recoveries.......................................... (36) (32)
---- ----
Net charge-offs..................................... 221 239
---- ----
Other(1).............................................. -- 52
---- ----
Balance, end of period................................ $771 $777
==== ====
</TABLE>
- --------
(1) Primarily reflects transfers related to asset securitizations.
Interest accrued on loans subsequently charged off, recorded as a reduction
of interest revenue, was $37 million in the quarter ended February 29, 2000
and $35 million in the quarter ended February 28, 1999.
The Company received net proceeds from asset securitizations of $1,314
million in the quarter ended February 29, 2000 and $525 million in the quarter
ended February 28, 1999. The uncollected balances of consumer loans sold
through asset securitizations were $18,231 million at February 29, 2000 and
$16,997 million at November 30, 1999.
3. Long-Term Borrowings
Long-term borrowings at February 29, 2000 scheduled to mature within one
year aggregated $8,040 million.
During the quarter ended February 29, 2000 the Company issued senior notes
aggregating $6,033 million, including non-U.S. dollar currency notes
aggregating $571 million, primarily pursuant to its public debt shelf
registration statements. The weighted average coupon interest rate of these
notes was 6.43% at February 29, 2000; the Company has entered into certain
transactions to obtain floating interest rates based primarily on short-term
LIBOR trading levels. Maturities in the aggregate of these notes by fiscal
year are as follows: 2001, $822 million; 2002, $1,975 million; 2003, $2,609
million; 2004, $15 million; 2005, $558 million and thereafter, $54 million. In
the quarter ended February 29, 2000, $1,771 million of senior notes were
repaid.
7
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Preferred Stock, Capital Units and Preferred Securities Issued by
Subsidiaries
Preferred stock is composed of the following issues:
<TABLE>
<CAPTION>
Shares Outstanding at Balance at
------------------------- -------------------------
February 29, November 30, February 29, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(dollars in millions)
<S> <C> <C> <C> <C>
ESOP Convertible Preferred
Stock, liquidation
preference $35.88........ -- 3,493,477 $-- $125
Series A Fixed/Adjustable
Rate Cumulative Preferred
Stock, stated value
$200..................... 1,725,000 1,725,000 345 345
7- 3/4% Cumulative
Preferred Stock, stated
value $200............... 1,000,000 1,000,000 200 200
---- ----
Total................... $545 $670
==== ====
</TABLE>
Each issue of outstanding preferred stock ranks in parity with all other
outstanding preferred stock of the Company.
In fiscal 1998, MSDW Capital Trust I, a Delaware statutory business trust
(the "Capital Trust"), all of the common securities of which are owned by the
Company, issued $400 million of 7.10% Capital Securities (the "Capital
Securities") that are guaranteed by the Company. The Capital Trust issued the
Capital Securities and invested the proceeds in 7.10% Junior Subordinated
Deferrable Interest Debentures issued by the Company, which are due February
28, 2038.
The Company has Capital Units outstanding which were issued by the Company
and Morgan Stanley Finance plc ("MS plc"), a U.K. subsidiary. A Capital Unit
consists of (a) a Subordinated Debenture of MS plc guaranteed by the Company
and having maturities from 2015 to 2017 and (b) a related Purchase Contract
issued by the Company, which may be accelerated by the Company beginning
approximately one year after the issuance of each Capital Unit, requiring the
holder to purchase one Depositary Share representing shares (or fractional
shares) of the Company's Cumulative Preferred Stock.
In January 2000, the Company and MS plc called for the redemption of all of
the outstanding 9.00% Capital Units on February 28, 2000. The aggregate
principal amount of the Capital Units redeemed was $144 million.
In January 2000, all shares of the ESOP Convertible Preferred Stock were
converted into shares of common stock of the Company.
5. Common Stock and Shareholders' Equity
MS&Co. and DWR are registered broker-dealers and registered futures
commission merchants and, accordingly, are subject to the minimum net capital
requirements of the Securities and Exchange Commission, the New York Stock
Exchange and the Commodity Futures Trading Commission. MS&Co. and DWR have
consistently operated in excess of these net capital requirements. MS&Co.'s
net capital totaled $2,947 million at February 29, 2000, which exceeded the
amount required by $2,194 million. DWR's net capital totaled $1,317 million at
February 29, 2000 which exceeded the amount required by $1,140 million. MSIL,
a London-based broker-dealer subsidiary, is subject to the capital
requirements of the Securities and Futures Authority, and MSDWJL, a Tokyo-
based broker-dealer, is subject to the capital requirements of the Japanese
Ministry of Finance. MSIL and MSDWJL have consistently operated in excess of
their respective regulatory capital requirements.
8
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under regulatory capital requirements adopted by the Federal Deposit
Insurance Corporation ("FDIC") and other bank regulatory agencies, FDIC-
insured financial institutions must maintain (a) 3% to 5% of Tier 1 capital,
as defined, to average assets ("leverage ratio") (b) 4% of Tier 1 capital, as
defined, to risk-weighted assets ("Tier 1 risk-weighted capital ratio") and
(c) 8% of total capital, as defined, to risk-weighted assets ("total risk-
weighted capital ratio"). At February 29, 2000, the leverage ratio, Tier 1
risk-weighted capital ratio and total risk-weighted capital ratio of each of
the Company's FDIC-insured financial institutions exceeded these regulatory
minimums.
Certain other U.S. and non-U.S. subsidiaries are subject to various
securities, commodities and banking regulations, and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. These subsidiaries have consistently operated
in excess of their local capital adequacy requirements.
In an effort to enhance its ongoing stock repurchase program, the Company
may sell put options on shares of its common stock to third parties. These put
options entitle the holder to sell shares of the Company's common stock to the
Company on certain dates at specified prices. As of February 29, 2000, put
options were outstanding on an aggregate of 3.4 million shares of the
Company's common stock. The maturity dates of these put options range from
March 2000 through October 2000. The Company may elect cash settlement of the
put options instead of taking delivery of the stock.
6. Earnings per Share
Basic EPS reflects no dilution from common stock equivalents. Diluted EPS
reflects dilution from common stock equivalents and other dilutive securities
based on the average price per share of the Company's common stock during the
period. The following table presents the calculation of basic and diluted EPS
(in millions, except for per share data):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Basic EPS:
Net income......................................... $1,544 $1,037
Preferred stock dividend requirements.............. (9) (11)
------ ------
Net income available to common shareholders........ $1,535 $1,026
====== ======
Weighted-average common shares outstanding......... 1,094 1,108
====== ======
Basic EPS.......................................... $ 1.40 $ 0.93
====== ======
Diluted EPS:
Net income......................................... $1,544 $1,037
Preferred stock dividend requirements.............. (9) (9)
------ ------
Net income available to common shareholders........ $1,535 $1,028
====== ======
Weighted-average common shares outstanding......... 1,094 1,108
Effect of dilutive securities:
Stock options.................................... 45 37
ESOP convertible preferred stock................. 8 24
------ ------
Weighted-average common shares outstanding and com-
mon stock equivalents............................. 1,147 1,169
====== ======
Diluted EPS........................................ $ 1.34 $ 0.88
====== ======
</TABLE>
9
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Commitments and Contingencies
In the normal course of business, the Company has been named as a defendant
in various lawsuits and has been involved in certain investigations and
proceedings. Some of these matters involve claims for substantial amounts.
Although the ultimate outcome of these matters cannot be ascertained at this
time, it is the opinion of management, after consultation with counsel, that
the resolution of such matters will not have a material adverse effect on the
consolidated financial condition of the Company, but may be material to the
Company's operating results for any particular period, depending upon the
level of the Company's net income for such period.
The Company had approximately $7.0 billion and $6.3 billion of letters of
credit outstanding at February 29, 2000 and at November 30, 1999,
respectively, to satisfy various collateral requirements.
8. Derivative Contracts
In the normal course of business, the Company enters into a variety of
derivative contracts related to financial instruments and commodities. The
Company uses swap agreements in managing its interest rate exposure. The
Company also uses forward and option contracts, futures and swaps in its
trading activities; these derivative instruments also are used to hedge the
U.S. dollar cost of certain foreign currency exposures. In addition, financial
futures and forward contracts are actively traded by the Company and are used
to hedge proprietary inventory. The Company also enters into delayed delivery,
when-issued, and warrant and option contracts involving securities. These
instruments generally represent future commitments to swap interest payment
streams, exchange currencies or purchase or sell other financial instruments
on specific terms at specified future dates. Many of these products have
maturities that do not extend beyond one year, although swaps and options and
warrants on equities typically have longer maturities. For further discussion
of these matters, refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Derivative Financial Instruments" and
Note 9 to the consolidated financial statements for the fiscal year ended
November 30, 1999, included in the Form 10-K.
These derivative instruments involve varying degrees of off-balance sheet
market risk. Future changes in interest rates, foreign currency exchange rates
or the fair values of the financial instruments, commodities or indices
underlying these contracts ultimately may result in cash settlements less than
or exceeding fair value amounts recognized in the condensed consolidated
statements of financial condition, which, as described in Note 1, are recorded
at fair value, representing the cost of replacing those instruments.
The Company's exposure to credit risk with respect to these derivative
instruments at any point in time is represented by the fair value of the
contracts reported as assets. These amounts are presented on a net-by-
counterparty basis (when appropriate), but are not reported net of collateral,
which the Company obtains with respect to certain of these transactions to
reduce its exposure to credit losses.
10
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The credit quality of the Company's trading-related derivatives at February
29, 2000 and November 30, 1999 is summarized in the tables below, showing the
fair value of the related assets by counterparty credit rating. The credit
ratings are determined by external rating agencies or by equivalent ratings
used by the Company's Credit Department:
<TABLE>
<CAPTION>
Collateralized Other
Non- Non-
Investment Investment
AAA AA A BBB Grade Grade Total
------ ------ ------ ------ -------------- ---------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
At February 29, 2000
Interest rate and
currency swaps and
options (including
caps, floors and swap
options) and other
fixed income securities
contracts.............. $2,132 $4,377 $2,767 $ 877 $ 104 $ 75 $10,332
Foreign exchange forward
contracts and options.. 230 1,355 1,219 176 -- 184 3,164
Equity securities
contracts (including
equity swaps, warrants
and options)........... 1,778 2,576 1,287 1,168 2,558 469 9,836
Commodity forwards, op-
tions and swaps........ 159 611 749 1,034 86 633 3,272
Mortgage-backed
securities forward
contracts, swaps and
options................ 39 13 13 1 -- 2 68
------ ------ ------ ------ ------ ------ -------
Total.................. $4,338 $8,932 $6,035 $3,256 $2,748 $1,363 $26,672
====== ====== ====== ====== ====== ====== =======
Percent of total........ 16% 34% 23% 12% 10% 5% 100%
====== ====== ====== ====== ====== ====== =======
At November 30, 1999
Interest rate and
currency swaps and
options (including
caps, floors and swap
options) and other
fixed income securities
contracts.............. $1,569 $3,842 $2,896 $ 884 $ 117 $ 174 $ 9,482
Foreign exchange forward
contracts and options.. 556 1,551 1,285 170 -- 140 3,702
Equity securities
contracts (including
equity swaps, warrants
and options)........... 1,742 2,310 1,109 260 1,308 320 7,049
Commodity forwards, op-
tions and swaps........ 164 571 660 469 52 508 2,424
Mortgage-backed
securities forward
contracts, swaps and
options................ 41 33 35 1 1 1 112
------ ------ ------ ------ ------ ------ -------
Total.................. $4,072 $8,307 $5,985 $1,784 $1,478 $1,143 $22,769
====== ====== ====== ====== ====== ====== =======
Percent of total........ 18% 37% 26% 8% 6% 5% 100%
====== ====== ====== ====== ====== ====== =======
</TABLE>
A substantial portion of the Company's securities and commodities
transactions are collateralized and are executed with and on behalf of
commercial banks and other institutional investors, including other brokers
and dealers. Positions taken and commitments made by the Company, including
positions taken and underwriting and financing commitments made in connection
with its private equity and other principal investment activities, often
involve substantial amounts and significant exposure to individual issuers and
businesses, including non-investment grade issuers. The Company seeks to limit
concentration risk created in its businesses through a variety of separate but
complementary financial, position and credit exposure reporting systems,
including the use of trading limits based in part upon the Company's review of
the financial condition and credit ratings of its counterparties.
See also "Risk Management" in the Form 10-K for discussions of the Company's
risk management policies and procedures for its securities businesses.
11
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Segment Information
The Company structures its segments primarily based upon the nature of the
financial products and services provided to customers and the Company's
management organization. The Company operates in three business segments:
Securities, Asset Management and Credit Services, through which it provides a
wide range of financial products and services to its customers. Revenues and
expenses directly associated with each respective segment are included in
determining their operating results. Other revenues and expenses that are not
directly attributable to a particular segment are allocated based upon the
Company's allocation methodologies, generally based on each segment's
respective revenues or other relevant measures. Selected financial information
for the Company's segments is presented in the table below.
<TABLE>
<CAPTION>
Three Months Ended
February 29, 2000 Securities Asset Management Credit Services Total
- ------------------ ---------- ---------------- --------------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
All other revenues....... $ 5,500 $ 587 $ 507 $ 6,594
Net interest............. 422 13 382 817
-------- ------ ------- --------
Net revenues............. $ 5,922 $ 600 $ 889 $ 7,411
======== ====== ======= ========
Income before taxes...... $ 1,932 $ 268 $ 232 $ 2,432
Provision for income
taxes................... 688 110 90 888
-------- ------ ------- --------
Net income............... $ 1,244 $ 158 $ 142 $ 1,544
======== ====== ======= ========
Total assets as of
February 29, 2000(1).... $374,746 $4,965 $28,361 $408,072
======== ====== ======= ========
<CAPTION>
Three Months Ended
February 28, 1999 Securities Asset Management Credit Services Total
- ------------------ ---------- ---------------- --------------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
All other revenues....... $ 3,835 $ 484 $ 417 $ 4,736
Net interest............. 243 25 335 603
-------- ------ ------- --------
Net revenues............. $ 4,078 $ 509 $ 752 $ 5,339
======== ====== ======= ========
Income before taxes...... $ 1,293 $ 184 $ 195 $ 1,672
Provision for income
taxes................... 487 77 71 635
-------- ------ ------- --------
Net income............... $ 806 $ 107 $ 124 $ 1,037
======== ====== ======= ========
Total assets as of
February 28, 1999(1).... $298,238 $4,362 $19,178 $321,778
======== ====== ======= ========
</TABLE>
- --------
(1)Corporate assets have been fully allocated to the Company's business
segments.
10. Business Acquisition
During the quarter ended February 29, 2000, the Company announced that it
had agreed to acquire Ansett Worldwide Aviation Services ("Ansett Worldwide").
Ansett Worldwide is one of the world's leading aircraft leasing groups,
supplying new and used commercial jet aircraft to airlines around the world.
The transaction is subject to certain customary closing conditions and is
expected to be completed during the second quarter of fiscal 2000.
12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors and Shareholders of
Morgan Stanley Dean Witter & Co.
We have reviewed the accompanying condensed consolidated statement of
financial condition of Morgan Stanley Dean Witter & Co. and subsidiaries as of
February 29, 2000, and the related condensed consolidated statements of income
and comprehensive income for the three month period ended February 29, 2000
and February 28, 1999, and cash flows for the three month period ended
February 29, 2000 and February 28, 1999. These condensed consolidated
financial statements are the responsibility of the management of Morgan
Stanley Dean Witter & Co.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Morgan Stanley
Dean Witter & Co. and subsidiaries as of November 30, 1999, and the related
consolidated statements of income, comprehensive income, cash flows and
changes in shareholders' equity for the fiscal year then ended (not presented
herein) included in Morgan Stanley Dean Witter & Co.'s Annual Report on Form
10-K for the fiscal year ended November 30, 1999; and, in our report dated
January 21, 2000, we expressed an unqualified opinion on those consolidated
financial statements based on our audit (which report includes an explanatory
paragraph for a change in the method of accounting for certain offering costs
of closed-end funds).
/s/ Deloitte & Touche llp
New York, New York
April 10, 2000
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Morgan Stanley Dean Witter & Co. (the "Company") is a pre-eminent global
financial services firm that maintains leading market positions in each of its
three business segments--Securities, Asset Management and Credit Services. The
Company combines global strength in investment banking and institutional sales
and trading with strength in providing full-service and online brokerage
services, investment and global asset management services and, primarily
through its Discover(R) Card brand, quality consumer credit products. The
Company provides its products and services to a large and diversified group of
clients and customers, including corporations, governments, financial
institutions and individuals.
Results of Operations*
Certain Factors Affecting Results of Operations
The Company's results of operations may be materially affected by market
fluctuations and by economic factors. In addition, results of operations in
the past have been, and in the future may continue to be, materially affected
by many factors of a global nature, including economic and market conditions;
the availability and cost of capital; the level and volatility of equity
prices and interest rates; currency values and other market indices;
technological changes and events (such as the increased use of the Internet to
conduct electronic commerce and the emergence of electronic communication
trading networks); the availability and cost of credit; inflation; investor
sentiment; and legislative and regulatory developments. Such factors also may
have an impact on the Company's ability to achieve its strategic objectives on
a global basis, including (without limitation) continued increased market
share in its securities activities, growth in assets under management and the
expansion of its Credit Services business.
The results of the Company's Securities business, particularly its
involvement in primary and secondary markets for all types of financial
products, including derivatives, is subject to substantial positive and
negative fluctuations due to a variety of factors that cannot be predicted
with great certainty, including variations in the fair value of securities and
other financial products and the volatility and liquidity of global trading
markets. Fluctuations also occur due to the level of global market activity,
which, among other things, affects the size, number and timing of investment
banking client assignments and transactions and the realization of returns
from the Company's private equity and other principal investments. The level
of global market activity also could impact the flow of investment capital
into mutual funds and the way in which such capital is allocated among money
market, equity, fixed income or other investment alternatives which could
impact the results of the Company's Asset Management business. In the
Company's Credit Services business, changes in economic variables, such as the
number and size of personal bankruptcy filings, the rate of unemployment and
the level of consumer debt, may substantially affect consumer loan levels and
credit quality, which, in turn, could impact overall Credit Services results.
The Company's results of operations also may be materially affected by
competitive factors. Among the principal competitive factors affecting the
Securities business are the Company's reputation, the quality of its
professionals and other personnel, its products and services, relative pricing
and innovation. Competition in the Company's Asset Management business is
affected by a number of factors, including investment objectives and
performance; advertising and sales promotion efforts; and the level of fees,
distribution channels and types and quality of services offered. In the Credit
Services business, competition centers on merchant acceptance of credit cards,
credit card acquisition and customer utilization of credit cards, all of which
are impacted by the type of fees, interest rates and other features offered.
- --------
* This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements as well as a
discussion of some of the risks and uncertainties involved in the Company's
business that could affect the matters referred to in such statements.
14
<PAGE>
In addition to competition from firms traditionally engaged in the financial
services business, competition has increased in recent years from other
sources, such as commercial banks, insurance companies, online service
providers, sponsors of mutual funds and other companies offering financial
services both in the U.S. and globally. The financial services industry also
has experienced consolidation and convergence in recent years, as financial
institutions involved in a broad range of financial services industries have
merged. This convergence trend is expected to continue and could result in the
Company's competitors gaining greater capital and other resources, such as a
broader range of products and services and geographic diversity. In November
1999, the Gramm-Leach-Bliley Act was passed in the U.S., effectively repealing
certain sections of the 1933 Glass-Steagall Act. Its passage allows commercial
banks, securities firms and insurance firms to affiliate, which may accelerate
consolidation and lead to increasing competition in markets which
traditionally have been dominated by investment banks and retail securities
firms.
The Company also has experienced increased competition for qualified
employees in recent years, including from companies engaged in Internet-
related businesses and private equity funds, in addition to the traditional
competition for employees from the financial services, insurance and
management consulting industries. The Company's ability to sustain or improve
its competitive position will substantially depend on its ability to continue
to attract and retain qualified employees.
For a detailed discussion of the competitive factors in the Company's
Securities, Asset Management and Credit Services businesses, see the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
As a result of the above economic and competitive factors, 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. The Company intends to manage its business for the long term and to
mitigate the potential effects of market downturns by strengthening its
competitive position in the global financial services industry through
diversification of its revenue sources and enhancement of its global
franchise. The Company's overall financial results will continue to be
affected by its ability and success in maintaining high levels of profitable
business activities, emphasizing fee-based assets that are designed to
generate a continuing stream of revenues, evaluating credit product pricing,
managing risks in the Securities, Asset Management and Credit Services
businesses, and monitoring costs. In addition, the complementary trends in the
financial services industry of consolidation and globalization present, among
other things, technological, risk management and other infrastructure
challenges that will require effective resource allocation in order for the
Company to remain competitive.
The Company believes that technological advancements in the Internet and the
growth of electronic commerce will continue to present both challenges and
opportunities to the Company and could lead to significant changes and
innovations in financial markets and the financial services industry as a
whole. The Company's initiatives in this area have included Web-enabling
existing businesses, enhancing client communication and access to information
and services and making investments, or otherwise participating, in
alternative trading systems, electronic communication networks and related
businesses or technologies. The Company expects to continue to augment these
initiatives in the future.
Global Market and Economic Conditions in the Quarter Ended February 29, 2000
Global market and economic conditions were generally favorable during the
quarter ended February 29, 2000, which contributed to the record level of net
revenues achieved by the Company during the period.
In the U.S., market conditions benefited from robust corporate earnings and
the strong performance of the domestic economy, which continued to exhibit
positive fundamentals and a high rate of economic growth. The U.S. economy
also continued to exhibit favorable trends, such as historically low levels of
unemployment, high levels of consumer confidence and spending, a high demand
for imports and increased productivity. In the latter half of fiscal 1999, the
sustained rate of U.S. economic growth, coupled with the tight labor market,
led to fears of accelerating inflation. As a result, in an effort to slow the
U.S. economy and to mitigate inflationary pressures, during fiscal 1999 the
Federal Reserve Board (the "Fed") raised the overnight lending rate by 0.25%
on three separate occasions and also raised the discount rate by 0.25% on two
separate occasions. During the first quarter
15
<PAGE>
of fiscal 2000, there were few indications that these interest rate actions
had sufficiently slowed the rate of U.S. economic growth and, as a result, the
Fed remained concerned with the potential for increased inflation.
Accordingly, the Fed elected to raise both the overnight lending rate and the
discount rate by an additional 0.25% in February 2000. Subsequent to quarter-
end, the Fed also raised the overnight lending rate by 0.25% in March 2000.
Additional interest rate increases may occur in the event that the Fed
continues to perceive indications of inflationary pressures.
Economic and market conditions in Europe were also generally favorable
during the quarter ended February 29, 2000. Economic growth across much of the
region improved, and the level of consolidation and restructuring activities
remained strong. However, the improved economic performance within the region,
coupled with the sharp rise in global energy and commodity prices, gave rise
to fears of increasing inflationary pressures within the U.K. and the European
Union ("EU"). In an effort to mitigate such conditions, the Bank of England
raised interest rates by 0.25% on two separate occasions during the quarter,
while the European Central Bank (the "ECB") raised interest rates by 0.25%.
Further interest rate actions may occur in future periods if inflationary
pressures continue to persist within the region.
During the first quarter of fiscal 2000, economies and financial markets in
the Far East continued to recover from the difficult conditions that have
existed in the region since the latter half of fiscal 1997. In Japan, there
have been indications that the steps taken by the nation's government to
stimulate economic activity, such as bank bailouts, emergency loans and
stimulus packages, were beginning to have a favorable impact. Financial
markets in Japan have benefited from these trends, and major market indices
increased during the quarter. Certain financial markets elsewhere in the Far
East, which also began to demonstrate signs of recovery during fiscal 1999,
continued to experience increased levels of economic activity. Although
uncertainty remains, investor interest in the Far East region has generally
increased.
Results of the Company for the Quarter ended February 29, 2000
The Company's net income in the quarter ended February 29, 2000 was $1,544
million, an increase of 49% from the comparable period of fiscal 1999. Diluted
earnings per common share was $1.34 in the quarter ended February 29, 2000 as
compared to $0.88 in the quarter ended February 28, 1999. The Company's
annualized return on common equity for the quarter ended February 29, 2000 was
36.3% as compared to 29.5% in the comparable prior year period.
The increase in net income in the quarter ended February 29, 2000 was
primarily attributable to the Company's Securities business, reflecting higher
investment banking, principal trading, principal investment and commission
revenues. Record results in the Company's Asset Management business and
improved results in the Credit Services business also contributed to the
increase. The Company's net income for the quarter ended February 29, 2000
also reflected higher levels of incentive-based compensation and other non-
interest expenses.
Business Acquisition
During the quarter ended February 29, 2000, the Company announced that it
had agreed to acquire Ansett Worldwide Aviation Services ("Ansett Worldwide").
Ansett Worldwide is one of the world's leading aircraft leasing groups,
supplying new and used commercial jet aircraft to airlines around the world.
The transaction is subject to certain customary closing conditions and is
expected to be completed during the second quarter of fiscal 2000.
Business Segments
The remainder of Results of Operations is presented on a business segment
basis. Substantially all of the operating revenues and operating expenses of
the Company can be directly attributed to its three business segments:
Securities; Asset Management; and Credit Services. Certain revenues and
expenses have been
16
<PAGE>
allocated to each business segment, generally in proportion to their
respective revenues or other relevant measures. The accompanying business
segment information includes the operating results of Morgan Stanley Dean
Witter Online ("MSDW Online"), the Company's provider of electronic brokerage
services, within the Securities segment. Previously, the Company had included
MSDW Online's results within its Credit Services segment. In addition, the
following segment data reflects the Company's fiscal 1999 adoption of
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Prior to the
adoption of SFAS No. 131, the Company had presented the results of its
Securities and Asset Management segments on a combined basis. The segment data
of all periods presented have been restated to reflect these changes. Certain
reclassifications have been made to prior-period amounts to conform to the
current year's presentation.
17
<PAGE>
Securities
Statements of Income (dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenues:
Investment banking................................. $1,291 $ 934
Principal transactions:
Trading.......................................... 2,277 1,659
Investments...................................... 423 261
Commissions........................................ 1,028 653
Asset management, distribution and administration
fees.............................................. 387 277
Interest and dividends............................. 4,051 3,180
Other.............................................. 94 51
------ ------
Total revenues................................... 9,551 7,015
Interest expense................................... 3,629 2,937
------ ------
Net revenues..................................... 5,922 4,078
------ ------
Non-interest expenses:
Compensation and benefits.......................... 3,067 2,088
Occupancy and equipment............................ 140 110
Brokerage, clearing and exchange fees.............. 102 84
Information processing and communications.......... 214 171
Marketing and business development................. 157 116
Professional services.............................. 136 111
Other.............................................. 174 105
------ ------
Total non-interest expenses...................... 3,990 2,785
------ ------
Income before income taxes........................... 1,932 1,293
Income tax expense................................... 688 487
------ ------
Net income......................................... $1,244 $ 806
====== ======
</TABLE>
Securities achieved record net revenues of $5,922 million in the quarter
ended February 29, 2000, an increase of 45% from the comparable period of
fiscal 1999. Securities net income for the quarter ended February 29, 2000 was
$1,244 million, an increase of 54% from the comparable period of fiscal 1999.
The increases in net revenues and net income were primarily attributable to
higher revenues from investment banking, sales and trading and asset
management activities, partially offset by higher levels of incentive-based
compensation and other non-interest expenses.
Investment Banking
Investment banking revenues are derived from the underwriting of securities
offerings and fees from advisory services. Investment banking revenues in the
quarter ended February 29, 2000 increased 38% from the comparable period of
fiscal 1999, primarily due to higher revenues from equity underwriting
transactions and from merger, acquisition and restructuring activities.
Revenues from merger, acquisition and restructuring activities increased in
the quarter ended February 29, 2000. The global market for such transactions
continued to be robust during the quarter, particularly in the U.S. and
Europe. The high level of transaction activity reflected the continuing trends
of convergence, consolidation and globalization, as companies continued to
expand into new markets and businesses in order to increase earnings growth.
Transaction activity was strong across many industries, particularly in the
media, technology
18
<PAGE>
and telecommunication sectors. The generally favorable market conditions that
existed during the quarter and the Company's strong global market share in
many industry sectors also contributed to the high level of revenues from
merger and acquisition transactions.
Equity underwriting revenues in the quarter ended February 29, 2000
increased to record levels. Equity underwriting revenues benefited from the
high volume of equity offerings that occurred during the quarter, particularly
in the U.S. The quarter's equity underwriting revenues also reflected a high
level of new issue volume in the technology sector. The Company's strong
global market share also continued to have a favorable impact on equity
underwriting revenues.
Fixed income underwriting revenues in the quarter ended February 29, 2000
were comparable with those recorded during the quarter ended February 28,
1999. Higher levels of fixed income underwriting revenues were generated from
European investment grade and global high yield fixed income issuances. Such
increases were partially offset by lower revenues from U.S. investment grade
issuances, as concerns over the Year 2000 issue and rising interest rates
reduced new issue transaction volume during the quarter. Fixed income
underwriting revenues continued to benefit from the need for strategic
financing in light of the robust global market for merger and acquisition
transactions, and from the ongoing development of the euro-denominated credit
market.
Principal Transactions
Principal transaction trading revenues, which include revenues from customer
purchases and sales of securities, including derivatives, in which the Company
acts as principal and gains and losses on securities held for resale,
increased 37% in the quarter ended February 29, 2000 from the comparable
period of fiscal 1999. The increase reflected higher levels of equity and
commodity trading revenues, partially offset by declines in fixed income and
foreign exchange trading revenues.
Equity trading revenues increased to record levels in the quarter ended
February 29, 2000, reflecting higher trading revenues from virtually all
equity products. Higher revenues from trading in equity cash products were
primarily driven by significantly increased levels of customer trading volumes
in both listed and over-the-counter securities, particularly in the U.S. and
in Europe. Trading volumes in the telecommunications and technology sectors
were especially strong during the quarter. Revenues from equity derivative
products benefited from increased customer flows, strong trading volumes and
from the high level of volatility in the equity markets that existed during
much of the quarter. Higher revenues from certain proprietary trading
activities also contributed to the increase in equity trading revenues.
The Company achieved a high level of fixed income trading revenues in the
quarter ended February 29, 2000, although lower than the record levels that
were recorded in the comparable period of fiscal 1999. The fixed income
trading revenues achieved in the quarter ended February 28, 1999 reflected
significantly improved conditions in the global financial markets in
comparison to the fourth quarter of fiscal 1998. Such conditions increased
investor demand for credit sensitive instruments, and improved liquidity
reduced credit spreads and favorably affected the price relationship between
credit sensitive securities and government securities. Fixed income trading
results in the quarter ended February 29, 2000 were primarily driven by
revenues from global high yield and fixed income swap products. Revenues from
global high yield products benefited from increased trading volumes, as
investors reacted to positive economic data and credit upgrades in certain
Latin American markets. Revenues from swap products also benefited from strong
customer flows, as well as from periods of increased volatility in the fixed
income markets. The level of volatility in the fixed income markets during the
quarter were affected by the interest rate actions taken by the Fed and the
ECB, concerns of accelerating inflation, and the inversion of the yield curve
for U.S. Treasury securities. Transaction volumes, which were relatively low
in the beginning of the quarter due to Year 2000 concerns, improved
significantly toward the end of the period.
Commodity trading revenues increased to record levels in the quarter ended
February 29, 2000, primarily driven by higher revenues from trading in energy-
related products, including crude oil, refined energy products and natural
gas. Trading revenues from energy-related products benefited from the upward
trend in global energy
19
<PAGE>
prices that began during the latter half of fiscal 1999. Energy prices
continued to rise throughout the quarter, primarily due to reduced oil
production volumes, low inventory levels and increased demand for heating oil
due to cold weather conditions existing in the eastern U.S.
Foreign exchange trading revenues decreased in the quarter ended February
29, 2000 as compared to the prior year period. Customer trading volumes were
generally strong, although volumes were relatively low during the beginning of
the quarter due to the Year 2000 transition. There were also periods of
increased volatility in the foreign exchange markets during the quarter,
particularly in the euro and Japanese yen. The euro continued to depreciate
relative to the U.S. dollar, reflecting the strong economic performance of the
U.S. economy and higher interest rates in the U.S. The Japanese yen also
depreciated against the U.S. dollar during the quarter, as the Bank of Japan
sought to manage the value of the yen in connection with the nation's economic
recovery efforts. The announcement of a potential downgrade of Japan's credit
ratings also affected the yen's value during the quarter.
Principal transaction investment gains aggregating $423 million were
recorded in the quarter ended February 29, 2000, as compared to gains of $261
million in the quarter ended February 28, 1999. Fiscal 2000's results reflect
both realized and unrealized gains from certain private equity and venture
capital investments, including Commerce One and Allegiance Telecom. The
Company also recognized gains from certain other principal investments. Fiscal
1999's results primarily reflected realized and unrealized gains from the
Company's investment in Equant N.V., a Netherlands based data communications
company.
Commissions
Commission revenues primarily arise from agency transactions in listed and
over-the-counter equity securities, and sales of mutual funds, futures,
insurance products and options. Commissions also include revenues from
customer securities transactions associated with MSDW Online. Commission
revenues increased 57% in the quarter ended February 29, 2000 from the
comparable period of fiscal 1999. In the U.S., commission revenues benefited
from significantly increased levels of customer securities transactions,
including listed agency and over-the-counter equity products, as volumes on
the New York Stock Exchange and the NASDAQ increased significantly from the
prior year. Revenues from markets in Europe also benefited from high trading
volumes, particularly in the telecommunications and technology sectors.
