-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SGZ3mt65CXojfRjVkz45OQgLBjnlgkZvfL5k3jBsFrcLH8m7k2wGCVfKKe2zlM0d lxLy3mUJ6mS4HKtS+X98sg== 0000950123-95-002880.txt : 19951013 0000950123-95-002880.hdr.sgml : 19951013 ACCESSION NUMBER: 0000950123-95-002880 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951012 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09085 FILM NUMBER: 95580089 BUSINESS ADDRESS: STREET 1: 1251 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127034000 10-Q 1 FORM 10-Q FOR PERIOD ENDED AUGUST 31, 1995 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended August 31, 1995 Commission file number 1-9085 MORGAN STANLEY GROUP INC. --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2838811 - ---------------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1585 Broadway, New York, New York 10036 - ---------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) 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 September 30, 1995, there were 77,647,391 shares of Common Stock, $1 par value, outstanding. Page 1 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Financial Condition at August 31, 1995 (Unaudited) and January 31, 1995 Condensed Consolidated Statement of Income (Unaudited) for the Three, Six and Seven Months Ended August 31, 1995 and the Three and Six Months Ended July 31, 1994 Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six and Seven Months Ended August 31, 1995 and the Six Months Ended July 31, 1994 Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures
Page 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (IN MILLIONS)
ASSETS August 31, 1995 January 31, (Unaudited) 1995 -------------- ------------- Cash and interest-bearing equivalents $ 4,236 $ 2,510 Cash and securities deposited with clearing organizations or segregated under federal and other regulations (securities at market value of $104 in fiscal 1995 and $1,507 in fiscal 1994) 618 2,116 Financial instruments owned: U.S. government and agency securities 10,008 9,107 Other sovereign government obligations 13,844 12,931 Corporate and other debt 10,128 10,545 Corporate equities 7,980 5,483 Derivative contracts 7,712 8,623 Physical commodities 275 420 Securities purchased under agreements to resell 47,849 35,913 Securities borrowed 21,055 20,042 Receivables: Customers 4,100 4,823 Brokers, dealers and clearing organizations 1,113 1,376 Interest and dividends 1,047 731 Fees and other 506 548 Property, equipment and leasehold improvements, at cost, net of accumulated depreciation and amortization of $425 in fiscal 1995 and $364 in fiscal 1994 1,228 1,061 Other assets 565 465 -------- -------- Total assets $132,264 $116,694 ======== ========
See Notes to Condensed Consolidated Financial Statements. Page 3 4 MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (IN MILLIONS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY August 31, 1995 January 31, (Unaudited) 1995 -------------- -------------- Short-term borrowings $ 6,707 $ 10,273 Financial instruments sold, not yet purchased: U.S. government and agency securities 8,028 6,177 Other sovereign government obligations 9,910 7,251 Corporate and other debt 1,170 1,174 Corporate equities 1,917 3,006 Derivative contracts 6,835 7,322 Physical commodities 299 377 Securities sold under agreements to repurchase 62,322 50,123 Securities loaned 5,983 2,860 Payables: Customers 10,491 11,588 Brokers, dealers and clearing organizations 1,653 953 Interest and dividends 773 825 Other liabilities and accrued expenses 523 458 Accrued compensation and benefits 966 938 Long-term borrowings 9,111 8,462 --------- --------- 126,688 111,787 --------- --------- Capital units 696 352 --------- --------- Commitments and contingences Stockholders'equity: Preferred stock 818 819 Common stock, $1.00 par value; authorized 300,000,000 shares; issued 80,961,538 shares in fiscal 1995 and 79,774,278 shares in fiscal 1994 81 80 Paid-in capital 639 706 Retained earnings 3,667 3,338 Cumulative translation adjustments (6) (10) --------- --------- Subtotal 5,199 4,933 Less: Note receivable related to sale of preferred stock to ESOP 100 100 Common stock held in treasury, at cost (3,404,258 shares in fiscal 1995 and 4,477,495 shares in fiscal 1994) 219 278 --------- --------- Total stockholders' equity 4,880 4,555 --------- --------- Total liabilities and stockholders' equity $ 132,264 $ 116,694 ========= =========
See Notes to Condensed Consolidated Financial Statements. Page 4 5 MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN MILLIONS, EXCEPT SHARE DATA)
Seven Months Three Months Ended Six Months Ended Ended August 31, July 31, August 31, July 31, August 31, 1995 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- Revenues: Investment banking $ 355 $ 211 $ 628 $ 471 $ 708 Principal transactions: Trading 352 300 790 558 904 Investments 69 23 63 33 63 Commissions 130 112 261 231 298 Interest and dividends 1,899 1,525 3,641 3,086 4,229 Asset management and administration 96 89 184 170 215 Other 1 2 2 5 3 ----------- ----------- ----------- ----------- ----------- Total revenues 2,902 2,262 5,569 4,554 6,420 Interest expense 1,751 1,349 3,407 2,753 3,965 ----------- ----------- ----------- ----------- ----------- Net revenues 1,151 913 2,162 1,801 2,455 ----------- ----------- ----------- ----------- ----------- Expenses excluding interest: Compensation and benefits 575 460 1,050 900 1,188 Occupancy and equipment 84 74 164 142 191 Brokerage, clearing and exchange fees 64 59 130 117 150 Communications 31 28 65 57 76 Business development 30 41 64 80 78 Professional services 37 39 77 80 91 Other 32 30 63 59 74 ----------- ----------- ----------- ----------- ----------- Total expenses excluding interest 853 731 1,613 1,435 1,848 ----------- ----------- ----------- ----------- ----------- Income before income taxes 298 182 549 366 607 Provision for income taxes 89 61 174 128 194 ----------- ----------- ----------- ----------- ----------- Net income $ 209 $ 121 $ 375 $ 238 $ 413 =========== =========== =========== =========== =========== Earnings applicable to common shares (1) $ 192 $ 104 $ 342 $ 205 $ 375 =========== =========== =========== =========== =========== Average common and common equivalent shares outstanding (1) 78,618,459 79,605,505 78,402,692 79,741,366 78,077,863 =========== =========== =========== =========== =========== Primary earnings per share $ 2.45 $ 1.31 $ 4.36 $ 2.58 $ 4.80 =========== =========== =========== =========== =========== Fully diluted earnings per share $ 2.34 $ 1.26 $ 4.16 $ 2.48 $ 4.57 =========== =========== =========== =========== ===========
(1) Amounts shown are used to calculate primary earnings per share. See Notes to Condensed Consolidated Financial Statements. Page 5 6 MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
Seven Months Six Months Ended Ended August 31, July 31, August 31, 1995 1994 1995 ------------ ----------- ------------- Cash flows from operating activities: Net income $ 375 $ 238 $ 413 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash charges included in net income 58 35 79 Changes in assets and liabilities: Cash and securities deposited with clearing organizations or segregated under federal and other regulations 1,537 (1,466) 1,498 Financial instruments owned, net of financial instruments sold, not yet purchased 1,525 3,067 14 Securities borrowed, net of securities loaned 2,212 468 2,110 Receivables and other assets 2,053 (307) 645 Payables and other liabilities 605 4,291 (356) ------- ------- ------- Net cash provided by operating activities 8,365 6,326 4,403 Cash flows from investing activities: Net payments for: Property, equipment and leasehold improvements (216) (233) (241) ------- ------- ------- Net cash used for investing activities (216) (233) (241) Cash flows from financing activities: Net (payments) proceeds related to short-term (4,396) 694 (3,566) borrowings Securities sold under agreements to repurchase, net of securities purchased under agreements to resell (2,194) (5,136) 263 Proceeds from: Issuance of common stock 56 12 56 Issuance of long-term borrowings 1,365 1,453 1,750 Issuance of Capital units 212 230 344 Payments for: Repurchases of common stock (70) (168) (70) Repayments of long-term borrowings (1,102) (487) (1,129) Cash dividends (79) (76) (84) ------- ------- ------- Net cash used for financing activities (6,208) (3,478) (2,436) ------- ------- ------- Net increase in cash and interest-bearing equivalents 1,941 2,615 1,726 Cash and interest-bearing equivalents, at beginning of period 2,295 1,925 2,510 ------- ------- ------- Cash and interest-bearing equivalents, at end of period $ 4,236 $ 4,540 $ 4,236 ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. Page 6 7 MORGAN STANLEY GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation In February 1995, the Board of Directors approved a change in the Company's fiscal year-end from January 31 to November 30. The change became effective for the current fiscal year, and this report includes the results for the quarter and six months ended August 31, 1995 as well as the seven months ended August 31, 1995. The prior year quarter ended July 31, 1994 was reported on the basis of the January 31 fiscal year-end. For the seven-month period ended August 31, 1994, the Company recorded pre-tax profit and net income of $394 million and $258 million, respectively, reflecting gross and net revenues of $5,316 million and $2,050 million, respectively. The Company's Consolidated Statement of Cash Flows for the seven months ended August 31, 1994 reflects cash used for operating activities of $4,190 million, cash used for investing activities of $259 million, and cash provided by financing activities of $5,045 million. The information furnished in this quarterly report has been prepared pursuant to the Securities and Exchange Commission's rules and regulations. 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 and should be read in connection with the Annual Report for the fiscal year ended January 31, 1995 on Form 10-K (file no. 1-9085)("Form 10-K"). The nature of the business of Morgan Stanley Group Inc. and its domestic and foreign subsidiaries (collectively, the "Company") is such that the results of any interim period may not be indicative of the results for the full year. Prior period financial statements have been reclassified, where appropriate, to conform to the fiscal 1995 presentation. 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 revenue and expense arising from financial instruments used in trading activities are reflected in the Condensed Consolidated Statement of Income as interest income or expense. The fair values of the trading positions are generally 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 derivatives contracts are derived from pricing models which consider current market and contractual prices for the underlying securities or commodities, as well as time value and yield curve or volatility factors underlying the positions. Purchases and 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 Statement of Financial Condition net-by-counterparty in cases where there is a legal right of set-off and the Company has obtained an enforceable netting agreement, which is consistent with Financial Accounting Standards Board ("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts". Reverse repurchase and repurchase agreements are presented net-by-counterparty where net presentation is permitted by FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." The Company also enters into various financial instrument related derivative contracts, such as interest rate swaps, currency swaps and forward contracts, as an end user to manage the interest rate and currency exposure arising from certain borrowings. Net revenues from derivatives used in the Company's own asset and liability management are recognized ratably over the term of the contract as an adjustment to interest expense. Page 7 8 Equity securities purchased in connection with merchant banking and other principal investment activities are initially carried in the Condensed Consolidated Financial Statements at their original cost; the carrying value of such investments is adjusted upward only when changes in the underlying fair values are readily ascertainable, generally as evidenced by substantial transactions occurring in the marketplace which directly affect their value. 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. Loans made in connection with such activities are carried at unpaid principal balances less any reserves for estimated losses. At August 31, 1995, there were no such loans outstanding. Included in the Company's Consolidated Statement of Financial Condition at August 31, 1995 and January 31, 1995 are Capital Units issued by the Company and Morgan Stanley Finance plc., a U.K. subsidiary ("MS plc"). A Capital Unit consists of (a) a Subordinated Debenture of MS plc guaranteed by the Company, and (b) a related Purchase Contract issued by the Company requiring the holder to purchase one Depository Share representing ownership of a 1/8 interest in the Company's Cumulative Preferred Stock. Earnings per share is based on the weighted average number of common shares and share equivalents outstanding and gives effect to preferred stock dividend requirements. 