Revenues from markets in Japan and elsewhere in Asia also increased due to
generally increased investor interest in the region. Commission revenues also
benefited from higher sales of mutual funds and the continued growth in the
number of the Company's financial advisors.
In October 1999, the Company launched ichoiceSM, a new service and
technology platform available to individual investors. ichoice provides each
of the Company's individual investor clients with the choice of self-directed
investing online; a traditional full-service brokerage relationship through a
financial advisor; or some combination of both. ichoice provides a range of
pricing options, including fee-based pricing. In future periods, the amount of
revenues recorded within the "Commissions" and "Asset management, distribution
and administration fees" income statement categories will be affected by the
number of the Company's clients electing a fee-based pricing arrangement.
Net Interest
Interest and dividend revenues and expense are a function of the level and
mix of total assets and liabilities, including financial instruments owned,
reverse repurchase and repurchase agreements, trading strategies associated
with the Company's institutional securities business, customer margin loans,
and the prevailing level, term structure and volatility of interest rates.
Interest and dividend revenues and expense are integral components of trading
activity. In assessing the profitability of trading activities, the Company
views net interest and principal trading revenues in the aggregate. In
addition, decisions relating to principal transactions in securities are based
on an overall review of aggregate revenues and costs associated with each
transaction or series of transactions. This review includes an assessment of
the potential gain or loss associated with a trade and the interest income or
expense associated with financing or hedging the Company's positions. Net
interest revenues increased 74%
20
<PAGE>
in the quarter ended February 29, 2000 from the comparable period of fiscal
1999, partially reflecting the level and mix of interest bearing assets and
liabilities during the respective periods, as well as certain trading
strategies utilized in the Company's institutional securities business. Higher
net revenues from brokerage services provided to institutional and individual
customers, including an increase in the level of customer margin loans, also
contributed to the increase in net interest revenues.
Asset Management, Distribution and Administration Fees
Asset management, distribution and administration revenues include fees for
asset management services, including fees for promoting and distributing
mutual funds ("12b-1 fees") and fees for investment management services
provided to segregated customer accounts pursuant to various contractual
arrangements in connection with the Company's Investment Consulting Services
("ICS") business. The Company receives 12b-1 fees for services it provides in
promoting and distributing certain open-ended mutual funds. These fees are
based on either the average daily fund net asset balances or average daily
aggregate net fund sales and are affected by changes in the overall level and
mix of assets under management or supervision. Asset management, distribution
and administration fees also include revenues from individual investors
electing a fee-based pricing arrangement under the Company's ichoice service
and technology platform.
Asset management, distribution and administration revenues increased 40% in
the quarter ended February 29, 2000 from the comparable period of fiscal 1999.
The increase reflects higher 12b-1 fees from promoting and distributing mutual
funds to individual investors through the Company's financial advisors, higher
revenues from investment management services associated with ICS, and revenues
from individual investors electing fee-based pricing.
Non-Interest Expenses
Total non-interest expenses increased 43% in the quarter ended February 29,
2000 from the comparable period of fiscal 1999. Within the non-interest
expense category, compensation and benefits expense increased 47%, principally
reflecting higher incentive-based compensation due to higher levels of
revenues and earnings. Excluding compensation and benefits expense, non-
interest expense increased 32%. Occupancy and equipment expense increased 27%,
primarily due to additional rent associated with 44 new branch locations, as
well as increased office space in New York and certain other locations.
Brokerage, clearing and exchange fees increased 21%, primarily reflecting
higher brokerage expenses due to increased global securities trading volume,
particularly in North America. Brokerage costs associated with the business
activities of AB Asesores, which the Company acquired in March 1999, also
contributed to the increase. Information processing and communications expense
increased 25%, primarily due to increased costs associated with the Company's
information processing infrastructure, including data processing, market data
services, and telecommunications. A higher number of employees utilizing
communications systems and certain data services also contributed to the
increase. Marketing and business development expense increased 35%, primarily
reflecting increased travel and entertainment costs associated with the high
levels of business activity in the global financial markets. Higher
advertising expenses associated with MSDW Online and ichoice also contributed
to the increase. Professional services expense increased 23%, primarily
reflecting higher consulting costs associated with strategic initiatives in
the Company's individual securities business. The increase also reflected
higher costs for employment services and temporary staffing due to the
increased level of overall business activity. Other expense increased 66%,
which reflects the impact of a higher level of business activity on various
operating expenses. The amortization of goodwill associated with the Company's
acquisition of AB Asesores in March 1999 also contributed to the increase.
21
<PAGE>
Asset Management
Statements of Income (dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenues:
Investment banking................................. $ 44 $ 23
Principal transactions:
Investments...................................... 8 4
Commissions........................................ 9 --
Asset management, distribution and administration
fees.............................................. 523 452
Interest and dividends............................. 13 27
Other.............................................. 3 5
---- ----
Total revenues................................... 600 511
Interest expense................................... -- 2
---- ----
Net revenues..................................... 600 509
---- ----
Non-interest expenses:
Compensation and benefits.......................... 186 156
Occupancy and equipment............................ 21 24
Brokerage, clearing and exchange fees.............. 19 30
Information processing and communications.......... 18 21
Marketing and business development................. 36 33
Professional services.............................. 21 30
Other.............................................. 31 31
---- ----
Total non-interest expenses...................... 332 325
---- ----
Income before income taxes........................... 268 184
Income tax expense................................... 110 77
---- ----
Net income....................................... $158 $107
==== ====
</TABLE>
Asset Management achieved record net revenues of $600 million in the quarter
ended February 29, 2000, an increase of 18% from the comparable period of
fiscal 1999. Asset Management's net income for the quarter ended February 29,
2000 was $158 million, an increase of 48% from the comparable period of fiscal
1999. The increases primarily reflect higher asset management, distribution
and administration fees resulting from the continued accumulation and
management of customer assets, partially offset by higher incentive-based
compensation expenses.
Investment Banking
Asset Management primarily generates investment banking revenues from the
underwriting of Unit Investment Trust products. Investment banking revenues
increased 91% in the quarter ended February 29, 2000 from the comparable prior
year period, primarily reflecting a higher volume of Unit Investment Trust
underwriting transactions, particularly in technology-related products. Unit
Investment Trust sales rose to a record $6.1 billion in the quarter ended
February 29, 2000, approximately double the sales volume recorded in the
comparable prior year period.
Principal Transactions
Asset Management primarily generates principal transaction revenues from net
gains resulting from the Company's capital investments in certain of its funds
and other investments.
22
<PAGE>
In both the quarter ended February 29, 2000 and the comparable period of
fiscal 1999, principal transaction investment revenues primarily consisted of
net gains from the Company's capital investments in certain of its funds,
reflecting generally favorable market conditions.
Commissions
Asset Management primarily generates commission revenues from dealer and
distribution concessions on sales of certain funds, as well as certain
allocated commission revenues.
Commission revenues increased in the quarter ended February 29, 2000 from
the comparable period of fiscal 1999, primarily reflecting higher levels of
transaction volume and allocated commission revenues.
Net Interest
Asset Management generates net interest revenues from certain investment
positions, as well as from certain allocated interest revenues and expenses.
Net interest revenues decreased 48% in the quarter ended February 29, 2000
from the comparable period of fiscal 1999, primarily reflecting lower net
revenues from certain investment positions and a lower level of allocated net
interest revenues.
Asset Management, Distribution and Administration Fees
Asset management, distribution and administration fees primarily include
revenues from the management and administration of assets. These fees arise
from investment management services the Company provides to investment
vehicles (the "Funds") pursuant to various contractual arrangements.
Generally, the Company receives fees based upon the Fund's average net assets.
In the quarter ended February 29, 2000, asset management, distribution and
administration fees increased 16% from the comparable period of fiscal 1999.
The increase in revenues primarily reflects higher fund management fees as
well as other revenues resulting from a higher level of assets under
management or supervision. The increase also reflects a more favorable asset
mix, primarily reflecting a higher level of assets in equity products.
Customer assets under management or supervision increased to $455 billion at
February 29, 2000 from $385 billion at February 28, 1999. The increase in
assets under management or supervision primarily reflected the appreciation in
the value of customer portfolios. Customer assets under management or
supervision included products offered primarily to individual investors of
$292 billion at February 29, 2000 and $227 billion at February 28, 1999.
Products offered primarily to institutional investors were $163 billion at
February 29, 2000 and $158 billion at February 28, 1999.
Non-Interest Expenses
Asset Management's non-interest expenses increased 2% in the quarter ended
February 29, 2000 from the comparable period of fiscal 1999. Within the non-
interest expense category, employee compensation and benefits expense
increased 19%, primarily reflecting higher incentive-based compensation costs
due to Asset Management's higher level of revenues. Excluding compensation and
benefits expense, non-interest expenses decreased 14%. Occupancy and equipment
expense decreased 13%, as lower levels of depreciation expense on certain data
processing equipment was partially offset by higher occupancy costs at certain
office locations. Brokerage, clearing and exchange fees decreased 37%,
primarily attributable to lower sales of closed-end funds through the non-
proprietary distribution channel. Information processing and communications
costs decreased 14%, primarily reflecting the inclusion of costs related to
the Year 2000 initiative within fiscal 1999's results. Marketing and business
development expense increased 9%, primarily related to higher promotional
costs for certain mutual funds. Professional services expense decreased 30%,
primarily reflecting lower legal and consulting costs.
23
<PAGE>
Credit Services
Statements of Income (dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Fees:
Merchant and cardmember............................. $443 $341
Servicing........................................... 287 253
---- ----
Total non-interest revenues....................... 730 594
---- ----
Interest revenue...................................... 733 556
Interest expense...................................... 351 221
---- ----
Net interest income................................. 382 335
Provision for consumer loan losses.................... 223 177
---- ----
Net credit income................................... 159 158
---- ----
Net revenues........................................ 889 752
---- ----
Non-interest expenses:
Compensation and benefits........................... 155 119
Occupancy and equipment............................. 14 12
Information processing and communications........... 114 117
Marketing and business development.................. 278 246
Professional services............................... 26 21
Other............................................... 70 42
---- ----
Total non-interest expenses....................... 657 557
---- ----
Income before income taxes............................ 232 195
Provision for income taxes............................ 90 71
---- ----
Net income........................................ $142 $124
==== ====
</TABLE>
Credit Services net income of $142 million in the quarter ended February 29,
2000 represented an increase of 15% from the comparable period of fiscal 1999.
The increase in net income was primarily attributable to increased merchant
and cardmember fees, servicing fees and net interest income partially offset
by a higher provision for loan losses and higher non-interest expenses. Credit
Services' results for the quarter ended February 29, 2000 also reflected
record levels of quarterly transaction volume and quarter-end managed consumer
loans.
Non-Interest Revenues
Total non-interest revenues increased 23% in the quarter ended February 29,
2000 from the comparable period of fiscal 1999.
Merchant and cardmember fees include revenues from fees charged to merchants
on credit card sales, late payment fees, overlimit fees, insurance fees and
cash advance fees. Merchant and cardmember fees increased 30% in the quarter
ended February 29, 2000 from the comparable period of fiscal 1999. The
increase was primarily due to higher merchant discount revenue and late
payment fees associated with the Discover Card. The increase in Discover Card
merchant discount revenue was due to a record level of sales volume. Late
payment fees increased primarily due to a fee increase introduced during April
1999, coupled with a higher level of average consumer loans.
Servicing fees are revenues derived from consumer loans which have been sold
to investors through asset securitizations. Cash flows from the interest yield
and cardmember fees generated by securitized loans are used to pay investors
in these loans a predetermined fixed or floating rate of return on their
investment, to reimburse
24
<PAGE>
investors for losses of principal resulting from charged-off loans and to pay
the Company a fee for servicing the loans. Any excess cash flows remaining are
paid to the Company. The servicing fees and excess net cash flows paid to the
Company are reported as servicing fees in the condensed consolidated
statements of income. The sale of consumer loans through asset
securitizations, therefore, has the effect of converting portions of net
credit income and fee income to servicing fees. The Company completed asset
securitizations of $1,316 million in the quarter ended February 29, 2000.
During the comparable period of fiscal 1999, the Company completed asset
securitizations of $526 million. The asset securitization transactions
completed in the first quarter of fiscal 2000 have an expected maturity of
approximately 5 years from the date of issuance.
The table below presents the components of servicing fees (dollars in
millions):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Merchant and cardmember fees.......................... $ 142 $ 131
Interest revenue...................................... 707 625
Interest expense...................................... (295) (230)
Provision for consumer loan losses.................... (267) (273)
----- -----
Servicing fees........................................ $ 287 $ 253
===== =====
</TABLE>
Servicing fees increased 13% in the quarter ended February 29, 2000 from the
comparable period of fiscal 1999. The increase was due to higher levels of net
interest cash flows, increased fee revenue, and lower credit losses from
securitized consumer loans. The increases in net interest and fee revenue were
primarily a result of higher levels of average securitized loans. The decrease
in credit losses was the result of a lower rate of charge-offs related to the
Discover Card portfolio, partially offset by an increase in the level of
average securitized consumer loans.
Net Interest Income
Net interest income represents the difference between interest revenue
derived from Credit Services consumer loans and short-term investment assets
and interest expense incurred to finance those assets. Credit Services assets,
consisting primarily of consumer loans, currently earn interest revenue at
fixed rates and, to a lesser extent, market-indexed variable rates. The
Company incurs interest expense at fixed and floating rates. Interest expense
also includes the effects of interest rate contracts entered into by the
Company as part of its interest rate risk management program. This program is
designed to reduce the volatility of earnings resulting from changes in
interest rates and is accomplished primarily through matched financing, which
entails matching the repricing schedules of consumer loans and related
financing. Net interest income increased 14% in the quarter ended February 29,
2000 from the comparable period of fiscal 1999. The increase was primarily due
to higher average levels of consumer loans, partially offset by a lower yield
on these loans and increased interest expense. The increase in consumer loans
was due to record levels of sales and balance transfer volume. The lower yield
on Discover Card loans in the quarter ended February 29, 2000 was primarily
due to the lower interest rates offered to both existing and new cardmembers.
The lower yield also reflected an increase in consumer loans from balance
transfers, which are generally offered at lower interest rates for an
introductory period. The increase in interest expense was due to a higher
level of interest bearing liabilities coupled with an increase in the
Company's average cost of borrowings, reflecting a series of interest rate
increases made by the Fed in fiscal 1999 and the first quarter of fiscal 2000.
In response to the rising interest rate environment in the U.S., the Company
repriced a substantial portion of its existing credit card receivables to a
variable interest rate. Certain of such credit card receivables will be
repriced beginning with the cardmembers' April 2000 billing cycle. The Company
believes that this repricing will have a positive impact on net interest
income.
25
<PAGE>
The following tables present analyses of Credit Services average balance
sheets and interest rates for the quarters ended February 29, 2000 and
February 28, 1999 and changes in net interest income during those periods:
Average Balance Sheet Analysis (dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
February 29, February 28,
2000 1999(3)
------------------------ ------------------------
Average Average
Balance Rate Interest Balance Rate Interest
------- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
General purpose credit card
and other consumer loans... $23,192 11.97% $690 $16,420 12.90% $522
Investment securities....... 683 6.14 10 927 5.25 12
Other....................... 1,817 7.23 33 1,594 5.45 22
------- ---- ------- ----
Total interest earning
assets................. 25,692 11.48 733 18,941 11.90 556
Allowance for loan losses... (775) (778)
Non-interest earning
assets..................... 1,702 1,667
------- -------
Total assets............ $26,619 $19,830
======= =======
LIABILITIES AND
SHAREHOLDER'S EQUITY
Interest bearing
liabilities:
Interest bearing deposits
Savings................... $ 1,569 5.06% $ 20 $ 1,506 4.37% $ 16
Brokered.................. 7,274 6.48 117 4,875 6.50 78
Other time................ 3,044 6.04 46 2,004 5.47 27
------- ---- ------- ----
Total interest bearing
deposits............... 11,887 6.18 183 8,385 5.87 121
Other borrowings............ 10,390 6.53 168 7,280 5.57 100
------- ---- ------- ----
Total interest bearing
liabilities............ 22,277 6.34 351 15,665 5.71 221
Shareholder's equity/other
liabilities................ 4,342 4,165
------- -------
Total liabilities and
shareholder's equity... $26,619 $19,830
======= =======
Net interest income......... $382 $335
==== ====
Net interest margin(1)...... 5.98% 7.17%
Interest rate spread(2)..... 5.14% 6.19%
</TABLE>
- --------
(1) Net interest margin represents net interest income as a percentage of
total interest earning assets.
(2) Interest rate spread represents the difference between the rate on total
interest earning assets and the rate on total interest bearing
liabilities.
(3) Certain prior-year information has been reclassified to conform to the
current year's presentation.
26
<PAGE>
Rate/Volume Analysis (dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
February 29, 2000
vs.
February 28, 1999
-----------------------
Increase/(Decrease)
Due
to Changes in
-----------------------
Volume Rate Total
------- ------ ------
<S> <C> <C> <C>
INTEREST REVENUE
General purpose credit card and other consumer
loans............................................... $ 220 $ (52) $ 168
Investment securities................................ (3) 1 (2)
Other................................................ 3 8 11
------
Total interest revenue........................... 203 (26) 177
INTEREST EXPENSE
Interest bearing deposits
Savings............................................ 1 3 4
Brokered........................................... 39 -- 39
Other time......................................... 15 4 19
------
Total interest bearing deposits.................. 52 10 62
Other borrowings..................................... 42 26 68
------
Total interest expense........................... 95 35 130
------
Net interest income.................................. $ 107 $ (60) $ 47
====== ====== ======
</TABLE>
The supplemental table below provides average managed loan balance and rate
information which takes into account both owned and securitized loans:
Supplemental Average Managed Loan Balance Sheet Information (dollars in
millions)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
February 29, 2000 February 28, 1999
----------------------- -----------------------
Avg. Rate Avg. Rate
Bal. % Interest Bal. % Interest
------- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
General purpose credit card
and other consumer loans..... $41,023 13.35% $1,361 $32,900 14.06% $1,141
Total interest earning
assets....................... 43,523 12.98 1,440 35,421 13.44 1,181
Total interest bearing
liabilities.................. 40,109 6.32 647 32,144 5.65 451
Consumer loan interest rate
spread....................... 7.03 8.41
Interest rate spread.......... 6.66 7.79
Net interest margin........... 7.15 8.31
</TABLE>
Provision for Consumer Loan Losses
The provision for consumer loan losses is the amount necessary to establish
the allowance for loan losses at a level the Company believes is adequate to
absorb estimated losses in its consumer loan portfolio at the balance sheet
date. The Company's allowance for loan losses is regularly evaluated by
management for adequacy and was $771 million and $777 million at February 29,
2000 and February 28, 1999, respectively.
The provision for consumer loan losses, which is affected by net charge-
offs, loan volume and changes in the amount of consumer loans estimated to be
uncollectable, increased 26% to $223 million in the quarter ended February 29,
2000 from the comparable period of fiscal 1999. The increase was primarily due
to higher levels of average consumer loans, partially offset by a lower level
of net charge-offs. In addition, the provision for consumer loan losses in
fiscal 1999 benefited from a decline in the loan loss allowance in connection
with securitization transactions entered into prior to the third quarter of
1996. This loan loss allowance was fully amortized by the end of fiscal 1999.
27
<PAGE>
The Company's future charge-off rates and credit quality are subject to
uncertainties that could cause actual results to differ materially from what
has been discussed above. Factors that influence the provision for consumer
loan losses include the level and direction of consumer loan delinquencies and
charge-offs, changes in consumer spending and payment behaviors, bankruptcy
trends, the seasoning of the Company's loan portfolio, interest rate movements
and their impact on consumer behavior, and the rate and magnitude of changes
in the Company's consumer loan portfolio, including the overall mix of
accounts, products and loan balances within the portfolio.
Consumer loans are considered delinquent when interest or principal payments
become 30 days past due. Consumer loans are charged-off on the last day of the
month in which they become 180 days delinquent, except in the case of
bankruptcies and fraudulent transactions, where loans are charged-off earlier.
Loan delinquencies and charge-offs are primarily affected by changes in
economic conditions and may vary throughout the year due to seasonal consumer
spending and payment behaviors.
The following table presents delinquency and net charge-off rates with
supplemental managed loan information:
Asset Quality (dollars in millions)
<TABLE>
<CAPTION>
February 29, February 28, November
2000 1999 30, 1999
---------------- ---------------- ----------------
Owned Managed Owned Managed Owned Managed
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans at period-
end..................... $23,757 $41,988 $15,529 $32,134 $20,998 $37,975
Consumer loans
contractually past due
as a percentage of
period-end consumer
loans:
30 to 89 days.......... 2.79% 3.29% 4.12% 4.26% 3.35% 3.79%
90 to 179 days......... 1.91% 2.29% 2.70% 2.83% 2.20% 2.53%
Net charge-offs as a
percentage of average
consumer loans (year-to-
date)................... 3.81% 4.66% 5.89% 6.28% 4.78% 5.42%
</TABLE>
Non-Interest Expenses
Non-interest expenses increased 18% in the quarter ended February 29, 2000
from the comparable period of fiscal 1999.
Compensation and benefits expense increased 30%, primarily due to higher
employment costs associated with increased employment levels resulting from
increased levels of transaction volume. Occupancy and equipment expense
increased 17%, primarily due to increased rent expense at both the domestic
and international locations of Credit Services. Information processing and
communications expense decreased 3%, primarily reflecting the termination of
an external transaction processing contract, partially offset by an increase
in volume-related external data processing costs. Marketing and business
development expense increased 13%, primarily due to higher cardmember rewards
expense associated with increased sales volume, as well as increased
advertising and direct mailing costs. Professional services expense increased
24%, primarily due to increased costs associated with account collections and
consumer credit counseling and the outsourcing of certain call center
operations. Other expenses increased 67%, primarily reflecting increases in
certain operating expenses due to higher levels of transaction volume and
business activity, including higher fraud losses associated with a higher
volume of new account mailings.
Liquidity and Capital Resources
The Company's total assets increased to $408.1 billion at February 29, 2000
from $367.0 billion at November 30, 1999, primarily attributable to increases
in securities borrowed, cash and securities deposited with clearing
organizations and securities purchased under agreements to resell. A
substantial portion of the Company's total assets consists of highly liquid
marketable securities and short-term receivables arising principally from
securities transactions. The highly liquid nature of these assets provides the
Company with flexibility in financing and managing its business.
28
<PAGE>
The Company's senior management establishes the overall funding and capital
policies of the Company, reviews the Company's performance relative to these
policies, monitors the availability of sources of financing, reviews the
foreign exchange risk of the Company and oversees the liquidity and interest
rate sensitivity of the Company's asset and liability position. The primary
goal of the Company's funding and liquidity activities is to ensure adequate
financing over a wide range of potential credit ratings and market
environments.
The Company views return on equity to be an important measure of its
performance, in the context of both the particular business environment in
which the Company is operating and its peer group's results. In this regard,
the Company actively manages its consolidated capital position based upon,
among other things, business opportunities, capital availability and rates of
return together with internal capital policies, regulatory requirements and
rating agency guidelines and therefore may, in the future, expand or contract
its capital base to address the changing needs of its businesses. The Company
returns internally generated equity capital which is in excess of the needs of
its businesses to its shareholders through common stock repurchases and
dividends.
The Company funds its balance sheet on a global basis. The Company's funding
for its Securities and Asset Management businesses is raised through diverse
sources. These sources include the Company's capital, including equity and
long-term debt; repurchase agreements; U.S., Canadian, Euro and Japanese
commercial paper; letters of credit; unsecured bond borrows; securities
lending; buy/sell agreements; municipal reinvestments; master notes; and
committed and uncommitted lines of credit. Repurchase agreement transactions,
securities lending and a portion of the Company's bank borrowings are made on
a collateralized basis and therefore provide a more stable source of funding
than short-term unsecured borrowings.
The funding sources utilized for the Company's Credit Services business
include the Company's capital, including equity and long-term debt; asset
securitizations; commercial paper; deposits; asset-backed commercial paper;
Federal Funds; and short-term bank notes. The Company sells consumer loans
through asset securitizations using several transaction structures. Riverwoods
Funding Corporation ("RFC"), an entity included in the Company's condensed
consolidated financial statements, issues asset-backed commercial paper.
The Company's bank subsidiaries solicit deposits from consumers, purchase
Federal Funds and issue short-term bank notes. Interest bearing deposits are
classified by type as savings, brokered and other time deposits. Savings
deposits consist primarily of money market deposits and certificates of
deposit accounts sold directly to cardmembers and savings deposits from
individual securities clients. Brokered deposits consist primarily of
certificates of deposits issued by the Company's bank subsidiaries. Other time
deposits include institutional certificates of deposits. The Company, through
Greenwood Trust Company, a wholly-owned indirect subsidiary of the Company,
sells notes under a short-term bank note program.
The Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others from which it draws funds in
a variety of currencies. The volume of the Company's borrowings generally
fluctuates in response to changes in the amount of repurchase transactions
outstanding, the level of the Company's securities inventories and consumer
loans receivable, and overall market conditions. Availability and cost of
financing to the Company can vary depending upon market conditions, the volume
of certain trading activities, the Company's credit ratings and the overall
availability of credit.
The Company's reliance on external sources to finance a significant portion
of its day-to-day operations makes access to global sources of financing
important. The cost and availability of unsecured financing generally are
dependent on the Company's short-term and long-term debt ratings. In addition,
the Company's debt ratings can have a significant impact on certain trading
revenues, particularly in those businesses where longer term counterparty
performance is critical, such as over-the-counter derivative transactions.
29
<PAGE>
As of March 31, 2000, the Company's credit ratings were as follows:
<TABLE>
<CAPTION>
Commercial Senior
Paper Debt
----------- -------
<S> <C> <C>
Dominion Bond Rating Service Limited................... R-1 (middle) AA (low)
Duff & Phelps Credit Rating Co.(1)..................... D-1+ AA
Fitch IBCA, Inc. (1)................................... F1+ AA
Japan Rating & Investment Information, Inc............. a-1+ AA
Moody's Investors Service.............................. P-1 Aa3
Standard & Poor's...................................... A-1 A+
Thomson Financial BankWatch............................ TBW-1 AA+
</TABLE>
- --------
(1) On March 7, 2000, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co.
announced that they have entered into a definitive merger agreement.
As the Company continues to expand globally and derives revenues
increasingly in various currencies, foreign currency management is a key
element of the Company's financial policies. The Company benefits from
operating in several different currencies because weakness in any particular
currency is often offset by strength in another currency. The Company closely
monitors its exposure to fluctuations in currencies and, where cost-justified,
adopts strategies to reduce the impact of these fluctuations on the Company's
financial performance. These strategies include engaging in various hedging
activities to manage income and cash flows denominated in foreign currencies
and using foreign currency borrowings, when appropriate, to finance
investments outside the U.S.
During the quarter ended February 29, 2000, the Company issued senior notes
aggregating $6,033 million, including non-U.S. dollar currency notes
aggregating $571 million, primarily pursuant to its public debt shelf
registration statements. These notes have maturities from 2001 to 2030 and a
weighted average coupon interest rate of 6.43% at February 29, 2000; the
Company has entered into certain transactions to obtain floating interest
rates based primarily on short-term LIBOR trading levels. At February 29, 2000
the aggregate outstanding principal amount of the Company's Senior
Indebtedness (as defined in the Company's public debt shelf registration
statements) was approximately $61 billion.
In January 2000, the Company and Morgan Stanley Finance, plc, a U.K.
subsidiary, called for the redemption of all of the outstanding 9.00% Capital
Units on February 28, 2000. The aggregate principal amount of the Capital
Units redeemed was $144 million.
During the quarter ended February 29, 2000, the Company purchased $726
million of its common stock. Subsequent to February 29, 2000 and through March
31, 2000, the Company purchased an additional $364 million of its common
stock.
In an effort to enhance its ongoing stock repurchase program, the Company
may sell put options on shares of its common stock to third parties. These put
options entitle the holder to sell shares of the Company's common stock to the
Company on certain dates at specified prices. As of February 29, 2000, put
options were outstanding on an aggregate of 3.4 million shares of the
Company's common stock. The expiration dates of these put options range from
March 2000 through October 2000. The Company may elect cash settlement of the
put options instead of taking delivery of the stock.
The Company maintains a senior revolving credit agreement with a group of
banks to support general liquidity needs, including the issuance of commercial
paper (the "MSDW Facility"). Under the terms of the MSDW Facility, the banks
are committed to provide up to $5.5 billion. The MSDW Facility contains
restrictive covenants which require, among other things, that the Company
maintain shareholders' equity of at least $9.1 billion at all times. The
Company believes that the covenant restrictions will not impair the Company's
ability to pay its current level of dividends. At February 29, 2000, no
borrowings were outstanding under the MSDW Facility.
30
<PAGE>
The Company maintains a master collateral facility that enables Morgan
Stanley & Co. Incorporated ("MS&Co."), one of the Company's U.S. broker-dealer
subsidiaries, to pledge certain collateral to secure loan arrangements,
letters of credit and other financial accommodations (the "MS&Co. Facility").
As part of the MS&Co. Facility, MS&Co. also maintains a secured committed
credit agreement with a group of banks that are parties to the master
collateral facility under which such banks are committed to provide up to
$1.875 billion. The credit agreement contains restrictive covenants which
require, amoung other things, that MS&Co. maintain specified levels of
consolidated shareholder's equity and Net Capital, as defined. At February 29,
2000, no borrowings were outstanding under the MS&Co. Facility.
Morgan Stanley & Co. International Limited ("MSIL"), the Company's London-
based broker-dealer subsidiary, maintains a revolving committed financing
facility to secure committed funding from a syndicate of banks by providing a
broad range of collateral under repurchase agreements (the "MSIL Facility").
Such banks are committed to provide up to an aggregate of $1.91 billion
available in six major currencies. The facility agreement contains restrictive
covenants which require, among other things, that MSIL maintain specified
levels of Shareholder's Equity and Financial Resources, each as defined. At
February 29, 2000, no borrowings were outstanding under the MSIL Facility.
Morgan Stanley Dean Witter Japan Limited ("MSDWJL"), the Company's Tokyo-
based broker-dealer subsidiary, maintains a committed revolving credit
facility guaranteed by the Company, that provides funding to support general
liquidity needs, including support of MSDWJL's unsecured borrowings (the
"MSDWJL Facility"). Under the terms of the MSDWJL Facility, a syndicate of
banks is committed to provide up to 60 billion Japanese yen. At February 29,
2000, no borrowings were outstanding under the MSDWJL Facility.
RFC maintains a senior bank credit facility to support the issuance of
asset-backed commercial paper in the amount of $2.0 billion. Under the terms
of the asset-backed commercial paper program, certain assets of RFC are
subject to a lien in the amount of $2.0 billion. RFC has never borrowed from
its senior bank credit facility.
The Company anticipates that it will utilize the MSDW Facility, the MS&Co.
Facility, the MSIL Facility or the MSDWJL Facility for short-term funding from
time to time.
At February 29, 2000, certain assets of the Company, such as real property,
equipment and leasehold improvements of $2.2 billion, aircraft assets of $1.9
billion, and goodwill and other intangible assets of $1.3 billion, were
illiquid. Certain equity investments made in connection with the Company's
private equity and other principal investment activities, high-yield debt
securities, emerging market debt, certain collateralized mortgage obligations
and mortgage-related loan products, bridge financings, and certain senior
secured loans and positions are not highly liquid. The Company also has
commitments of $447 million at February 29, 2000 in connection with its
private equity and other principal investment activities.
At February 29, 2000, the aggregate value of high-yield debt securities and
emerging market loans and securitized instruments held in inventory was $2,763
million (a substantial portion of which was subordinated debt). These
securities, loans and instruments were not attributable to more than 3% to any
one issuer, 19% to any one industry or 19% to any one geographic region. Non-
investment grade securities generally involve greater risk than investment
grade securities due to the lower credit ratings of the issuers, which
typically have relatively high levels of indebtedness and are, therefore, more
sensitive to adverse economic conditions. In addition, the market for non-
investment grade securities and emerging market loans and securitized
instruments has been, and may continue to be, characterized by periods of
volatility and illiquidity. The Company has in place credit and other risk
policies and procedures to control total inventory positions and risk
concentrations for non-investment grade securities and emerging market loans
and securitized instruments that are administered in
31
<PAGE>
a manner consistent with the Company's overall risk management policies and
procedures (see "Risk Management" and Note 9 to the consolidated financial
statements for the fiscal year ended November 30, 1999, included in the
Company's Annual Report on Form 10-K).
In connection with certain of its business activities, the Company provides
financing or financing commitments (on a secured and unsecured basis) to
companies in the form of senior and subordinated debt, including bridge
financing, on a selective basis. The borrowers may be rated investment grade
or non-investment grade and the loans may have varying maturities. As part of
these activities, the Company may syndicate and trade certain positions of
these loans. At February 29, 2000, the aggregate value of such loans and
positions was $2.5 billion. The Company has also provided additional
commitments associated with these activities aggregating $7.3 billion at
February 29, 2000. At March 31, 2000, the Company had loans and positions
outstanding of $2.5 billion and aggregate commitments of $8.9 billion.
The Company has contracted to develop a one million-square-foot office tower
in New York City. Pursuant to this agreement, the Company will own the
building and has entered into a 99-year lease for the land at the development
site. Construction began in 1999 and the Company intends to occupy the
building upon project completion, which is anticipated in 2002. The total
investment in this project (which will be incurred over the next several
years) is estimated to be approximately $650 million.
At February 29, 2000, financial instruments owned by the Company included
derivative products (generally in the form of futures, forwards, swaps, caps,
collars, floors, swap options and similar instruments which derive their value
from underlying interest rates, foreign exchange rates or commodity or equity
instruments and indices) related to financial instruments and commodities with
an aggregate net replacement cost of $26.7 billion. The net replacement cost
of all derivative products in a gain position represents the Company's maximum
exposure to derivatives related credit risk. Derivative products may have both
on- and off-balance sheet risk implications, depending on the nature of the
contract. However, in many cases derivatives serve to reduce, rather than
increase, the Company's exposure to losses from market, credit and other
risks. The risks associated with the Company's derivative activities,
including market and credit risks, are managed on an integrated basis with
associated cash instruments in a manner consistent with the Company's overall
risk management policies and procedures. The Company manages its credit
exposure to derivative products through various means, which include reviewing
counterparty financial soundness periodically; entering into master netting
agreements and collateral arrangements with counterparties in appropriate
circumstances; and limiting the duration of exposure.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of February 29, 2000, Aggregate Value-at-Risk ("VaR") for the Company's
trading and related activities, measured at a 99% confidence level with a one-
day time horizon, was $47 million. Aggregate VaR declined from $51 million as
of November 30, 1999, primarily as the result of a decrease in the VaR
associated with various interest rate risk positions.
The Company uses VaR as one of a range of risk management tools and notes
that VaR values should be interpreted in light of the method's strengths and
limitations. For a further discussion of the Company's risk management policy
and control structure, refer to the "Risk Management" section of the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
32
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The following developments have occurred with respect to certain matters
previously reported in the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1999.
Term Trust Class Actions. Plaintiffs moved for class certification in the
Florida matter on March 27, 2000.
Morgan Stanley Dean Witter North American Government Income Trust
Litigation. The fairness hearing has been scheduled for April 26, 2000.
Penalty Bid Litigation. On April 5, 2000, oral argument on defendants'
motion to dismiss was held.
Item 2. Changes in Securities and Use of Proceeds.
(a) On January 28, 2000, the Company and Morgan Stanley Finance, plc, a U.K.
subsidiary, announced that they had called for redemption all of their
outstanding 9.00% Capital Units. The 9.00% Capital Units consisted of
$144,180,000 aggregate outstanding principal amount of 9.00% Subordinated
Debentures due February 28, 2015 of Morgan Stanley Finance, plc and 5,767,200
related purchase contracts of the Company, which required holders of the
Capital Units to purchase depositary shares representing ownership interests
in shares of the Company's 9.00% Cumulative Preferred Stock. The 9.00%
Subordinated Debentures were guaranteed by the Company. The 9.00% Capital
Units were redeemed on February 28, 2000 at a price of $25.025 per Capital
Unit ($25.00 for the underlying debentures at par and $0.025 for the related
purchase contract).
(c) To enhance its ongoing stock repurchase program, during the quarter
ended February 29, 2000, the Company sold European-style put options on an
aggregate of 3.4 million shares of its common stock. These put options expire
on various dates through October 2000. They entitle the holder to sell common
stock to the Company at prices ranging from $53.86 to $64.98 per share. The
sales of these put options, which were made as private placements to third
parties, generated proceeds to the Company of approximately $16 million.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on April 6, 2000.
The stockholders voted on proposals to (1) elect one class of directors for
a three-year term, (2) amend the Company's Amended and Restated Certificate of
Incorporation to increase from 1,750,000,000 to 3,500,000,000 the total number
of shares of Common Stock, par value $.01 a share, which the Company will have
the authority to issue and (3) ratify the appointment of Deloitte & Touche LLP
as independent auditors.
The stockholders also took action on two stockholder proposals seeking to
(1) declassify the Board of Directors ("First Proposal"), and (2) request that
the Board of Directors issue a report by October 2000 reviewing the Company's
underwriting criteria with the view to incorporating and fully disclosing
criteria related to a transaction's impact on the environment, human rights
and risk to the Company's reputation ("Second Proposal").
The vote of the stockholders resulted in the approval of the amendment to
the Company's Amended and Restated Certificate of Incorporation and the
ratification of the appointment of the independent auditors. In addition, all
nominees for election to the board were elected to the terms of office set
forth in the Proxy Statement dated February 24, 2000. The two stockholder
proposals were defeated. The number of votes cast for, against or withheld,
and the number of abstentions and broker non-votes with respect to each
proposal, is set forth below.
33
<PAGE>
The Company's independent inspectors of election reported the vote of
stockholders as follows.
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstain Non-vote
--- -------- ------- --------
<S> <C> <C> <C> <C>
Election of Directors:
Nominee:
Philip J. Purcell............. 1,009,280,071 6,844,758 * *
John J. Mack.................. 1,008,724,969 7,398,860 * *
C. Robert Kidder.............. 1,009,301,643 6,823,186 * *
Michael A. Miles.............. 1,008,642,292 7,482,537 * *
Approval of the Amendment to
the Amended and Restated
Certificate of
Incorporation................ 947,583,584 62,937,748 5,604,922 *
Ratification of Independent
Auditors..................... 1,010,331,564 1,883,120 3,892,115 *
First Proposal................ 437,543,608 463,670,881 12,331,428 102,579,536
Second Proposal............... 52,015,036 799,233,531 62,542,356 102,334,530
</TABLE>
- --------
*Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a)Exhibits
An exhibit index has been filed as part of this Report on Page E-1.
(b)Reports on form 8-K
Form 8-K dated December 20, 1999 (filed December 20, 1999) reporting Item 5
and Item 7.
Form 8-K dated December 20, 1999 (filed December 23, 1999) reporting Item 5
and Item 7.
Form 8-K dated December 20, 1999 (filed January 26, 2000) reporting Item 5.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Morgan Stanley Dean Witter & Co.
(Registrant)
/s/ Joanne Pace
By:
----------------------------------
Joanne Pace, Controller and
Principal Accounting Officer
Date: April 13, 2000
35
<PAGE>
EXHIBIT INDEX
MORGAN STANLEY DEAN WITTER & CO.
Quarter Ended February 29, 2000
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation, as amended to date.
10.1 Dean Witter Reynolds Inc. Branch Manager Compensation Plan, Amended
and Restated as of December 9, 1999.
11 Computation of earnings per share.
12 Computation of ratio of earnings to fixed charges.
15.1 Letter of awareness from Deloitte & Touche LLP, dated April 13, 2000,
concerning unaudited interim financial information.
27 Financial Data Schedule.
</TABLE>
E-1
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
MAY 31, 1997
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 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 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,
<PAGE>
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.
(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
2
<PAGE>
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.
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
3
<PAGE>
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.
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
4
<PAGE>
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 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
5
<PAGE>
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.
6
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
ESOP CONVERTIBLE PREFERRED STOCK
OF
DEAN WITTER, DISCOVER & CO.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of
Directors (the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 3,902,438 of the shares of Preferred Stock which the
Corporation has authority to issue, is authorized, and the Board hereby fixes
the powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Issuance.
-------------------------
(A) The shares of such series shall be designated ESOP CONVERTIBLE
PREFERRED STOCK (hereinafter referred to as the "ESOP Preferred Stock") and such
series shall consist of
7
<PAGE>
3,902,438 shares. Such number of shares may be increased or decreased from time
to time by resolution of the Committee (as hereinafter defined), but no such
increase shall result in such series consisting of more than 4,000,000 shares,
and no decrease shall reduce the number of shares of ESOP Preferred Stock to a
number less than that of shares of ESOP Preferred Stock then outstanding plus
the number of shares issuable upon exercise of any rights, options or warrants
or upon conversion of outstanding securities issued by the Corporation relating
to such shares. Notwithstanding the preceding sentence, the Board may increase
the number of shares of ESOP Preferred Stock to a number greater than 4,000,000
shares, or may decrease the number of such shares, subject only to any
limitations imposed by applicable law or the Certificate of Incorporation. Any
shares of ESOP Preferred Stock redeemed or purchased by the Corporation shall
remain issued and outstanding for all purposes (except that as long as such
shares are held by the Corporation or its nominee, no dividends shall be paid on
such shares and they shall neither be entitled to vote nor counted for quorum
purposes) and may thereafter be transferred by the Corporation from time to time
to a trustee or trustees referred to in paragraph (B) of this Section 1
(whereupon the voting and dividend rights of such shares shall be restored);
provided that the Corporation may provide at the time of or at any time after
such redemption or purchase that any such shares then held by the Corporation or
its nominee shall be retired, and such shares shall then be restored to the
status of authorized but unissued shares of Preferred Stock of the Corporation.
For the purposes of this Certificate of Designation, the "Committee" shall mean
any committee of the Board to whom the Board, pursuant to Section 141(c) of the
General Corporation Law of the State of Delaware, delegates authority to perform
the functions of the Board set forth in this Certificate of Designation.
(B) Shares of ESOP Preferred Stock shall be issued only to a trustee
or trustees acting on behalf of an employee stock ownership trust or plan or
other employee benefit plan (a "Plan") of the Corporation. In the event of any
sale, transfer or other disposition (hereinafter a "transfer") of shares of ESOP
Preferred Stock to any person (including, without limitation, any participant in
the Plan) other than (x) any trustee or trustees of the Plan, (y) any pledgee of
such shares acquiring such shares as security for any loan or loans made to the
Plan or to any trustee or trustees acting on behalf of the Plan or (z) the
Corporation, the shares of ESOP Preferred Stock so transferred, upon such
transfer and without any further
8
<PAGE>
action by the Corporation or the holder, shall be automatically converted into
shares of Common Stock at the Conversion Price (as hereinafter defined) and on
the terms otherwise provided for the conversion of shares of ESOP Preferred
Stock into shares of Common Stock pursuant to Section 5 hereof and no such
transferee shall have any of the voting powers, preferences and relative,
participating, optional or special rights ascribed to shares of ESOP Preferred
Stock hereunder, but, rather, only the powers and rights pertaining to the
Common Stock into which such shares of ESOP Preferred Stock shall be so
converted; provided, however, that in the event of a foreclosure or other
realization upon shares of ESOP Preferred Stock pledged as security for any loan
or loans made to the Plan or to the trustee or the trustees acting on behalf of
the Plan, the pledged shares so foreclosed or otherwise realized upon shall be
converted automatically into shares of Common Stock at the Conversion Price and
on the terms otherwise provided for conversions of shares of ESOP Preferred
Stock into shares of Common Stock pursuant to Section 5 hereof. In the event of
such a conversion, such transferee shall be treated for all purposes as the
record holder of the shares of Common Stock into which the ESOP Preferred Stock
shall have been converted as of the date of such conversion. Certificates
representing shares of ESOP Preferred Stock shall be legended to reflect such
restrictions on transfer. Notwithstanding the foregoing Provisions of this
Section 1, shares of ESOP Preferred Stock (i) may be converted into shares of
Common Stock as provided by Section 5 hereof and the shares of Common Stock
issued upon such conversion may be transferred by the holder thereof as
permitted by law and (ii) be redeemable by the Corporation upon the terms and
conditions provided by Sections 6, 7 and 8 hereof.
2. Dividends and Distributions.
----------------------------
(A) (1) Subject to the provisions for adjustment hereinafter set
forth, the holders of shares of ESOP Preferred Stock (other than the Corporation
or its nominee) shall be entitled to receive, when and as declared by the Board
out of funds legally available therefor, cash dividends ("Preferred Dividends")
payable in accordance with either of the following elections, as the Board shall
elect from time to time in its absolute discretion:
(i) in an amount per share initially equal to $2.78 per share per
annum, and no more (such amount, as adjusted from time to time pursuant to
the terms hereof, including during any period in which a
9
<PAGE>
Semiannual Payment Election (as defined below) shall be in effect, the
"Annual Dividend Rate"), payable annually in arrears on December 31 (or
such later date not more than four business days thereafter as the Board
may from time to time elect in its absolute discretion; such date, the
"Annual Payment Date") of each year (such election, the "Annual Payment
Election") beginning on the Annual Payment Date occurring immediately after
the effective date of such Annual Payment Election; or
(ii) in an amount per share initially equal to $2.78 per share per
annum, and no more (such amount, as adjusted from time to time pursuant to
the terms hereof, including during any period in which an Annual Payment
Election is in effect, the "Semiannual Dividend Rate"; and the Semiannual
Dividend Rate and the Annual Dividend Rate, as in effect at any time, are
each hereinafter referred to as the "Preferred Dividend Rate"),
semiannually in arrears, one-half on each June 30 and December 31 (or, in
either case, such later date not more than four business days after either
of such dates as the Board may from time to time elect in its absolute
discretion; such dates, the "Semiannual Payment Dates") of each year (such
election, the "Semiannual Payment Election"), beginning on the Semiannual
Payment Date occurring immediately after the effective date of such
Semiannual Payment Election;
provided that any Semiannual Payment Election shall be made effective only
during the period beginning on January 5 and ending on June 29 in each year.
The Board shall give prompt notice to the holders of the ESOP Preferred Stock of
any Semiannual Payment Election or Annual Payment Election and any election to
alter any Dividend Payment Date pursuant to this Section 2(A)(1). Each Annual
Payment Date or Semiannual Payment Date, as applicable, is hereinafter referred
to as a "Dividend Payment Date", and each payment of a Preferred Dividend shall
be made to holders of record at the opening of business on such Dividend Payment
Date.
(2) Preferred Dividends shall begin to accrue on outstanding shares
of ESOP Preferred Stock from the date of issuance of such shares, except that
with respect to any shares of ESOP Preferred Stock redeemed or purchased by the
Corporation and then reissued, Preferred Dividends shall accrue on such shares
from their date of reissuance. Preferred Dividends shall accrue on a daily
basis, whether or not the Corporation shall then have earnings or surplus
10
<PAGE>
(computed on the basis of a 360-day year of twelve 30-day months in case of any
period less than one year) based on the Preferred Dividend Rate in effect on
such date; provided however, that if a Semiannual Payment Election or an Annual
Payment Election becomes effective on or after such date and before the
immediately succeeding Dividend Payment Date, payments in respect of dividends
on the ESOP Preferred Stock made on or after the effective date of such
Semiannual Payment Election or Annual Payment Election and on or before such
Dividend Payment Date shall be computed using the Preferred Dividend Rate in
effect on the date of such payment; provided further, the dividends payable on
the first Dividend Payment Date following the issuance of the ESOP Preferred
Stock shall be in an amount equal to the Annual Dividend Rate for a full annum
or the Semiannual Dividend Rate for a full semiannum, as applicable. Accrued
but unpaid Preferred Dividends shall cumulate as of the Dividend Payment Date on
which they first become payable, but no interest shall accrue on accumulated but
unpaid Preferred Dividends.
(B) So long as any shares of ESOP Preferred Stock shall be
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 ESOP Preferred Stock as
to dividends, unless there shall also be or have been declared and paid or set
apart for payment on the ESOP Preferred Stock, like dividends for all dividend
payment periods of the ESOP Preferred Stock ending on or before the dividend
payment date of such parity stock, ratably in proportion to the respective
amounts of dividends (1) accumulated and unpaid or payable on such parity stock,
on the one hand, and (2) accumulated and unpaid through the dividend payment
period or periods of the ESOP Preferred Stock next preceding such dividend
payment date, on the other hand. If full cumulative dividends on the ESOP
Preferred Stock have not been declared and paid or set apart for payment when
due, the Corporation shall not declare or pay or set apart for payment any
dividends or make any other distributions on, or make any payment on account of
the purchase, redemption or other retirement of, any other class of stock or
series thereof of the Corporation ranking, as to dividends or upon dissolution,
junior to the ESOP Preferred Stock until full cumulative dividends on the ESOP
Preferred Stock shall have been paid or declared and set apart; provided,
however, that the foregoing shall not apply to (i) any dividend or distribution
payable solely in any shares of, or options, warrants or rights to subscribe for
or purchase shares of, any stock ranking, as to dividends and upon dissolution,
11
<PAGE>
junior to the ESOP Preferred Stock or (ii) the acquisition of shares of any
stock ranking, as to dividends and upon dissolution, junior to the ESOP
Preferred Stock in exchange solely for or by conversion solely into shares of
any other stock ranking junior to the ESOP Preferred Stock as to dividends and
upon dissolution.
(C) Any dividend payment made on shares of ESOP Preferred Stock shall
first be credited against the earliest accumulated but unpaid dividend due with
respect to such shares.
3. Liquidation Preference.
-----------------------
(A) In the event of any dissolution or liquidation of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of any series or class or classes of
stock of the Corporation ranking junior to ESOP Preferred Stock upon dissolution
or liquidation, the holders of ESOP Preferred Stock (other than the Corporation
or its nominee) shall be entitled to receive the Liquidation Price (as
hereinafter defined) per share in effect at the time of dissolution or
liquidation plus an amount equal to all dividends accrued (whether or not
accumulated) and unpaid on the ESOP Preferred Stock to the date of final
distribution to such holders; but such holders shall not be entitled to and
shall not otherwise receive any further payments. The Liquidation Price per
share that holders of ESOP Preferred Stock shall receive upon dissolution or
liquidation shall be $35.875, subject to adjustment as hereinafter provided.
If, upon any dissolution or liquidation of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of ESOP
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares ranking, as to
dissolution or liquidation, on a parity with ESOP Preferred Stock, then such
assets, or the proceeds thereof, shall be distributed among the holders of ESOP
Preferred Stock and any such other shares ratably in accordance with the
respective amounts that would be payable on such shares of ESOP Preferred Stock
and any such other shares if all amounts payable thereon were paid in full. For
the purposes of this Section 3, neither a consolidation or merger of the
Corporation with or into one or more corporations, nor the sale, transfer, lease
or exchange (for cash, shares of equity stock, securities or other
consideration) of all or substantially all of the
12
<PAGE>
assets of the Corporation, nor the distribution to the stockholders of the
Corporation of all or substantially all of the consideration for such sale,
unless such consideration (apart from assumption of liabilities) or the net
proceeds thereof consists substantially entirely of cash, shall be deemed to be
a dissolution or liquidation, voluntary or involuntary.
(B) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or senior to ESOP Preferred
Stock upon dissolution or liquidation, upon any dissolution or liquidation of
the Corporation, after payment shall have been made in full to the holders of
ESOP Preferred Stock as provided in this Section 3, but not prior thereto, any
other series or class or classes of stock ranking junior to ESOP Preferred Stock
upon dissolution or liquidation shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
of the Corporation remaining to be paid or distributed, and the holders of ESOP
Preferred Stock shall not be entitled to share therein.
4. Ranking and Voting of Shares.
-----------------------------
(A) Each of (i) the Corporation's 7-3/8% Cumulative Preferred Stock,
with a liquidation value of $200.00 per share, (ii) the Corporation's 7-3/4%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (iii)
the Corporation's Series A Fixed/Adjustable Rate Preferred Stock, with a
liquidation value of $200.00 per share, (iv) if issued, the Corporation's 7.82%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (v)
if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vi) if issued, the Corporation's 9.00%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (vii)
if issued, the Corporation's 8.40% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (viii) if issued, the Corporation's
8.20% Cumulative Preferred Stock, with a liquidation value of $200.00 per share
and (ix) if issued, the Corporation's 8.03% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, shall rank on a parity with ESOP
Preferred Stock as to dividends and as to distribution of assets upon
dissolution or liquidation.
Unless otherwise provided in the Certificate of Incorporation of the
Corporation, as the same may be
13
<PAGE>
amended, or in a Certificate of Designation of Rights and Preferences relating
to any subsequent series of Preferred Stock, the ESOP Preferred Stock shall rank
on a parity with all series of the Corporation's Preferred Stock, other than the
Corporation's Series A Junior Participating Preferred Stock to which the ESOP
Preferred Stock shall rank senior, as to dividends and as to the distribution of
assets upon dissolution or liquidation.
(B) The holders of shares of ESOP Preferred Stock (other than the
Corporation or its nominee) shall have the following voting rights:
(1) The holders of ESOP Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the stockholders of the Corporation, voting
together with the holders of Common Stock as one class. The holder of each
share of ESOP Preferred Stock shall be entitled to a number of votes equal to
1.35 times the number of shares of Common Stock into which such share of ESOP
Preferred Stock could be converted on the record date for determining the stock
holders entitled to vote; it being understood that whenever the "Conversion
Price" (as defined in Section 5 hereof) is adjusted as provided in Section 9
hereof, the number of votes of the ESOP Preferred Stock shall also be corres
pondingly adjusted. Notwithstanding the immediately preceding sentence, if the
governing body of the New York Stock Exchange or any other securities listing
service or exchange (each, an "Exchange") or any relevant governmental or
regulatory entity (each such entity, and each governing body of an Exchange, a
"Regulating Entity") shall have disapproved of such voting power or taken or
threatened any action against the Corporation or in respect of any of its
securities in accordance with Rule 19c-4 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any other rule or listing standard
of any Regulating Entity regarding the voting power of securities, or if the
Board of Directors determines in its sole judgment that any Regulating Entity
may so disapprove or take or threaten any such action, the holder of each share
of ESOP Preferred Stock shall be entitled to a maximum number of votes
permissible (consistent with continued listing of the Corporation's securities
on any such Exchange) in accordance with the interpretations of any such rule or
listing standard by such Regulating Entity, as determined by the Board.
(2) Except as otherwise required by law or set forth herein, holders
of ESOP Preferred Stock shall have no
14
<PAGE>
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for the taking of any corporate action, including the issuance of any
Preferred Stock now or hereafter authorized; provided, however, that the vote of
at least 66-2/3% of the outstanding shares of ESOP Preferred Stock, voting
separately as a series, shall be necessary to approve any alteration, amendment
or repeal of any provision of the Certificate of Incorporation or any
alteration, amendment or repeal of any provision of the resolutions relating to
the designation, preferences and rights of ESOP Preferred Stock (including any
such alteration, amendment or repeal effected by any merger or consolidation in
which the Corporation is the surviving or resulting corporation, but not
including any alteration or amendment of rights expressly provided for in
Section (B)(1) above or in Section 2(A)(1)), if such amendment, alteration or
repeal would alter or change the powers, preferences, or special rights of the
ESOP Preferred Stock so as to affect them adversely.
5. Conversion into Common Stock.
-----------------------------
(A) A holder of shares of ESOP Preferred Stock shall be entitled, at
any time prior to the close of business on the date fixed for redemption of such
shares pursuant to Section 6, 7 or 8 hereof, to cause any or all of such shares
to be converted into shares of Common Stock. The number of shares of Common
Stock into which each share of the ESOP Preferred Stock may be converted shall
be determined by dividing the Liquidation Price in effect at the time of
conversion by the Conversion Price (as hereinafter defined) in effect at the
time of conversion. The initial Conversion Price per share at which shares of
Common Stock shall be issuable upon conversion of any shares of ESOP Preferred
Stock shall be $10.871, subject to adjustment as hereinafter provided; that is,
a conversion rate initially equivalent to three and three-tenths (3-3/10) shares
of Common Stock for each share of ESOP Preferred Stock, which is subject to
adjustment as hereinafter provided.
(B) Any holder of shares of ESOP Preferred Stock desiring to convert
such shares into shares of Common Stock shall surrender, if certificated, the
certificate or certificates representing the shares of ESOP Preferred Stock
being converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock
15
<PAGE>
powers relating thereto), or if uncertificated, a duly executed stock power
relating thereto, at the principal executive office of the Corporation or the
offices of the transfer agent for the ESOP Preferred Stock or such office or
offices in the continental United States of an agent for conversion as may from
time to time be designated by notice to the holders of the ESOP Preferred Stock
by the Corporation or the transfer agent for the ESOP Preferred Stock,
accompanied by written notice of conversion. Such notice of conversion shall
specify (i) the number of shares of ESOP Preferred Stock to be converted and the
name or names in which such holder wishes the Common Stock and any shares of
ESOP Preferred Stock not to be so converted to be issued, and (ii) the address
to which such holder wishes delivery to be made of a confirmation of such
conversion, if uncertificated, or any new certificates which may be issued upon
such conversion, if certificated.
(C) Upon surrender, if certificated, of a certificate representing a
share or shares of ESOP Preferred Stock for conversion, or if uncertificated, of
a duly executed stock power relating thereto, the Corporation shall issue and
send by hand delivery (with receipt to be acknowledged) or by first class mail,
postage prepaid, to the holder thereof or to such holder's designee, at the
address designated by such holder, if certificated, a certificate or
certificates for, or if uncertificated, confirmation of, the number of shares of
Common Stock to which such holder shall be entitled upon conversion. If there
shall have been surrendered shares of ESOP Preferred Stock only part of which
are to be converted, the Corporation shall issue and deliver to such holder or
such holder's designee, if certificated, a new certificate or certificates
representing the number of shares of ESOP Preferred Stock that shall not have
been converted, or if uncertificated, confirmation of the number of shares of
ESOP Preferred Stock that shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of ESOP Preferred Stock into shares of Common Stock made at
the option of the holder thereof shall be effective as of the earlier of (i) the
delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof, if
certificated, or confirmation, if uncertificated, and (ii) the commencement of
business on the second business day after the surrender of the certificate or
certificates, if certificated, or a duly executed stock power, if
uncertificated, for the shares of
16
<PAGE>
ESOP Preferred Stock to be converted. On and after the effective date of
conversion, the person or persons entitled to receive Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock, and no allowance or adjust ment shall be
made in respect of dividends payable to holders of Common Stock of record on any
date prior to such effective date. The Corporation shall not be obligated to
pay any dividend that may have accrued or have been declared but that is not
payable to holders of shares of ESOP Preferred Stock if the Dividend Payment
Date for such dividend is on or subsequent to the effective date of conversion
of such shares.
(E) The Corporation shall not be obligated to deliver to holders of
ESOP Preferred Stock any fractional share or shares of Common Stock issuable
upon any conversion of such shares of ESOP Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.
(F) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock or treasury Common Stock, solely for
issuance upon the conversion of shares of ESOP Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of ESOP Preferred Stock then
outstanding.
6. Redemption at the Option of the Corporation.
--------------------------------------------
(A) The ESOP Preferred Stock shall be redeemable, in whole or in
part, at the option of the Corporation at any time after September 19, 2000, out
of funds legally available therefor, at a redemption price per share equal to
100% of the Liquidation Price plus an amount equal to all accrued (whether or
not accumulated) and unpaid dividends thereon to the date fixed for redemption.
Payment of the redemption price shall be made by the Corporation in cash or
shares of Common Stock, or a combination thereof, as permitted by paragraph (E)
of this Section 6. From and after the date fixed for redemption, dividends on
shares of ESOP Preferred Stock called for redemption will cease to accrue and
all rights of the holder in respect of such shares shall cease, except the right
to receive the redemption price. Upon payment of the redemption price, such
shares shall be deemed to have been transferred to the Corporation, to be held
as treasurer shares or to be retired, in either case as provided in Sec-
tion 1(A). If less than all of the
17
<PAGE>
outstanding shares of ESOP Preferred Stock are to be redeemed, the Corporation
shall either redeem a portion of the shares of each holder determined pro rata
based on the number of shares held by each holder or shall select the shares to
be redeemed by lot, as may be determined by the Board.
(B) Notice of redemption will be sent to the holders of ESOP
Preferred Stock at the address on the books of the Corporation or any transfer
agent for ESOP Preferred Stock by first class mail, postage prepaid, mailed not
less than twenty (20) days nor more than sixty (60) days prior to the redemption
date or in any other manner provided by law. Each notice shall state: (i) the
redemption date; (ii) the total number of shares of ESOP Preferred Stock to be
redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the redemption price; (iv) the place or places where certificates,
if certificated, for such shares are to be surrendered for payment of the
redemption price; (v) that dividends on the shares to be redeemed will cease to
accrue on such redemption date; (vi) whether such redemption price should be
paid in cash or in shares of Common Stock; and (vii) the conversion rights of
the shares to be redeemed, the period within which conversion rights may be
exercised and the Conversion Price and number of shares of Common Stock issuable
upon conversion of a share of ESOP Preferred Stock at the time. Upon surrender
of the certificates, if certificated, for any shares so called for redemption,
or upon the date fixed for redemption, if uncertificated, such shares, if not
previously converted, shall be redeemed by the Corporation as of the close of
business on the date fixed for redemption and at the redemption price set forth
in this Section 6.
(C) The Corporation may, in its sole discretion and notwithstanding
anything to the contrary in paragraph (A) of this Section 6, at any time within
one year after either of the following events:
(i) there shall be a change in the federal tax law or regulations of
the United States of America or of an interpretation or application of such
law or regulations or of a determination by a court of competent
jurisdiction that in any case has the effect of precluding the Corporation
from claiming (other than for purposes of calculating any alternative
minimum tax) any of the tax deductions for dividends paid on
18
<PAGE>
the ESOP Preferred Stock when such dividends are used as provided under
Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the
"Code"), as in effect on December 31, 1995.
(ii) the Corporation shall certify to the holders of the ESOP
Preferred Stock that the Corporation has determined in good faith that the
Plan either is not qualified as a "stock bonus plan" within the meaning of
Section 401(a) of the Code or is not an "employee stock ownership plan"
within the meaning of Section 4975(e)(7) of the Code,
elect either to (a) redeem, out of funds legally available therefor, any or all
of such ESOP Preferred Stock for cash or, if the Corporation so elects, in
shares of Common Stock, or a combination of such shares of Common Stock and
cash, as permitted by paragraph (E) of this Section 6, at a redemption price
equal to (x) if the relevant event is as provided in clause (i) above, the
Liquidation Price per share on the date fixed for redemption, plus an amount
equal to accrued (whether or not accumulated) and unpaid dividends thereon to
the date fixed for redemption or (y) if the relevant event is as provided in
clause (ii) above, an amount calculated on the basis of the redemption prices
provided in paragraph (D) of this Section 6 on the date fixed for redemption or
(b) exchange any or all of such shares of ESOP Preferred Stock for securities of
at least equal value (as determined by an independent appraiser) that constitute
"qualifying employer securities" with respect to a holder of ESOP Preferred
Stock within the meaning of Section 409(l) of the Code and Section 407(d)(5) of
the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), or
any successor provisions of law. If the Corporation elects to redeem any or all
of the ESOP Preferred Stock pursuant to clause (a) of the preceding sentence,
notice of such redemption shall be given as required in paragraph (B) of this
Section 6, and if the Corporation elects to exchange any or all of the ESOP
Preferred Stock for securities of at least equal value pursuant to clause (b) of
the preceding sentence, it will cause notice of such election to be sent to the
holders of ESOP Preferred Stock at the address shown on the books of the
Corporation or any transfer agent for ESOP Preferred Stock by first class mail,
postage prepaid, mailed not less than twenty (20) days nor more than sixty (60)
days prior to the date of exchange or in any other manner required by law. Each
notice shall state: (i) the exchange date; (ii) the total number of shares of
ESOP Preferred Stock to be
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<PAGE>
exchanged and, if fewer than all the shares held by such holder are to be
exchanged, the number of shares held by such holder to be exchanged; (iii) the
exchange rate; (iv) the place or places where certificates, if certificated, for
such shares are to be surrendered for exchange; and (v) that dividends on the
shares to be exchanged will cease to accrue an such exchange date.
(D) Notwithstanding anything to the contrary in paragraph (A) of this
Section 6, in the event that the Plan is, or contributions thereto are,
terminated, the Corporation may, in its sole discretion, call for redemption any
or all of the then outstanding ESOP Preferred Stock, upon notice as required in
paragraph (B) of this Section 6, out of funds legally available therefor, at a
redemption price per share equal to the following percentages of the Liquidation
Price in effect on the date fixed for redemption:
<TABLE>
<CAPTION>
During the Twelve-
Month Period Percentage of
Beginning September 19, Liquidation Price
------------------------- -----------------
<S> <C>
1996 103.10
1997 102.33
1998 101.55
1999 100.78
2000 100.00
</TABLE>
and thereafter at 100%, plus, in each case, an amount equal to all accrued
(whether or not accumulated) and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation in
cash or shares of Common Stock, or a combination thereof, as permitted by
paragraph (E) of this Section 6. From and after the date fixed for redemption,
dividends on shares of ESOP Preferred Stock called for redemption will cease to
accrue and all rights of the holder in respect of such shares shall cease,
except the right to receive the redemption price. Upon payment of the
redemption price, such shares shall be deemed to have been transferred to the
Corporation, to be held as treasury shares or to be retired, in either case as
provided in Section 1(A).
(E) The Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of ESOP Preferred Stock in
cash or in shares of Common Stock, or in a combination of such shares and cash,
any such shares of Common Stock to be valued for such purpose at their Fair
Market Value (as defined in paragraph 9(H)(2)); provided, however, that in
calculating
20
<PAGE>
their Fair Market Value the Adjustment Period (as defined in paragraph 9(H)(2))
shall be deemed to be the five (5) consecutive trading days preceding the date
of redemption.
7. Redemption at the Option of the Holder.
---------------------------------------
(A) Unless otherwise provided by law, shares of ESOP Preferred Stock
shall be redeemed by the Corporation at the option of the holder, at any time
and from time to time upon notice to the Corporation given not less than five
business days prior to the date fixed by the holder in such notice, when and to
the extent necessary for such holder to provide for distributions required to be
made under, or to satisfy an investment election provided to participants in
accordance with, the Plan or any successor plan or when the holder elects to
redeem shares of ESOP Preferred Stock in connection with any Preferred Dividend
(a "Dividend Redemption"), in shares of Common Stock legally available therefor,
at a redemption price equal to the higher of (x) the Liquidation Price per share
on the date fixed for redemption and (y) the Fair Market Value (as defined in
paragraph 9(H)(2)) of the number of shares of Common Stock into which each share
of ESOP Preferred Stock is convertible at the time the notice of such redemption
is given, plus in either case an amount equal to accrued (whether or not
accumulated) and unpaid dividends thereon to the date fixed for redemption (such
higher price on any date, together with such accrued and unpaid dividends, the
"Special Redemption Price"). At the election of the Corporation, such redemp-
tion may instead be made out of funds legally available therefor in cash or a
combination of Common Stock and cash. Any shares of Common Stock shall be valued
for the purposes of redemption pursuant to this paragraph (A) as provided by
paragraph (E) of Section 6. In the case of any Dividend Redemption, such holder
shall give the notice specified above on the fifth business day after the
related Dividend Payment Date and such redemption shall be effective as to such
number of shares of ESOP Preferred Stock as shall equal (x) the aggregate amount
of such Preferred Dividends paid with respect to shares of ESOP Preferred Stock
allocated or credited to the accounts of participants in the Plan or any
successor plan that are used to repay any loan associated with such allocated or
credited shares divided by (y) the Special Redemption Price specified above in
this paragraph (A).