2. Long-Term Borrowings Long-term borrowings at August 31, 1995, scheduled to mature within one year aggregate $1,573 million. During the seven month period ended August 31, 1995, the Company issued senior notes and subordinated debt aggregating $2,074 million, including non-U.S. dollar currency notes aggregating $575 million, primarily pursuant to its public debt shelf registration statements. The weighted average coupon interest rate of these notes at August 31, 1995 was 6.9%; the Company has entered into certain transactions to obtain floating interest rates based on either short-term LIBOR or repurchase agreement rates for Treasury securities. Maturities in the aggregate for the fiscal years ending November 30 are as follows: 1996, $36 million; 1997, $731 million; 1998, $798 million; 2000, $59 million; and thereafter, $450 million. As of August 31, 1995, the aggregate outstanding principal amount of the Company's Senior Indebtedness (as defined in the aforementioned registration statements) was approximately $13.7 billion. From August 31, 1995 to September 30, 1995, additional senior notes aggregating $107 million were issued primarily pursuant to the Company's public debt shelf registration statements. These notes have maturities from 1996 to 2002. Page 8 9 3. Commitments and Contingencies 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 its trading activities and in managing its interest rate exposure. The Company also uses forward and option contracts, futures and swaps in its foreign currency and commodity trading activities; these financial 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 at specific terms at specified future dates. Many of these products have maturities that do not extend beyond one year; 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", included in the Form 10-K. These 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 securities underlying the instruments ultimately may result in cash settlements which exceed the amounts recognized in the Condensed Consolidated Statement 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 at any point in time is represented by the fair value of the derivative contracts reported as assets. These amounts are presented net-by-counterparty in cases where there is a legal right of set-off and the Company has obtained an enforceable netting agreement, 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. The credit quality of the Company's trading-related derivatives at August 31, 1995 and January 31, 1995 is summarized in the tables below, showing the fair value of the related assets by counterparty credit rating. The actual credit ratings are determined by external rating agencies or by equivalent ratings used by the Company's Credit Department: Page 9 10 August 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------- Collater- alized Other Non- Non- Invest- Invest- ment ment (Dollars in millions) AAA AA A BBB Grade Grade Total - ----------------------------------------------------------------------------------------------------------------------------- Interest rate and currency swaps and options (including caps, floors and swap options) $ 491 $1,307 $ 927 $ 259 $ 191 $ 213 $3,388 Foreign exchange forward contracts and options 536 884 677 71 -- 37 2,205 Mortgage-backed securities forward contracts, swaps and options 1 5 22 10 -- 5 43 Other fixed income securities contracts (including options) 85 19 68 12 1 21 206 Equity securities contracts (including equity swaps, warrants and options) 471 61 150 85 448 30 1,245 Commodity forwards, options and swaps 81 117 127 165 -- 135 625 ------ ------ ------ ------ ------ ------ ------ Total $1,665 $2,393 $1,971 $ 602 $ 640 $ 441 $7,712 ====== ====== ====== ====== ====== ====== ====== Percent of total 22% 31% 25% 8% 8% 6% 100% ====== ====== ====== ====== ====== ====== ======
Page 10 11 January 31, 1995
- ------------------------------------------------------------------------------------------------------------------------- Collater- alized Other Non- Non- Invest- Invest- ment ment (Dollars in millions) AAA AA A BBB Grade Grade Total - ------------------------------------------------------------------------------------------------------------------------- Interest rate and currency swaps and options (including caps, floors and swap options) $ 723 $1,617 $ 965 $ 182 $ 294 $ 78 $3,859 Foreign exchange forward contracts and options 409 345 251 76 -- 46 1,127 Mortgage-backed securities forward contracts, swaps and options 14 69 75 28 -- 22 208 Other fixed income securities contracts (including options) 302 26 42 26 -- 19 415 Equity securities contracts (including equity swaps, warrants and options) 379 188 217 188 145 18 1,135 Commodity forwards, options and swaps 300 216 667 490 -- 206 1,879 ------ ------ ------ ------ ------ ------ ------ Total $2,127 $2,461 $2,217 $ 990 $ 439 $ 389 $8,623 ====== ====== ====== ====== ====== ====== ====== Percent of total 25% 29% 26% 11% 5% 4% 100% ====== ====== ====== ====== ====== ====== ======
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 merchant banking activities, often involve substantial amounts and significant exposure to individual issuers and businesses, including non-investment grade issuers. The Company seeks to limit concentrations of credit 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 "Business -- Risk Management" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" in the Form 10-K for discussions of the Company's risk management policies and procedures. The Company had approximately $2,212 million of letters of credit outstanding at August 31, 1995 to satisfy various collateral requirements. Page 11 12 The Company and its subsidiaries have been named as defendants in certain legal actions and have been involved in certain investigations and proceedings in the ordinary course of business. It is the opinion of management, based on current knowledge and after consultation with counsel, that the outcome of such matters will not have a material adverse effect on the Company's Condensed Consolidated Financial Statements contained herein. 4. Preferred Stock Preferred stock is composed of the following issues. Each issue of preferred stock ranks in parity with all other preferred stock.
Shares Outstanding at Balance at ------------------------------ ----------------------------- August 31, January 31, August 31, January 31, 1995 1995 1995 1995 -------------- -------------- ------------- ------------- (in millions) ESOP Convertible Preferred Stock, liquidation preference $35.88 3,768,844 3,795,588 $ 135 $ 136 9.36% Cumulative Preferred Stock, stated value $25 5,500,000 5,500,000 138 138 7-3/8% Cumulative Preferred Stock, stated value $200 1,000,000 1,000,000 200 200 8.88% Cumulative Preferred Stock, stated value $200 975,000 975,000 195 195 8-3/4% Cumulative Preferred Stock, stated value $200 750,000 750,000 150 150 ---------- ---------- Total $ 818 $ 819 ========== ==========
5. Stockholders' Equity Morgan Stanley & Co. Incorporated ("MS & Co.") is a registered broker-dealer and a registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the Securities and Exchange Commission, the New York Stock Exchange and the Commodities Futures Trading Commission. MS&Co. has consistently operated in excess of these requirements with aggregate net capital, as defined, totaling $904 million at August 31, 1995, which exceeded the amount required by $726 million. Morgan Stanley & Co. International Limited ("MSIL"), a London-based broker-dealer subsidiary, is subject to capital requirements of the Securities and Futures Authority, and Morgan Stanley Japan Limited ("MSJL"), another broker-dealer subsidiary, is subject to capital requirements of the Japanese Ministry of Finance. MSIL and MSJL have consistently operated in excess of their respective capital requirements. 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 applicable local capital adequacy requirements. Page 12 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's 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 any certainty, including variations in the fair value of securities and other financial products, the volatility and liquidity of trading markets, and the level of market activity. As a result, net income and revenues in any particular period may not be representative of full-year results and may vary significantly from year to year and from quarter to quarter. 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 national and international nature, including economic and market conditions; the availability of capital; the level and volatility of interest rates; currency values and other market indices; and the availability of credit, inflation, and legislative and regulatory developments, as well as the size, number and timing of transactions or assignments (including realization of returns from the Company's merchant banking investments). The Company's results of operations also may be materially affected by competitive factors, including new entrants into the Company's traditional business activities, and its ability to attract and retain highly skilled individuals. After experiencing an industry-wide setback in 1994, the global securities industry has encountered improved conditions so far in 1995. Investor concerns regarding inflation subsided, and a favorable interest rate environment contributed towards increased activity and trading volumes in the bond and stock markets. In addition, major currencies in the global foreign exchange markets experienced periods of higher volatility. During fiscal 1994, despite particularly weak financial markets, the Company made significant strategic investments in human and technological resources to improve its long-term global competitive position. The Company continues to believe that these strategic investments will enhance its ability to provide value-added service to suppliers and users of capital in the global marketplace. In addition, the Company's ongoing progress in cost control, risk management and other factors that impact profitability will be an important factor in its ability to achieve acceptable return-on-equity levels and thus will be a significant measure of the overall success of the Company's strategy. Accordingly, the Company has implemented certain cost control initiatives which have reduced discretionary non-compensation costs during 1995. In addition, the Company continues to expect headcount levels to remain stable throughout fiscal 1995. For a description of the Company's business, including its trading in cash instruments and derivative products, its merchant banking activities, and its high-yield underwriting and trading policies, and their respective risks, and the Company's risk management policies and procedures, see Part I, Item I, of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995 ("Form 10-K"). In February 1995, the Board of Directors approved a change in the Company's fiscal year-end from January 31 to November 30, effective for the current fiscal year. The discussions that follow compare the results of operations for the three months ended August 31, 1995 to the second quarter of fiscal 1994 (May 1, 1994 to July 31, 1994), as well as the six months ended August 31, 1995 to the six months ended July 31, 1994. For the seven-month period ended August 31, 1995, the Company recorded pre-tax profit and net income of $607 million and $413 million, respectively, reflecting gross and net revenues of $6,420 million and $2,455 million, respectively. Results for the comparable seven-month period ended August 31, 1994 were pre-tax profit and net income of $394 million and $258 million, respectively, reflecting gross and net revenues of $5,316 million and $2,050 million, respectively. Page 13 14 Three Months Ended August 31, 1995 Compared with Second Quarter Ended July 31, 1994 (Amounts for the second quarter of fiscal 1994 are given in parentheses). Revenues net of interest expense (net revenues) were $1,151 million ($913 million) and net income totaled $209 million ($121 million), an increase of 73%, primarily reflecting increased principal transaction trading and investment revenues and investment banking revenues, partially offset by higher incentive-based compensation. Investment banking revenues increased to $355 million ($211 million) reflecting among other things significantly increased revenues from merger, acquisition and restructuring assignments as compared to second quarter 1994 levels. Equity underwriting revenues also increased as compared to the second quarter of fiscal 1994, reflecting higher levels of equity financing led by an increase in the technology sector. Primary revenues generated from fixed income derivative products also increased, resulting from the overall higher level of underwriting volume for structured products. These increases were partially offset by a decline in high-yield underwriting revenues. Secondary revenues (combined principal trading, commissions and net interest revenues) increased to $630 million ($588 million). Principal transaction revenues from trading activities, including derivatives, were $352 million, substantially higher than the fiscal 1994 second quarter's result ($300 million). Equity trading revenues rose significantly, reflecting higher revenues from all equity related products, including structured products, options and futures and equity cash products, as trading activity continued at high levels, primarily in the United States and Japan. Fixed income trading revenues generally were positively affected as inflation remained relatively stable throughout the quarter and global bond markets remained strong as the United States reduced interest rates, followed by interest rate reductions in Europe and Japan. The Company's global corporate and emerging market fixed income activities recorded higher levels of revenue as trading volumes for corporates increased from moderate levels and conditions in the emerging markets remained stable. Despite lower industry-wide trading volumes, revenues from foreign exchange increased primarily due to higher volatility in the major currencies, especially the Japanese Yen. These increases in principal transaction revenues were partially offset by a decline in commodities trading revenues, primarily attributable to energy related products. Principal transaction investment gains aggregating $69 million ($23 million) were recognized in the second quarter of fiscal 1995, primarily in connection with the increase in the carrying value of the Company's merchant banking investment in Southern Pacific Rail Corporation ("SPR") resulting from SPR's agreement to be merged into Union Pacific Railroad Corporation. Commission revenues increased to $130 million ($112 million), principally reflecting increased customer activity and trading volumes in the global markets for over-the-counter and listed equity securities, particularly the United States and Japan. Page 14 15 Interest and dividend revenues and expense are a function of the level and mix of total assets, including financial instruments owned and resale and repurchase agreements, and the prevailing level, term structure and volatility of interest rates. Net interest and dividend revenues declined to $148 million ($176 million), primarily resulting from the continued flattening of the U.S. yield curve. The resulting decline in interest rate spreads adversely affected the profitability of the Company's spread-sensitive businesses, and the flatter yield curve substantially reduced the savings from the Company's use of swaps to effectively convert much of its fixed rate debt to floating rate debt. Interest and dividend revenues rose to $1,899 million ($1,525 million), and interest and dividend expense increased to $1,751 million ($1,349 million), principally reflecting growth in interest-bearing assets and liabilities. Interest and dividend revenues and expense should be viewed in the broader context of principal trading and investment banking results. 