(B) Unless otherwise provided by law, shares of ESOP Preferred
Stock shall be redeemed by the Corporation at the option of the holder, at any
time and from time to
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time upon notice to the Corporation given not less than five business days prior
to the date fixed by the holder in such notice, upon certification by such
holder to the Corporation of the following events: (i) when and to the extent
necessary for such holder to make any payments of principal, interest or premium
due and payable (whether voluntary, scheduled, upon acceleration or otherwise)
upon any obligations of the trust established under the Plan in connection with
the acquisition of ESOP Preferred Stock or any indebtedness, expenses or costs
incurred by the holder for the benefit of the Plan; or (ii) when and if it shall
be established to the satisfaction of the holder that the Plan has not initially
been determined by the Internal Revenue Service to be qualified as a "stock
bonus plan" and an "employee stock ownership plan" within the meaning of Section
401(a) or 4975(e)(7) of the Code, respectively, in shares of Common Stock
legally available therefor, at a redemption price equal to the Liquidation Price
plus an amount equal to accrued and unpaid dividends thereon to the date fixed
for redemption. At the election of the Corporation, such redemption may instead
be made out of funds legally available therefor in cash or a combination of
Common Stock and cash. Any shares of Common Stock shall be valued for the
purposes of redemption pursuant to this paragraph (B) as provided by paragraph
(E) of Section 6.
8. Consolidation, Merger, etc.
---------------------------
(A) If the Corporation shall consummate any consolidation or merger
or similar transaction, however named, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into securities of any successor or resulting
company (including the Corpora tion) that constitute "qualifying employer
securities" with respect to a holder of ESOP Preferred Stock within the meanings
of Section 409(l) of the Code and Section 407(d)(5) of ERISA, or any successor
provision of law, and, if applicable, for a cash payment in lieu of fractional
shares, if any, then, in such event, the terms of such consolidation or merger
or similar transaction shall provide that the shares of ESOP Preferred Stock of
such holder shall be converted into or exchanged for and shall become preferred
securities of such successor or resulting company, having in respect of such
company insofar as possible (taking into account, without limitation, any
requirements relating to the listing of such preferred securities on any
national securities exchange or the qualification of such preferred securities
for trading in any over-the-counter market) the
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same powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Sections 6, 7 and 8 hereof),
and the qualifications, limitations or restrictions thereon, that the ESOP
Preferred Stock had immediately prior to such transaction; provided, however,
that after such transaction each security into which the ESOP Preferred Stock is
so converted or for which it is exchanged shall be convertible, pursuant to the
terms and conditions provided by Section 5 hereof, into the number and kind of
qualifying employer securities receivable by a holder equivalent to the number
of shares of Common Stock into which such shares of ESOP Preferred Stock could
have been converted pursuant to Section 5 hereof immediately prior to such
transaction and provided further that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of considera tion to be received in such
transaction, which election cannot practicably be made by the holders of the
ESOP Preferred Stock, then such election shall be deemed to be solely for
"qualifying employer securities" (together, if applicable, with a cash payment
in lieu of fractional shares) with the effect provided above on the basis of the
number and kind of qualifying employer securities receivable by a holder of the
number of shares of Common Stock into which the shares of ESOP Preferred Stock
could have been converted pursuant to Section 5 hereof immediately prior to such
transaction (it being understood that if the kind or amount of qualifying
employer securities receivable in respect of each share of Common Stock upon
such transaction is not the same for each such share, then the kind and amount
of qualifying employer securities deemed to be receivable in respect of each
share of Common Stock for purposes of this proviso shall be the kind and amount
so receivable per share of Common Stock by a plurality of such shares). The
rights of the ESOP Preferred Stock as preferred equity of such successor or
resulting company shall successively be subject to adjustments pursuant to
Section 9 hereof after any such transaction as nearly equivalent as practicable
to the adjustments provided for by such Section prior to such transaction. The
Corporation shall not consummate any such merger, consolidation or similar
transaction unless all the terms of this paragraph (A) are complied with.
(B) If the Corporation shall consummate any consolidation or merger
or similar transaction, however named, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged for or changed,
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reclassified or converted into other shares or securities or cash or any other
property, or any combination thereof, other than any such consideration which is
constituted solely of qualifying employer securities that are common stock or
common equity (as referred to in paragraph (A) of this Section 8) and cash
payments, if applicable, in lieu of fractional shares or other interests,
outstanding shares of ESOP Preferred Stock shall, without any action on the part
of the Corporation or any holder thereof (but subject to paragraph (C) of this
Section 8), be automatically converted immediately prior to the consummation of
such merger, consolidation or similar transaction into shares of Common Stock at
the Conversion Price then in effect.
(C) If the Corporation shall enter into any agreement providing for
any consolidation or merger or similar transaction described in paragraph (B) of
this Section 8, then the Corporation shall as soon as practicable thereafter
(and in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of ESOP Preferred Stock and each such holder shall have the right to
elect, by written notice to the Corporation, to receive, upon consummation of
such transaction (if and when such transaction is consummated), out of funds
legally available therefor, from the Corporation or the successor of the
Corporation, in redemption of such ESOP Preferred Stock, in lieu of any cash or
other securities which such holder would otherwise be entitled to receive under
paragraph (B) of this Section 8, a cash payment equal to the Liquidation Price
per share on the date fixed for such transaction, plus an amount equal to
accrued (whether or not accumulated) and unpaid dividends thereon to the date
fixed for such transaction. No such notice of redemption shall be effective
unless given to the Corporation prior to the close of business of the fifth
business day prior to consummation of such transaction, unless the Corporation
or the successor of the Corporation shall waive such prior notice, but any
notice or redemption so given prior to such time may be withdrawn by notice of
withdrawal given to the Corporation prior to the close of business on the fifth
business day prior to consummation of such transaction.
9. Anti-dilution Adjustments.
--------------------------
(A)(1) In the event the Corporation shall, at any time or from time
to time while any of the shares of the ESOP Preferred Stock are outstanding, (i)
pay a dividend or make a distribution in respect of the Common Stock in shares
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of Common Stock or (ii) subdivide the outstanding shares of Common Stock into a
greater number of shares, in each case whether by reclassification of shares,
recapitalization of the Corporation (excluding a recapitalization or reclass-
ification effected by a merger or consolidation to which Section 8 applies) or
otherwise, then, in such event, the Conversion Price shall, subject to the
provisions of paragraphs (E) and (F) of this Section 9, automatically be
adjusted by dividing such Conversion Price by a fraction (the "Section 9(A)
Fraction"), the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock outstanding immediately before such event.
Such adjustment to the Conversion Price shall be effective, upon payment of such
dividend or distribution in respect of the Common Stock, as of the record date
for the determination of stockholders entitled to receive such dividend or
distribution (on a retroactive basis), and in the case of a subdivision shall
become effective immediately as of the effective date thereof. An adjustment to
the Conversion Price pursuant to this Section 9(A)(1) shall have no effect on
the Liquidation Price or the Preferred Dividend Rate of the ESOP Preferred
Stock.
(2) In the event the Corporation shall, at any time or from time to
time while any of the shares of the ESOP Preferred Stock are outstanding,
combine the outstanding shares of Common Stock into a lesser number of
shares, whether by reclassification of shares, recapitalization of the
Corporation (excluding a recapitalization or reclassification effected by a
merger, consolidation or other transaction to which Section 8 applies) or
otherwise, then, in such event, the Conversion Price shall, subject to the
provisions of paragraph (F) of this Section 9, automatically be adjusted by
dividing the Conversion Price in effect immediately before such event by the
Section 9(A) Fraction. An adjustment to the Conversion Price made pursuant
to this paragraph 9(A)(2) shall be given effect immediately as of the
effective date of such combination and shall have no effect on the
Liquidation Price or the Preferred Dividend Rate of the ESOP Preferred
Stock.
(B) In the event the Corporation shall, at any time or from time to
time while any of the shares of ESOP Preferred Stock are outstanding, issue
to holders of shares of Common Stock as a dividend or distribu tion,
including by way of a reclassification of shares
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or a recapitalization of the Corporation, any right or warrant to purchase
shares of Common Stock (but not including as a right or warrant for this
purpose any security convertible into or exchangeable for shares of Common
Stock) for a consideration having a Fair Market Value (as hereinafter
defined) per share less than the Fair Market Value of a share of Common
Stock on the date of issuance of such right or warrant (other than pursuant
to any employee or director incentive, compensation or benefit plan or
arrangement of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted), then, in such event, the Conversion Price
shall, subject to the provisions of paragraphs (E) and (F) of this Sec-
tion 9, automatically be adjusted by dividing such Conversion Price by a
fraction (the "Section 9(B) Fraction"), the numerator of which is the number
of shares of Common Stock outstanding immediately before such issuance of
rights or warrants plus the maximum number of shares of Common Stock that
could be acquired upon exercise in full of all such rights and warrants and
the denominator of which is the number of shares of Common Stock
outstanding immediately before such issuance of warrants or rights plus the
number of shares of Common Stock that could be purchased at the Fair Market
Value of a share of Common Stock at the time of such issuance for the
maximum aggregate consideration payable upon exercise in full of all such
rights and warrants. Such adjustment to the Conversion Price shall be
effective upon such issuance of rights or warrants. An adjustment to the
Conversion Price pursuant to this Section 9(B) shall have no effect on the
Liquidation Price or the Preferred Dividend Rate of the ESOP Preferred
Stock.
(C)(1) In the event the Corporation shall, at any time or from time
to time while any of the shares of ESOP Preferred Stock are outstanding,
issue, sell or exchange shares of Common Stock (other than pursuant to (x)
any right or warrant to purchase or acquire shares of Common Stock
(including as such a right or warrant for this purpose any security
convertible into or exchangeable for shares of Common Stock) or (y) any
employee or director incentive, compensation or benefit plan or arrangement
of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted) at a purchase price per share less than the Fair Market
Value of a share of Common Stock on the date of such issuance, sale or
exchange, then, in such
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event, the Conversion Price shall, subject to the provisions of paragraphs
(E) and (F) of this Section 9, automatically be adjusted by dividing such
Conversion Price by a fraction (the "Section 9(C)(1) Fraction"), the
numerator of which is the number of shares of Common Stock outstanding
immediately before such issuance, sale or exchange plus the number of shares
of Common Stock so issued, sold or exchanged and the denominator of which is
the number of shares of Common Stock outstanding immediately before such
issuance, sale or exchange plus the number of shares of Common Stock that
could be purchased at the Fair Market Value of a share of Common Stock at
the time of such issuance, sale or exchange for the maximum aggregate
consideration paid therefor.
(2) In the event that the Corporation shall, at any time or from time
to time while any ESOP Preferred Stock is outstanding, issue, sell or
exchange any right or warrant to purchase or acquire shares of Common Stock
(including as such a right or warrant for this purpose any security
convertible into or exchangeable for shares of Common Stock other than
pursuant to any employee or director incentive, compensation or benefit plan
or arrangement of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted) for a consideration having a Fair Market
Value, on the date of such issuance, sale or exchange, less than the Non-
Dilutive Amount (as hereinafter defined), then, in such event, the
Conversion Price shall, subject to the provisions of paragraphs (E) and (F)
of this Section 9, automatically be adjusted by dividing such Conversion
Price by a fraction (the "Section 9(C)(2) Fraction"), the numerator of which
is the number of shares of Common Stock outstanding immediately before such
issuance of rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants and the denominator of which is the number of shares of Common
Stock outstanding immediately before such issuance of rights or warrants
plus the number of shares of Common Stock that could be purchased at the
Fair Market Value of a share of Common Stock at the time of such issuance
for the total of (x) the maximum aggregate consideration payable at the time
of the issuance, sale or exchange of such right or warrant and (y) the
maximum aggregate consideration payable upon exercise in full of all such
rights or warrants.
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(3) An adjustment to the Conversion Price pursuant to this Section
9(C) shall be effective upon the effective date of any issuance, sale or
exchange described in paragraph (1) or (2) above. Any such adjustment shall
have no effect on the Liquidation Price or the Preferred Dividend Rate of
the ESOP Preferred Stock.
(D) In the event the Corporation shall, at any time or from time to
time while any of the shares of ESOP Preferred Stock are outstanding, make
an Extraordinary Distribution (as hereinafter defined) in respect of the
Common Stock, whether by dividend, distribution, reclassification of shares
or recapitalization of the Corporation (including capitalization or
reclassification effected by a merger or consolidation to which Section 8
does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of
Common Stock, then, in such event, the Conversion Price shall, subject to
the provisions of paragraphs (E) and (F) of this Section 9, automatically be
adjusted by dividing such Conversion Price by a fraction (the "Section 9(D)
Fraction"), the numerator of which is the product of (a) the number of
shares of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata
Repurchase, the number of shares of Common Stock repurchased by the
Corporation multiplied by (b) the Fair Market Value of a share of Common
Stock on the day before the ex-dividend date with respect to an Extra-
ordinary Distribution that is paid in cash and on the distribution date with
respect to an Extraordinary Distribution that is paid other than in cash, or
on the applicable expiration date (including all extensions thereof) of any
tender offer that is a Pro Rata Repurchase or on the date of purchase with
respect to any Pro Rata Repurchase that is not a tender offer, as the case
may be, and the denominator of which is (i) the product of (x) the number of
shares of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase multiplied by (y) the Fair Market Value
of a share of Common Stock on the day before the ex-dividend date with
respect to an Extraordinary Distribution that is paid in cash and on the
distribution date with respect to an Extraordinary Distribution that is paid
other than in cash, or on the applicable expiration date (including all
extensions thereof) of any tender offer that is a Pro Rata Repurchase, or on
the date of purchase with respect to
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any Pro Rata Repurchase that is not a tender offer, as the case may be,
minus (ii) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may be. The
Corporation shall send each holder of ESOP Preferred Stock (i) notice of its
intent to make any Extraordinary Distribution and (ii) notice of any offer
by the Corporation to make a Pro Rata Repurchase, in each case at the same
time as, or as soon as practicable after, such offer is first communicated
to holders of Common Stock or, in the case of an Extraordinary
Distribution, the announcement of a record date in accordance with the rules
of any stock exchange on which the Common Stock is listed or admitted to
trading. Such notice shall indicate the intended record date and the amount
and nature of such dividend or distribution, or the number of shares subject
to such offer for a Pro Rata Repurchase and the purchase price payable by
the Corporation pursuant to such offer, as well as the Conversion Price and
the number of shares of Common Stock into which a share of ESOP Preferred
Stock may be converted at such time. An adjustment to the Conversion Price
pursuant to this Section 9(D) shall be effective (i) in the case of an
Extraordinary Dividend as of the record date for the determination of
holders entitled to receive such Extraordinary Dividend (on a retroactive
basis) and (ii) in the case of a Pro Rata Repurchase upon the expiration
date thereof (if such Pro Rata Repurchase is a tender offer) or the
effective date thereof (if such Pro Rata Repurchase is not a tender offer).
Any such adjustment shall have no effect on the Liquidation Price or the
Preferred Dividend Rate of the ESOP Preferred Stock.
(E) The Board shall have the authority to determine that any
adjustment to the Conversion Price provided for in paragraph (A)(1), (B),
(C) or (D) of this Section 9 shall not be made (or if already made, to
determine that such adjustment shall be cancelled prospectively), and in
lieu thereof to declare a dividend in respect of the ESOP Preferred Stock in
shares of ESOP Preferred Stock (a "Special Dividend") in such a manner that
a holder of ESOP Preferred Stock will become a holder of that number of
shares of ESOP Preferred Stock equal to the product of the number of such
shares held prior to such event times the Section 9(A), Section 9(B),
Section 9(C)(1), Section 9(C)(2) or Section 9(D) Fraction, as appli-
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cable. The declaration of such a Special Dividend shall be authorized, if at
all, by the Board no later than 30 calendar days following the authorization
by the Board (or by a committee duly authorized by the Board) of the
transaction or other event described in any of the foregoing paragraphs
(A)(1), (B), (C) or (D) that would otherwise result in an adjustment to the
Conversion Price being made pursuant to any such paragraphs, and if the
Board does not authorize the declaration of a Special Dividend by the end of
such 30-day period, then no such Special Dividend shall be declared and the
adjustment to the Conversion Price provided for in paragraph (A)(1), (B),
(C) or (D) of this Section 9 shall become final and binding on the
Corporation and all stockholders of the Corporation. Concurrently with the
declaration of any Special Dividend pursuant to this paragraph (E), the
Conversion Price, the Liquidation Price and the Preferred Dividend Rate of
all shares of ESOP Preferred Stock shall be adjusted by dividing the
Conversion Price, the Liquidation Price and the Preferred Dividend Rate,
respectively, in effect immediately before such event by the Section 9(A),
Section 9(B), Section 9(C)(1), Section 9(C)(2) or Section 9(D) Fraction, as
appli cable.
(F) Unless the Board determines otherwise, and notwithstanding any
other provision of this Section 9, any adjustment to the Conversion Price
provided for in any of paragraphs (A), (B), (C) or (D) of this Section 9
shall not be made unless such adjustment would require an increase or
decrease of at least one percent (1%) in the Conversion Price and,
similarly, the Board shall not declare any Special Dividend pursuant to
paragraph (E) of this Section 9 unless such Special Dividend or adjustment
would require an increase or decrease of at least one percent (1%) in the
number of shares of ESOP Preferred Stock outstanding. Any lesser adjustment
to the Conversion Price or Special Dividend shall be carried forward and
shall be made no later than the time of, and together with, the next
subsequent adjustment to the Conversion Price or Special Dividend which,
together with any adjustment or adjustments or Special Dividend or Dividends
so carried forward, shall amount to an increase or decrease of at least one
percent (1%) of the Conversion Price or an increase or decrease of at least
one percent (1%) in the number of shares of ESOP Preferred Stock
outstanding, whichever the case be.
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(G) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other
security of the Corporation or any rights or warrants to purchase or acquire
any such security, which transaction does not result in an adjustment to the
Conversion Price or to the number of shares of ESOP Preferred Stock out-
standing pursuant to the foregoing provisions of this Section 9, the Board
may, in its sole discretion, consider whether such action is of such a
nature that some type of equitable adjustment should be made in respect of
such transaction. If in such case the Board determines that some type of
adjustment should be made, an adjustment shall be made effective as of such
date as determined by the Board. The determination of the Board as to
whether some type of adjustment should be made pursuant to the foregoing
provisions of this Section 9(G), and, if so, as to what adjustment should be
made and when, shall be final and binding on the Corporation and all
stockholders of the Corporation. The Corporation shall be entitled, but not
required, to make such additional adjustments, in addition to those required
by the foregoing provisions of this Section 9, as shall be necessary in
order that any dividend or distribution in shares of capital stock of the
Corporation, subdivision, reclassification or combination of shares of the
Corporation or any reclassification of the Corporation shall not be taxable
to holders of the Common Stock.
(H) For purposes hereof, the following definitions shall apply:
(1) "Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the shares of
ESOP Preferred Stock are outstanding) of (i) cash or (ii) any shares of capital
stock of the Corporation (other than shares of Common Stock), other securities
of the Corporation (other than securities of the type referred to in paragraph
(B) of this Section 9), evidences of indebtedness of the Corporation or any
other person or any other property (including shares of any subsidiary of the
Corporation), or any combination of the foregoing, where the aggregate amount of
such cash dividend or other distribution together with the amount of all cash
dividends and other distributions made during the preceding period of twelve
months, when combined with the aggregate amount of all Pro Rata Repurchases (for
this purpose, including only that portion of the aggregate
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purchase price of such Pro Rata Repurchase that is in excess of the Fair Market
Value of the Common Stock repurchased as determined on the applicable expiration
date (including all extensions thereof) of any tender offer or exchange offer
that is a Pro Rata Repurchase, or the date of purchase with respect to any other
Pro Rata Repurchase that is not a tender offer or exchange offer) made during
such period, exceeds twelve and one-half percent (12-1/2%) of the aggregate Fair
Market Value of all shares of Common Stock outstanding on the day before the ex-
dividend date with respect to such Extraordinary Distribution that is paid in
cash and on the distribution date with respect to an Extraordinary Distribution
that is paid other than in cash. The Fair Market Value of an Extraordinary
Distribution for purposes of paragraph (D) of this Section 9 shall be the sum of
the Fair Market Value of such Extraordinary Distribution plus the aggregate
amount of any cash dividends or other distributions that are not Extraordinary
Distributions made during such twelve-month period and not previously included
in the calculation of an adjustment pursuant to paragraph (D) of this Sec-
tion 9, but shall exclude the aggregate amount of regular quarterly dividends
declared by the Board and paid by the Corporation in such twelve-month period.
(2) "Fair Market Value" shall mean, as to shares of Common Stock or
any other class of capital stock or securities of the Corporation or any other
issuer that are publicly traded, the average of the Current Market Prices (as
hereinafter defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined). "Current Market Price" of publicly traded
shares of Common Stock or any other class of capital stock or other security of
the Corporation or any other issuer for a day shall mean the last reported sales
price, regular way, or, in case no sale takes place on such day, the average of
the reported closing bid and asked prices, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if such security is
not listed or admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") National Market System or, if such security is not
quoted on such National Market System, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by NASDAQ or, if
bid and asked prices for such security on such day shall not have been reported
through NASDAQ, the average of the bid and
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asked prices for such day as furnished by any New York Stock Exchange member
firm regularly making a market in such security selected for such purpose by the
Board. "Adjustment Period" shall mean the period of five consecutive trading
days, selected by the Board during the twenty (20) trading days preceding, and
including, the date as of which the Fair Market Value of a security is to be
determined. The "Fair Market Value" of any security that is not publicly traded
or of any other property shall mean the fair value thereof as determined by an
independent investment banking or appraisal firm experienced in the valuation of
such securities or property selected in good faith by the Board, or, if no such
investment banking or appraisal firm is in the good faith judgment of the Board
available to make such determination, as determined in good faith by the Board.
(3) "Non-Dilutive Amount" in respect of an issuance, sale or exchange
by the Corporation of any right or warrant to purchase, or acquire shares of
Common Stock (including any security convertible into or exchangeable for shares
of Common Stock) shall mean the difference between (i) the product of the Fair
Market Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock that could be acquired on such date upon the exercise
in full of such rights or warrants (including upon the conversion or exchange of
all such convertible or exchangeable securities), whether or not exercisable (or
convertible or exchangeable) at such date, and (ii) the aggregate amount payable
pursuant to such right or warrant to purchase or acquire such maximum number of
shares of Common Stock; provided, however, that in no event shall the Non-
Dilutive Amount be less than zero. For purposes of the foregoing sentence, in
the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Corporation.
(4) "Pro Rata Repurchase" shall mean any purchase of shares or Common
Stock by the Corporation or any subsidiary thereof, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any other
property (including shares of a subsidiary of the Corporation), or any
combination thereof,
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effected while any of the shares of ESOP Preferred Stock are outstanding,
pursuant to any tender offer or exchange offer subject to Section 13(e) of the
Exchange Act, or any successor provision of law, or pursuant to any other offer
available to substantially all holders of Common Stock; provided, however, that
no purchase of shares by the Corporation or any subsidiary thereof made in open
market transactions shall be deemed a Pro Rata Repurchase. For purposes of this
Section 9(H), shares shall be deemed to have been purchased by the Corporation
or any subsidiary thereof "in open market transactions" if they have been
purchased substantially in accordance with the requirements of Rule 10b-18 as in
effect under the Exchange Act on the date shares of ESOP Preferred Stock are
initially issued by the Corporation or on such other terms and conditions as the
Board shall have determined are reasonably designed to prevent such purchases
from having a material effect on the trading market for the Common Stock.
(I) Whenever an adjustment to the Conversion Price of the ESOP
Preferred Stock is required pursuant to this Section 9, the Corporation shall
forthwith place on file with the transfer agent for the Common Stock and the
ESOP Preferred Stock, if there be one, and with the Treasurer of the
Corporation, a statement signed by the Treasurer or any Assistant Treasurer of
the Corporation stating the adjusted Conversion Price determined as provided
herein. In addition, whenever a Special Dividend is declared pursuant to
paragraph (E) of this Section 9, (i) the maximum number of shares of ESOP
Preferred Stock shall be adjusted by multiplying 3,902,438 (or such other number
as shall be the maximum number of shares of ESOP Preferred Stock in effect prior
to the authorization of such Special Dividend) by the Section 9(A), Section
9(B), Section 9(C)(1), Section 9(C)(2) or Section 9(D) Fraction, as the case may
be, (ii) the Board shall take action as is necessary so that a sufficient number
of shares of ESOP Preferred Stock are designated with respect to any increase in
the number of shares of ESOP Preferred Stock to be outstanding as a result of
such Special Dividend and (iii) the Corporation shall forthwith place on file
with the transfer agent for the Common Stock and the ESOP Preferred Stock, if
there be one, and with the Treasurer of the Corporation, a statement signed by
the Treasurer or any Assistant Treasurer of the Corporation stating the adjusted
maximum number of shares of ESOP Preferred Stock, Conversion Price, Liquidation
Price and Preferred Dividend Rate determined as provided herein. The statement
required by either of the two preceding sentences shall set forth in
34
<PAGE>
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustments, including any determination of Fair Market
Value involved in such computation. Promptly after each adjustment to the
maximum number of shares of ESOP Preferred Stock, Conversion Price, the
Liquidation Price, the Preferred Dividend Rate, or the number of shares of ESOP
Preferred Stock outstanding, the Corporation shall mail a notice thereof and of
the then prevailing maximum number of shares of ESOP Preferred Stock, Conversion
Price, Liquidation Price, Preferred Dividend Rate and number of shares of ESOP
Preferred Stock outstanding to each holder of shares of ESOP Preferred Stock.
10. Miscellaneous.
--------------
(A) All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have given upon the earlier of receipt
thereof of three (3) business days after the mailing thereof if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid, addressed: (i) if to
the Corporation, to its office at Two World Trade Center, New York, New York
10048 (Attention: Secretary) or to the transfer agent for the ESOP Preferred
Stock, or other agent of the Corporation designated as permitted hereof or (ii)
if to any holder of the ESOP Preferred Stock or Common Stock, as the case may
be, to such holder at the address of such holder as listed in the stock record
books of the Corporation (which may include the records of any transfer agent
for Common Stock) or (iii) to such other address as the Corporation or any such
holder, as the case may be, shall have designated by notice similarly given.
(B) The term "Common Stock" as used herein means the Corporation's
Common Stock, par value $0.01 per share, as the same exists at the date of
filing of this Certificate of Designation pursuant to Section 151 of the General
Corporation Law of the State of Delaware, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or par value to without par value, or from
without par value to par value. In the event that, at any time as a result of
an adjustment made pursuant to Section 9 hereof, the holder of any shares of the
ESOP Preferred Stock upon thereafter surrendering such shares for conversion
shall become entitled to receive any shares or other securities of the
Corporation other than shares of Common Stock, the anti-dilution provisions
contained in Section 9
35
<PAGE>
hereof shall apply in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock, and the provisions of Sections 1
through 8 and 10 hereof respect to the Common Stock shall apply on like or
similar terms to any such other shares or securities.
(C) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of ESOP Preferred Stock or shares of Common Stock or other
securities issued on account of ESOP Preferred Stock pursuant thereto or
certificates representing such shares or securities. The Corporation shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer involved in the issuance or delivery of shares of ESOP Preferred Stock
or Common Stock or other securities in a name other than that in which the
shares of ESOP Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any shares or securities other than a payment to
the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(D) In the event that a holder of shares of ESOP Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion or exchange of such shares should be registered or
to whom payment upon redemption of shares of ESOP Preferred Stock should be made
or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares, and make such payment, in the name of the holder of such
ESOP Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates or other documentation repre senting such shares, or
such payment, to the address of such other holder shown on the records of the
Corporation.
(E) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the ESOP Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation, shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of ESOP
Preferred Stock.
36
<PAGE>
B. This Certificate of Designation shall not become effective until,
and shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this
Certificate of Designation to be signed by Christine A. Edwards, its Executive
Vice President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
---------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
37
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7-3/8% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
______________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 1,000,000 of the shares of Preferred Stock which the
Corporation has authority to issue, is authorized, and the Board hereby fixes
the powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall be the
7-3/8%
38
<PAGE>
Cumulative Preferred Stock, par value $0.01 per share, with a stated value of
$200.00 per share (the "Cumulative Preferred Stock"). The stated value per
share of Cumulative Preferred Stock shall not for any purpose be considered to
be a determination by the Board with respect to the capital and surplus of the
Corporation. The number of shares of Cumulative Preferred Stock shall be
1,000,000. The Cumulative Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 7-3/8% per annum.
Dividends on the Cumulative Preferred Stock, calculated as a percentage of the
stated value, will be payable quarterly on February 28, May 30, August 30 and
November 30 (each a "dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of initial issuance
of such shares of Cumulative Preferred Stock. Dividends will be payable, in
arrears, to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board or the
Committee. The amount of dividends payable for the initial dividend period or
any period shorter than a full dividend period shall be calculated on the basis
of a 360-day year of twelve 30-day months. No dividends may be declared or paid
or set apart for payment on any Parity Preferred Stock (as defined in paragraph
9(b) below) with regard to the payment of dividends unless there shall also be
or have been declared and paid or set apart for payment on the Cumulative
Preferred Stock, like dividends for all dividend payment periods of the
Cumulative Preferred Stock ending on or before the dividend payment date of such
Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock,
on the one hand, and (y) accumulated and unpaid through the dividend payment
period or periods of the Cumulative Preferred Stock next preceding such dividend
payment date, on the other hand. For the purposes of this Certificate of
Designation, the "Committee" shall mean any committee of the Board to whom the
Board, pursuant to Section 141(c) of the General Corporation Law of the State of
Delaware, delegates authority to
39
<PAGE>
perform the functions of the Board set forth in this Certificate of Designation.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred Stock shall
-----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock)
40
<PAGE>
plus an amount equal to all dividends (whether or not earned or declared)
accrued and accumulated and unpaid on the shares of Cumulative Preferred Stock
to the date of final distribution. The holders of the Cumulative Preferred
Stock will not be entitled to receive the Liquidation Preference until the
liquidation preference of any other class of stock of the Corporation ranking
senior to the 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. After payment of the full amount of
the Liquidation Preference and such dividends, the holders of shares of
Cumulative Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of Parity Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full. For the
purposes hereof, neither a consolidation or merger of the Corporation with or
into any other corporation, nor a merger of any other corporation with or into
the Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a liquidation, dissolution or
winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares
41
<PAGE>
of Cumulative Preferred Stock shall have the right, with holders of shares of
any one or more other class or series of stock upon which like voting rights
have been conferred and are exercisable (voting together as a class), to elect
two of the authorized number of members of the Board at the Corporation's next
annual meeting of stockholders and at each subsequent annual meeting of
stockholders until such arrearages have been paid or set apart for payment, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent default
of the character above mentioned. Upon any termination of the right of the
holders of shares of Cumulative Preferred Stock as a class to vote for directors
as herein provided, the term of office of all directors then in office elected
by the holders of shares of Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant to this paragraph may be
removed at any time, either with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the
42
<PAGE>
time and all other classes or series of stock upon which like voting rights have
been conferred and are exercisable (voting together as a class) given in person
or by proxy, either in writing or at any meeting called for the purpose, shall
be necessary to permit, effect or validate any one or more of the following:
(i) the issuance or increase of the authorized amount of any class or
series of shares ranking prior (as that term is defined in paragraph 9(a)
hereof) to the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger, consolidation
or otherwise, of any of the provisions of the Certificate of Incorporation
(including this resolution or any provision hereof) that would materially and
adversely affect any power, preference, or special right of the shares of
Cumulative Preferred Stock or of the holders thereof; provided, however, that
any increase in the amount of authorized Common Stock or authorized Preferred
Stock or any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common Stock
or Preferred Stock, in each case ranking on a parity with or junior to the
shares of Cumulative Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up,
shall not be deemed to materially and adversely affect such powers,
preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Cumulative Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days'
43
<PAGE>
prior notice mailed to the holders of the shares to be redeemed at their
addresses as shown on the stock books of the Corporation; provided, however,
that shares of the Cumulative Preferred Stock shall not be redeemable prior to
August 30, 1998. Subject to the foregoing, on or after such date, shares of the
Cumulative Preferred Stock are redeemable at $200.00 per share together with an
amount equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside
44
<PAGE>
by the Corporation and unclaimed at the end of two years from the redemption
date shall revert to the general funds of the Corporation, after which reversion
the holders of such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of the amounts payable upon
such redemption. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of shares of the Cumulative Preferred Stock;
45
<PAGE>
(b) on a parity with shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up,
or both, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from
those of the Cumulative Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms thereof to the receipt
of dividends or of amounts distributed upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority of
one over the other as between the holders of such stock and the holders
of shares of Cumulative Preferred Stock (the term "Parity Preferred
Stock" being used to refer to any stock on a parity with the shares of
Cumulative Preferred Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or both,
if such class shall be Common Stock or if the holders of the Cumulative
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of stock of
such class or classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a
liquidation value of $35.88 per share, (ii) the Corporation's 7-3/4%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(iii) the Corporation's Series A Fixed/Adjustable Rate Preferred Stock, with a
liquidation value of $200.00 per share,(iv) if issued, the Corporation's 7.82%
Cumulative Preferred Stock, with a liquidation value of
46
<PAGE>
$200.00 per share, (v) if issued, the Corporation's 7.80% Cumulative
Preferred Stock, with a liquidation value of $200.00 per share, (vi) if
issued, the Corporation's 9.00% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's
8.40% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (viii) if issued, the Corporation's 8.20% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share and (ix) if issued,
the Corporation's 8.03% Cumulative Preferred Stock, with a liquidation
value of $200.00 per share.
47
<PAGE>
B. This Certificate of Designation shall not become effective until, and
shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this Certificate
of Designation to be signed by Christine A. Edwards, its Executive Vice
President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
48
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7.82% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 611,238 of the shares of Preferred Stock which the Corporation
has authority to issue, is authorized, and the Board hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall be the
7.82% Cumulative Preferred Stock, par value $0.01 per share, with a stated
value of $200.00 per share (the
49
<PAGE>
"Cumulative Preferred Stock"). The stated value per share of Cumulative
Preferred Stock shall not for any purpose be considered to be a determination by
the Board with respect to the capital and surplus of the Corporation. The
maximum number of shares of Cumulative Preferred Stock shall be 611,238. The
Cumulative Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 7.82% per annum.
Dividends on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be cumulative from
the date of initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to perform the
functions of the Board set forth in this Certificate of Designation.
50
<PAGE>
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided, that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred Stock shall
-----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary of
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date
51
<PAGE>
of final distribution. The holders of the Cumulative Preferred Stock will not
be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
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. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of Cumulative Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributable among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes hereof, neither
a consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Cumulative Preferred Stock or on any Parity Preferred Stock
with respect to payment of dividends, shall be in arrears for an
aggregate number of days equal to six calendar quarters or more, whether
or not consecutive, the holders of the outstanding shares of Cumulative
Preferred Stock shall have the right, with holders of shares of any one
or more other class or series of stock upon which like
52
<PAGE>
voting rights have been conferred and are exercisable (voting together as a
class), to elect two of the authorized number of members of the Board at the
Corporation's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid or set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative Preferred Stock as a class to
vote for directors as herein provided, the term of office of all directors then
in office elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately.
Any director who shall have been so elected pursuant to this paragraph may
be removed at any time, either with or without cause. Any vacancy thereby
created may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class) given
53
<PAGE>
in person or by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount of any
class or series of shares ranking prior (as that term is defined in
paragraph 9(a) hereof) to the shares of the Cumulative Preferred Stock;
or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate
of Incorporation (including this resolution or any provision hereof)
that would materially and adversely affect any power, preference, or
special right of the shares of Cumulative Preferred Stock or of the
holders thereof; provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock or any increase or
decrease in the number of shares of any series of Preferred Stock or the
creation and issuance of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with or junior to the shares of
Cumulative Preferred Stock with respect to the payment of dividends and
the distribution of assets upon liquidation, dissolution or winding up,
shall not be deemed to materially and adversely affect such powers,
preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Cumulative Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the
54
<PAGE>
Cumulative Preferred Stock shall not be redeemable prior to November 30, 1998.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
55
<PAGE>
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as
to dividends or upon liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of the Cumulative
Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up,
or both, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from
those of the Cumulative Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms thereof to the receipt
of dividends or of amounts distributed upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective
dividend rates or
56
<PAGE>
liquidation prices, without preference or priority of one over the other
as between the holders of such stock and the holders of shares of
Cumulative Preferred Stock (the term "Parity Preferred Stock" being used
to refer to any stock on a parity with the shares of Cumulative
Preferred Stock, either as to dividends or upon liquidation, dissolution
or winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or both,
if such class shall be Common Stock or if the holders of the Cumulative
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of stock of
such class or classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.80% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 9.00% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 8.40%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.20% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.03% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
57
<PAGE>
B. This Certificate of Designation shall not become effective until, and
shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this Certificate
of Designation to be signed by Christine A. Edwards, its Executive Vice
President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By:/s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
58
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7.80% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
---------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
---------------------------
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation"), the issuance of a series of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), which shall consist of
1,150,000 of the shares of Preferred Stock which the Corporation has authority
to issue, is authorized, and the Board hereby fixes the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of the shares of such
series (in addition to the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall be the 7.80%
Cumulative Preferred Stock, par value $0.01 per share, with a stated value of
$200.00 per share (the "Cumulative Preferred Stock"). The stated value per
59
<PAGE>
share of Cumulative Preferred Stock shall not for any purpose be considered to
be a determination by the Board with respect to the capital and surplus of the
Corporation. The maximum number of shares of Cumulative Preferred Stock shall
be 1,150,000. The Cumulative Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 7.80% per annum.
Dividends on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be cumulative from
the date of initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to perform the
functions of the Board forth in this Certificate of Designation.
60
<PAGE>
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred Stock
-----------------------
shall rank, as to liquidation, dissolution or winding up of the Corporation,
prior to the shares of Common Stock and any other class of stock of the
Corporation ranking junior to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Corporation, so that in the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Cumulative Preferred Stock shall be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common Stock or any
other such junior stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an amount equal to
all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of Cumulative Preferred Stock to the date
61
<PAGE>
of final distribution. The holders of the Cumulative Preferred Stock will not
be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
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. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of Cumulative Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributable among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes hereof, neither
a consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative Preferred Stock shall have
the right, with holders of shares of any one or more other class or series of
stock upon which like
62
<PAGE>
voting rights have been conferred and are exercisable (voting together as a
class), to elect two of the authorized number of members of the Board at the
Corporation's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid or set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative Preferred Stock as a class to
vote for directors as herein provided, the term of office of all directors then
in office elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately.
Any director who shall have been so elected pursuant to this paragraph may be
removed at any time, either with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
the Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class)
63
<PAGE>
given in person or by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount of any class or
series of shares ranking prior (as that term is defined in paragraph 9(a)
hereof) to the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate of
Incorporation (including this resolution or any provision hereof) that would
materially and adversely affect any power, preference, or special right of
the shares of Cumulative Preferred Stock or of the holders thereof; provided,
however, that any increase in the amount of authorized Common Stock or
authorized Preferred Stock or any increase or decrease in the number of
shares of any series of Preferred Stock or the creation and issuance of other
series of Common Stock or Preferred Stock, in each case ranking on a parity
with or junior to the shares of Cumulative Preferred Stock with respect to
the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Cumulative Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stocks
books of the Corporation; provided, however, that shares of the
64
<PAGE>
Cumulative Preferred Stock shall not be redeemable prior to February 28, 1999.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declined) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
65
<PAGE>
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase or decrease or change
in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as
to dividends or upon liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up, or
both, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from those
of the Cumulative Preferred Stock, if the holders of stock of such class or
classes shall be entitled by the terms thereof to the receipt of dividends
or of amounts distributed upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
66
<PAGE>
liquidation prices, without preference or priority of one over the other
as between the holders of such stock and the holders of shares of
Cumulative Preferred Stock (the term "Parity Preferred Stock" being used
to refer to any stock on a parity with the shares of Cumulative
Preferred Stock, either as to dividends or upon liquidation, dissolution
or winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either as
to dividends or upon liquidation, dissolution or winding up, or both, if
such class shall be Common Stock or if the holders of the Cumulative
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of stock in
such class or classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 9.00% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 8.40%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.20% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.03% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
67
<PAGE>
B. This Certificate of Designation shall not become effective until, and
shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this Certificate
of Designation to be signed by Christine A. Edwards, its Executive Vice
President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
68
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
9.00% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
__________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
__________________________
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 720,900 of the shares of Preferred Stock which the Corporation
has authority to issue, is authorized, and the Board hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall be the
9.00% Cumulative Preferred Stock, par value $0.01 per share, with a stated
value of $200.00 per share (the "Cumulative Preferred Stock"). The stated
value per share of Cumulative Preferred Stock shall not for any
69
<PAGE>
purpose be considered to be a determination by the Board with respect to the
capital and surplus of the Corporation. The maximum number of shares of
Cumulative Preferred Stock shall be 720,900. The Cumulative Preferred Stock is
issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 9.00% per annum.
Dividends on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be cumulative from
the date of initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to perform the
functions of the Board set forth in this Certificate of Designation.
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Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The Shares of Cumulative Preferred Stock shall
-----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date
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<PAGE>
of final distribution. The holders of the Cumulative Preferred Stock will not
be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
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. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of Cumulative Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributable among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes hereof, neither
a consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days equal
to six calendar quarters or more, whether or not consecutive, the holders of the
outstanding shares of Cumulative Preferred Stock shall have the right, with
holders of shares of any one or more other class or series of stock upon which
like
72
<PAGE>
voting rights have been conferred and are exercisable (voting together as a
class), to elect two of the authorized number of members of the Board at the
Corporation's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid or set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative Preferred Stock as a class to
vote for directors as herein provided, the term of office of all directors then
in office elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately.
Any director who shall have been so elected pursuant to this paragraph may
be removed at any time, either with or without cause. Any vacancy thereby
created may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class) given
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<PAGE>
in person or by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount of any class or
series of shares ranking prior (as that term is defined in paragraph 9(a)
hereof) to the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger, consolidation
or otherwise, of any of the provisions of the Certificate of Incorporation
(including this resolution or any provision hereof) that would materially and
adversely affect any power, preference, or special right of the shares of
Cumulative Preferred Stock or of the holders thereof; provided, however, that
any increase in the amount of authorized Common Stock or authorized Preferred
Stock or any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common Stock
or Preferred Stock, in each case ranking on a parity with or junior to the
shares of Cumulative Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up,
shall not be deemed to materially and adversely affect such powers,
preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Cumulative Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time, in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the
74
<PAGE>
Cumulative Preferred Stock shall not be redeemable prior to February 28, 2000.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
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<PAGE>
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitation provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, whether or
not the dividend rates, dividend payment dates, or redemption or liquidation
prices per share thereof be different from those of the Cumulative Preferred
Stock, if the holders of stock of such class or classes shall be entitled by
the terms thereof to the receipt of dividends or of amounts distributed upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or
76
<PAGE>
liquidation prices, without preference or priority of one over the other as
between the holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer to any
stock on a parity with the shares of Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, as the
context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such
class shall be Common Stock or if the holders of the Cumulative Preferred
Stock shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in preference or priority to the holders of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/ Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 8.40%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.20% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.03% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
77
<PAGE>
B. This Certificate of Designation shall not become effective until, and
shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this Certificate
of Designation to be signed by Christine A. Edwards, its Executive Vice
President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
78
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
8.40% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
________________________
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of
Directors (the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 996,776 of the shares of Preferred Stock which the Corporation
has authority to issue, is authorized, and the Board hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall be the
8.40% Cumulative Preferred Stock, par value $0.01 per share, with a stated
value of $200.00 per share (the "Cumulative Preferred Stock"). The stated
value per share of Cumulative Preferred Stock shall not for any purpose be
considered to be a determination by the
79
<PAGE>
Board with respect to the capital and surplus of the Corporation. The total
number of shares of Cumulative Preferred Stock shall be 996,776. The Cumulative
Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 8.40% per annum.
Dividends on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be cumulative from
the date of initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to perform the
functions of the Board set forth in this Certificate of Designation.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or
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<PAGE>
declared and set aside for payment or other distribution made upon the Common
Stock or on any other stock of the Corporation ranking junior to or on a parity
with the Cumulative Preferred Stock as to dividends, nor may any Common Stock or
any other stock of the Corporation ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired 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 moneys theretofore deposited in any sinking fund with respect to any
Preferred Stock of the Corporation in compliance with the provisions of such
sinking fund may thereafter be applied to the purchase or redemption of such
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
the Cumulative Preferred Stock outstanding to the last dividend payment date
shall have been paid or declared and set apart for payment) by the Corporation;
provided that any such junior or parity Preferred Stock or Common Stock may be
converted into or exchanged for stock of the Corporation ranking junior to the
Cumulative Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred Stock shall
-----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution. The holders of
the Cumulative Preferred Stock will not be entitled to receive the Liquidation
Preference until the liquidation preference of any other class of stock of the
Corporation ranking senior to the Cumulative Preferred Stock as to rights
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<PAGE>
upon liquidation, dissolution or winding up shall have been paid (or a sum set
aside therefor sufficient to provide for payment) in full. After payment of the
full amount of the Liquidation Preference and such dividends, the holders of
shares of Cumulative Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Corporation. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares of
Parity Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributable among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. For the purposes hereof, neither a consolidation or merger
of the Corporation with or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall be considered a
liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares
of Cumulative Preferred Stock or on any Parity Preferred Stock with respect
to payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative Preferred Stock shall have
the right, with holders of shares of any one or more other class or series of
stock upon which like voting rights have been conferred and are exercisable
(voting together as a class), to elect two of the authorized number of
members of the Board at the Corporation's next annual meeting of stockholders
and at each subsequent annual meeting of stockholders until such arrearages
have been
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<PAGE>
paid or set apart for payment, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in the event of
each and every subsequent default of the character above mentioned. Upon any
termination of the right of the holders of shares of Cumulative Preferred Stock
as a class to vote for directors as herein provided, the term of office of all
directors then in office elected by the holders of shares of Cumulative
Preferred Stock shall terminate immediately.
Any director who shall have been so elected pursuant to this paragraph may be
removed at any time, either with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class) given in person or by proxy, either in
writing or at any meeting called for the purpose, shall be necessary to permit,
effect or validate any one or more of the following:
(i) the issuance or increase of the authorized amount of any
class or series of
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shares ranking prior (as that term is defined in paragraph 9(a) hereof) to
the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate of
Incorporation (including this resolution or any provision hereof) that
would materially and adversely affect any power, preference, or special
right of the shares of Cumulative Preferred Stock or of the holders
thereof; provided, however, that any increase in the amount of authorized
Common Stock or authorized Preferred Stock or any increase or decrease in
the number of shares of any series of Preferred Stock or the creation and
issuance of other series of Common Stock or Preferred Stock, in each case
ranking on a parity with or junior to the shares of Cumulative Preferred
Stock with respect to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such powers, preferences or special
rights.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Cumulative Preferred
Stock shall have been redeemed or called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the Cumulative
Preferred Stock shall not be redeemable prior to August 30, 2000. Subject to
the foregoing, on or after such date, shares of the Cumulative Preferred Stock
are redeemable at $200.00 per share together with an amount equal to all
dividends (whether or not earned or declared) accrued and accumulated and unpaid
to, but excluding, the date fixed for redemption.
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If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or
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decrease in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up, or
both, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from those
of the Cumulative Preferred Stock, if the holders of stock of such class or
classes shall be entitled by the terms thereof to the receipt of dividends
or of amounts distributed upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority of one over the other as
between the holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer to
any stock on a parity with the shares of Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or both, as
the context may require); and
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(c) junior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such
class shall be Common Stock or if the holders of the Cumulative Preferred
Stock shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of stock of such class or
classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/ Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 9.00%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.20% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.03% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
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<PAGE>
B. This Certificate of Designation shall not become effective until,
and shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this
Certificate of Designation to be signed by Christine A. Edwards, its Executive
Vice President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By:/s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
88
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
8.20% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
______________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 847,500 of the shares of Preferred Stock which the Corporation
has authority to issue, is authorized, and the Board hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution shall
be the 8.20% Cumulative Preferred Stock, par value $0.01 per share,
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with a stated value of $200.00 per share (the "Cumulative Preferred Stock").
The stated value per share of Cumulative Preferred Stock shall not for any
purpose be considered to be a determination by the Board with respect to the
capital and surplus of the Corporation. The total number of shares of
Cumulative Preferred Stock shall be 847,500. The Cumulative Preferred Stock is
issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock will be
----------
entitled to receive, when, as and if declared by the Board or the Committee (as
hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 8.20% per annum.
Dividends on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a "dividend payment
date"). Dividends on shares of the Cumulative Preferred Stock will be cumulative
from the date of initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to perform the
functions of the Board set forth in this Certificate of Designation.
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Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred Stock shall
-----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date
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<PAGE>
of final distribution. The holders of the Cumulative Preferred Stock will not
be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
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. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of Cumulative Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributable among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes hereof, neither
a consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
-----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred Stock
--------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative Preferred Stock shall have
the right, with holders of shares of any one or more other class or series
of stock upon which like
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<PAGE>
voting rights have been conferred and are exercisable (voting together as a
class), to elect two of the authorized number of members of the Board at the
Corporation's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid or set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative Preferred Stock as a class to
vote for directors as herein provided, the term of office of all directors then
in office elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately.
Any director who shall have been so elected pursuant to this paragraph may
be removed at any time, either with or without cause. Any vacancy thereby
created may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class) given
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<PAGE>
in person or by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount of any class or
series of shares ranking prior (as that term is defined in paragraph 9(a)
hereof) to the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate of
Incorporation (including this resolution or any provision hereof) that would
materially and adversely affect any power, preference, or special right of
the shares of Cumulative Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of authorized Common
Stock or authorized Preferred Stock or any increase or decrease in the
number of shares of any series of Preferred Stock or the creation and
issuance of other series of Common Stock or Preferred Stock, in each case
ranking on a parity with or junior to the shares of Cumulative Preferred
Stock with respect to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Cumulative Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
-----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the
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<PAGE>
Cumulative Preferred Stock shall not be redeemable prior to November 30, 2000.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for cancelation,
on the redemption date dividends shall cease to accrue on the shares to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect to such shares, except the
right to receive the moneys payable upon surrender (and endorsement, if required
by the Corporation) of their certificates, and the shares evidenced thereby
shall no longer be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
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<PAGE>
7. Authorization and Issuance of Other Securities. No consent of the
-----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock, either as
to dividends or upon liquidation, dissolution or winding up, or both whether
or not the dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those of the
Cumulative Preferred Stock, if the holders of stock of such class or classes
shall be entitled by the terms thereof to the receipt of dividends or of
amounts distributed upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective dividend rates or
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<PAGE>
liquidation prices, without preference or priority of one over the other as
between the holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer to
any stock on a parity with the shares of Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or both, as
the context may require); and
(c) junior to shares of the Cumulative Preferred stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such
class shall be Common Stock or if the holders of the Cumulative Preferred
Stock shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of stock of such class or
classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 9.00%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.40% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.03% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
97
<PAGE>
B. This Certificate of Designation shall not become effective until, and
shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this Certificate
of Designation to be signed by Christine A. Edwards, its Executive Vice
President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
98
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7-3/4% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
---------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
---------------------------
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 1,000,000 of the shares of Preferred Stock which the
Corporation has authority to issue, is authorized, and the Board hereby fixes
the powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
-----------------------------------------
series of the Preferred Stock authorized by this resolution shall be the
7-3/4% Cumulative Preferred Stock, par value $0.01 per share, with a stated
value of $200.00 per share (the
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<PAGE>
"Cumulative Preferred Stock"). The stated value per share of Cumulative
Preferred Stock shall not for any purpose be considered to be a determination by
the Board with respect to the capital and surplus of the Corporation. The
number of shares of Cumulative Preferred Stock shall be 1,000,000. The
Cumulative Preferred Stock is issuable in whole shares only.
2. Dividends. (a) Holders of shares of Cumulative Preferred Stock will
---------
be entitled to receive, when, as and if declared by the Board or the Committee
(as hereinafter defined) out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 7-3/4% per annum.
Dividends on the Cumulative Preferred Stock, calculated as a percentage of the
stated value, will be payable quarterly on February 28, May 30, August 30 and
November 30 (each a "dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of initial issuance
of such shares of Cumulative Preferred Stock. Dividends will be payable, in
arrears, to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board or the
Committee. The amount of dividends payable for the initial dividend period or
any period shorter than a full dividend period shall be calculated on the basis
of a 360-day year of twelve 30-day months. No dividends may be declared or paid
or set apart for payment on any Parity Preferred Stock (as such term is defined
in paragraph 9(b) below) with regard to the payment of dividends unless there
shall also be or have been declared and paid or set apart for payment on the
Cumulative Preferred Stock, like dividends for all dividend payment periods of
the Cumulative Preferred Stock ending on or before the dividend payment date of
such Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock,
on the one hand, and (y) accumulated and unpaid through the dividend payment
period or periods of the Cumulative Preferred Stock next preceding such dividend
payment date, on the other hand. For the purposes of this Certificate of
Designation, the "Committee" shall mean any committee of the Board to whom the
Board, pursuant to Section 141(c) of the General Corporation Law of the State of
Delaware, delegates authority to perform the
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functions of the Board set forth in this Certificate of Designation.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
(b) If one or more amendments to the Internal Revenue Code of 1986, as
amended (the "Code"), are enacted that reduce the percentage of the dividends
received deduction as specified in Section 243(a)(1) of the Code or any
successor provision (the "Dividends Received Percentage") to below 70%, the
amount of each dividend payable per share of the Cumulative Preferred Stock for
dividend payments made on or after the date of enactment of such change will be
adjusted by multiplying the amount of the dividend payable determined as
described above (before adjustment) by a factor, which will be the number
determined in accordance with the following formula (the "DRD Formula"), and
rounding the result to the nearest cent:
1 - (.35(1 - .70))
------------------
1 - (.35(1 - DRP))
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For the purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question. No amendment to the Code,
other than a change in the percentage of the dividends received deduction set
forth in Section 243(a)(1) of the Code or any successor provision, will give
rise to an adjustment. Notwithstanding the foregoing provisions, in the event
that, with respect to any such amendment, the Corporation will receive either an
unqualified opinion of nationally recognized independent tax counsel selected by
the Corporation or a private letter ruling or similar form of authorization from
the Internal Revenue Service to the effect that such an amendment would not
apply to dividends payable on the Cumulative Preferred Stock, then any such
amendment will not result in the adjustment provided for pursuant to the DRD
Formula. The opinion referenced in the previous sentence will be based upon a
specific exception in the legislation amending the DRP or upon a published
pronouncement of the Internal Revenue Service addressing such legislation.
Unless the context otherwise requires, references to dividends in this
Certificate of Designation will mean dividends as adjusted by the DRD Formula.
The Corporation's calculation of the dividends payable, as so adjusted and as
certified accurate as to calculation and reasonable as to method by the
independent certified public accountants then regularly engaged by the
Corporation, will be final and not subject to review absent manifest error.
If any amendment to the Code which reduces the Dividends Received
Percentage to below 70% is enacted after a dividend payable on a dividend
payment date has been declared, the amount of dividend payable on such dividend
payment date will not be increased. Instead, an amount, equal to the excess of
(x) the product of the dividends paid by the Corporation on such dividend
payment date and the DRD Formula (where the DRP used in the DRD Formula would be
equal to the reduced Dividends Received Percentage) over (y) the dividends paid
by the Corporation on such dividend payment date, will be payable to holders of
record on the next succeeding dividend payment date in addition to any other
amounts payable on such date.
In the event that the amount of dividends payable per share of the
Cumulative Preferred Stock will be adjusted pursuant to the DRD Formula, the
Corporation will cause notice of each such adjustment to be sent to
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the holders of record as they appear on the stock books of the Corporation on
such record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof as shall be fixed by the Board or the Committee.
In the event that the Dividends Received Percentage is reduced to 40% or
less, the Corporation may, at its option, redeem the Cumulative Preferred Stock,
in whole but not in part, as described in paragraph 6 hereof.
3. Liquidation Preference. The shares of Cumulative Preferred Stock shall
----------------------
rank, as to liquidation, dissolution or winding up of the Corporation, prior to
the shares of Common Stock and any other class of stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up of the Corporation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution. The holders of
the Cumulative Preferred Stock will not be entitled to receive the Liquidation
Preference until the liquidation preference of any other class of stock of the
Corporation ranking senior to the 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. After payment of the full
amount of the Liquidation Preference and such dividends, the holders of shares
of Cumulative Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of Parity Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof,
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shall be distributable among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes hereof, neither a consolidation or
merger of the Corporation with or into any other corporation, nor a merger of
any other corporation with or into the Corporation, nor a sale or transfer of
all or any part of the Corporation's assets for cash or securities shall be
considered a liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of Shares of Cumulative Preferred Stock
-------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative Preferred Stock shall have
the right, with holders of shares of any one or more other class or series
of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class), to elect two of the authorized
number of members of the Board at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders until
such arrearages have been paid or set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided,
subject to revesting in the event of each and every subsequent default of
the character above mentioned. Upon any termination of the right of the
holders of shares of Cumulative Preferred Stock as a class to vote for
directors as herein provided, the term of office of all directors then in
office elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately.
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Any director who shall have been so elected pursuant to this paragraph may
be removed at any time, either with or without cause. Any vacancy thereby
created may be filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class (together with the
holders of shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any director
elected by the holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other class or series of preferred stock having like voting
rights being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time and all other classes or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class) given in person or by proxy, either in
writing or at any meeting called for the purpose, shall be necessary to permit,
effect or validate any one or more of the following:
(i) the issuance or increase of the authorized amount of any
class or series of shares ranking prior (as that term is defined in
paragraph 9(a) hereof) to the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise of any of the provisions of the Certificate of
Incorporation (including this resolution or any provision hereof) that
would materially and adversely affect any power, preference, or special
right of the shares of
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Cumulative Preferred Stock or of the holders thereof; provided,
however, that any increase in the amount of authorized Common
Stock or authorized Preferred Stock or any increase or decrease
in the number of shares of any series of Preferred Stock or the
creation and issuance of other series of Common Stock or
Preferred Stock, in each case ranking on a parity with or junior
to the shares of Cumulative Preferred Stock with respect to the
payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such powers, preferences or
special rights.
(c) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of
Cumulative Preferred Stock shall have been redeemed or called for
redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the Cumulative
Preferred Stock shall not be redeemable prior to August 30, 2001, except as
stated below. Subject to the foregoing, on or after such date, shares of the
Cumulative Preferred Stock are redeemable at $200.00 per share together with an
amount equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Corporation may not purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer than all the
outstanding shares of Cumulative Preferred Stock are to be redeemed, the
Corporation
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will select those to be redeemed by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Cumulative Preferred Stock so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to accrue on the
shares to be redeemed, and at the close of business on the redemption date the
holders of such shares shall cease to be stockholders with respect to such
shares and shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon surrender (and endorsement,
if required by the Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. Subject to applicable escheat laws, any
moneys so set aside by the Corporation and unclaimed at the end of two years
from the redemption date shall revert to the general funds of the Corporation,
after which reversion the holders of such shares so called for redemption shall
look only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
Notwithstanding the foregoing provisions, if the Dividends Received
Percentage is equal to or less than 40% and, as a result, the amount of
dividends on the Cumulative Preferred Stock payable on any dividend payment date
will be or is adjusted upwards as described in paragraph 2(b) hereof, the
Corporation, at its option, may redeem all, but not less than all, of the
outstanding shares of the Cumulative Preferred Stock (and the Depositary Shares)
(a "Dividends Received Deduction Redemption"); provided that within sixty days
of the date on which an amendment to the Code is enacted which reduces the
Dividends Received Percentage to 40% or less, the Corporation sends notice to
holders of the Cumulative Preferred Stock relating to any Dividends Received
Deduction Redemption of such redemption. A redemption of the Cumulative
Preferred Stock will take place on the date specified in the
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notice, which shall be not less than thirty nor more than sixty days from the
date such notice is sent to holders of the Cumulative Preferred Stock. A
Dividends Received Deduction Redemption shall be at the applicable redemption
price set forth in the following table, in each case plus accrued and unpaid
dividends (whether or not declared) thereon to but excluding the date fixed for
redemption, including any changes in dividends payable due to changes in the
Dividends Received Percentage, if any:
Redemption Price
----------------
Per
Depositary
Redemption Period Per Share Share
- ------------------ --------- ---------
May 31, 1997 to August 29, 1997..... $210.00 $52.50
August 30, 1997 to August 29, 1998.. 208.00 52.00
August 30, 1998 to August 29, 1999.. 206.00 51.50
August 30, 1999 to August 29, 2000.. 204.00 51.00
August 30, 2000 to August 29, 2001.. 202.00 50.50
On or after August 30, 2001......... 200.00 50.00
7. Authorization and Issuance of Other Securities. No consent of the
----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves the
-----------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both,
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if the holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, whether or
not the dividend rates, dividend payment dates, or redemption or liquidation
prices per share thereof be different from those of the Cumulative Preferred
Stock, if the holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributed upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or liquidation prices, without preference or
priority of one over the other as between the holders of such stock and the
holders of shares of Cumulative Preferred Stock (the term "Parity Preferred
Stock" being used to refer to any stock on a parity with the shares of
Cumulative Preferred Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such class
shall be Common Stock or if the holders of the Cumulative Preferred Stock shall
be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and upon
liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per
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share, (iii) the Corporation's Series A Fixed/Adjustable Rate Preferred
Stock, with a liquidation value of $200.00 per share, (iv) if issued, the
Corporation's 7.82% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (v) if issued, the Corporation's 7.80% Cumulative
Preferred Stock, with a liquidation value of $200.00 per share, (vi) if
issued, the Corporation's 9.00% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's
8.40% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (viii) if issued, the Corporation's 8.20% Cumulative Preferred Stock,
with a liquidation value of $200.00 per share and (ix) if issued, the
Corporation's 8.03% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
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B. This Certificate of Designation shall not become effective until,
and shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this
Certificate of Designation to be signed by Christine A. Edwards, its Executive
Vice President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
--------------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
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CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
SERIES A FIXED/ADJUSTABLE RATE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
---------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
---------------------------
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of
Directors (the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 1,725,000 of the shares of Preferred Stock which the
Corporation has authority to issue, is authorized, and the Board hereby fixes
the powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
------------------------------------------
series of the Preferred Stock authorized by this resolution
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shall be the Series A Fixed/Adjustable Rate Cumulative Preferred Stock, par
value $0.01 per share, with a stated value of $200.00 per share (the "Series A
Fixed/Adjustable Rate Preferred Stock"). The stated value per share of Series A
Fixed/Adjustable Rate Preferred Stock shall not for any purpose be considered to
be a determination by the Board with respect to the capital and surplus of the
Corporation. The number of shares of Series A Fixed/Adjustable Rate Preferred
Stock shall be 1,725,000. The Series A Fixed/Adjustable Rate Preferred Stock is
issuable in whole shares only.
2. Dividends. (a) Holders of shares of Series A Fixed/Adjustable Rate
----------
Preferred Stock will be entitled to receive cash dividends, when, as and if
declared by the Board or the Committee (as hereinafter defined) out of assets of
the Corporation legally available for payment. Dividends on the Series A
Fixed/Adjustable Rate Preferred Stock, calculated as a percentage of the stated
value, will be payable quarterly on February 28, May 30, August 30 and November
30 (each a "dividend payment date"). From the date of issuance of the Series A
Fixed/Adjustable Rate Preferred Stock and continuing through November 30, 2001,
the rate of such dividend will be 5.91% per annum. For the purposes of this
Certificate of Designation, the "Committee" shall mean any committee of the
Board to whom the Board, pursuant to Section 141(c) of the General Corporation
Law of the State of Delaware, delegates authority to perform the functions of
the Board set forth in this Certificate of Designation.
After November 30, 2001, dividends on the Series A Fixed/Adjustable Rate
Preferred Stock will be payable quarterly on each dividend payment date at the
Applicable Rate (as defined in paragraph 3) from time to time in effect. The
Applicable Rate per annum for any dividend period beginning on or after November
30, 2001 will be equal to .37% plus the highest of the Treasury Bill Rate, the
Ten-Year Constant Maturity Rate and the Thirty-Year
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Constant Maturity Rate (each as defined in paragraph 3), as determined in
advance of such dividend period. The Applicable Rate per annum for any dividend
period beginning on or after November 30, 2001, will not be less then 6.41% nor
greater then 12.41% (without taking into account any adjustments set forth in
paragraph 2(b)).
Dividends on shares of the Series A Fixed/Adjustable Rate Preferred Stock
will be cumulative from the date of initial issuance of such shares of Series A
Fixed/Adjustable Rate Preferred Stock. Dividends will be payable, in arrears,
to holders of record as they appear on the stock books of the Corporation on
such record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board or the Committee. The
amount of dividends payable for the initial dividend period or any period
shorter than a full dividend period shall be calculated on the basis of a 360-
day year of twelve 30-day months. No dividends may be declared or paid or set
apart for payment on any Parity Preferred Stock (as defined in paragraph 10(b))
with regard to the payment of dividends unless there shall also be or have been
declared and paid or set apart for payment on the Series A Fixed/Adjustable Rate
Preferred Stock, like dividends for all dividend payment periods of the Series A
Fixed/Adjustable Rate Preferred Stock ending on or before the dividend payment
date of such Parity Preferred Stock ratably in proportion to the respective
amounts of dividends (x) accumulated and unpaid or payable on such Parity
Preferred Stock, on the one hand, and (y) accumulated and unpaid through the
dividend payment period or periods of the Series A Fixed/Adjustable Rate
Preferred Stock next preceding such dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Series A Fixed/Adjustable Rate Preferred Stock have been paid,
no dividends (other than in Common Stock of the Corporation) may be paid or
declared
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and set aside for payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a parity with the
Series A Fixed/Adjustable Rate Preferred Stock as to dividends, nor may any
Common Stock or any other stock of the Corporation ranking junior to or on a
parity with the Series A Fixed/Adjustable Rate Preferred Stock as to dividends
be redeemed, purchased or otherwise acquired 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 moneys theretofore deposited
in any sinking fund with respect to any preferred stock of the Corporation in
compliance with the provisions of such sinking fund may thereafter be applied to
the purchase or redemption of such 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 the Series A Fixed/Adjustable Rate Preferred
Stock outstanding to the last dividend payment date shall have been paid or
declared and set apart for payment) by the Corporation; provided that any such
junior or parity Preferred Stock or Common Stock may be converted into or
exchanged for stock of the Corporation ranking junior to the Series A
Fixed/Adjustable Rate Preferred Stock as to dividends.