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, the interest income or expense associated with financing or hedging the Company's positions, and potential underwriting, commission or other revenues associated with related primary or secondary market sales. Asset management and administration revenues, which include fees for asset management and non-interest revenues earned from correspondent clearing and custody services, increased to $96 million ($89 million), reflecting continued growth in both asset management activities and global clearing and custody services resulting from the Company's continuing strategic emphasis on these businesses. Customer assets under management increased to $52 billion ($48 billion) primarily resulting from appreciation in the value of customer portfolios, as well as inflows of new assets. Customer assets under administration increased to $109 billion ($84 billion), primarily reflecting additional assets placed under custody with the Company, as well as appreciation in the value of customer portfolios. On June 29, 1995, the Company announced that it had signed a definitive agreement to purchase Miller Anderson & Sherrerd, LLP, an institutional investment manager with $33 billion in assets under management. The purchase price is approximately $350 million, payable in a combination of cash, notes and stock of the Company. The current pro forma combination of Miller Anderson & Sherrerd with the Company's asset management business will increase the Company's assets under management to approximately $85 billion. The transaction is subject to certain customary conditions and is expected to close by the end of the 1995 fiscal year. Total expenses excluding interest increased to $853 million ($731 million). Within that total, compensation and benefits expense increased $115 million to $575 million ($460 million), principally reflecting increased levels of incentive compensation based on higher revenues and earnings, as well as salaries and benefits relating to employees hired in the latter half of fiscal 1994. Non-compensation expenses, excluding brokerage, clearing and exchange fees, increased $2 million to $214 million. Brokerage, clearing and exchange fees increased $5 million to $64 million, reflecting increased trading volumes and the continued international growth of the Company's sales and trading activities. Business development and professional services expenses decreased $13 million, primarily reflecting lower travel and entertainment costs, consulting costs and employment agency fees attributable to the Company's cost control initiatives. Occupancy and equipment expense increased $10 million, reflecting incremental space costs related to growth in the number of employees and global expansion, as well as increased spending for information technology equipment. Six Months Ended August 31, 1995 Compared with Six Months Ended July 31, 1994 (Amounts for the first six months of fiscal 1994 are given in parentheses). Revenues net of interest expense (net revenues) were $2,162 million ($1,801 million), and net income totaled $375 million ($238 million), reflecting increased trading and investment banking revenues partially offset by higher incentive-based compensation. Page 15 16 Investment banking revenues increased to $628 million ($471 million) reflecting significantly higher revenues from merger, acquisition and restructuring assignments. Revenues from fixed income debt underwriting increased (including primary revenues from fixed income derivative products), partially offset by a decline in equity and high-yield underwriting revenues. Secondary revenues (combined principal trading, commissions and net interest revenues) increased to $1,285 million ($1,122 million). Principal transaction revenues from trading activities were $790 million ($558 million), reflecting substantially higher revenues from trading in fixed income and equity products, including derivative related products. Foreign exchange trading revenues also increased, partially offset by decreased revenues from commodities trading. Principal transaction investment revenues aggregating $63 million were recognized during the six-month 1995 period, primarily reflecting revenues related to the increase in carrying value of the Company's merchant banking investment in SPR. Commission revenues increased to $261 million ($231 million), principally reflecting increased customer activity in the global markets for equity securities. Note that customer activity results in principal trading and net interest revenues as well as commissions. Net interest and dividend revenues were $234 million ($333 million). Interest and dividend revenues rose to $3,641 million ($3,086 million) and interest expense increased to $3,407 million ($2,753 million). As noted in the quarter to quarter comparison of net interest, interest and dividend revenues and expense reflect principal trading strategies and should be viewed in the broader context of principal trading and investment banking results. Asset management and administration revenues increased to $184 million ($170 million), reflecting increased revenues from both correspondent clearing and custody services and asset management activities, as well as continued growth in customer assets under management and administration. Total non-interest expenses increased to $1,613 million ($1,435 million). Within that total, employee compensation and benefits expense increased to $1,050 million ($900 million), principally reflecting increased levels of incentive compensation based on higher revenues and earnings, as well as salaries and benefits relating to employees hired in the latter half of fiscal 1994. Other non-interest expenses increased to $563 million ($535 million). Business development and professional services expenses decreased $19 million, primarily reflecting lower travel and entertainment and consulting costs attributable to the Company's cost control initiatives. Occupancy and equipment expense increased $22 million, reflecting incremental space costs related to growth in the number of employees and global expansion, as well as significantly greater spending for information technology equipment. Brokerage, clearing and exchange fees increased $13 million reflecting increased trading volumes, business mix changes and the growing international component of the Company's sales and trading activities. Page 16 17 Liquidity and Capital Resources The Company's total assets increased from $116.7 billion at January 31, 1995 to $132.3 billion at August 31, 1995, reflecting growth in resale agreements and financial instruments owned. 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. Balance sheet leverage ratios are reviewed by counterparties and creditors in order to evaluate a securities firm's overall financial risk. Details of ending assets, average assets and leverage ratios for the seven months ended August 31, 1995 and for fiscal 1994 are as follows:
Average Assets for the Seven Average Months Assets Assets at Ended Assets at for August 31, August 31, January 31, Fiscal (Dollars in millions) 1995 1995 1995 1994 - ------------------------------- -------------- ------------- ----------- ----------- Cash, deposits and receivables $ 11,620 $ 13,523 $ 12,104 $ 14,299 Financial instruments owned 49,947 50,108 47,109 49,236 Securities purchased under agreements to resell and securities borrowed 68,904 65,517 55,955 64,921 Property, equipment and leasehold improvements and other assets 1,793 1,665 1,526 1,626 -------- -------- -------- -------- Total assets $132,264 $130,813 $116,694 $130,082 ======== ======== ======== ======== Leverage ratios: Total assets/equity 27.1x 27.9x 25.6x 29.0x Net assets (1)/equity 17.3x 18.6x 17.7x 19.4x
(1) Net assets represent total assets less the lower of securities purchased under agreements to resell or securities sold under agreements to repurchase. The Company's Finance and Risk Committee, which includes senior officers from each of the major capital commitment areas, among other things, establishes the overall funding, capital and credit policies of the Company, reviews the Company's performance relative to these policies, allocates capital among business activities of the Company, monitors the availability of sources of financing, and oversees the liquidity and interest rate sensitivity of the Company's asset and liability position. The Company funds its balance sheet on a global basis. The Company's funding needs are satisfied from capital, including equity and long-term debt; medium-term notes; internally generated funds; repurchase agreements; U.S., Canadian, French and Euro commercial paper; German Schuldschein loans; securities lending; buy/sell agreements; municipal re-investments; master notes; deposits; and committed and uncommitted lines of credit. All repurchase transactions and a portion of the Company's bank borrowings are made on a collateralized basis. Page 17 18 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 resale transactions outstanding, the level of the Company's securities inventories 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 to the securities industry. 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 of such financing is dependent on the Company's short-term and long-term debt ratings. In addition, the Company's debt ratings have a significant impact on certain trading revenues, particularly in those businesses where longer term counterparty performance is critical, such as over-the-counter derivatives transactions. The Company's short-term and long-term senior debt ratings as of August 31, 1995 are as follows:
Agency Short-Term Rating Long-Term Rating - ------------------------------------ ------------------------- ---------------------------- Moody's Investor's Services P1 A1 Standard & Poor's A1+ A+ IBCA A1+ AA- Thomson BankWatch TBW1 AA Dominion Bond Rating Service (1) R1 (Middle) n/a
(1) Dominion Bond Rating Service rates the Company's Canadian commercial paper program. On March 28, 1995, Standard & Poor's Corporation ("S&P") affirmed the short-term and long-term ratings of the Company. However, in light of continuing difficult conditions in the industry at that time, S&P revised the long-term rating outlook for six securities firms, including the Company, from stable to negative. Noting the cyclical nature of the industry, S&P indicated that ratings may remain unchanged for individual firms that adjust costs downward while avoiding serious instability in trading results, but may be lowered for individual firms if profitability worsens or if continued market turbulence aggravates trading risk. On May 26, 1995, Dominion Bond Rating Service similarly affirmed the short-term rating of the Company and revised the trend from stable to negative. During the seven month period ended August 31, 1995, the Company issued senior notes and subordinated debt aggregating $2,074 million, including non-U.S. dollar currency notes aggregating $575 million. As of August 31, 1995, the aggregate outstanding principal amount of the Company's Senior Indebtedness (as defined in the Company's public debt shelf registration statements) was approximately $13.7 billion. From August 31, 1995 to September 30, 1995, additional senior notes aggregating $107 million were issued. These notes have maturities from 1996 to 2002. The Company maintains a senior revolving credit facility with a group of banks. Under the terms of the credit agreement, the banks are committed to provide up to $2.5 billion for up to 364 days. Any loans outstanding on the commitment termination date will mature on the first anniversary of the commitment termination date. The Company also maintains a master collateral facility that will enable Morgan Stanley & Co. Incorporated ("MS&Co."), the Company's U.S. broker-dealer subsidiary, to pledge certain collateral to secure loan arrangements, letters of credit and other financial accommodations. As part of this facility, MS&Co. also has in place 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 billion for up to 364 days. Any loans outstanding on the commitment termination date will mature on the first anniversary of the commitment termination date. Page 18 19 The Company also maintains short-term agreements with three non-U.S. banks which commit the banks to provide on a collateralized basis up to deutsche marks ("DM") 250 million (approximately $170 million), French francs ("FRF") 500 million (approximately $99 million) and $100 million (or its equivalent in DM, FRF, Swiss francs, or European Currency Units), respectively. There were no borrowings outstanding under any of the foregoing bank facilities at August 31, 1995; however, the Company anticipates utilizing these facilities for short-term funding from time to time. During the seven month period ended August 31, 1995, the Company repurchased approximately one million shares of its common stock at an aggregate cost of approximately $70 million. The unused portion of the Company's stock repurchase authorization at September 30, 1995 was approximately $246 million. Certain assets of the Company, such as real property, equipment, leasehold improvements, certain equity investments made in connection with the Company's merchant banking and other principal investment activities, high-yield debt securities, emerging market debt, and certain collateralized mortgage obligations and mortgage-related loan products, are not highly liquid. In connection with its merchant banking and other principal investment activities, the Company has equity investments (directly and indirectly through funds managed by the Company) in privately or publicly held companies. As of August 31, 1995, the aggregate carrying value of the Company's equity investments in privately held companies (including direct investments and partnership interests) was $178 million, and its aggregate investment in publicly held companies was $276 million. In its capacity as an underwriter of and a market-maker in mortgage-backed securities, collateralized mortgage obligations and related instruments, and a market-maker in commercial, residential and real estate loan products, the Company carries certain related assets with reduced levels of liquidity. The carrying value of such assets approximated $756 million at August 31, 1995. In addition, at August 31, 1995, the aggregate value of high-yield debt securities and emerging market loans and securitized instruments held in inventory was $1,163 million (a substantial portion of which was subordinated debt) with not more than 5%, 16% and 5% of all such securities, loans and instruments attributable to any one issuer, industry or geographic region, respectively. 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 markets loans and securitized instruments has been, and may in the future continue to be, characterized by periods of illiquidity. The Company has in place credit and other risk policies to control total inventory positions and risk concentrations for non-investment grade securities and emerging market loans and securitized instruments. The Company may, from time to time, also provide financing or financing commitments to companies in connection with its investment banking activities. As of August 31, 1995, there were no such financing loans outstanding, and the Company had one commitment to provide financing totaling approximately $310 million in connection with its high-yield underwriting activities. Subsequent to August 31, 1995, this financing commitment was terminated. Page 19 20 At August 31, 1995, 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 or indices) related to financial instruments and commodities with an aggregate net replacement cost of $7.7 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. It should be noted, however, that 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 the associated cash instruments in a manner consistent with the Company's overall risk management policies and procedures. The Company manages its exposure to derivative products through various means, which include entering into master netting agreements when feasible; monitoring the creditworthiness of counterparties on an ongoing basis and requesting initial and/or additional collateral when deemed necessary; diversifying and limiting exposure to individual counterparties; and limiting the duration of exposure. Page 20 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The following developments have occurred with respect to certain matters previously reported in the Form 10-K and/or the Company's Quarterly Report on Form 10-Q for the period ended May 31, 1995. State of West Virginia v. Morgan Stanley & Co. Incorporated. The Supreme Court of Appeals of West Virginia denied the petitions for rehearing that were filed by the State and by Morgan Stanley & Co. Incorporated ("Morgan Stanley"). On August 21, 1995, Morgan Stanley filed a motion to recuse the Circuit Court judge who had theretofore presided over the litigation. On September 6, 1995, the Supreme Court of Appeals, having been advised that the judge would not voluntarily recuse himself, ordered that the motion be heard by a designated judge in a different judicial district. Taxable Municipal Bond Litigation. A fairness hearing on the proposed settlement was held on July 31, 1995, and the magistrate has filed a report which recommends approval of the settlement; a final decision by the district court has not yet been issued. If the settlement is approved, the various actions in which Morgan Stanley is a defendant will be dismissed, with the exception of the action filed by the Washington National plaintiffs, who have opted out of the proposed settlement. The defendants have filed a motion for summary judgment in the Washington National action. Katell, et al. v. Morgan Stanley Group, Inc., et al. On August 15, 1995, a notice of appeal was filed on behalf of one of the two plaintiffs. The parties thereafter reached an agreement in principle, subject to court approval, to settle this action and a related action captioned Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund II, L.P., et al. Hedged-Investments Litigation. Following a fairness hearing on April 28, 1995, the court entered a final order and judgment approving a settlement of both the Higley action and the competing class action. On June 5, 1995, the court denied a request made by one class member to intervene for purposes of appealing both a court-approved plan for allocation of the settlement proceeds and the final order and judgment. On June 12, 1995, the class member filed a notice of appeal to the Colorado Court of Appeals, appealing the plan of allocation, the final order and judgment, and the order denying intervention. NASDAQ Antitrust Litigation. On August 10, 1995, defendants' motion to dismiss was granted with leave to replead. On August 22, 1995, plaintiffs filed a Refiled Consolidated Complaint which is identical in substance to the dismissed pleading except that it lists by name the stocks that plaintiffs contend were the subject of the alleged conspiracy. ITEM 2. CHANGES IN SECURITIES. In August 1995, the Company and Morgan Stanley Finance plc ("MS plc") issued 7,974,203 8.40% Capital Units in an aggregate amount of $199,355,075 each consisting of (i) a 8.40% Subordinated Debenture of MS plc due August 30, 2015 in the principal amount of $25.00 guaranteed by the Company and (ii) a related Purchase Contract issued by the Company requiring the holder, at the Company's option after August 30, 1996, to purchase one Depositary Share representing ownership of a 1/8 interest in a share of the Company's 8.40% Cumulative Preferred Stock, stated value $200.00 per share. Exhibit 4.1 to this Form 10-Q sets forth the designation, preferences and rights of the 8.40% Cumulative Preferred Stock and the following summary is qualified in its entirety by reference thereto. Page 21 22 The 8.40% Cumulative Preferred Stock, if issued will rank as to payment of dividends and amounts payable on liquidation prior to the Company's Common Stock and on a parity with the Company's ESOP Convertible Preferred Stock, 9.36% Cumulative Preferred Stock, 8.88% Cumulative Preferred Stock, 8-3/4% Cumulative Preferred Stock, 7-3/8% Cumulative Preferred Stock, 9.00% Cumulative Preferred Stock (if issued in connection with the 9.00% Capital Units) 7.82% Cumulative Preferred Stock (if issued in connection with the 7.82% Capital Units) and 7.80% Cumulative Preferred Stock (if issued in connection with the 7.80% Capital Units). The holders of the 8.40% Cumulative Preferred Stock are entitled to receive, when and as declared out of funds legally available therefor, cash dividends payable quarterly at the rate of 8.40% per annum, calculated as a percentage of the stated value. Unless full cumulative dividends on the 8.40% Cumulative Preferred Stock have been paid, dividends (other than in Common Stock) may not be paid or declared or set aside for payment and other distributions may not be made upon the Common Stock or on any other Preferred Stock of the Company ranking junior or on a parity with the 8.40% Cumulative Preferred Stock as to dividends, nor may any Common Stock or such other Preferred Stock of the Company be redeemed, purchased or otherwise acquired by the Company for any consideration or any payment be made to or available for a sinking fund for the redemption of any shares of such stock. In the event of any liquidation, dissolution or winding up of the Company, the holders of shares of 8.40% Cumulative Preferred Stock will be entitled to receive (out of assets of the Company available for distribution to stockholders) liquidating distributions in the amount of $200.00 per share (equivalent to $25.00 per Depositary Share), plus accrued and accumulated but unpaid dividends to the date of final distribution, before any distribution is made to holders of Common Stock or Preferred Stock ranking junior to the 8.40% Cumulative Preferred Stock. Holders of 8.40% Cumulative Preferred Stock will have voting rights only as required by the laws of the State of Delaware or whenever dividends payable on the 8.40% Cumulative Preferred Stock or any other class or series of stock ranking on a parity with the 8.40% Cumulative Preferred Stock with respect to the payment of dividends are in arrears for any aggregate number of days equal to six calendar quarters or more, whether or not consecutive. In this case, each holder of 8.40% Cumulative Preferred Stock will be entitled to one vote for each share of 8.40% Cumulative Preferred Stock held (voting together as a class with all other series of the Company's Preferred Stock upon which like voting rights have been conferred or are exercisable) to elect two directors of the Company at the next annual meeting of stockholders and at each subsequent meeting until such arrears have been paid or set apart for payment. The 8.40% Cumulative Preferred Stock is redeemable in whole or in part at the Company's option on or after August 30, 2000, at a redemption price equal to $200.00 per share (equivalent to $25.00 per Depositary Share), plus accrued and accumulated but unpaid dividends. If full cumulative dividends on the 8.40% Cumulative Preferred Stock have not been paid, the 8.40% Cumulative Preferred Stock may not be redeemed in part and the Company may not purchase or acquire any shares of 8.40% Cumulative Preferred Stock other than pursuant to a purchase or exchange offer made on the same terms to all holders of the 8.40% Cumulative Preferred Stock. Page 22 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Company was held on June 8, 1995. A Proxy Statement, dated April 26, 1995 (the "Proxy Statement"), was distributed by management pursuant to Regulation 14 of the Securities Exchange Act of 1934. The stockholders voted on proposals to approve the election of directors and the ratification of the appointment of independent accountants. All nominees for election to the board were elected to the terms of office set forth in the Proxy Statement. In addition, the vote of the stockholders also resulted in the adoption of the proposal to ratify the appointment of the independent accountants. The number of votes cast for, against or withheld, and the number of abstentions with respect to each proposal is set forth below. There were no broker non-votes in connection with the matters voted upon at the meeting.
% of % of % of Votes Against/ Votes Votes For Cast Withheld Cast Abstain Cast ------------------------------------------------------------------------------- Election of Directors: Nominee: - --------------------------------------- Richard B. Fisher 66,448,053 99.131 582,700 .869 N/A John J. Mack 66,443,550 99.124 587,203 .876 N/A Barton M. Biggs 66,448,966 99.132 581,787 .868 N/A Peter F. Karches 66,424,782 99.096 605,971 .904 N/A Sir David A. Walker 66,444,669 99.126 586,084 .874 N/A Daniel B. Burke 66,449,778 99.133 580,975 .867 N/A Dick Cheney 66,449,055 99.132 581,698 .868 N/A S. Parker Gilbert 66,262,381 98.854 768,372 1.146 N/A Allen E. Murray 66,265,932 98.859 764,821 1.141 N/A Paul F. Oreffice * 66,261,566 98.852 769,187 1.148 N/A Paul J. Rizzo 66,466,624 99.129 584,129 .871 N/A Ratification of Independent Accountants: 66,959,542 99.894 62,618 .093 8,593 .013
- -------------------- * Mr. Oreffice resigned from the Board effective July 21, 1995. Page 23 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 4.1 - Restated Certificate of Incorporation, as amended to date. Exhibit 4.2 - Subordinated Indenture dated as of November 15, 1993 among MS plc, as Issuer, the Company, as Guarantor, and Chemical Bank, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 1, 1993). Exhibit 4.3 - Capital Unit Agreement dated as of August 1, 1995 among the Company, MS plc, Chemical Bank, as Agent and Book-Entry Unit Depositary, and the holders from time to time of the Capital Units (incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated August 1, 1995). Exhibit 4.4 - Form of Certificate of 8.40% Cumulative Preferred Stock (stated value $200.00 per share) related to 8.40% Capital Units (incorporated by reference to Exhibit 4-c to the Company's Registration Statement on Form S-3 (No. 33-57833)). Exhibit 11 - Statement Re: Computation of Earnings per Share. Exhibit 12 - Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Exhibit 27 - Financial Data Schedule.
(b) The Company filed a report on Form 8-K dated June 28, 1995 to report the issuance by the Company of a press release summarizing the financial results of the Company for the three months ended May 31, 1995 and April 30, 1994 and the four months ended May 31, 1995 and announcing the declaration by the Company's Board of Directors of a quarterly cash dividend of 32 cents per common share. The Company filed a report on Form 8-K dated August 1, 1995 to file a Capital Unit Agreement dated as of August 1, 1995 among the Company, MS plc, Chemical Bank as Agent and Book-Entry Unit Depositary, and the holders from time to time of the 8.40% Capital Units, each consisting of (i) a 8.40% Subordinated Debenture of MS plc due August 30, 2015 in the principal amount of $25.00 guaranteed by the Company and (ii) a related Purchase Contract issued by the Company requiring the holder, at the Company's option after August 30, 1996, to purchase one Depositary Share representing ownership of 1/8 interest in a share of the Company's 8.40% Cumulative Preferred Stock, stated value 200.00 per share. The Company filed a report on Form 8-K dated August 22, 1995 to file a Nikkei 225 Index Call Warrant Agreement dated as of August 21, 1995 among the Company, Chemical Bank and Morgan Stanley in connection with Nikkei 225 Index Call Warrants expiring August 15, 1997. Page 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MORGAN STANLEY GROUP INC. Registrant Date: October 12, 1995 /s/ Eileen K. Murray --------------------- Eileen K. Murray Chief Accounting Officer and Controller Date: October 12, 1995 /s/ Jonathan M. Clark ---------------------- Jonathan M. Clark General Counsel and Secretary Page 25 26 INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- Exhibit 4.1 - Restated Certificate of Incorporation, as amended to date. Exhibit 4.2 - Subordinated Indenture dated as of November 15, 1993 among MS plc, as Issuer, the Company, as Guarantor, and Chemical Bank, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 1, 1993). Exhibit 4.3 - Capital Unit Agreement dated as of August 1, 1995 among the Company, MS plc, Chemical Bank, as Agent and Book-Entry Unit Depositary, and the holders from time to time of the Capital Units (incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated August 1, 1995). Exhibit 4.4 - Form of Certificate of 8.40% Cumulative Preferred Stock (stated value $200.00 per share) related to 8.40% Capital Units (incorporated by reference to Exhibit 4-c to the Company's Registration Statement on Form S-3 (No. 33-57833)). Exhibit 11 - Statement Re: Computation of Earnings per Share. Exhibit 12 - Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Exhibit 27 - Financial Data Schedule.
Page 26 EX-4.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 4.1 RESTATED CERTIFICATE OF INCORPORATION OF MORGAN STANLEY GROUP INC. Pursuant to Section 245 of the General Corporation Law of the State of Delaware Morgan Stanley Group Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the "Corporation") and originally incorporated in the State of Delaware on July 10, 1975 under the name Morgan Stanley Holdings Incorporated, does hereby certify as follows: FIRST: That the Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of the State of Delaware, and a certified copy thereof was recorded in the office of the Recorder of Kent County, Delaware, on the 10th day of July, 1975. SECOND: That the Restated Certificate of Incorporation was filed in the office of the Secretary of State of the State of Delaware, and a certified copy thereof was recorded in the office of the Recorder of Kent County, Delaware, on the 30th day of October, 1989. THIRD: That Certificates of Amendment to the Restated Certificate of Incorporation were filed in the office of the Secretary of State of the State of Delaware, and certified copies thereof were recorded in the office of the Recorder of Kent County, Delaware, on the 8th day of May, 1991, and the 21st day of May, 1992. FOURTH: That Certificates of Stock Designation were filed in the office of the Secretary of State of the State of Delaware, and certified copies thereof were recorded in the office of the Recorder of Kent County, Delaware, on the 19th day of September, 1990, the 24th day of May, 1991, the 29th day of August, 1991, the 15th day of November, 1991, the 20th day of March, 1992, and the 6th day of May, 1992. FIFTH: That a Certificate of Retirement of Stock was filed in the office of the Secretary of State of the State of Delaware and a certified copy thereof was recorded in the office of the Recorder of Kent County, Delaware, on the 20th day of June, 1992. 2 2 SIXTH: That this Restated Certificate of Incorporation restates and integrates and does not further amend the provisions of the Corporation's Restated Certificate of Incorporation as heretofore amended or supplemented, and that there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation, and that the Restated Certificate of Incorporation is hereby restated to read in its entirety as follows: ARTICLE I NAME The name of the Corporation is: MORGAN STANLEY GROUP INC. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The registered office of the Corporation in the State of Delaware is located at 32 Loockerman Sq., Ste. L-100, City of Dover, County of Kent. The name of the registered agent of the Corporation at such address is United States Corporation Company. ARTICLE III CORPORATE PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of Delaware. ARTICLE IV CAPITAL STOCK SECTION 1. Shares and Classes Authorized. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 330,000,000 shares, which shall include: (a) 30,000,000 shares of preferred stock of no par value each (hereinafter referred to as "Preferred Stock"); and 3 3 (b) 300,000,000 shares of common stock of the par value of $1.00 each (hereinafter referred to as "Common Stock"); such classes of Preferred Stock and Common Stock being sometimes hereinafter collectively referred to as "capital stock". SECTION 2. Preferences, Rights, Limitations and Restrictions of Capital Stock. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of the classes of the capital stock, and the authority with respect thereto expressly vested in the Board of Directors of the Corporation, are as follows: PART I -- PREFERRED STOCK (a) The Preferred Stock may be issued either as a class without series or, if so determined by the Board of Directors of the Corporation, from time to time in one or more series and with such designation for such class or each such series as shall be stated and expressed in the resolution or resolutions providing for the issue of such class or each such series adopted by the Board of Directors. The Board of Directors in any such resolution or resolutions is expressly authorized to state and express for such class or each such series: (i) Voting rights, if any, including, without limitation, the authority to confer multiple votes per share, voting rights as to specified matters or issues or, subject to the provisions of this Restated Certificate of Incorporation, voting rights to be exercised either together with holders of Common Stock as a single class, or independently as a separate class; (ii) The rate per annum and the times at and conditions upon which the holders of shares of such class or series shall be entitled to receive dividends, the conditions and dates upon which such dividends shall be payable and whether such dividends shall be cumulative or noncumulative, and, if cumulative, the terms upon which such dividends shall be cumulative; (iii) Redemption, repurchase, retirement and sinking fund rights, preferences and limitations, if any, the amount payable on shares of such class or series in the event of such redemption, repurchase or retirement, the terms and conditions of any sinking fund, the manner of creating such fund or funds and whether any of the foregoing shall be cumulative or noncumulative; 4 4 (iv) The rights to which the holders of the shares of such class or series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (v) The terms, if any, upon which the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and (vi) Any other designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof so far as they are not inconsistent with the provisions of this Restated Certificate of Incorporation and to the full extent now or hereafter permitted by the laws of the State of Delaware. (b) All shares of the Preferred Stock, if issued as a class without series, or all shares of the Preferred Stock of any one series, if issued in series, shall be identical to each other in all respects and shall entitle the holders thereof to the same rights and privileges, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon, if cumulative, shall be cumulative. 5 5 Subpart A: ESOP Convertible Preferred Stock* 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 3,902,438 shares. Such number of shares may be increased or decreased from time to time by resolution of the Pricing Committee of this Board of Directors (the "Pricing Committee"), 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. 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. (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 or (y) any pledgee of such shares acquiring such shares as security for any loan or - -------------------- * Terms defined in this Subpart A are so defined for purposes of this Subpart alone. 6 6 loans made to the Plan or to any trustee or trustees acting on behalf of the Plan, the shares of ESOP Preferred Stock so transferred, upon such transfer and without any further 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) shall 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 of Directors out of funds legally available therefor, cash dividends ("Preferred Dividends") payable in accordance with either of the following elections, as the Board of Directors shall elect from time to time in its absolute discretion: 7 7 (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 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 of Directors 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 of Directors 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 of Directors 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 8 8 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 (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 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. 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, 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 9 9 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 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 10 10 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) The Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, and the Corporation's 8-3/4% 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 Restated Certificate of Incorporation of the Corporation, as the same may be 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 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 11 11 Stock into which such share of ESOP Preferred Stock could be converted on the record date for determining the stockholders 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 correspondingly 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 of Directors. (2) Except as otherwise required by law or set forth herein, holders of ESOP 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 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 Restated 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. 12 12 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 $35.875, subject to adjustment as hereinafter provided; that is, a conversion rate initially equivalent to one share 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 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 13 13 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 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 adjustment 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 14 14 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 treasury shares or to be retired, in either case as provided in Section 1(A). If less than all of the 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 of Directors of the Corporation. (B) Notice of redemption will 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 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 15 15 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 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 the date shares of ESOP Preferred Stock are initially issued, or (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) 16 16 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(1) 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 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 on 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: 17 17
During the Twelve- Month Period Percentage of Beginning September 19, Liquidation Price ----------------------- ----------------- 1991 106.98 1992 106.20 1993 105.43 1994 104.65 1995 103.88 1996 103.10 1997 102.33 1998 101.55 1999 100.78 2000 100.00
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 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 18 18 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 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 (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 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 19 19 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 Corporation) that constitute "qualifying employer securities" with respect to a holder of ESOP Preferred Stock within the meanings of Section 409(1.) 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 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 20 20 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 consideration 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, 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. 21 21 (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) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 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 reclassification effected by a merger or consolidation to which Section 8 applies) or otherwise, then, in such event, the Board of Directors shall, to the extent legally permissible, 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 a fraction (the 22 22 "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. A Special Dividend declared pursuant to this Section 9(A)(1) 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. Concurrently with the declaration of the Special Dividend pursuant to this paragraph 9(A)(1), 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) Fraction. (2) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 automatically be adjusted by dividing the Conversion Price in effect immediately before such event by the Section 9(A) Fraction and the Liquidation Price and the Preferred Dividend Rate will not be adjusted. 