(b) If one or more amendments to the Internal Revenue Code of 1986, as
amended (the "Code"), are enacted that reduce the percentage of the dividends
received deduction as specified in Section 243(a)(1) of the Code or any
successor provision (the "Dividends Received Percentage") to below 70%, the
amount of each dividend payable per share of the Series A Fixed/Adjustable Rate
Preferred Stock for dividend payments made on or after the date of enactment of
such change will be adjusted by multiplying the amount of the dividend payable
determined as described above (before adjustment) by a factor, which will be the
number determined in accordance with the following
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formula (the "DRD Formula"), and rounding the result to the nearest cent:
1 - (.35 (1 - .70))
-------------------
1 - (.35 (1 - DRP))
For the purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question. No amendment to the Code,
other than a change in the percentage of the dividends received deduction set
forth in Section 243(a)(1) of the Code or any successor provision, will give
rise to an adjustment. Notwithstanding the foregoing provisions, in the event
that, with respect to any such amendment, the Corporation will receive either an
unqualified opinion of nationally recognized independent tax counsel selected by
the Corporation or a private letter ruling or similar form of authorization from
the Internal Revenue Service to the effect that such an amendment would not
apply to dividends payable on the Series A Fixed/Adjustable Rate Preferred
Stock, then any such amendment will not result in the adjustment provided for
pursuant to the DRD Formula. The opinion referenced in the previous sentence
will be based upon a specific exception in the legislation amending the DRP or
upon a published pronouncement of the Internal Revenue Service addressing such
legislation. Unless the context otherwise requires, references to dividends in
this Certificate of Designation will mean dividends as adjusted by the DRD
Formula. The Corporation's calculation of the dividends payable, as so adjusted
and as certified accurate as to calculation and reasonable as to method by the
independent certified public accountants then regularly engaged by the
Corporation, will be final and not subject to review absent manifest error.
If any amendment to the Code which reduces the Dividends Received
Percentage to below 70% is enacted after a dividend payable on a dividend
payment date has been declared, the amount of dividend payable on such dividend
payment date
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will not be increased. Instead, an amount, equal to the excess of (x) the
product of the dividends paid by the Corporation on such dividend payment date
and the DRD Formula (where the DRP used in the DRD Formula would be equal to the
reduced Dividends Received Percentage) over (y) the dividends paid by the
Corporation on such dividend payment date, will be payable on the next
succeeding dividend payment date to holders of record in addition to any other
amounts payable on such date.
In addition, if prior to May 31, 1997, an amendment to the Code is enacted
that reduces the Dividends Received Percentage to below 70% and such reduction
retroactively applies to a dividend payment date of the Series A
Fixed/Adjustable Rate Cumulative Preferred Stock, no par value, with a stated
value of $200.00 per share ("Morgan Stanley Series A Fixed/Adjustable Rate
Preferred Stock") of Morgan Stanley Group Inc. ("Morgan Stanley") as to which
Morgan Stanley previously paid dividends on the Morgan Stanley Series A
Fixed/Adjustable Rate Preferred Stock (each an "Affected Dividend Payment
Date"), holders of the Series A Fixed/Adjustable Rate Preferred Stock shall be
entitled to receive when, as and if declared by the Board out of assets of the
corporation legally available for payment, additional dividends (the "Additional
Dividends") on the next succeeding dividend payment date (or if such amendment
is enacted after the dividend payable on such dividend payment date has been
declared and on or before such dividend is paid, on the second succeeding
dividend payment date following the date of enactment) payable on such
succeeding dividend payment date to holders of record in an amount equal to the
excess of (x) the product of the dividends paid by Morgan Stanley on each
Affected Dividend Payment Date and the DRD Formula (where the DRP used in the
DRD Formula would be equal to the reduced Dividends Received Percentage applied
to each Affected Dividend Payment Date) over (y) the dividends paid by Morgan
Stanley on each Affected Dividend Payment Date.
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<PAGE>
Additional Dividends will not be paid in respect of the enactment of
any amendment to the Code on or after May 31, 1997 which retroactively reduces
the Dividends Received Percentage to below 70%, or if prior to May 31, 1997,
such amendment would not result in an adjustment due to the Corporation having
received either an opinion of counsel or tax ruling referred to in the third
preceding paragraph. The Corporation will only make one payment of Additional
Dividends.
In the event that the amount of dividends payable per share of the Series A
Fixed/Adjustable Rate Preferred Stock will be adjusted pursuant to the DRD
Formula and/or Additional Dividends are to be paid, the Corporation will cause
notice of each such adjustment and, if applicable, any Additional Dividends, to
be sent to the holders of record as they appear on the stock books of the
Corporation on such record date, not more than 60 days nor less than 10 days
preceding the payment date thereof as shall be fixed by the Board or the
Committee.
In the event that the Dividends Received Percentage is reduced to 50% or
less, the Corporation may, at its option, redeem the Series A Fixed/Adjustable
Rate Preferred Stock, in whole but not in part, as described in paragraph 7
hereof.
3. Applicable Rate. Except as provided above in paragraph 2, the
----------------
"Applicable Rate" per annum for any dividend period beginning on or after
November 30, 2001 will be equal to .37% plus the Effective Rate (as defined
herein), but not less than 6.41% nor greater than 12.41% (without taking into
account any adjustments as described in paragraph 2(b)). The "Effective Rate"
for any dividend period beginning on or after November 30, 2001 will be equal to
the highest of the Treasury Bill Rate, the Ten-Year Constant Maturity Rate and
the Thirty-Year Constant Maturity Rate (each as defined herein) for such
dividend period. If the Corporation determines in good faith that for any
reason: (i) any one of the Treasury Bill Rate, the
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<PAGE>
Ten-Year Constant Maturity Rate or the Thirty-Year Constant Maturity Rate cannot
be determined for any dividend period beginning on or after November 30, 2001,
then the Effective Rate for such dividend period will be equal to the higher of
whichever two of such rates can be so determined; (ii) only one of the Treasury
Bill Rate, the Ten-Year Constant Maturity Rate or the Thirty-Year Constant
Maturity Rate can be determined for any dividend period beginning on or after
November 30, 2001, then the Effective Rate for such dividend period will be
equal to whichever such rate can be so determined; or (iii) none of the Treasury
Bill Rate, the Ten-Year Constant Maturity Rate or the Thirty-Year Constant
Maturity Rate can be determined for any dividend period beginning on or after
November 30, 2001, then the Effective Rate for the preceding dividend period
will be continued for such dividend period.
The "Treasury Bill Rate" for each dividend period will be the arithmetic
average of the two most recent weekly per annum market discount rates (or the
one weekly per annum market discount rate, if only one such rate is published
during the relevant Calendar Period (as defined herein) for three-month U.S.
Treasury bills, as published weekly by the Federal Reserve Board (as defined
herein) during the Calendar Period immediately preceding the tenth calendar day
preceding the dividend period for which the dividend rate on the Series A
Fixed/Adjustable Rate Preferred Stock is being determined.
The "Ten-Year Constant Maturity Rate" for each dividend period will be the
arithmetic average of the two most recent weekly per annum Ten-Year Average
Yields (as defined herein) (or the one weekly per annum Ten-Year Average Yield,
if only one such yield is published during the relevant Calendar Period), as
published weekly by the Federal Reserve Board during the Calendar Period
immediately preceding the tenth calendar day preceding the dividend period for
which the dividend rate on the Series A Fixed/Adjustable Rate Preferred Stock is
being determined.
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<PAGE>
The "Thirty-Year Constant Maturity Rate" for each dividend period will be
the arithmetic average of the two most recent weekly per annum Thirty-Year
Average Yields (as defined herein) the one weekly per annum Thirty-Year Average
Yield, if only one such yield is published during the relevant Calendar Period),
as published weekly by the Federal Reserve Board during the Calendar Period
immediately preceding the tenth calendar day preceding the dividend period for
which the dividend rate on the Series A Fixed/Adjustable Rate Preferred Stock is
being determined.
If the Federal Reserve Board does not publish a weekly per annum market
discount rate, Ten-Year Average Yield or Thirty-Year Average Yield during any
applicable Calendar Period, then the Treasury Bill Rate, Ten-Year Constant
Maturity Rate or Thirty-Year Constant Maturity Rate, as the case may be, for
such dividend period will be the arithmetic average of the two most recent
weekly per annum market discount rates for three-month U.S. Treasury bills, Ten-
Year Average Yields or Thirty-Year Average Yields, as the case may be (or the
one weekly per annum rate, if only one such rate is published during the
relevant Calendar Period), as published weekly during such Calendar Period by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. If any such rate is not published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Treasury Bill Rate, Ten-Year
Constant Maturity Rate or Thirty-Year Constant Maturity Rate for such dividend
period will be the arithmetic average of the two most recent weekly per annum
(i) in the case of the Treasury Bill Rate, market discount rates (or the one
weekly per annum market discount rate, if only one such rate is published during
the relevant Calendar Period) for all of the U.S. Treasury bills then having
remaining maturities of not less than 80 nor more than 100 days, and (ii) in the
case of the Ten-Year Constant Maturity Rate, average yields to maturity (or the
one weekly per annum average yield to
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<PAGE>
maturity, if only one such yield is published during the relevant Calendar
Period) for all of the actively traded marketable U.S. Treasury fixed interest
rate securities (other then Special Securities (as defined herein)) then having
remaining maturities of not less than eight nor more than twelve years, and
(iii) in the case of the Thirty-Year Constant Maturity Rate, average yields to
maturity (or the one weekly per annum average yield to maturity, if only one
such yield is published during the relevant Calendar Period) for all of the
actively traded marketable U.S. Treasury fixed interest rate securities (other
than Special Securities) then having remaining maturities of not less than
twenty-eight nor more than thirty years, in each case as published during such
Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board
does not publish such rates, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Corporation. If the Corporation
determines in good faith that for any reason (i) no such U.S. Treasury bill
rates are published as provided above during such Calendar Period or (ii) the
Corporation cannot determine the Treasury Bill Rate for any dividend period;
then the Treasury Bill Rate for such dividend period will be the arithmetic
average of the per annum market discount rates based upon the closing bids
during such Calendar Period for each of the issues of marketable non-interest-
bearing U.S. Treasury securities with a remaining maturity of not less than 80
nor more than 100 days from the date of each such quotation, as chosen and
quoted daily for each business day in New York City (or less frequently if daily
quotations are not generally available) to the Corporation by at least three
recognized dealers in U.S. Government securities selected by the Corporation.
If the Corporation determines in good faith that for any reason the Corporation
cannot determine the Ten-Year Constant Maturity Rate or Thirty-Year Constant
Maturity Rate for any dividend period as provided above, then the applicable
rate for such dividend period will be the arithmetic average of the per annum
average yields to maturity based upon the closing
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<PAGE>
bids during such Calendar Period for each of the issues of actively traded
marketable U.S. Treasury fixed interest rate securities (other then Special
Securities) with a final maturity date (i) in the case of the Ten-Year Constant
Maturity Rate, not less than eight nor more then twelve years from the date of
each such quotation, and (ii) in the case of the Thirty-Year Constant Maturity
Rate, no less than twenty-eight nor more than thirty years from the date of each
such quotation, in each case as chosen and quoted daily for each business day in
New York City (or less frequently if daily quotations are not generally
available) to the Corporation by at least three recognized dealers in the United
States.
The Treasury Bill Rate, the Ten-Year Constant Maturity Rate and the Thirty-
Year Constant Maturity Rate will each be rounded to the nearest five hundredths
of a percent, with .025% being rounded upward.
The Applicable Rate with respect to each dividend period beginning on or
after November 30, 2001 will be calculated as promptly as practicable by the
Corporation according to the appropriate method described above. The
Corporation will cause notice of each Applicable Rate to be given to the holders
of Series A Fixed/Adjustable Rate Preferred Stock when payment is made of the
dividend for the immediately preceding dividend period.
As used in this paragraph 3, the term "Calendar Period" means a period of
fourteen calendar days; the term "Federal Reserve Board" means the Board of
Governors of the Federal Reserve System; the term "Special Securities" means
securities which can, at the option of the holder, be surrendered at face value
in payment of any Federal estate tax or which provide tax benefits to the holder
and are priced to reflect such tax benefits or which were originally issued at a
deep or substantial discount; the term "Ten-Year Average Yield" means the
average yield to maturity for actively traded marketable U.S.
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<PAGE>
Treasury fixed interest rate securities (adjusted to constant maturities of ten
years); and the term "Thirty-Year Average Yield" means the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of thirty years).
4. Liquidation Preference. The shares of Series A Fixed/Adjustable Rate
-----------------------
Preferred Stock shall rank, as to liquidation, dissolution or winding up of the
Corporation, prior to the shares of Common Stock and any other class of stock of
the Corporation ranking junior to the Series A Fixed/Adjustable Rate Preferred
Stock as to rights upon liquidation, dissolution or winding up of the
Corporation, so that in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the Series
A Fixed/Adjustable Rate Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior stock, an amount
equal to $200.00 per share (the "Liquidation Preference" of a share of Series A
Fixed/Adjustable Rate Preferred Stock) plus an amount equal to all dividends
(whether or not earned or declared) accrued and accumulated and unpaid on the
shares of Series A Fixed/Adjustable Rate Preferred Stock to the date of final
distribution. The holders of the Series A Fixed/Adjustable Rate Preferred Stock
will not be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
Series A Fixed/Adjustable Rate 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. After payment of the full amount of
the Liquidation Preference and such dividends, the holders of shares of Series A
Fixed/Adjustable Rate Preferred Stock will not be entitled to any further
participation in any distribution of
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<PAGE>
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributable among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes hereof, neither
a consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
5. Conversion. The Series A Fixed/Adjustable Rate Preferred Stock is not
-----------
convertible into shares of any other class or series of stock of the
Corporation.
6. Voting Rights. The holders of shares of Series A Fixed/Adjustable Rate
--------------
Preferred Stock shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State of Delaware,
and except as follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Series A Fixed/Adjustable Rate Preferred Stock or on any
Parity Preferred Stock with respect to payment of dividends, shall be in
arrears for an aggregate number of days equal to six calendar quarters
or more, whether or not consecutive, the holders of the outstanding
shares of Series A Fixed/Adjustable Rate Preferred Stock shall have the
right, with holders of shares of any one or more other class or series
of stock upon which like voting rights have been conferred and are
exercisable (voting together as a class), to
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<PAGE>
elect two of the authorized number of members of the Board at the
Corporation's next annual meeting of stockholders and at each subsequent
annual meeting of stockholders until such arrearages have been paid or
set apart for payment, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in the
event of each and every subsequent default of the character above
mentioned. Upon any termination of the right of the holders of shares of
Series A Fixed/Adjustable Rate Preferred Stock as a class to vote for
directors as herein provided, the term of office of all directors then
in office elected by the holders of shares of Series A Fixed/Adjustable
Rate Preferred Stock shall terminate immediately.
Any director who shall have been so elected pursuant to this
paragraph may be removed at any time, either with or without cause. Any
vacancy thereby created may be filled only by the affirmative vote of
the holders of shares of Series A Fixed/Adjustable Rate Preferred Stock
voting separately as a class (together with the holders of shares of any
other class or series of stock upon which like voting rights have been
conferred and are exercisable). If the office of any director elected by
the holders of shares of Series A Fixed/Adjustable Rate Preferred Stock
voting as a class becomes vacant for any reason other than removal from
office as aforesaid, the remaining director elected pursuant to this
paragraph may choose a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred. At elections for such
directors, each holder of shares of Series A Fixed/Adjustable Rate
Preferred Stock shall be entitled to one vote for each share held (the
holders of shares of any other class or series of Preferred Stock having
like voting rights being entitled to such number of votes, if any, for
each share
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<PAGE>
of such stock held as may be granted to them).
(b) So long as any shares of Series A Fixed/Adjustable Rate Preferred
Stock remain outstanding, the consent of the holders of at least two-thirds of
the shares of Series A Fixed/Adjustable Rate Preferred Stock outstanding at the
time and all other classes or series of stock upon which like voting rights have
been conferred and are exercisable (voting together as a class) given in person
or by proxy, either in writing or at any meeting called for the purpose, shall
be necessary to permit, effect or validate any one or more of the following:
(i) the issuance or increase of the authorized amount of any
class or series of shares ranking prior (as that term is defined in
paragraph 10(a) hereof) to the shares of the Series A Fixed/Adjustable
Rate Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate
of Incorporation (including this resolution or any provision hereof)
that would materially and adversely affect any power, preference, or
special right of the shares of Series A Fixed/Adjustable Rate Preferred
Stock or of the holders thereof; provided, however, that any increase in
the amount of authorized Common Stock or authorized Preferred Stock or
any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common
Stock or Preferred Stock, in each case ranking on a parity with or
junior to the shares of Series A Fixed/Adjustable Rate Preferred Stock
with respect to the
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<PAGE>
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and
adversely affect such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series A
Fixed/Adjustable Rate Preferred Stock shall have been redeemed or called
for redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
7. Redemption. The shares of the Series A Fixed/Adjustable Rate Preferred
-----------
Stock may be redeemed at the option of the Corporation, as a whole, or from time
to time in part, at any time, upon not less than 30 days' prior notice mailed to
the holders of the shares to be redeemed at their addresses as shown on the
stock books of the Corporation; provided, however, that shares of the Series A
Fixed/Adjustable Rate Preferred Stock shall not be redeemable prior to November
30, 2001, except as stated below. Subject to the foregoing, on or after such
date, shares of the Series A Fixed/Adjustable Rate Preferred Stock are
redeemable at $200.00 per share together with an amount equal to all dividends
(whether or not earned or declared) accrued and accumulated and unpaid to, but
excluding, the date fixed for redemption.
If full cumulative dividends on the Series A Fixed/Adjustable Rate
Preferred Stock have not been paid, the Series A Fixed/Adjustable Rate Preferred
Stock may not be redeemed in part and the Corporation may not purchase or
acquire any shares of the Series A Fixed/Adjustable Rate Preferred Stock
otherwise than pursuant to a purchase or exchange offer made on the same terms
to all holders of the Series A Fixed/Adjustable Rate Preferred Stock. If fewer
than all the
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<PAGE>
outstanding shares of Series A Fixed/Adjustable Rate Preferred Stock are to be
redeemed, the Corporation will select those to be redeemed by lot or a
substantially equivalent method.
If a notice of redemption has been given pursuant to this paragraph 7 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of Series A Fixed/Adjustable Rate Preferred Stock so called for redemption,
then, notwithstanding that any certificates for such shares have not been
surrendered for cancellation, on the redemption date dividends shall cease to
accrue on the shares to be redeemed, and at the close of business on the
redemption date the holders of such shares shall cease to be stockholders with
respect to such shares and shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall revert to
the general funds of the Corporation, after which reversion the holders of such
shares so called for redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such redemption. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
Notwithstanding the foregoing provisions, if the Dividends Received
Percentage is equal to or less than 50% and, as a result, the amount of
dividends on the Series A Fixed/Adjustable Rate Preferred Stock payable on any
dividend payment date will be or is adjusted upwards as described in paragraph
2(b) hereof, the Corporation, at its
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<PAGE>
option, may redeem all, but not less than all, of the outstanding shares of the
Series A Fixed/Adjustable Rate Preferred Stock (the Depositary Shares) (a
"Dividends Received Deduction Redemption") provided that within sixty days of
the date on which an amendment to the Code is enacted which reduces the
Dividends Received Percentage to 50% or less, the Corporation sends notice to
holders of the Series A Fixed/Adjustable Rate Preferred Stock of such
redemption. A Dividends Received Deduction Redemption, in accordance with this
paragraph, will take place on the date specified in the notice, which shall be
not less than thirty nor more then sixty days from the date such notice is sent
to holders of the Series A Fixed/Adjustable Rate Preferred Stock. A Dividends
Received Deduction Redemption shall be at the applicable redemption price set
forth in the following table, in each case plus accrued and unpaid dividends
(whether or not declared) thereon to but excluding the date fixed for
redemption, including any changes in dividends payable due to changes in the
Dividends Received Percentage and Additional Dividends, if any:
<TABLE>
<CAPTION>
Redeemable Price
----------------------
Per
Depositary
Redemption Period Per Share Share
- ----------------- --------- -----------
<S> <C> <C>
May 31, 1997 to November 29, 1997....... $210.00 $52.50
November 30, 1997 to November 29, 1998.. 208.00 52.00
November 30, 1998 to November 29, 1999.. 206.00 51.50
November 30, 1999 to November 29, 2000.. 204.00 51.00
November 30, 2000 to November 29, 2001.. 202.00 50.50
On or after November 30, 2001........... 200.00 50.00
</TABLE>
8. Authorization and Issuance of Other Securities. No consent of the holders
-----------------------------------------------
of the Series A Fixed/Adjustable Rate Preferred Stock shall be required for (a)
the creation of any indebtedness of any kind of the Corporation,
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<PAGE>
(b) the creation, or increase or decrease in the amount, of any class or series
of stock of the Corporation not ranking prior as to dividends or upon
liquidation, dissolution or winding up to the Series A Fixed/Adjustable Rate
Preferred Stock or (c) any increase or decrease in the amount of authorized
Common Stock or any increase, decrease or change in the par value thereof or in
any other terms thereof.
9. Amendment of Resolution. The Board and the Committee each reserves the
------------------------
right by subsequent amendment of this resolution from time to time to increase
or decrease the number of shares that constitute the Series A Fixed/Adjustable
Rate Preferred Stock (but not below the number of shares thereof then
outstanding) and in other respects to amend this resolution within the
limitations provided by law, this resolution and the Certificate of
Incorporation.
10. Rank. For the purposes of this resolution, any stock of any class or
-----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Series A Fixed/Adjustable Rate Preferred
Stock, either as to dividends or upon liquidation, dissolution or winding up,
or both, if the holders of stock of such class or classes shall be entitled by
the terms thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Series A Fixed/Adjustable Rate
Preferred Stock;
(b) on a parity with shares of the Series A Fixed/Adjustable Rate
Preferred Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share thereof be
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<PAGE>
different from those of the Series A Fixed/Adjustable Rate Preferred Stock, if
the holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributed upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or liquidation prices, without preference or
priority of one over the other as between the holders of such stock and the
holders of shares of Series A Fixed/Adjustable Rate Preferred Stock (the term
"Parity Preferred Stock" being used to refer to any stock on a parity with the
shares of Series A Fixed/Adjustable Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both, as the context may
require); and
(c) junior to shares of the Series A Fixed/Adjustable Rate Preferred
Stock, either as to dividends or upon liquidation, dissolution or winding up,
or both, if such class shall be Common Stock or if the holders of the Series A
Fixed/Adjustable Rate Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the holders of stock of
such class or classes.
The Series A Fixed/Adjustable Rate Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the Common Stock
and the Corporation's Series A Junior Participating Preferred Stock, and on a
parity with (i) the Corporation's ESOP Convertible Preferred Stock, with a
liquidation value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative
Preferred Stock, with a liquidation value of $200.00 per share, (iii) the
Corporation's 7-3/4% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (iv) if issued, the Corporation's 7.82% Cumulative
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<PAGE>
Preferred Stock, with a liquidation value of $200.00 per share, (v) if
issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vi) if issued, the
Corporation's 9.00% Cumulative Preferred Stock, with a liquidation value
of $200.00 per share, (vii) if issued, the Corporation's 8.40%
Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (viii) if issued, the Corporation's 8.20% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share and (ix) if issued,
the Corporation's 8.03% Cumulative Preferred Stock, with a liquidation
value of $200.00 per share.
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<PAGE>
B. This Certificate of Designation shall not become effective until,
and shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this
Certificate of Designation to be signed by Christine A. Edwards, its Executive
Vice President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
8.03% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
DEAN WITTER, DISCOVER & CO.
___________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
The undersigned DOES HEREBY CERTIFY:
A. The following resolution was duly adopted by the Board of Directors
(the "Board") of Dean Witter, Discover & Co., a Delaware corporation
(hereinafter called the "Corporation"), by unanimous vote thereof at a meeting
on May 28, 1997:
RESOLVED that, pursuant to authority expressly granted to and vested in the
Board by provisions of the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
shall consist of 670,000 of the shares of Preferred Stock which the Corporation
has authority to issue, is authorized, and the Board hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Designation and Amount; Fractional Shares. The designation for such
-----------------------------------------
series of the Preferred Stock authorized by this resolution shall be the 8.03%
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<PAGE>
Cumulative Preferred Stock, par value $0.01 per share, with a stated value of
$200.00 per share (the "Cumulative Preferred Stock"). The stated value per
share of the Cumulative Preferred Stock shall not for any purpose be considered
to be a determination by the Board with respect to the capital and surplus of
the Corporation. The number of shares of the Cumulative Preferred Stock shall
be 670,000. The Cumulative Preferred Stock is issuable in whole shares only.
2. Dividends. (a) Holders of shares of the Cumulative Preferred Stock
---------
will be entitled to receive, when, as and if declared by the Board or the
Committee (as hereinafter defined) out of assets of the Corporation legally
available for payment cash dividends at the rate of 8.03% per annum. Dividends
on the Cumulative Preferred Stock will be payable quarterly on February 28, May
30, August 30 and November 30 of each year (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be cumulative from
the date of initial issuance of such shares of the Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board or the Committee. The amount of dividends payable for the initial
dividend period or any period shorter than a full dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all dividend
payment periods of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock ratably in proportion to
the respective amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid
through the dividend payment period or periods of the Cumulative Preferred Stock
next preceding such dividend payment date, on the other hand. For the purposes
of this Certificate of Designation, the "Committee" shall mean any committee of
the Board to whom the Board, pursuant to Section 141(c) of the General
Corporation Law of the State of Delaware, delegates authority to
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<PAGE>
perform the functions of the Board set forth in this Certificate of Designation.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Cumulative Preferred Stock have been paid, no dividends (other
than in Common Stock of the Corporation) may be paid or declared and set aside
for payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired 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 moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such 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 the Cumulative
Preferred Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment) by the Corporation; provided that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
(b) If one or more amendments to the Internal Revenue Code of 1986, as
amended (the "Code"), are enacted that reduce the percentage of the dividends
received deduction as specified in Section 243(a)(1) of the Code or any
successor provision (the "Dividends Received Percentage") to below 70%, the
amount of each dividend payable per share of the Cumulative Preferred Stock for
dividend payments made on or after the date of enactment of such change, and so
long as the Dividends Received Percentage remains below 70%, will be adjusted by
multiplying the amount of the dividend payable determined as described above
(before adjustment) by a factor, which will be the number determined in
accordance with the following formula
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(the "DRD Formula"), and rounding the result to the nearest cent:
1 - (.35 (1 - .70))
-------------------
1- (.35 (1 - DRP))
For the purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question. No amendment to the Code,
other than a change in the percentage of the dividends received deduction set
forth in Section 243(a)(1) of the Code or any successor provision, will give
rise to an adjustment. Notwithstanding the foregoing provisions, in the event
that, with respect to any such amendment, the Corporation will receive either an
unqualified opinion of nationally recognized independent tax counsel selected by
the Corporation or a private letter ruling or similar form of authorization from
the Internal Revenue Service to the effect that such an amendment would not
apply to dividends payable on the Cumulative Preferred Stock, then any such
amendment will not result in the adjustment provided for pursuant to the DRD
Formula. The opinion referenced in the previous sentence will be based upon a
specific exception in the legislation amending the DRP or upon a published
pronouncement of the Internal Revenue Service addressing such legislation.
Unless the context otherwise requires, references to dividends in this
Certificate of Designation will mean dividends as adjusted by the DRD Formula.
The Corporation's calculation of the dividends payable, as so adjusted and as
certified accurate as to calculation and reasonable as to method by the
independent certified public accountants then regularly engaged by the
Corporation, will be final and not subject to review absent manifest error.
If any amendment to the Code which reduces the Dividends Received
Percentage to below 70% is enacted after a dividend payable on a dividend
payment date has been declared and on or before such dividend is paid, the
amount of dividend payable on such dividend payment date will not be increased.
Instead, an amount, equal to the excess of (x) the product of the dividends paid
by the Corporation on such dividend payment date and the DRD Formula (where the
DRP used in the DRD Formula would be equal to the reduced Dividends Received
Percentage) over (y) the dividends paid by the Corporation on such dividend
payment date, will be payable on the next succeeding dividend payment date to
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holders of record on the record date for such next succeeding dividend payment
in addition to any other amounts payable on such date.
In the event that the amount of dividends payable per share of the
Cumulative Preferred Stock will be adjusted pursuant to the DRD Formula, the
Corporation will cause notice of each such adjustment to be sent to the holders
of record as they appear on the stock books of the Corporation on such record
date, not more than 60 days nor less than 10 days preceding the payment date
thereof as shall be fixed by the Board or the Committee.
In the event that the Dividends Received Percentage is reduced to 50% or
less, the Corporation may, at its option, redeem the Cumulative Preferred Stock,
in whole but not in part, as described in paragraph 6 hereof.
3. Liquidation Preference. The shares of the Cumulative Preferred Stock
----------------------
shall rank, as to liquidation, dissolution or winding up of the Corporation,
prior to the shares of Common Stock and any other class of stock of the
Corporation ranking junior to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Corporation, so that in the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Cumulative Preferred Stock shall be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common Stock or any
other such junior stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of the Cumulative Preferred Stock) plus an amount equal
to all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of the Cumulative Preferred Stock to the date of final
distribution. The holders of the Cumulative Preferred Stock will not be
entitled to receive the Liquidation Preference until the liquidation preference
of any other class of stock of the Corporation ranking senior to the 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. After payment of the full amount of the Liquidation Preference and
such dividends, the
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<PAGE>
holders of shares of the Cumulative Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation. If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the holders of
shares of Parity Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof, shall
be distributable among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. For the purposes hereof, neither a consolidation or merger
of the Corporation with or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall be considered a
liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not convertible into
----------
shares of any other class or series of stock of the Corporation.
5. Voting Rights. The holders of shares of the Cumulative Preferred Stock
-------------
shall have no voting rights whatsoever, except for any voting rights to which
they may be entitled under the laws of the State of Delaware, and except as
follows:
(a) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock or on any Parity Preferred Stock with respect to
payment of dividends, shall be in arrears for an aggregate number of days
equal to six calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of the Cumulative Preferred Stock shall
have the right, with holders of shares of any one or more other class or
series of stock upon which like voting rights have been conferred and are
exercisable (voting together a class), to elect two of the authorized
number of members of the Board at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders until
such arrearages have been paid or set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided,
subject to revesting in the
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event of each and every subsequent default of the character above
mentioned. Upon any termination of the right of the holders of shares of
the Cumulative Preferred Stock as a class to vote for directors as herein
provided, the term of office of all directors then in office elected by the
holders of shares of the Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant to this paragraph may
be removed at any time, either with or without cause. Any vacancy thereby
created may be filled only by the affirmative vote of the holders of shares
of the Cumulative Preferred Stock voting separately as a class (together
with the holders of shares of any other class or series of stock upon which
like voting rights have been conferred and are exercisable). If the office
of any director elected by the holders of shares of the Cumulative
Preferred Stock voting as a class becomes vacant for any reason other than
removal from office as aforesaid, the remaining director elected pursuant
to this paragraph may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred. At elections for
such directors, each holder of shares of the Cumulative Preferred Stock
shall be entitled to one vote for each share held (the holders of shares of
any other class or series of preferred stock having like voting rights
being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of the Cumulative Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the
shares of the Cumulative Preferred Stock outstanding at the time and all
other classes or series of stock upon which like voting rights have been
conferred and are exercisable (voting together as a class) given in person
or by proxy, either in writing or at any meeting called for the purpose,
shall be necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount of any
class or series of shares ranking prior (as that term is defined
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<PAGE>
in paragraph 9(a) hereof) to the shares of the Cumulative Preferred
Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate
of Incorporation (including this resolution or any provision hereof)
that would materially and adversely affect any power, preference, or
special right of the shares of the Cumulative Preferred Stock or of the
holders thereof; provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock or any increase
or decrease in the number of shares of any series of Preferred Stock or
the creation and issuance of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with or junior to the shares of
the Cumulative Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such powers,
preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of the Cumulative
Preferred Stock shall have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect such
redemption.
6. Redemption. The shares of the Cumulative Preferred Stock may be
----------
redeemed at the option of the Corporation, as a whole, or from time to time in
part, at any time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the Cumulative
Preferred Stock shall not be redeemable prior to February 28, 2007, except as
stated below. Subject to the foregoing, on or after such date, shares of the
Cumulative Preferred Stock are redeemable at the option of the Corporation, in
whole or in part, upon not less than 30 days' notice at the redemption prices
set forth below, plus accrued and accumulated but unpaid dividends to but
excluding the date fixed for
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redemption, if redeemed during the twelve-month period beginning on February 28
of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price Per Share
- ---- --------------------------
<S> <C>
2007................... $205.354
2008................... 204.282
2009................... 203.212
2010................... 202.142
2011................... 201.070
On or after 2012....... 200.000
</TABLE>
If full cumulative dividends on the Cumulative Preferred Stock have
not been paid, the Cumulative Preferred Stock may not be redeemed in part and
the Corporation may not purchase or acquire any share of the Cumulative
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Cumulative Preferred Stock. If fewer than
all the outstanding shares of the Cumulative Preferred Stock are to be redeemed,
the Corporation will select those to be redeemed by lot or a substantially
equivalent method.