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. (B) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 distribution, including by way of a reclassification of shares 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 23 23 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 Board of Directors shall, to the extent legally permissible, declare 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 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. A Special Dividend declared pursuant to this Section 9(B) shall be effective upon such issuance of rights or warrants. Concurrently with the declaration of the Special Dividend pursuant to this Section 9(B), 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(B) Fraction. (C) (1) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 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 event, the Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of ESOP Preferred Stock will become the 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 a 24 24 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) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 any security convertible into or exchangeable for shares of Common Stock other than pursuant to (x) any employee or director incentive, compensation or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted and (y) any dividend or distribution on shares of Common Stock contemplated in Section 9(A)(1)) 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 Board of Directors shall, to the extent legally permissible, declare a Special Dividend in such a manner that a holder of ESOP Preferred Stock will become the 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 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. (3) A Special Dividend declared pursuant to this Section 9(C) shall be effective upon the effective date of 25 25 such issuance, sale or exchange. Concurrently with the declaration of the Special Dividend pursuant to this Section 9(C), 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(C)(1) Fraction or Section 9(C)(2) Fraction, as the case may be. (D) Subject to the provisions of paragraphs (E) and (F) of this Section 9, 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 Board of Directors shall, to the extent legally permissible, declare 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 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 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 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 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 26 26 (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, 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. Concurrently with the Special Dividend paid pursuant to this Section 9(D), 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 Extraordinary Distribution or Pro Rata Repurchase by the Section 9(D) Fraction. (E) Notwithstanding any other provision of this Section 9, the Corporation shall not be required to make (i) any Special Dividend or any adjustment of the Conversion Price, the Liquidation Price or the Preferred Dividend Rate 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, or, (ii) if no additional shares of ESOP Preferred Stock are issued, any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price. Any lesser Special Dividend or adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent Special Dividend or adjustment which, together with any Special Dividend or Dividends, adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of shares of ESOP Preferred Stock outstanding or, if no additional shares of ESOP Preferred Stock are being issued, 27 27 an increase or decrease of at least one percent (1%) of the Conversion Price, whichever the case may be. (F) The Corporation and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are reasonably necessary or appropriate for declaration of any Special Dividend provided in any of paragraphs (A), (B), (C) and (D) of this Section 9, but shall not be required to call a special meeting of stockholders in order to implement the provisions thereof. If for any reason the Board of Directors is precluded from giving full effect to the Special Dividend provided in any of such paragraphs, then no such Special Dividend shall be declared, but instead the Conversion Price shall automatically be adjusted by dividing the Conversion Price in effect immediately before the relevant event by the Section 9(A), Section 9(B), Section 9(C) or Section 9(D) Fraction, as applicable, and the Liquidation Price and the Preferred Dividend Rate will not be adjusted. An adjustment to the Conversion Price made pursuant to this paragraph (F) shall be given effect, (i) in the case of a payment of a dividend or distribution under Section 9(A), upon payment thereof as of the record date for the determination of holders entitled to receive such dividend or distribution (on a retroactive basis), and, in the case of a subdivision under Section 9(A), immediately as of the effective date thereof, (ii) in the case of Section 9(B), upon such issuance of rights or warrants, (iii) in the case of Section 9(C), upon the effective date of such issuance, sale or exchange and (iv) in the case of an Extraordinary Dividend under Section 9(D), as of the record date for the determination of holders entitled to receive such Extraordinary Dividend (on a retroactive basis), and, in the case of a Pro Rata Repurchase under Section 9(D), 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). If subsequently the Board of Directors is able to give full effect to the Special Dividend as provided in paragraph (A), (B), (C) or (D) of this Section 9, then such Special Dividend will be declared and other adjustments will be made in accordance with the provisions of such paragraph and the adjustment in the Conversion Price as provided in this paragraph (F) will automatically be reversed and nullified prospectively. (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 28 28 security, which transaction does not result in an adjustment to the number of shares of ESOP Preferred Stock outstanding or the Conversion Price pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Corporation 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 of Directors of the Corporation determines that some type of adjustment should be made, an adjustment shall be made effective as of such date as determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation 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 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 29 29 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 Section 9, but shall exclude the aggregate amount of regular quarterly dividends declared by the Board of Directors 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 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 of Directors of the Corporation. "Adjustment Period" shall mean the period of five consecutive trading days, selected by the Board of Directors of the 30 30 Corporation, 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 of Directors of the Corporation, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors available to make such determination, as determined in good faith by the Board of Directors of the Corporation. (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, 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; 31 31 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 of Directors of the Corporation 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 increasing the number of shares of ESOP Preferred Stock outstanding is required pursuant hereto, the Board of Directors shall take action as is necessary so that a sufficient number of shares of ESOP Preferred Stock are designated with respect to such increase resulting from such adjustment. Whenever an adjustment to the Conversion Price, the Liquidation Price or the Preferred Dividend Rate of the ESOP Preferred Stock is required pursuant hereto, 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, Liquidation Price and Preferred Dividend Rate determined as provided herein. Such statement shall set forth in 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 number of shares of ESOP Preferred Stock outstanding, the Conversion Price, the Liquidation Price or the Preferred Dividend Rate, the Corporation shall mail a notice thereof and of the then prevailing number of shares of ESOP Preferred Stock outstanding, the Conversion Price, the Liquidation Price and the Preferred Dividend Rate 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 been given upon the earlier of receipt thereof or 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, 32 32 addressed: (i) if to the Corporation, to its office at 1251 Avenue of the Americas, New York, New York 10020 (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 $1.00 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 from 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 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 with 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 33 33 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 representing such shares, or such payment, to the address of such 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. 34 34 Subpart B: 9.36% Cumulative Preferred Stock* 1. Designation and Amount; Fractional Shares. The designation for such series of the Preferred Stock authorized by this resolution shall be the 9.36% Cumulative Preferred Stock, without par value but with a stated value of $25.00 per share (the "Cumulative Preferred Stock"). The maximum number of shares of Cumulative Preferred Stock shall be 5,500,000. 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 and as declared by the Board out of assets of the Corporation legally available for payment, cash dividends payable quarterly at the rate of 9.36% 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, commencing August 30, 1991 (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. 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. - -------------------- * Terms defined in this Subpart B are so defined for purposes of this Subpart alone. 35 35 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 (except by conversion into or exchange 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 $25.00 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 36 36 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 of Directors of the Corporation 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 37 37 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 class 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 38 38 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 May 30, 1996. Subject to the foregoing, on or after such date, shares of the Cumulative Preferred Stock are redeemable at $25.00 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. 39 39 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. 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. Subject to the provisions of paragraph 5, the Board reserves the right by subsequent amendment of this resolution from time to time to increase or decrease the number of shares which 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: 40 40 (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 (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 on a parity with the Corporation's ESOP Convertible Preferred Stock, with a liquidation value of $35.875 per share, the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, and the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 41 41 Subpart C: 8.88% Cumulative Preferred Stock* 1. Designation and Amount; Fractional Shares. The designation for such series of the Preferred Stock authorized by this resolution shall be the 8.88% Cumulative Preferred Stock, without par value, 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 or the Committee with respect to the capital and surplus of the Corporation. The maximum number of shares of Cumulative Preferred Stock shall be 975,000. 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 and as declared by the Board or the Committee out of assets of the Corporation legally available for payment, cash dividends payable quarterly at the rate of 8.88% 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, commencing February 28, 1992 (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 - --------------------- * Terms defined in this Subpart C are so defined for purposes of this Subpart alone. 42 42 through the dividend payment period or periods of the Cumulative 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 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 by the Corporation for any consideration or any payment by the Corporation 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; and provided further 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 43 43 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 an amount equal to 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 44 44 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 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 45 45 (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 November 30, 1996. 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. 46 46 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 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. All shares of Cumulative Preferred Stock redeemed, purchased or otherwise acquired by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued. 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. 47 47 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 (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. 48 48 The Cumulative Preferred Stock shall rank prior, as to dividends and upon liquidation, dissolution or winding up, to the Common Stock and on a parity with the Corporation's ESOP Convertible Preferred Stock, with a liquidation value of $35.875 per share, the Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, and the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 49 49 Subpart D: 8-3/4% Cumulative Preferred Stock* 1. Designation and Amount; Fractional Shares. The designation for such series of the Preferred Stock authorized by this resolution shall be the 8-3/4% Cumulative Preferred Stock, without par value, 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 or the Committee with respect to the capital and surplus of the Corporation. The number of shares of Cumulative Preferred Stock shall be 750,000. 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 and as declared by the Board or the Committee out of assets of the Corporation legally available for payment, cash dividends payable quarterly at the rate of 8-3/4% 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, commencing May 30, 1992 (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 - -------------------- * Terms defined in this Subpart D are so defined for purposes of this Subpart alone. 50 50 Cumulative 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 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 by the Corporation for any consideration or any payment by the Corporation 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; and provided further 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 51 51 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 an amount equal to 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 52 52 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 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 53 53 (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 May 30, 1997. 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. 54 54 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 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. All shares of Cumulative Preferred Stock redeemed, purchased or otherwise acquired by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued. 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. 55 55 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 (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. 56 56 The Cumulative Preferred Stock shall rank prior, as to dividends and upon liquidation, dissolution or winding up, to the Common Stock and on a parity with the Corporation's ESOP Convertible Preferred Stock, with a liquidation value of $35.875 per share, the Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, and the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 57 57 PART II -- COMMON STOCK (a) Dividends. Subject to the preferential dividend rights applicable to shares of any class or series of stock having preference over the Common Stock as to dividends, the holders of shares of Common Stock shall be entitled to receive such dividends when and as declared by the Board of Directors and shall share equally, share for share alike, in such dividends. (b) Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after distribution in full of the preferential amounts to be distributed to the holders of shares of any class or series of stock having preference over the Common Stock upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution, ratably in proportion to the number of shares of the Common Stock held. (c) Voting. Each share of Common Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. The holders of the shares of Common Stock shall at all times, except as otherwise provided in this Restated Certificate of Incorporation or 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 class voting right. SECTION 3. Definitions. For the purposes of this Restated Certificate of Incorporation: (a) the term "outstanding", when used in reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation or a Subsidiary; and (b) the term "Subsidiary" or "Subsidiaries" shall mean a corporation(s) of which the Corporation, directly or indirectly, has the power, whether through the ownership of voting securities, contract or otherwise, to elect at least a majority of the members of such corporation's board of directors; provided, however, that for purposes of Article VI of the Restated Certificate of Incorporation, the term "Subsidiary" or "Subsidiaries" shall mean a corporation(s), all of the capital stock of which is owned by the Corporation, other than directors' qualifying shares. 58 58 ARTICLE V BOARD OF DIRECTORS SECTION 1. Number, Election and Terms of Directors. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not fewer than four nor more than fifteen persons; provided, however, that, pursuant to the provisions of Section 141(a) of the General Corporation Law of the State of Delaware, the powers and authority of the Board of Directors with respect to any stock option, performance unit or other compensation or employee benefit plan of the Corporation, to the extent not otherwise assigned or reserved to the Board of Directors by the provisions of any such plan, are hereby conferred upon and shall be exercised by a committee or committees designated by resolution passed by the Board of Directors to consist of one or more persons who may or may not be directors of the Corporation, unless the Board of Directors, by resolution passed by the Board of Directors, shall determine that any or all such powers and authority shall instead be conferred upon and exercised by the Board of Directors. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence may be established from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. Subject to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation to elect directors under specified circumstances, if any, directors shall be elected each year at the annual meeting of stockholders and shall hold office until their successors shall have been duly elected and qualified, or until their earlier resignation or removal. SECTION 2. Calling Special Meetings of Stockholders. A special meeting of the stockholders may be called at any time and for any purpose or purposes by the President or the Chairman of the Board or by order of the Board of Directors, and shall be called by the Secretary upon the written request of the holders of record of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"). SECTION 3. Newly Created Directorships and Vacancies on the Board of Directors. Subject to the rights of any class or series of stock having preference over the 59 59 Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation to elect directors under specified circumstances, if any, newly-created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the directors then in office, although less than a quorum; and any director so chosen shall hold office for the remaining term of his predecessor or, if there shall have been no predecessor, until the next annual election of directors or until his successor shall have been duly elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 4. Removal of Directors. Subject to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation to elect directors under specified circumstances, if any, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, only by the affirmative vote of the holders of at least 80% of the voting power of the Voting Stock, voting together as a single class. SECTION 5. Amendment of By-Laws. In furtherance of and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation from time to time, may amend, repeal or adopt By-Laws of the Corporation; provided, that any By-Laws made, amended or repealed by the Board of Directors or the stockholders may be amended or repealed, and that any By-Laws may be made, by the stockholders of the Corporation. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least 80% of the voting power of the Voting Stock, voting together as a single class, shall be required for the stockholders of the Corporation to amend, repeal or adopt any By-Laws of the Corporation or to adopt any amendment to this Restated Certificate of Incorporation inconsistent with the By-Laws of the Corporation. SECTION 6. Amendment of Certificate of Incorporation. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the By-Laws of the 60 60 Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least 80% of the voting power of the Voting Stock, voting together as a single class, shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article V hereof. SECTION 7. Other Powers. The By-Laws of the Corporation may confer upon the Board of Directors powers in addition to the foregoing and in addition to the powers and authorities expressly conferred upon them by law, but only to the extent permitted by law and not prohibited by the provisions of this Restated Certificate of Incorporation. ARTICLE VI INDEMNIFICATION The Corporation shall indemnify, to the fullest extent permitted by applicable law, any person who was or is a party or is threatened to be made a party to, or is involved in any manner in, any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person (1) is or was a director or officer of the Corporation or a Subsidiary or (2) is or was serving at the request of the Corporation or a Subsidiary as a director, officer, partner, member, employee or agent of another corporation, partnership, joint venture, trust, committee or other enterprise. To the extent deemed advisable by the Board of Directors, the Corporation may indemnify, to the fullest extent permitted by applicable law, any person who was or is a party or is threatened to be made a party to, or is involved in any manner in, any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that the person is or was an employee or agent (other than a director or officer) of the Corporation or a Subsidiary. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or a Subsidiary, or is or was serving at the request of the Corporation or a Subsidiary as a director, officer, partner, 61 61 member, employee or agent of another corporation, partnership, joint venture, trust, committee or other enterprise, against any expense, liability or loss asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation or a Subsidiary would have the power to indemnify him against such expense, liability or loss under the provisions of applicable law. No repeal, modification or amendment of, or adoption of any provision inconsistent with, this Article VI nor, to the fullest extent permitted by applicable law, any modification of law shall adversely affect any right or protection of any person granted pursuant hereto existing at, or with respect to events that occurred prior to, the time of such repeal, amendment, adoption or modification. For purposes of this Article VI, the term "Subsidiary" or "Subsidiaries" shall mean a corporation(s), all of the capital stock of which is owned directly or indirectly by the Corporation, other than directors' qualifying shares. The right to indemnification conferred in this Article VI also includes, to the fullest extent permitted by applicable law, the right to be paid the expenses (including attorneys' fees) incurred in connection with any such proceeding in advance of its final disposition. The payment of any amounts to any director, officer, partner, member, employee or agent pursuant to this Article VI shall subrogate the Corporation to any right such director, officer, partner, member, employee or agent may have against any other person or entity. The rights conferred in this Article VI shall be contract rights. ARTICLE VII LIABILITY OF DIRECTORS A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach by the director of his duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. 62 62 No repeal, modification or amendment of, or adoption of any provision inconsistent with, this Article VII nor, to the fullest extent permitted by law, any modification of law shall adversely affect any right or protection of a director of the Corporation existing at the time of such repeal, amendment, adoption or modification or affect the liability of any director of the Corporation for any action taken or any omission that occurred prior to the time of such repeal, amendment, adoption or modification. If the General Corporation Law of the State of Delaware shall be amended, after this Restated Certificate of Incorporation is amended to include this Article VII, 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. SEVENTH: That this restatement has been duly adopted by resolution of the Board of Directors of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be executed by its President and attested by its Assistant Secretary and its corporate seal to be affixed hereto this 14th day of September, 1992. /s/ Robert F. Greenhill (Seal) ---------------------------- Robert F. Greenhill President Attest: /s/ Patricia A. Kurtz ---------------------------- Patricia A. Kurtz Assistant Secretary 63 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF MORGAN STANLEY GROUP INC. (Pursuant to Section 242 of the Delaware General Corporation Law) MORGAN STANLEY GROUP INC., a Delaware corporation, HEREBY CERTIFIES AS FOLLOWS; 1. The name of the Corporation is Morgan Stanley Group Inc. The date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was July 10, 1975. The date of filing of the most recent Restated Certificate of Incorporation with the Secretary of State of the State of Delaware was September 15, 1992. 2. This Certificate of Amendment sets forth amendments to the Restated Certificate of Incorporation of the Corporation that were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 3. Article IV, Section 2, Part I, Subpart A, Section 1(A) of the Restated Certificate of Incorporation is hereby amended in full to be and read as follows: (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 3,902,438 shares. Such number of shares may be increased or decreased from time to time by resolution of the Pricing Committee of this Board of Directors (the "Pricing Committee"), 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 of Directors may increase the number of shares of ESOP 64 2 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 this Restated 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. 4. Article IV, Section 2, Part I, Subpart A, Section 9, Paragraphs (A), (B), (C), (D), (E), (F), (G) and (I) of the Restated Certificate of Incorporation are hereby amended in full to be and read as follows: (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 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 reclassification 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 65 3 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 distribution, including by way of a reclassification of shares 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 Section 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 66 4 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 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 67 5 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. (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 68 6 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 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 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 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 69 7 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 of Directors 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 applicable. The declaration of such a Special Dividend shall be authorized, if at all, by the Board of Directors no later than 30 calendar days following the authorization by the Board of Directors (or by a committee duly authorized by the Board of Directors) 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 of Directors 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 applicable. 70 8 (F) Unless the Board of Directors 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 of Directors 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 may be. (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 outstanding pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Corporation 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 of Directors of the Corporation determines that some type of adjustment should be made, an adjustment shall be made effective as of such date as determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation 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 71 9 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. * * * (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 4,000,000 (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 of Directors 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 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 72 10 number of shares of ESOP Preferred Stock outstanding to each holder of shares of ESOP Preferred Stock. IN WITNESS WHEREOF, MORGAN STANLEY GROUP INC. has caused this Certificate to be signed by John J. Mack, its President, and attested by Jonathan M. Clark, its General Counsel and Secretary, this 30th day of June, 1993. MORGAN STANLEY GROUP INC. By: /s/ John J. Mack ------------------- Name: John J. Mack Title: President ATTEST: /s/ Jonathan M. Clark - -------------------------- Name: Jonathan M. Clark Title: General Counsel and Secretary 73 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 7-3/8% CUMULATIVE PREFERRED STOCK ($200.00 Stated Value) OF MORGAN STANLEY GROUP INC. ______________________________ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ______________________________ The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group Inc., a Delaware corporation (hereinafter called the "Corporation"), by unanimous written consent in lieu of a meeting dated as of July 27, 1993, with certain of the designations, preferences and rights having been fixed by the Pricing Committee of the Board (the "Committee") at a meeting on August 18, 1993, pursuant to authority delegated to it by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware: RESOLVED that, pursuant to authority expressly granted to and vested in the Committee by the Board and in the Board by provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, without par value (the "Preferred Stock"), which shall consist of 1,000,000 of the 30,000,000 shares of Preferred Stock which the Corporation now has authority to issue, is authorized, and the Board and, pursuant to the authority expressly granted to the Committee by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Committee, fix the powers, 74 2 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% Cumulative Preferred Stock, without par value, 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 or the Committee 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 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 commencing November 30, 1993 (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 75 3 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. 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 76 4 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, 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. 77 5 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. 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 78 6 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 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 79 7 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, 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 80 8 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. 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: 81 9 (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 (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 on a parity with the Corporation's ESOP Convertible 82 10 Preferred Stock, with a liquidation value of $35.88 per share, the Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Barton M. Biggs, its Managing Director, and attested by Ralph L. Pellecchio, its Assistant Secretary, this 24th day of August, 1993. MORGAN STANLEY GROUP INC. By: /s/ Barton M. Biggs --------------------- Name: Barton M. Biggs Title: Managing Director, who is duly authorized to exercise the duties of a Vice President. [SEAL] Attest: /s/ Ralph L. Pellecchio - ------------------------- Assistant Secretary 83 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 7-3/8% CUMULATIVE PREFERRED STOCK ($200.00 STATED VALUE) OF MORGAN STANLEY GROUP INC, FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF DELAWARE ON AUGUST 24, 1993, AND FORWARDED TO THE OFFICE OF THE RECORDER OF DEEDS IN AND FOR KENT COUNTY, DELAWARE ON AUGUST 25, 1993 Pursuant to Section 103(f) of the General Corporation Law of the State of Delaware Morgan Stanley Group Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is Morgan Stanley Group Inc. (the "Corporation"). 2. A Certificate of Designation of Preferences and Rights of the 7-3/8% Cumulative Preferred Stock ($200.00 Stated Value) of the Corporation was filed on August 24, 1993 and forwarded to the Office of the Recorder of Deeds in and for Kent County, Delaware on August 25, 1993 (the "Certificate"). 3. The Certificate requires correction as permitted by subsection (f) of the Section 103 of the General Corporation Law of the State of Delaware. 84 4. The inaccuracy or defect of the Certificate to be corrected is that the concluding clause is corrected to read as follows: "IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Barton M. Biggs, its Managing Director, and attested by Ralph Pallecchio, its Assistant Secretary, this 24th day of August, 1993." IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate of Correction to be made under the seal of the Corporation and signed by Anson M. Beard, Jr., its Managing Director, and attested by Patricia A. Kurtz, its Assistant Secretary, this 27th day of August, 1993. MORGAN STANLEY GROUP INC. By: /s/ Anson M. Beard, Jr. ---------------------------- Name: Anson M. Beard, Jr. Title: Managing Director, who is duly authorized to exercise the duties of a Vice President [SEAL] Attest: /s/ Patricia A. Kurtz - ------------------------- Assistant Secretary 85 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 7.82% CUMULATIVE PREFERRED STOCK ($200.00 Stated Value) OF MORGAN STANLEY GROUP INC. ______________________________ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ______________________________ The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group Inc., a Delaware corporation (hereinafter called the "Corporation"), by unanimous written consent in lieu of a meeting dated as of October 29, 1993, with certain of the designations, preferences and rights having been fixed by the Pricing Committee of the Board (the "Committee") at a meeting on November 19, 1993, pursuant to authority delegated to it by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware: RESOLVED that, pursuant to authority expressly granted to and vested in the Committee by the Board and in the Board by provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, without par value (the "Preferred Stock"), which shall consist of 682,813 of the 30,000,000 shares of Preferred Stock which the Corporation now has authority to issue, is authorized, and the Board and, pursuant to the authority expressly granted to the Committee by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Committee, fix the powers, designations, preferences 86 2 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, without par value, 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 or the Committee with respect to the capital and surplus of the Corporation. The maximum number of shares of Cumulative Preferred Stock shall be 682,813. 