Notwithstanding the foregoing provisions, if the Dividends Received
Percentage is equal to or less than 50% and, as a result, the amount of
dividends on the Cumulative Preferred Stock payable on any dividend payment date
will be or is adjusted upwards as described in paragraph 2(b) hereof, the
Corporation, at its option, may redeem all, but not less than all, of the
outstanding shares of the Cumulative Preferred Stock (a "Dividends Received
Deduction Redemption"); provided that within sixty days of the date of the date
on which an amendment to the Code is enacted which reduces the Dividends
Received Percentage to 50% or less and the date on which notice of issuance of
the Cumulative Preferred Stock is given, the Corporation sends notice to holders
of the Cumulative Preferred Stock of such redemption. A Dividends Received
Deduction Redemption, in accordance with this paragraph, will take place on the
date specified in the notice, which shall be not less than thirty nor more than
sixty days from the date such notice is sent to holders of the Cumulative
Preferred Stock. A Dividends Received Deduction Redemption shall be at the
applicable redemption price set forth in the following table, in each case plus
accrued and accumulated but unpaid dividends thereon to but excluding the date
fixed for redemption, including any changes in
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<PAGE>
dividends payable due to changes in the Dividends Received Percentage and
Additional Dividends, if any:
<TABLE>
<CAPTION>
Redemption period Redemption price per share
- ----------------- --------------------------
<S> <C>
February 28, 1998 to February 27, 1999 $210.000
February 28, 1999 to February 27, 2000 208.889
February 28, 2000 to February 27, 2001 207.778
February 28, 2001 to February 27, 2002 206.667
February 28, 2002 to February 27, 2003 205.556
February 28, 2003 to February 27, 2004 204.444
February 28, 2004 to February 27, 2005 203.333
February 28, 2005 to February 27, 2006 202.222
February 28, 2006 to February 27, 2007 201.111
</TABLE>
If a Dividends Received Deduction Redemption occurs on or after February 28,
2007, the redemption prices shall be as set forth in the first paragraph of this
paragraph 6.
If a notice of redemption has been given pursuant to this paragraph 6 and
if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of the Cumulative Preferred Stock so called for redemption, then,
notwithstanding that any certificates for such shares have not been surrendered
for cancellation, on the redemption date dividends shall cease to accrue on the
shares to be redeemed, and at the close of business on the redemption date the
holders of such shares shall cease to be stockholders with respect to such
shares and shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon surrender (and endorsement,
if required by the Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. Subject to applicable escheat laws, any
moneys so set aside by the Corporation and unclaimed at the end of two years
from the redemption date shall revert to the general funds of the Corporation,
after which reversion the holders of such shares so called for redemption shall
look only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
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<PAGE>
7. Authorization and Issuance of Other Securities. No consent of the
----------------------------------------------
holders of the Cumulative Preferred Stock shall be required for (a) the creation
of any indebtedness of any kind of the Corporation, (b) the creation, or
increase or decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon liquidation, dissolution
or winding up to the Cumulative Preferred Stock or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or change in
the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each reserves
-----------------------
the right by subsequent amendment of this resolution from time to time to
increase or decrease the number of shares that constitute the Cumulative
Preferred Stock (but not below the number of shares thereof then outstanding)
and in other respects to amend this resolution within the limitations provided
by law, this resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of any class or
----
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those of the
Cumulative Preferred Stock, if the holders of stock of such class or
classes shall be entitled by the terms thereof to the receipt of dividends
or of amounts distributed upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
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<PAGE>
liquidation prices, without preference or priority of one over the other as
between the holders of such stock and the holders of shares of the
Cumulative Preferred Stock (the term "Parity Preferred Stock" being used to
refer to any stock on a parity with the shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or winding
up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such
class shall be Common Stock or if the holders of the Cumulative Preferred
Stock shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of stock of such class or
classes.
The Cumulative Preferred Stock shall rank prior, as to dividends and
upon liquidation, dissolution or winding up, to the Common Stock and the
Corporation's Series A Junior Participating Preferred Stock, and on a parity
with (i) the Corporation's ESOP Convertible Preferred Stock, with a liquidation
value of $35.88 per share, (ii) the Corporation's 7-3/8% Cumulative Preferred
Stock, with a liquidation value of $200.00 per share, (iii) the Corporation's
7-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per
share, (iv) the Corporation's Series A Fixed/Adjustable Rate Preferred Stock,
with a liquidation value of $200.00 per share, (v) if issued, the Corporation's
7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(vi) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (vii) if issued, the Corporation's 9.00%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(viii) if issued, the Corporation's 8.40% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share and (ix) if issued, the Corporation's
8.20% Cumulative Preferred Stock, with a liquidation value of $200.00 per share.
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<PAGE>
B. This Certificate of Designation shall not become effective until,
and shall become effective at, 12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, Dean Witter, Discover & Co. has caused this
Certificate of Designation to be signed by Christine A. Edwards, its Executive
Vice President, General Counsel and Secretary, this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
----------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
146
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
DEAN WITTER, DISCOVER & CO.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned officer of Dean Witter, Discover & Co., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Amended and Restated Certificate of Incorporation of the said Corporation, the
said Board of Directors on April 21, 1995 adopted the following resolution
creating a series of 220,000 shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Amended and
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" and the number of
shares constituting such series shall be 220,000.
Section 2. Dividends and Distributions.
---------------------------
(A) The holders of shares of Series A Junior Participating Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
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<PAGE>
Directors out of funds legally available for the purposes, quarterly
dividends payable in cash on the last day of March, June, September and
December in each year (each such date being referred to herein as a
"QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series A Junior Participating Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or
(b) subject to the provision for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times
the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, par value
$0.01 per share, of the Corporation (the "COMMON STOCK") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after April 21, 1995
(the "RIGHTS DECLARATION DATE") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii subdivide the outstanding Common
Stock, or (ii combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series A
Junior Participating Preferred Stock as provided in Paragraph (A) above
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$0.01 per share on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of
Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Junior Participating Preferred Stock, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue form the
date of issue of such
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<PAGE>
shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares
of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
-------------
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series A Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "DEFAULT PERIOD") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating
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<PAGE>
Preferred Stock then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of Preferred Stock
(including holders of the Series A Junior participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to elect two (2)
directors.
(ii) During any default period, such voting right of the holders of Series
A Junior Participating Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any
annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders of Preferred Stock
of such voting right. At any meeting at which the holders of Preferred Stock
shall exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
directors or, if such right is exercised at an annual meeting, to elect two (2)
directors. If the number which may be so elected at any special meeting does
not amount to the required number, the holders of the Preferred Stock shall have
the right to make such increase in the number of directors as shall be necessary
to permit the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect directors in any
default period and during the continuance of such period, the number of
directors shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Junior
---- -----
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling of
special meeting of the holders of Preferred Stock, which meeting shall thereupon
be called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him or her at his or her last address as the same appears on the
books of the Corporation. Such
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meeting shall be called for a time not earlier than 20 days and not later than
60 days after such order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may be called on
similar notice by any stockholder or stockholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) directors voting as a class, after
the exercise of which right (x) the directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in Paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the remaining
directors theretofore elected by the holders of the class of stock which elected
the director whose office shall have become vacant. References in this
Paragraph (C) to directors elected by the holders of a particular class of stock
shall include directors elected by such directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect directors shall cease, (y)
the term of any directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of directors shall be such number as may be
provided for in the certificate of incorporation or by-laws irrespective of any
increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner provided
by law or in the certificate of incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
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Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series a Junior Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series
A Junior Participating Preferred Stock, or any shares of stock ranking on a
parity with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
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Corporation unless the Corporation could, under Paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding up. (A) Upon any
--------------------------------------
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to 1,000 times the Exercise Price, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of he Series A
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not
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<PAGE>
sufficient assets available to permit payment in full of the Common Adjustment,
then such remaining assets shall be distributed ratably to the holders of Common
Stock.
(C) In the event the Corporation shall at any time after the rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, Etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
-------------
Preferred Stock shall not be redeemable.
Section 9. Amendment. The Amended and Restated Certificate of
---------
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority or more of
the outstanding
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<PAGE>
shares of Series A Junior Participating Preferred Stock, voting separately as a
class.
Section 10. Fractional Shares. Series A Junior Participating Preferred
-----------------
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 25th day of
April, 1995.
DEAN WITTER, DISCOVER & CO.
/s/ Ronald T. Carman
------------------------------------------------
Name: Ronald T. Carman
Title: Senior vice President and
Associate General Counsel
155
<PAGE>
CERTIFICATE OF INCREASE
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
DEAN WITTER, DISCOVER & CO.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Dean Witter, Discover & Co. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with Section 103 thereof, does hereby certify:
1. Pursuant to a Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock filed in the office of the
Secretary of State of Delaware on April 26, 1995, the Board of Directors of the
Corporation created a series of 220,000 shares of Series A Junior Participating
Preferred Stock, and as of the date hereof no shares of such series have been
issued.
2. The Board of Directors, on April 18, 1997, adopted the following
resolution authorizing an increase in the authorized number of shares of Series
A Junior Participating Preferred Stock from 220,000 to 450,000:
RESOLVED, that the number of shares constituting the series of the
Corporation's Series A Junior Participating Preferred Stock be increased to
450,000.
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<PAGE>
3. This Certificate of Increase and the increase in the authorized
number of shares of Series A Junior Participating Preferred Stock provided for
herein shall not become effective until, and shall become effective at,
12:01 a.m. on May 31, 1997.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate of Increase this 30th day of May, 1997.
DEAN WITTER, DISCOVER & CO.
By: /s/ Christine A. Edwards
---------------------------------
Name: Christine A. Edwards
Title: Executive Vice President,
General Counsel & Secretary
157
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 03/24/1998
981113145 - 0923632
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
Pursuant to Section 242 of the
General Corporation Law of
the State of Delaware
Morgan Stanley, Dean Witter, Discover & Co. (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify that:
FIRST: The Board of Directors of the Corporation, by unanimous
written consent pursuant to Section 141 of the General Corporation Law of the
State of Delaware, duly adopted resolutions setting forth a proposed amendment
to the Amended and Restated Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and authorizing the officers of the
Corporation to submit such amendment to the stockholders of the Corporation for
approval at the Corporation's 1998 annual meeting of stockholders. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors declares it advisable that
Article I of the Corporation's Amended and Restated Certificate of Incorporation
be amended to read in its entirety as follows:
ARTICLE I
NAME
----
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Morgan Stanley Dean Witter & Co.
SECOND: Thereafter, pursuant to resolution of its Board of Directors,
the 1998 annual meeting of stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by the Corporation's Amended and Restated Certificate of Incorporation
were voted in favor of the amendment.
THIRD: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
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<PAGE>
FOURTH: This Certificate of Amendment shall not become effective until,
and shall become effective at, 5:00 p.m. on March 24, 1998.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Ronald T. Carman, its Assistant Secretary, this 24th day of March,
1998.
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
BY: /s/ Ronald T. Carman
---------------------------------------
Ronald T. Carman, Assistant Secretary
159
<PAGE>
CERTIFICATE OF ELIMINATION
OF PREFERRED STOCK
OF MORGAN STANLEY DEAN WITTER & CO.
(Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware)
Morgan Stanley Dean Witter & Co., a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), certifies as follows:
FIRST: The Corporation's Amended and Restated Certificate of
Incorporation authorizes the issuance of 1,000,000 shares of a series of
Preferred Stock designated 7-3/8% Cumulative Preferred Stock, par value $0.01
per share, with a stated value of $200.00 per share (the "7-3/8% Preferred
Stock").
SECOND: The Preferred Stock Financing Committee of the Board of
Directors of the Corporation (the "Preferred Stock Financing Committee")
redeemed and retired all issued and outstanding shares of the 7-3/8% Preferred
Stock, which constituted all authorized shares of the 7-3/8% Preferred Stock.
THIRD: Pursuant to the provisions of Section 151(g) of the
General Corporation Law of the State of Delaware (the "GCL"), the Preferred
Stock Financing Committee adopted the following resolutions:
RESOLVED FURTHER, that upon redemption of the 7-3/8% Preferred Stock and
corresponding Depositary Shares, all of the shares of 7-3/8% Preferred
Stock so redeemed shall be retired; and
RESOLVED FURTHER, that upon redemption and retirement of the 7-3/8%
Preferred Stock in accordance with the foregoing resolutions, none of the
authorized shares of such series of Preferred Stock will be outstanding and
no shares of such series thereafter will be issued; and
RESOLVED FURTHER, that any officer of the Corporation is authorized and
directed to execute a Certificate of Elimination as provided by Section
151(g) of the GCL in accordance with Section 103 of the GCL, substantially
in the form attached as Exhibit A, with such changes therein as the officer
executing the same may approve and as are permitted by the GCL to be made
by such officer, such approval to be conclusively evidenced by such
officer's execution of such Certificate of Elimination, and to file the
same forthwith in the Office of the Secretary of State of the State of
Delaware, and when such Certificate of Elimination becomes
160
<PAGE>
effective, all references to the 7-3/8% Preferred Stock in the Amended and
Restated Certificate of Incorporation of the Corporation shall be
eliminated and the shares of 7-3/8% Preferred Stock so redeemed and retired
shall resume the status of authorized and unissued shares of Preferred
Stock of the Corporation, without designation as to series.
FOURTH: Pursuant to the provisions of Section 151(g) of the GCL, all
references to 7-3/8% Preferred Stock in the Amended and Restated Certificate of
Incorporation of the Corporation hereby are eliminated, and the shares that were
designated to such series hereby are returned to the status of authorized but
unissued shares of the Preferred Stock of the Corporation, without designation
as to series.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Martin M. Cohen, its Assistant Secretary, this 21 day of October,
1998.
MORGAN STANLEY DEAN WITTER & CO.
By: /s/ Martin M. Cohen
----------------------------
Title: Assistant Secretary
161
<PAGE>
CERTIFICATE OF ELIMINATION
OF THE
7.80% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF MORGAN STANLEY DEAN WITTER & CO.
(Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Morgan Stanley Dean Witter & Co., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
certifies as follows:
FIRST: The Corporation's Amended and Restated Certificate of Corporation
authorizes the issuance of 1,150,000 shares of a series of Preferred Stock
designated 7.80% Cumulative Preferred Stock, par value $0.01 per share, with a
stated value of $200.00 per share (the "7.80% Preferred Stock").
SECOND: Pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware (the "DGCL"), the Preferred Stock
Financing Committee of the Board of Directors of the Corporation adopted the
following resolutions:
RESOLVED FURTHER, that none of the authorized shares of the 7.80%
Preferred Stock are outstanding and none of the authorized shares of
such series of Preferred Stock will be issued; and
RESOLVED FURTHER, that any officer of the Corporation is authorized
and directed to execute a Certificate of Elimination as provided by
Section 151(g) of the DGCL in accordance with Section 103 of the DGCL,
substantially in the form attached as Exhibit A, with such changes
therein as the officer executing the same may approve and as are
permitted by the DGCL to be made by such officer, such approval to be
conclusively evidenced by such officer's execution of such Certificate
of Elimination, and to file the same forthwith in the Office of the
Secretary of State of the State of Delaware, and when such Certificate
of Elimination becomes effective, all references to the 7.80%
Preferred Stock in the Amended and Restated Certificate of
Incorporation of the Corporation shall be eliminated and the shares of
7.80% Preferred Stock shall resume the status of authorized and
unissued shares of Preferred Stock of the Corporation, without
designation as to series.
THIRD: Pursuant to the provisions of Section 151(g) of the DGCL, all
references to 7.80% Preferred Stock in the Amended and Restated Certificate of
Incorporation of the Corporation hereby are eliminated, and the shares that were
designated to such series hereby are
162
<PAGE>
returned to the status of authorized but unissued shares of the Preferred Stock
of the Corporation, without designation as to series.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Martin M. Cohen, its assistant Secretary, this 2nd day of March, 1999.
MORGAN STANLEY DEAN WITTER & CO.
By /s/ Martin M. Cohen
-------------------
Name: Martin M. Cohen
Title: Assistant Secretary
163
<PAGE>
CERTIFICATE OF ELIMINATION
OF THE
7.82% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF MORGAN STANLEY DEAN WITTER & CO.
(Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Morgan Stanley Dean Witter & Co., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
certifies as follows:
FIRST: The Corporation's Amended and Restated Certificate of Corporation
authorizes the issuance of 611,238 shares of a series of Preferred Stock
designated 7.82% Cumulative Preferred Stock, par value $0.01 per share, with a
stated value of $200.00 per share (the "7.82% Preferred Stock").
SECOND: Pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware (the "DGCL"), the Preferred Stock
Financing Committee of the Board of Directors of the Corporation adopted the
following resolutions:
RESOLVED FURTHER, that none of the authorized shares of the 7.82%
Preferred Stock are outstanding and none of the authorized shares of
such series of Preferred Stock will be issued; and
RESOLVED FURTHER, that any officer of the Corporation is authorized
and directed to execute a Certificate of Elimination as provided by
Section 151(g) of the DGCL in accordance with Section 103 of the DGCL,
substantially in the form attached as Exhibit A, with such changes
therein as the officer executing the same may approve and as are
permitted by the DGCL to be made by such officer, such approval to be
conclusively evidenced by such officer's execution of such Certificate
of Elimination, and to file the same forthwith in the Office of the
Secretary of State of the State of Delaware, and when such Certificate
of Elimination becomes effective, all references to the 7.82%
Preferred Stock in the Amended and Restated Certificate of
Incorporation of the Corporation shall be eliminated and the shares of
7.82% Preferred Stock shall resume the status of authorized and
unissued shares of Preferred Stock of the Corporation, without
designation as to series.
THIRD: Pursuant to the provisions of Section 151(g) of the DGCL, all
references to 7.82% Preferred Stock in the Amended and Restated Certificate of
Incorporation of the Corporation hereby are eliminated, and the shares that were
designated to such series hereby are
164
<PAGE>
returned to the status of authorized but unissued shares of the Preferred Stock
of the Corporation, without designation as to series.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Martin M. Cohen, its assistant Secretary, this 2nd day of March, 1999.
MORGAN STANLEY DEAN WITTER & CO.
By /s/ Martin M. Cohen
--------------------
Name: Martin M. Cohen
Title: Assistant Secretary
165
<PAGE>
Certificate of Amendment
to
Amended and Restated Certificate of Incorporation
of
Morgan Stanley Dean Witter & Co.
Pursuant to Section 242 of the
General Corporation Law of
the State of Delaware
Morgan Stanley Dean Witter & Co. (the "Company"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify that:
FIRST: The Board of Directors of the Company, at a duly convened
telephonic meeting of the Board of Directors held on December 20, 1999, duly
adopted resolutions setting forth a proposed amendment to the Amended and
Restated Certificate of Incorporation of the Company, declaring said amendment
to be advisable and authorizing the officers of the Company to submit such
amendment to the stockholders of the Company for approval at the Company's 2000
annual meeting of stockholders. The resolution setting forth the proposed
amendment is as follows:
"RESOLVED, that the Board of Directors declares it advisable that the first
sentence of Article IV of the Company's Amended and Restated Certificate of
Incorporation in effect on the date hereof be amended to read in its entirety as
follows:
The total number of shares of stock which the Corporation shall the
authority to issue is three billion five hundred thirty million
(3,530,000,000), consisting of thirty million (30,000,000) shares of
Preferred Stock, par value $0.01 per share (hereinafter referred to as
"Preferred Stock"), and three billion five hundred million (3,500,000,000)
shares of Common Stock, par value $0.01 per share (hereinafter referred to
as "Common Stock")."
SECOND: Thereafter, pursuant to resolution of its Board of Directors, the
2000 annual meeting of stockholders of the Company was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by Section 242 of the General Corporation Law of the State of Delaware were
voted in favor of the amendment.
THIRD: Said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
Ronald T. Carman, its Assistant Secretary this 11th day of April, 2000.
MORGAN STANLEY DEAN WITTER & CO.
By: /s/ Ronald T. Carman
---------------------
Ronald T. Carman, Assistant Secretary
166
<PAGE>
EXHIBIT 10.1
DEAN WITTER REYNOLDS INC.
BRANCH MANAGER COMPENSATION PLAN
[Amended as of December 9, 1999]
SECTION I
INTRODUCTION
The name of this Plan is the Dean Witter Reynolds Inc. Branch Manager
Compensation Plan (the "Plan"). The Plan was initially adopted for Fiscal Years
beginning with 1984; was amended and restated on December 23, 1985 retroactive
to 1984; was further amended as of December 8, 1986, January 1, 1988, December
23, 1990, and July 15, 1991; was amended and restated January 1, 1992; amended
and restated as of April 21, 1992, retroactive to January 1, 1992; amended and
restated effective October 1, 1993; amended effective January 1, 1994; amended
and restated effective January 1, 1994; amended and restated effective October
21, 1994; amended effective June 18, 1997; amended effective September 25, 1998;
amended effective September 21, 1999 and was amended effective December 9, 1999.
SECTION II
PURPOSE OF PLAN
The purpose of the Plan is to retain and recruit key Branch Managers for Dean
Witter Reynolds Inc. by enabling them to accumulate significant net worth based
on the profitable management of Branch Offices of DWR.
SECTION III
DEFINITIONS
(a) "Account" means a Branch Manager Compensation Plan Account maintained in a
confidential ledger by DWR pursuant to Section VI of the Plan for each
Participant in the Plan. MIC awards are also made under the Plan but
Accounts are maintained only for Participants, i.e., those who get
challenge or other awards.
(b) "Financial Advisor" means an Employee performing the functions of that
position for DWR.
<PAGE>
(c) "Agreement" means a subordination agreement described in Section VIII and
Appendix A.
(d) "Board" means the Compensation Committee of the Board of Directors of DWR.
(e) "Branch Office" means any branch office of DWR.
(f) "Branch Manager" means an Employee performing the functions of that
position for DWR. For purposes of this Plan, "Branch Manager" shall also
mean a Satellite Manager, unless otherwise specified in the Plan.
(g) "Disability" means termination of employment from DWR due to a medically
determinable physical or mental incapacity which is reasonably expected to
be of long-term duration or result in death. The determination of DWR shall
be conclusive on all parties as to whether a Participant is Disabled.
(h) "MWD" means Morgan Stanley Dean Witter & Co., a Delaware corporation.
(i) "DWR" means Dean Witter Reynolds Inc., a Delaware corporation.
(j) "Employee" means an employee of DWR.
(k) "Fair Market Value" means:
(1) for purposes of determining the number of shares of Stock to be
allocated pursuant to Section VII(b)(i) to a Deferred Bonus awarded pursuant to
Section V, the fair market value thereof as of the relevant date of
determination, as determined in accordance with a valuation methodology approved
by the Board of Directors of MWD or a committee thereof designated by such Board
of Directors (such Board of Directors or committee is hereinafter referred to as
the "MWD Committee"); and
(2) for purposes of crediting a Participant pursuant to Section
VII(b)(iii) with shares of Stock based upon cash dividends paid or deemed to be
paid on shares of Stock credited to the Participant as of the record date for
such dividends, the average of the high and low sales prices, regular way, of a
share of Stock as reported on the New York Stock Exchange Composite Tape (the
"High/Low Price") on the relevant dividend payment date, or, if Stock is not
traded on public markets on the relevant dividend payment date, the first
preceding date on which Stock is traded on public markets; provided, however,
that in the event a "Fair Market Value" cannot be determined pursuant to the
foregoing, the fair market value thereof as of the relevant date of
determination, as determined in accordance with a valuation methodology approved
by the MWD Committee; and
(3) for purposes of distributing cash in lieu of a fractional share
pursuant to Section VII(b)(i), the High/Low Price on the date of the
distribution, or, if Stock is not traded on public markets on the date of the
distribution, the first preceding date on which Stock is traded on public
markets; provided, however, that in the event a "Fair Market Value" cannot be
determined pursuant to the foregoing, the fair market value thereof as of the
relevant date of determination,
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as determined in accordance with a valuation methodology approved by the MWD
Committee; and
(4) for such other purposes as may arise in connection with the Plan, the
fair market value of a share of Stock as of the relevant date of determination,
as determined in accordance with a valuation methodology approved by the MWD
Committee.
(1) "Fiscal Year" means the Fiscal Year of DWR.
(m) "MIC" means the Branch Manager Management Incentive Compensation Plan.
(n) "Net Income After Allocated Expense" means the Branch Office monthly gross
revenue less all expenses charged to such Branch Office, both direct and
allocated, before accrual of income taxes and the Branch Manager's MIC
credit as reflected in the statements of revenue and expense prepared by
DWR in accordance with its standard accounting practices.
(o) "Non-Producing Branch Manager" means a Branch Manager who does not
personally produce gross revenues for DWR through the sale of securities
and other investments to clients of DWR.
(p) "Office Gross Revenue" means the gross revenue generated in a Fiscal Year
by a Branch Office as reflected in the statements of revenue and expense
prepared by DWR in accordance with its standard accounting practices.
(q) "Participant" means a Branch Manager to whom a Challenge Bonus has been
awarded or to whom another deferred bonus has been awarded, pursuant to
Section V.
(r) "Producing Branch Manager" means a Branch Manager who personally produces
gross revenues for DWR through the sale of securities and other investments
to clients of DWR.
(s) "Profit Margin" means the Branch Office Net Income After Allocated Expense
divided by the Branch Office Total Gross Income.
(t) "Regional Director" means an Employee performing the functions of that
position for DWR.
(u) "Retirement" means termination of employment from DWR (i) after attaining
age 65, (ii) as defined in the Dean Witter Reynolds Inc. Pension Plan
whether or not the individual is a participant therein, or (iii) as
otherwise specified by written agreement between DWR and a Branch Manager.
(v) "Stock" means the common stock of MWD, par value $.01 per share.
(w) "Satellite Manager" means the manager of a satellite sales office of DWR.
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(x) "Total Gross Income" means the monthly gross income generated by a Branch
Office as reflected in the statements of revenue and expense prepared by
DWR in accordance with its standard accounting practices.
(y) "Valuation Date" means the last day of each Fiscal Year.
SECTION IV
ELIGIBILITY
All Branch Managers shall be eligible to participate in the Plan.
SECTION V
COMPENSATION
(a) Salaries. Salary levels for Branch Managers shall be established each year
by DWR in its sole discretion taking into account such factors as Office
Gross Revenue for each Branch Manager's respective Branch Office and/or
such other factors as DWR may determine. The criteria for determining
Branch Manager salaries on an annual basis may be the same or different for
Non-Producing Branch Managers, Producing Branch Managers and/or Satellite
Managers. Salaries shall be paid in cash on a periodic basis throughout
each Fiscal Year. Salary payments will cease immediately upon termination
of employment.
(b) MIC Award. Branch Managers shall be eligible for an MIC award to be based
on a formula which shall be determined by the Board from time to time. A
Branch Manager's MIC award shall be based on the monthly Profit Margin of
his or her respective Branch Office. However, in the event of a Branch
Office loss, such loss shall be carried forward to succeeding months and
shall be used to reduce the monthly Profit Margin in such succeeding months
in calculating MIC until such losses shall have been offset in whole by the
Branch Office's Profit Margins in successive months of the same Fiscal
Year. The amount of any Branch Manager's MIC award may be increased at any
time by DWR in its sole discretion. MIC award payments shall be paid in
cash.
(c) Challenge Bonuses.
(1) Branch Managers shall also be eligible for an additional "Challenge
Bonus." The Challenge Bonus will be based on the achievement of challenge goals
agreed to between each Branch Manager and his or her Regional Director at the
beginning of each Fiscal Year. The Regional Director shall establish a Target
Challenge Bonus for a Branch Manager at such time as challenge goals are agreed
to with each Branch Manager.
(2) The Board, in its sole discretion, shall determine whether a Branch
Manager has achieved and/or exceeded the challenge goals agreed on by the Branch
Manager and Regional Director. If the Board determines that a Branch Manager has
exceeded the challenge goals agreed to between the Branch Manager and the
Regional Director, it may award a Challenge Bonus up to two times the target
Challenge Bonus. If a Branch Manager has not
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achieved the challenge goals for a Fiscal Year agreed to between the Branch
Manager and the Regional Director, the Branch Manager may receive a Challenge
Bonus that is less than the target Challenge Bonus, in an amount determined
solely by the Board.
(3) DWR shall pay 80% of the Challenge Bonus in cash as soon as practicable
following the end of the Fiscal Year in which a Challenge Bonus is earned. The
remaining 20% (the "Deferred Bonus"), will be paid in the form of shares of
common stock of MWD, par value $.01 per share ("Stock") in accordance with
Section VII and subject to Appendix A.
(d) Other Deferred Bonus Awards. At the beginning of any Fiscal Year, the Board
may establish any other criteria which will entitle a Branch Manager to
receive a deferred bonus award under the Plan for that or any one or more
succeeding Fiscal Years. A Branch Manager who achieves such other criteria
in a Fiscal Year shall receive an award for that Fiscal Year. Any deferred
bonus awards made pursuant to this paragraph shall be made subject to the
same terms and conditions as the deferred portion of a Challenge Bonus
Award made under Section V(c)(3) and shall be Payment Obligations for
purposes of Section VIII except that the Board may in its sole discretion,
elect not to credit deferred bonus awards made pursuant to this subsection
with the annual increments described in Section VI(c).
(e) The MWD Committee, may, in its discretion from time to time, make to an
individual, in consideration of such individual becoming (and remaining for
such period of time, if any, as the MWD Committee determines) a Branch
Manager and such other consideration, if any, as the MWD Committee
determines, an award of Stock on such terms and conditions as the MWD
Committee may determine, which terms and conditions need not be uniform
with the terms and conditions of Section VI, VII or VIII hereof, but which
shall be set forth in a written award certificate or award agreement
delivered or made available by DWR to the individual as soon as practicable
following the date of the award. Awards of Stock under this Section V(e)
shall be satisfied only out of shares held in treasury and not out of
authorized but unissued shares.
SECTION VI
ACCOUNTS - ESCROW AGENT
(a) A separate Account shall be maintained by DWR for each Participant in a
confidential ledger for each Fiscal Year. Each such Account shall be
credited with such deferred bonuses as may be awarded to the Participant
pursuant to Section V of the Plan. Each such Account shall be decreased by
any (i) payments of deferred awards, or (ii) forfeitures of deferred awards
pursuant to Section VII.
(b) Within a reasonable time after the end of each Fiscal Year the Controller
of DWR shall give each Participant a written report of the status of such
Participant's Account under the Plan, including the value thereof. For each
Fiscal Year, Accounts shall be valued as of the Valuation Date.
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<PAGE>
(c) As a condition to participation in this Plan, each eligible Employee shall
be required to hold restricted Stock awards hereunder in an escrow account
and such Employee's decision to participate in the Plan shall constitute
the appointment of Morgan Stanley Dean Witter Trust FSB, or such other
custodian as DWR shall designate (the "Custodian"), as the custodial agent
for the purpose of holding such Stock. Such escrow account will be governed
by and subject to the terms and conditions of a written agreement with the
Custodian.
SECTION VII
AWARD PAYMENTS
(a) In order to be entitled to any payment of compensation an Employee must be
employed by DWR on the date such compensation is paid. If any Employee
terminates employment after any MIC, bonus or other compensation is or
becomes determinable but before actual payment of such MIC, bonus, or other
compensation is paid by DWR in the normal course of business, the Employee
shall not be entitled to receive any such payment. Notwithstanding the
foregoing, in the event of the death or Disability of an Employee,
compensation, including MIC and other bonuses under this Plan, which is
determinable as of the last day of employment, shall be paid to the
Employee or the Employee's representative at the times specified herein for
the payment of such compensation.
(b) (i) Deferred Bonuses will be paid in the form of Stock, payable as soon as
practicable following the close of the Fiscal Year for which the award is made.
For purposes of determining the number of shares of Stock that constitutes a
Deferred Bonus, the Stock may be valued at a discount, determined by the MWD
Committee, from Fair Market Value. Deferred bonuses under Section V(d) may be
paid in cash or in Stock as determined by the Compensation Committee of the
Board of Directors of DWR. The number of shares of Stock payable with respect to
a Deferred Bonus shall be calculated by reference to the amount of the Deferred
Bonus determined under Section V. Payments to Participants of Deferred Bonuses
made in the form of Stock shall be made in the form of a certificate for whole
shares and cash in lieu of any fractional share. A Participant on a leave of
absence approved by DWR or who is absent due to disability on the date payment
is made shall not be entitled to payment of such Deferred Bonus until the
Participant returns to DWR following completion of such leave of absence or
disability.
(ii) Stock awarded with respect to a Fiscal Year shall vest four years and
three months following the close of that Fiscal Year, provided that the
Participant's status as an Employee has not been terminated prior to such date.
Upon the Participant's termination of employment with DWR, all unvested Stock
shall be forfeited. Notwithstanding the foregoing, if a Participant terminates
employment with DWR due to Disability or Retirement, all of the Participant's
restricted Stock awards shall become vested in accordance with this Section VII
without regard to the Participant's termination of employment. Notwithstanding
anything in this Plan to the contrary, upon a Participant's death, all of the
Participant's awards shall become vested immediately and payable as promptly as
practicable.
(iii) A Participant may vote and receive dividends on any Stock awarded to
such Participant under Section VII(b)(i) or credited under this Section
VII(b)(iii); provided that all
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<PAGE>
dividends on Stock (other than dividends payable in Stock) shall be reinvested
in shares of Stock at 100% of the Fair Market Value of Stock which shares shall
be credited to the Participant and held by the Custodian. All shares of Stock
received as a distribution with respect to Stock or acquired with reinvested
dividends hereunder shall be subject to the same restrictions as shares of Stock
on which such distribution or dividend is awarded.
(c) Except as provided in Section VII(b), payments made hereunder shall be made
in cash and shall not be eligible for rollover or transfer into other
retirement or deferred compensation plans sponsored by DWR, MWD or any of
their affiliates.
(d) In the event a Participant terminates employment with DWR due to Disability
or Retirement, the undistributed balance of the Participant's Account at
the end of the Fiscal Year preceding the Participant's Disability or
Retirement shall be paid to the Participant in the manner provided by this
Section VII and to the extent permitted by Appendix A to the Plan. In the
event a Participant dies, the undistributed balance of the Participant's
Account at the end of the Fiscal Year preceding the Participant's death
shall be paid to the personal representative of the Participant's estate as
promptly as practicable to the extent permitted by Appendix A to the Plan.
(e) DWR reserves the right to accelerate payment of a Participant's entire
Account balance and/or the vesting of any Stock awarded pursuant to Section
V(c) or Section (d) of the Plan, subject to the provisions of Section VIII
and an Agreement. The MWD Committee reserves the right to accelerate the
vesting of any Stock awarded pursuant to Section V(e) of the Plan; provided
that if the award of such Stock was made subject to Section VIII and an
Agreement, then vesting of such Stock shall be subject to Section VIII and
an Agreement.
(f) A Participant shall be entitled to payment of his or her Account pursuant
to Section VII(b) provided the Participant is employed by DWR at the time
such payment is due, regardless of the position in which the Participant is
employed at such time.
(g) In accordance with the provisions of an Agreement, if DWR must recover a
Payment Obligation previously paid to a Participant pursuant to this
Section VII, a Participant shall be required to repay such amount. With
respect to amounts awarded in Stock, the Participant shall be required to
repay the number of shares of Stock received (or an amount in cash equal to
the fair market value of such Stock as of the date of such repayment). If
any such amount is not repaid, DWR reserves the right to withhold from the
Participant's compensation the amount of any Payment Obligation which a
Participant fails to repay as required herein.
(h) All federal, state, local and other withholding tax requirements, if any,
relating to the Plan shall be met pursuant to procedures determined by DWR
which may include:
1. Withholding from any cash amounts payable to a Participant under the
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Plan including salary, bonus or any other amounts payable from DWR or any
affiliate of DWR;
2. Requiring Participants to remit to DWR an amount in cash prior to the
delivery of any certificate for Stock or other payments under the Plan;
3. At the election of the Participant, tendering to DWR a number of shares
of Stock;
4. At the election of the Participant, withholding by DWR of shares of
Stock. In the event that the Custodian is directed by DWR to withhold
shares pursuant to this Section VII(h)(4), the Custodian shall distribute
such shares from the custodial account to DWR (or, at the direction of DWR,
sell such shares on public markets and distribute the cash proceeds to DWR)
and DWR shall make appropriate withholding tax payments.
5. If a Participant is subject to Section 16(b) of the Securities Exchange
Act of 1934, DWR may prescribe such requirements or limitations on the
Participant's ability to elect the withholding options contained in
Sections VII(h)(3) and (4) of the Plan as may be required by Securities and
Exchange Commission rule 16b-3 or by any comparable or successor exemption.
(i) The commencement of Related Employment by a Participant shall not be
treated for purposes of the Plan and any Deferred Bonus or Other Deferred
Bonus 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 Deferred Bonus or Other
Deferred Bonus Award hereunder as if such event had occurred while the
individual was an Employee. For purposes of this Section VII(i), "Related
Employment" shall mean the employment of a Participant by an employer other
than DWR, provided that: (1) such employment is undertaken by the
individual at the request or with the consent of DWR; (2) immediately prior
to undertaking such employment the individual was an Employee or was
engaged in Related Employment as defined herein; and (3) such employment is
recognized by DWR, in its discretion, as Related Employment.
SECTION VIII
SUBORDINATION OF DEFERRED BONUSES
(a) All Branch Managers, as a condition of participation, shall execute and
deliver a written agreement (the "Agreement") within forty-five (45) days
after notice of eligibility to Participate or the announcement of a
Deferred Bonus Award made after December 24, 1990, that such Branch
Manager's right to any payment hereunder (the "Payment Obligation") is
subordinate to the prior payment or provision for payment in full of all
claims of all present and future creditors of DWR arising out of any matter
occurring prior to the date on which the related Payment Obligation matures
consistent with all applicable statutes, regulations
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and rules, except for claims which are the subject of subordination
agreements which ran on the same priority (which claims shall be paid pari
passu) or are junior to the Payment Obligation under the Agreement. The
Agreement shall also provide that the Participant's right to payment
hereunder shall be subordinate to claims which are now or hereafter
expressly stated in the instruments creating such claims to be senior in
right of payment to the claims of the class of claims created hereunder
which arise out of any matter occurring prior to the maturity date of any
payment under the Payment Obligation.
(b) The form of the Agreement shall be determined by DWR. In the event DWR
elects to treat Payment Obligations as subordinated liabilities for
purposes of determining net capital under Rule 15c3-1 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934 and similar regulations promulgated under the Commodities Exchange
Act, the form of the Agreement shall be subject to approval of the
Examining Authority as defined by the Agreement. A copy of the Agreement is
annexed hereto as Appendix "A", and incorporated by reference as fully as
if set forth herein at length.
(c) Any amount credited to a Participant's Account shall not be segregated but
shall remain a part of the general corporate funds of DWR subject to the
claims of general, unsecured creditors of DWR to which claims the rights of
the Participant to receive payment of the amount credited to his or her
Account shall be subordinated pursuant to the terms of an Agreement.
(d) If a Participant does not execute and deliver an Agreement within the
forty-five (45) day period described in (a) above, such Participant shall
cease to have any rights whatsoever hereunder with respect to awards
deferred under Sections V(c)(3) and (d).
SECTION IX
ADMINISTRATION
(a) DWR shall have full power and authority to construe, interpret and
administer the Plan. Its decision shall be final, conclusive and binding
upon all persons, including Employees and officers and the beneficiaries
and personal representatives of such employees and officers.
(b) The expenses of administering the Plan shall be borne by DWR.
(c) The interest and property rights of any person in the Plan or in any
distribution to be made under the Plan shall not be subject to option nor
be assignable either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment
or other creditor's process and any act in violation hereof shall be void.
(d) Nothing herein shall be construed to require DWR or any affiliate to
segregate or
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set aside any funds or any property for the purpose of making award
payments hereunder.
(e) DWR'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, DWR shall be entitled,
among other things, to make non-uniform and selective determinations and to
enter into non-uniform and selective Plan agreements as to (1) the persons
to receive awards under the Plan; (2) the terms and provisions of awards
under the Plan; and (3) the exercise by DWR of its discretion in respect of
the terms of the Plan.
SECTION X
MISCELLANEOUS
(a) The establishment of the Plan, the granting of benefits or any action by
DWR or any other person shall not be held or construed to confer upon any
person any right to employment by DWR nor, upon termination of employment,
to confer any right or interest other than as provided herein. No provision
of the Plan shall restrict the right of DWR to terminate any Employee's
employment with or without cause.
(b) If, in the opinion of DWR, any person becomes unable to handle properly any
amount payable to such person under the Plan, DWR may make any reasonable
arrangement for payment on such person's behalf as it deems appropriate.
(c) Where appropriate, the use of masculine terms within the Plan shall mean
the feminine, the use of singular terms shall mean the plural, and vice
versa.
SECTION XI
EFFECTIVE DATE, AMENDMENT, SUSPENSION AND DISCONTINUANCE
(a) DWR reserves the right to amend the Plan, in whole or in part, or to
suspend or discontinue the Plan, in whole or in part, at any time. DWR
further reserves the right to change the criteria for awarding MIC or
Challenge Bonuses provided that it gives adequate notice of such change to
Branch Managers prior to the beginning of the Fiscal Year for which such
changes are effective.
(b) If any part of this Plan, including Appendix A hereto, fails to receive any
required approval of a regulatory or governing body or is otherwise
declared void and of no effect, the rest of the Plan shall continue in full
force.
(c) This Plan shall govern Payment Obligations of deferred Challenge Bonuses
accrued for the Fiscal Year beginning in 1984 and thereafter.
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(d) The Plan shall continue in effect as amended from time to time until
suspended or discontinued by DWR.
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APPENDIX A
TO THE
DEAN WITTER REYNOLDS INC.
BRANCH MANAGER COMPENSATION PLAN
For purposes of this Appendix A, a Branch Manager who is designated in
writing by DWR as a participant under the Plan, shall be known as a
"Participant", Dean Witter Reynolds Inc. shall be known as "DWR", and DWR's
"Payment Obligation" shall be as defined below.
1. Payment Obligation
------------------
(a) Payment Obligations shall consist of any deferred payments of Challenge
Bonuses owed from time to time to a Participant by DWR pursuant to the Plan.
(b) Payment Obligations including the dates payments are due, shall be
determined in accordance with the provisions of the Plan as in effect on the
date hereof, or as hereafter amended. As provided in Sections 4 and 5 of this
Appendix A, no payment of any amount of a Payment Obligation may be made sooner
than five years following the year for which such Payment Obligation is accrued
by DWR. If any provision of the Plan as now in effect or as hereafter amended
shall be inconsistent with this Appendix A, this Appendix A shall govern.
2. Subordination of Right of Payment
---------------------------------
(a) Payment Obligations are and shall be subordinated in right of payment
and subject to prior payment or provision for payment in full of all claims of
other present and future creditors of DWR whose claims are not similarly
subordinated (claims hereunder shall rank pari passu with claims similarly
subordinated) and to claims which are now or hereafter expressly stated in the
instruments creating such claims to be senior in right of payment to the claims
or the class of claims hereunder which arise out of any matter occurring prior
to the maturity date of any payment under the Payment Obligation.
(b) In the event of the appointment of a receiver or trustee for the DWR or
in the event of its insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 ("SIPA") or otherwise, its bankruptcy, assignment for the
benefit of creditors, reorganization whether or not pursuant to bankruptcy laws
or any other marshaling of the assets and liabilities of DWR, Participant shall
not be entitled to participate or share, ratably or otherwise, in the
distribution of the assets of DWR until all claims of all other present and
future creditors of DWR whose claims are senior to claims hereunder have been
fully satisfied or provision has been made therefor.
(c) Notwithstanding the maturing of the Payment Obligation under any
provision of the Plan or this Appendix A, the right of a Participant to receive
payment of any Payment Obligation is and shall remain subordinate as provided in
this Section 2.
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3. Suspension of Maturity During Net Capital Stringency
----------------------------------------------------
(a) DWR's Payment Obligations shall be suspended and not mature for any
period of time during which, after giving effect to such Payment Obligations
(together with the payment of any other subordinated obligation of DWR payable
at or prior to such payment of the Payment Obligations),
(i) if DWR is not operating pursuant to the alternative net capital
requirements provided for in paragraph (f) of Rule 15c3-1 (the "Rule")
under the Securities Exchange Act of 1934 (the "Act"), the aggregate
indebtedness of DWR would exceed 1,200 percentum of its net capital, as
those terms are defined in the Rule, as in effect at the time such payment
is to be made, or such percentum as may be made applicable to DWR from time
to time by the Examining Authority (as defined in paragraph 6(f) hereof)
plus an amount equal to the guaranty deposits with clearing organizations,
other than the Chicago Board of Trade ("CBOT") which were included in
current assets under Section 211 of the CBOT "Capital Requirements for
Member FCM's" to the extent such deposits cannot be used for margin
purposes, or
(ii) if DWR is operating pursuant to the alternative net capital
requirements provided for in paragraph (f) of the Rule, its net capital
would be less than five (5) percentum of aggregate debit items (or such
other percentum as may be made applicable to DWR by the Examining
Authority) computed in accordance with Exhibit A to Rule 15c3-3 under the
Act or any successor rule as in effect at the time such payment is to be
made, plus an amount equal to the guaranty deposits with clearing
organizations other than the CBOT, which were included in current assets
under Section 211 of the CBOT "Capital Requirements for Member FCM's", to
the extent such deposits cannot be used for margin purposes, or
(iii) if DWR is registered as a futures commission merchant under the
Commodity Exchange Act (the "CEA"), the net capital of DWR would be less
than the greatest of (A) six (6) percentum of the funds required to be
segregated pursuant to the CEA and Commodities Futures Trading Commission
("CFTC") Regulations and the foreign futures or foreign options secured
amount exclusive of the market value of commodity options purchased by
option customers of DWR on or subject to the rules of a contract market or
a foreign board of trade, provided the deduction for each option customer
shall be limited to the amount of customer funds in each option customer's
account(s) and foreign futures and foreign options secured amounts plus an
amount equal to the guaranty deposits with clearing organizations other
than the CBOT, which were included in current assets under Section 211 of
the CBOT "Capital Requirements for Member FCM's", to the extent such
deposits cannot be used for margin purposes, (B) such amount as may be made
applicable to DWR at the time of such payment by the Examining Authority
under Rule 15c3-1(b)(7), or (C) $2,000,000 (or such other amount as
required by the CEA and CFTC Regulations), or
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(iv) if DWR's net capital, as defined in the Rule or any successor
rule as in effect at the time such payment is to be made, would be less
than 120 percentum (or such other percentum as may be made applicable to
DWR at the time of such payment by the Examining Authority) of the minimum
dollar amount required by the Rule as in effect at such time, or such
dollar amount as may be made applicable to DWR by the Examining Authority,
plus an amount equal to the guaranty deposits with clearing organizations
other than the CBOT, which were included in current assets under Section
211 of the CBOT "Capital Requirements for Member FCM's", to the extent such
deposits cannot be used for margin purposes, or
(v) if DWR is registered as a futures commission merchant under the
CEA and if its net capital, as defined in the CEA or CFTC Regulations
thereunder as in effect at the time of such payment, would be less than 120
percentum (or such other percentum as may be made applicable to DWR by the
Examining Authority) of the minimum dollar amount required by the CEA or
the regulations thereunder as in effect at such time (or such other dollar
amount as may be made applicable to DWR by the Examining Authority at the
time of such payment), plus an amount equal to the guaranty deposits with
clearing organizations other than the CBOT, which were included in current
assets under Section 211 of the CBOT "Capital Requirements for Member
FCM's", to the extent such deposits cannot be used for margin purposes, or
(vi) if DWR is subject to the provisions of paragraph (a)(6)(v) or
(a)(7)(iv) or (c)(2)(x)(B)(1) of the Rule, its net capital would be less
than the amount required to satisfy the 1,000 percentum test (or such other
percentum test as may be made applicable to DWR by the Examining Authority
at the time of such payment) stated in such applicable paragraph, plus an
amount equal to the guaranty deposits with clearing organizations other
than the CBOT, which were included in current assets under Section 211 of
the CBOT "Capital Requirements for Member FCM's", to the extent such
deposits cannot be used for margin purposes.
The net capital required by (i)-(vi) above, is hereinafter referred to as
the "Applicable Minimum Capital". During any such suspension DWR shall, as
promptly as consistent with the protection of its customers, reduce its business
to a condition whereby payment due under Payment Obligations could be made
(together with the payment of any other subordinated obligation of DWR payable
at or prior to such payment) without DWR's net capital being below the
Applicable Minimum Capital, at which time DWR shall make payment due under
Payment Obligations on not less than five days prior written notice to the
Examining Authority.
(b) If immediately after any payment of a Payment Obligation DWR's net
capital is less than the Applicable Minimum Capital, whether or not the
Participant had any knowledge or notice of such fact at the time of any such
payment, a Participant must repay to DWR, its successors or assigns, any sum so
paid, to be held by DWR pursuant to the provisions of the Plan
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as if such payment had never been made; provided, however, that any suit for the
recovery of any such payment must be commenced within two years of the date of
such payment. DWR reserves the right to withhold from the Participant's
compensation the amount of any Payment Obligation which a Participant fails to
repay as required herein.
(c) If pursuant to the terms hereof payment of DWR's Payment Obligations
are suspended, DWR may be summarily suspended by the Examining Authority.
4. Permissive Prepayment
---------------------
With the prior written permission of the Examining Authority, DWR may, at
its option and to the extent permitted by the Plan, pay all or any portion of
the Payment Obligation to the Participant (such payment hereinafter referred to
as a "Prepayment") at any time subsequent to one year from the date subordinated
funds became subject to this Appendix A. No Prepayment shall be made, however,
if after giving effect thereto (and to all other payments of any other
subordinated obligation of DWR payable within six months of such Prepayment)
without reference to any projected profit or loss of DWR,
(i) in the event that DWR is not operating pursuant to the alternative
net capital requirement provided for in paragraph (f) of the Rule, the
aggregate indebtedness of DWR would exceed 1,000 percentum of its net
capital as those terms are defined in the Rule or any successor rule as in
effect at the time such Prepayment is to be made (or such other percentum
as may be made applicable at such time to DWR by the Examining Authority),
plus an amount equal to the guaranty deposits with clearing organizations
other than the CBOT, which were included in current assets under Section
211 of the CBOT "Capital Requirements for Member FCM's", to the extent such
deposits cannot be used for margin purposes, or
(ii) in the event that DWR is operating pursuant to such alternative
net capital requirement, the net capital of DWR would be less than 5
percentum (or such other percentum as may be made applicable to DWR at the
time of such Prepayment by the Examining Authority) of aggregate debit
items computed in accordance with Exhibit A to Rule 15c3-3 under the Act or
any successor rule as in effect at such time, plus an amount equal to the
guaranty deposits with clearing organizations other than the CBOT, which
were included in current assets under Section 211 of the CBOT "Capital
Requirements for Member FCM's", to the extent such deposits cannot be used
for margin purposes, or
(iii) in the event that DWR is registered as a futures commission
merchant under the CEA, the net capital of DWR (as defined in the CEA or
CFTC Regulations as in effect at the time of such Prepayment) would be less
than the greatest of (A) 7 percentum (or such other percentum as may be
made applicable to DWR at the time of such Prepayment by the Examining
Authority) of the funds required to be segregated pursuant to the CEA and
CFTC Regulations and the foreign futures or foreign options secured amount,
exclusive of the market value of commodity options purchased by option
customers on or subject to the rules of
15
<PAGE>
a contract market or a foreign board of trade (provided the deduction for
each option customer shall be limited to the amount of customer funds in
each option customer's account(s) and foreign futures and foreign options
secured amounts), plus an amount equal to the guaranty deposits with
clearing organizations other than the CBOT, which were included in current
assets under Section 211 of the CBOT "Capital Requirements for Member
FCM's", to the extent such deposits cannot be used for margin purposes, (B)
such amount as may be made applicable to DWR by an Examining Authority
under Rule 15c3-1(b)(7) or (C) $2,000,000 (or such other amount as required
by the CEA or CFTC Regulations), or
(iv) DWR's net capital as defined in the Rule or any successor rule as
in effect at the time of such Prepayment, would be less than 120 percentum
(or such other percentum as may be made applicable to DWR at the time of
such Prepayment by the Examining Authority) of the minimum dollar amount
required by the rule as in effect at such time (or such other dollar amount
as may be made applicable to DWR at the time of such Prepayment by the
Examining Authority), plus an amount equal to the guaranty deposits with
clearing organizations other than the CBOT, which were included in current
assets under Section 211 of the CBOT "Capital Requirements for Member
FCM's", to the extent such deposits cannot be used for margin purposes, or
(v) in the event that DWR is registered as a futures commission
merchant under the CEA, its net capital, as defined in the CEA or the
regulations thereunder, as in effect at the time of such Prepayment would
be less than 120 percentum (or such other percentum as may be made
applicable to DWR at the time of such Prepayment by the Examining
Authority) of the minimum dollar amount required by the CEA or the
regulations thereunder as in effect at such time or such other dollar
amount as may be made applicable to DWR at the time of such Prepayment by
the Examining Authority, plus an amount equal to the guaranty deposits with
clearing organizations other than the CBOT, which were included in current
assets under Section 211 of the CBOT "Capital Requirements for Member
FCM's", to the extent such deposits cannot be used for margin purposes, or
(vi) in the event that DWR is subject to the provision of paragraph
(a)(6)(v) or (a)(7)(iv) or (c)(2)(x)(B)(1) of the Rule, the net capital of
DWR would be less than the amount required to satisfy the 1,000 percentum
test (or such other percentum test as may be made applicable to DWR at the
time of such Prepayment by the Examining Authority) stated in such
applicable paragraph, plus an amount equal to the guaranty deposits with
clearing organizations other than the CBOT which were included in current
assets under Section 211 of the CBOT "Capital Requirements for Member
FCM's," to the extent such deposits cannot be used for margin purposes.
If Prepayment is made of all or any part of the Payment Obligation before
the date payment is due and if DWR's net capital is less than the amount
required to permit such Prepayment pursuant to the foregoing provisions of this
paragraph, the Participant agrees
16
<PAGE>
irrevocable (whether or not such Participant had any knowledge or notice of such
fact at the time of such Prepayment) to repay DWR, its successors or assigns,
the sum so paid to be held by DWR pursuant to the provisions hereof as if such
Prepayment had never been made; provided, however, that any suit for the
recovery of any such Prepayment must be commenced within two years of the date
of such Prepayment. DWR reserves the right to withhold from the Participant's
compensation the amount of any Payment Obligation which a Participant fails to
repay as required herein.
5. Special Prepayment
------------------
DWR, at its option and as permitted by the Plan, but not at the option of
the Participant, may make a payment of all or any portion of the Payment
Obligation hereunder sooner than one year from the date on which such amount
became subject to this agreement (a "Special Prepayment"), if the written
consent of the appropriate regulatory authority is first obtained. If DWR shall
be a futures commission merchant, as that term is defined in the CEA and CFTC
Regulations, no such prepayment shall be made if:
(i) after giving effect thereto (and to all payments of payment
obligations under any other Subordination Agreements then outstanding, the
maturities or accelerated maturities of which are scheduled to fall due
within six months after the date such Special Prepayment is to occur
pursuant to this provision or on or prior to the date on which the Payment
Obligation with respect to such Special Prepayment is scheduled to mature
disregarding this provision whichever date is earlier) without reference to
any projected profit or loss of DWR the net capital of DWR is less than the
greatest of (A) 10 percentum of the funds required to be segregated
pursuant to the CEA and CFTC Regulations and the foreign futures or foreign
options secured amount, exclusive of the market value of commodity options
purchased by option customers of DWR on or subject to the rules of a
contract market or a foreign board of trade (provided the deduction for
each option customer shall be limited to the amount of customer funds in
such option customer's account(s) and foreign futures and foreign options
secured amount), plus an amount equal to the guaranty deposits with
clearing organizations, other than the CBOT, which were included in current
assets under Section 211, (B) if DWR is a securities broker or dealer, the
amount of net capital specified in Rule 15c3-1d(c)(5)(ii) of the
regulations of the Securities and Exchange Commission (17 C.F.R. 240.15c3-
1d(c)5(ii), or (C) $2,000,000 (or such other amount as required by the CEA
or CFTC Regulations), or
(ii) Pretax losses during the latest three month period were greater than
15% of current excess adjusted net capital.
6. Maturity Upon Certain Events
----------------------------
Notwithstanding the provisions of Section 3 hereof, the Payment Obligation
shall (to the extent not already matured) forthwith mature, together with all
other Subordination Agreements then outstanding, in the event of any
receivership, insolvency, liquidation pursuant to SIPA or
17
<PAGE>
otherwise, bankruptcy, assignment for the benefit of creditors, reorganization
whether or not pursuant to bankruptcy laws, or any other marshaling of the
assets and liabilities of DWR.
7. Miscellaneous Provisions
------------------------
(a) Participants may not rely upon any commodity exchange or securities
exchange to provide any information concerning or relating to DWR. Such
exchanges have no responsibility to disclose to the Participant any
information concerning or relating to DWR which they may have now or at any
future time. The Participant agrees that the New York Stock Exchange (the
"NYSE"), its Special Trust Fund or any director, officer, trustee or employee
of the NYSE or said Trust Fund or any other exchange or director, officer,
trustee or employee thereof shall not be liable to the Participant with
respect to the Plan or any distribution pursuant thereto.
(b) The funds represented by the Payment Obligations shall be dealt with
in all respects as capital of DWR, shall be subject to the risks of the
business and may be deposited in an account or accounts in DWR's name in any
bank or trust company.
(c) Payment Obligations under the Plan may not be transferred, sold,
assigned, pledged or otherwise encumbered or disposed of and no lien, charge
or other encumbrance may be created or permitted to be created hereon, without
the prior written consent of the Examining Authority.
(d) If DWR is a futures commission merchant as that term is defined in
the CEA, DWR agrees, consistent with the requirements of Section 1.17(h) of
the CFTC Regulations that whenever prior written notice by DWR to the
Examining Authority is required pursuant to the provisions of this agreement,
the same prior written notice shall be given by DWR to (1) the CFTC at its
principal office in Washington, D.C., Attention Chief Accountant of Division
of Trading and Markets, and/or (2) the commodity exchanges of which the
Corporation is a member and which are then designated by the CFTC as DWR's
designated self-regulatory organizations as defined in Section 1.3(ff) of the
CFTC Regulations (the "DSROs").
(e) "Subordination Agreement" as used herein shall include any
subordinated loan agreement and any secured demand note agreement constituting
a satisfactory subordination agreement under the Rule under which DWR is the
borrower or the pledgee of collateral, and reference herein to the payment of
a subordinated obligation of DWR shall be deemed to include the return to the
maker-pledgor of any secured demand note and the collateral therefor held by
DWR.
(f) The term "Examining Authority" shall refer to the regulatory body,
specified in paragraph (c)(12) of the Rule, responsible for inspecting or
examining DWR for compliance with financial responsibility requirements. If
DWR is and continues to be a member of the NYSE, the references herein to the
Examining Authority shall be deemed to refer to the NYSE. If DWR is and
continues to be a futures commission merchant as that term is defined in the
CEA and regulations thereunder, references to the Examining Authority shall
also be deemed to refer to the CFTC and DWR's DSROs.
18
<PAGE>
(g) The provisions of this Appendix A shall be binding upon and inure to
the benefit of DWR, its successors and assigns and the Participant and the
Participant's heirs, executors and administrators.
(h) Any controversy arising out of or relating to this Plan shall be
submitted to and settled by arbitration pursuant to the Constitution and Rules
of the NYSE, DWR and Participant shall be conclusively bound by such
arbitration.
(i) DWR shall not modify, amend or cancel this Appendix or any provision
of the Plan governing the Payment Obligations that are the subject of the
Appendix without the prior approval of the Examining Authority.
(j) This agreement shall be deemed to have been made under and shall be
governed by the laws of the State of New York.
19
<PAGE>
Exhibit 11
Morgan Stanley Dean Witter & Co.
Computation of Earnings Per Share
(In millions, except share data)
[CAPTION] <TABLE>
Three Months Ended
----------------------------------------------------
February 29 February 28
2000 1999
---------------- -----------------
Basic:
Weighted-average shares outstanding 1,093,904,751 1,107,871,156
================= =================
<S> <C> <S>
Earnings:
Net Income $1,544 $1,037
Less: Preferred stock dividend
requirements (9) (11)
------------------ -----------------
Earnings applicable to common shares $1,535 $1,026
================== =================
Basic earnings per share $1.40 $0.93
================== =================
Diluted:
Weighted-average shares outstanding 1,093,904,751 1,107,871,156
Average common shares issuable
under employee benefit plans 45,094,720 37,719,010
Average common shares issuable upon
conversion of ESOP preferred stock 7,854,565 23,596,146
------------------ ----------------
Total weighted-average diluted shares 1,146,854,036 1,169,186,312
================== ================
Earnings:
Net Income $1,544 $1,037
Less: Preferred stock dividend
requirements (9) (9)
------------------- --------------
Earnings applicable to common shares $1,535 $1,028
=================== ==============
Diluted earnings per share $1.34 $0.88
=================== ==============
</TABLE>
<PAGE>
EXHIBIT 12
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
(Dollars in millions)
Three Months Ended
----------------------------------------
February 29, February 28,
2000 1999
------------------- ----------------
Ratio of Earnings to Fixed Charges
Earnings:
Income before income taxes(1) $ 2,432 $ 1,672
Add: Fixed charges, net 4,013 3,189
------- -------
Income before income taxes and
fixed charges, net $ 6,445 $ 4,861
======= =======
Fixed charges:
Total interest expense $ 3,980 $ 3,160
Interest factor in rents 33 29
------- -------
Total fixed charges $ 4,013 $ 3,189
======= =======
Ratio of earnings to fixed charges 1.6 1.5
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
Earnings:
Income before income taxes(1) $ 2,432 $ 1,672
Add: Fixed charges, net 4,013 3,189
------- -------
Income before income taxes and
fixed charges, net $ 6,445 $ 4,861
======= =======
Fixed charges:
Total interest expense $ 3,980 $ 3,160
Interest factor in rents 33 29
Preferred stock dividends 14 18
------- -------
Total fixed charges and preferred
stock dividends $ 4,027 $ 3,207
======= =======
Ratio of earnings to fixed charges and
preferred stock dividends 1.6 1.5
Fiscal Year
---------------------------
1999 1998 1997
------- ------- -------
Ratio of Earnings to Fixed Charges
Earnings:
Income before income taxes(1) $ 7,728 $ 5,385 $ 4,274
Add: Fixed charges, net 12,725 13,614 10,898
------- ------- -------
Income before income taxes and
fixed charges, net $20,453 $18,999 $15,172
======= ======= =======
Fixed charges:
Total interest expense $12,616 $13,514 $10,806
Interest factor in rents 109 100 92
------- ------- -------
Total fixed charges $12,725 $13,614 $10,898
======= ======= =======
Ratio of earnings to fixed charges 1.6 1.4 1.4
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
Earnings:
Income before income taxes(1) $ 7,728 $ 5,385 $ 4,274
Add: Fixed charges, net 12,725 13,614 10,898
------- ------- -------
Income before income taxes and
fixed charges, net $20,453 $18,999 $15,172
======= ======= =======
Fixed charges:
Total interest expense $12,616 $13,514 $10,806
Interest factor in rents 109 100 92
Preferred stock dividends 72 87 110
------- ------- -------
Total fixed charges and preferred
stock dividends $12,797 $13,701 $11,008
======= ======= =======
Ratio of earnings to fixed charges and
preferred stock dividends 1.6 1.4 1.4
(1)1998 Income before income taxes does not include a cumulative effect of
accounting change.
"Earnings" consist of income before income taxes and fixed charges. "Fixed
charges" consist of interest costs, including interest on deposits, and that
portion of rent expense estimated to be representative of the interest factor.
The preferred stock dividend amounts represent pre-tax earnings required to
cover dividends on preferred stock.
<PAGE>
EXHIBIT 15.1
To the Directors and Shareholders of Morgan Stanley Dean Witter & Co:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial information of Morgan Stanley Dean Witter & Co. and
subsidiaries as of February 29, 2000 and for the three month period ended
February 29, 2000 and 1999, as indicated in our report dated April 10, 2000;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report, which is included in your Quarterly Report on Form
10-Q for the quarter ended February 29, 2000, is incorporated by reference in
the following Registration Statements:
Filed on Form S-3:
Registration Statement No. 33-57202
Registration Statement No. 33-60734
Registration Statement No. 33-89748
Registration Statement No. 33-92172
Registration Statement No. 333-07947
Registration Statement No. 333-22409
Registration Statement No. 333-27881
Registration Statement No. 333-27893
Registration Statement No. 333-27919
Registration Statement No. 333-46403
Registration Statement No. 333-46935
Registration Statement No. 333-76111
Registration Statement No. 333-75289
Registration Statement No. 333-34392
Files on Form S-4:
Registration Statement No. 333-25003
Filed on Form S-8:
Registration Statement No. 33-62374
Registration Statement No. 33-63024
Registration Statement No. 33-63026
Registration Statement No. 33-78038
Registration Statement No. 33-79516
Registration Statement No. 33-82240
Registration Statement No. 33-82242
Registration Statement No. 33-82244
Registration Statement No. 333-04212
Registration Statement No. 333-28141
Registration Statement No. 333-25003
Registration Statement No. 333-28263
Registration Statement No. 333-62869
Registration Statement No. 333-78081
Registration Statement No. 333-95303
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
New York, New York
April 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of financial condition at February 29, 2000
and the condensed consolidated statement of income for the three month period
ended February 29, 2000 and is qualified in its entirety by reference to such
condensed consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 31,374
<RECEIVABLES> 67,458
<SECURITIES-RESALE> 76,121
<SECURITIES-BORROWED> 107,138
<INSTRUMENTS-OWNED> 114,337
<PP&E> 2,231
<TOTAL-ASSETS> 408,072
<SHORT-TERM> 58,864
<PAYABLES> 76,585
<REPOS-SOLD> 106,026
<SECURITIES-LOANED> 36,530
<INSTRUMENTS-SOLD> 67,522
<LONG-TERM> 32,890
0
545
<COMMON> 12
<OTHER-SE> 17,295
<TOTAL-LIABILITY-AND-EQUITY> 408,072
<TRADING-REVENUE> 2,277
<INTEREST-DIVIDENDS> 4,797
<COMMISSIONS> 1,037
<INVESTMENT-BANKING-REVENUES> 1,335
<FEE-REVENUE> 1,640
<INTEREST-EXPENSE> 3,980
<COMPENSATION> 3,408
<INCOME-PRETAX> 2,432
<INCOME-PRE-EXTRAORDINARY> 2,432
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,544
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.34
</TABLE>