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 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 87 3 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. 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 88 4 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, 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. 89 5 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. 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 90 6 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 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 91 7 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 Shares. 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 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 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 92 8 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. 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: 93 9 (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 (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 on a parity with the Corporation's ESOP Convertible 94 10 Preferred Stock, with a liquidation value of $35.88 per share, the Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and the Corporation's 7-3/8% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 23rd day of November, 1993. MORGAN STANLEY GROUP INC. /s/ Richard B. Fisher By: ------------------------ Name: Richard B. Fisher Title: Chairman [SEAL] Attest: /s/ Patricia A. Kurtz - --------------------- Assistant Secretary 95 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 7.80% CUMULATIVE PREFERRED STOCK ($200.00 Stated Value) OF MORGAN STANLEY GROUP INC. ------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group Inc., a Delaware corporation (hereinafter called the "Corporation"), by unanimous written consent in lieu of a meeting dated as of October 29, 1993, with certain of the designations, preferences and rights having been fixed by the Pricing Committee of the Board (the "Committee") at a meeting on February 1, 1994, pursuant to authority delegated to it by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware: RESOLVED that, pursuant to authority expressly granted to and vested in the Committee by the Board and in the Board by provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, without par value (the "Preferred Stock"), which shall consist of 1,150,000 of the 30,000,000 shares of Preferred Stock which the Corporation now has authority to issue, is authorized, and the Board and, pursuant to the authority expressly granted to the Committee by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Committee, fix the powers, 96 2 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, without par value, 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 or the Committee 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 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 97 3 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. 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 98 4 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, 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. 99 5 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. 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 100 6 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) 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 101 7 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 Shares. 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 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 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 102 8 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. 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: 103 9 (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 (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 on a parity with the Corporation's ESOP Convertible 104 10 Preferred Stock, with a liquidation value of $35.88 per share, the Corporation's 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, the Corporation's 7-3/8% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and, if issued, the Corporation's 7.82% Cumulative Preferred Stock with a liquidation value of $200.00 per share. IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 4 day of February, 1994. MORGAN STANLEY GROUP INC. By: /s/ Richard B. Fisher ---------------------------- Name: Richard B. Fisher Title: Chairman of the Board [SEAL] Attest: /s/ Patricia A. Kurtz - ---------------------- Patricia A. Kurtz Assistant Secretary 105 CERTIFICATE OF DECREASE OF AUTHORIZED NUMBER OF SHARES OF 7.82% CUMULATIVE PREFERRED STOCK Morgan Stanley Group Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on September 15, 1992 and forwarded for recording in the Office of the Recorder of Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of Designation of Preferences and Rights ("Certificate of Designation") of the 7.82% Cumulative Preferred Stock, was filed in said Office of the Secretary of State on November 24, 1993 and forwarded for recording in the office of the Recorder of Deeds on even date therewith. That pursuant to authority expressly granted to and vested in the Pricing Committee of the Board of Directors of the Corporation (the "Pricing Committee"), by resolutions duly adopted by said Board of Directors on October 29, 1993 (the "Resolutions"), the Pricing Committee fixed certain designations, preferences and rights of the aforesaid 7.82% Cumulative Preferred Stock as set forth in the Certificate of Designation. That pursuant to authority expressly granted to and vested in the Pricing Committee by the Resolutions, the Pricing Committee by a written unanimous consent in lieu of a meeting dated as of April 12, 1994 duly adopted a resolution authorizing and directing a decrease in the authorized number of shares of the 7.82% Cumulative Preferred Stock of the Corporation, from 682,813 shares to 611,238 shares and providing that the 71,575 shares of the 7.82% Cumulative Preferred Stock designated by the Pricing Committee but not issued and outstanding resume the status of authorized and unissued Preferred Stock, all in accordance with the provisions of Section 151 of The General Corporation Law of the State of Delaware and the aforesaid Restated Certificate of Incorporation of the Corporation. 106 IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused this certificate to be signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 12 day of April, 1994. By /s/ Richard B. Fisher -------------------------- Name: Richard B. Fisher Title: Chairman ATTEST: By /s/ Patricia A. Kurtz ------------------------------ Name: Patricia A. Kurtz Title: Assistant Secretary 107 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 9.00% CUMULATIVE PREFERRED STOCK ($200.00 Stated Value) OF MORGAN STANLEY GROUP INC. ------------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------ The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group Inc., a Delaware corporation (hereinafter called the "Corporation"), by unanimous written consent in lieu of a meeting dated as of October 29, 1993 with certain of the designations, preferences and rights having been fixed by the Pricing Committee of the Board (the "Committee") at a meeting on February 10, 1995, pursuant to authority delegated to it by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware: RESOLVED that, pursuant to authority expressly granted to and vested in the Committee by the Board and in the Board by provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, without par value (the "Preferred Stock"), which shall consist of 738,763 of the 30,000,000 shares of Preferred Stock which the Corporation now has authority to issue, is authorized, and the Board and, pursuant to the authority expressly granted to the Committee by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Committee fix 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 108 2 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, without par value, 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 or the Committee with respect to the capital and surplus of the Corporation. The maximum number of shares of Cumulative Preferred Stock shall be 738,763. 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 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. 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 109 3 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 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 110 4 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. 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 111 5 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 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 112 6 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 Shares. 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, 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 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 113 7 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; (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 114 8 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 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 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, (iii) the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (iv) the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (v) the Corporation's 7-3/8% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (vi) if issued, the Corporation's 7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and (vii) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 115 9 IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 14th day of February, 1995. MORGAN STANLEY GROUP INC. By: /s/ Richard B. Fisher ---------------------------------- Name: Richard B. Fisher Title: Chairman of the Board [SEAL] ATTEST: /s/ Patricia A. Kurtz ---------------------------------- Name: Patricia A. Kurtz Title: Assistant Secretary 116 CERTIFICATE OF DECREASE OF AUTHORIZED NUMBER OF SHARES OF 9.00% CUMULATIVE PREFERRED STOCK Morgan Stanley Group Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on September 15, 1992 and forwarded for recording in the Office of the Recorder of Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of Designation of Preferences and Rights ("Certificate of Designation") of the 9.00% Cumulative Preferred Stock, was filed in said Office of the Secretary of State on February 17, 1995 and forwarded for recording in the office of the Recorder of Deeds on even date therewith. That pursuant to authority expressly granted to and vested in the Pricing Committee of the Board of Directors of the Corporation (the "Pricing Committee"), by resolutions duly adopted by said Board of Directors on October 29, 1993 (the "Resolutions"), the Pricing Committee fixed certain designations, preferences and rights of the aforesaid 9.00% Cumulative Preferred Stock as set forth in the Certificate of Designation. That pursuant to authority expressly granted to and vested in the Pricing Committee by the Resolutions, the Pricing Committee by a written unanimous consent in lieu of a meeting dated as of March 9, 1995 duly adopted a resolution authorizing and directing a decrease in the authorized number of shares of the 9.00% Cumulative Preferred Stock of the Corporation, from 738,763 shares to 720,900 shares and providing that the 17,863 shares of the 9.00% Cumulative Preferred Stock designated by the Pricing Committee but not issued and outstanding resume the status of authorized and unissued Preferred Stock, all in accordance with the provisions of Section 151 of The General Corporation Law of the State of Delaware and the aforesaid Restated Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused this certificate to be signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 13th day of March, 1995. By /s/ Richard B. Fisher -------------------------------- Name: Richard B. Fisher Title: Chairman ATTEST: By /s/ Patricia A. Kurtz -------------------------------- Name: Patricia A. Kurtz Title: Assistant Secretary 117 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 8.40% CUMULATIVE PREFERRED STOCK ($200.00 Stated Value) OF MORGAN STANLEY GROUP INC. -------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group Inc., a Delaware corporation (hereinafter called the "Corporation"), by unanimous written consent in lieu of a meeting dated as of April 12, 1995 with certain of the designations, preferences and rights having been fixed by the Pricing Committee of the Board (the "Committee") at a meeting on July 27, 1995, pursuant to authority delegated to it by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware: RESOLVED that, pursuant to authority expressly granted to and vested in the Committee by the Board and in the Board by provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, without par value (the "Preferred Stock"), which shall consist of 1,006,250 of the 30,000,000 shares of Preferred Stock which the Corporation now has authority to issue, is authorized, and the Board and, pursuant to the authority expressly granted to the Committee by the Board pursuant to the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Committee fix 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 118 2 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, without par value, 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 or the Committee with respect to the capital and surplus of the Corporation. The total number of shares of Cumulative Preferred Stock shall be 1,006,250. 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 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. 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 119 3 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 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 120 4 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. 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 121 5 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 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 122 6 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 Shares. 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. 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 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. 123 7 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 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 124 8 (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 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 9.36% Cumulative Preferred Stock, with a liquidation value of $25.00 per share, (iii) the Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (iv) the Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (v) the Corporation's 7-3/8% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (vi) if issued, the Corporation's 7.82% Cumulative Preferred Stock, with a liquidation value of $200.00 per share, (vii) if issued, the Corporation's 7.80% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and (viii) if issued, the Corporation's 9.00% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 125 9 IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this Certificate to be made under the seal of the Corporation and signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 27th day of July, 1995. MORGAN STANLEY GROUP INC. By: /s/ Richard B. Fisher -------------------------------- Name: Richard B. Fisher Title: Chairman of the Board [SEAL] Attest: /s/ Patricia A. Kurtz - -------------------------- Patricia A. Kurtz Assistant Secretary 126 CERTIFICATE OF DECREASE OF AUTHORIZED NUMBER OF SHARES OF 8.40% CUMULATIVE PREFERRED STOCK Morgan Stanley Group Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on September 15, 1992 and forwarded for recording in the Office of the Recorder of Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of Designation of Preferences and Rights ("Certificate of Designation") of the 8.40% Cumulative Preferred Stock, was filed in said Office of the Secretary of State on July 31, 1995 and forwarded for recording in the office of the Recorder of Deeds on even date therewith. That pursuant to authority expressly granted to and vested in the Pricing Committee of the Board of Directors of the Corporation (the "Pricing Committee"), by resolutions duly adopted by said Board of Directors on April 12, 1995 (the "Resolutions"), the Pricing Committee fixed certain designations, preferences and rights of the aforesaid 8.40% Cumulative Preferred Stock as set forth in the Certificate of Designation. That pursuant to authority expressly granted to and vested in the Pricing Committee by the Resolutions, the Pricing Committee by a written unanimous consent in lieu of a meeting dated as of September 6, 1995 duly adopted a resolution authorizing and directing a decrease in the authorized number of shares of the 8.40% Cumulative Preferred Stock of the Corporation, from 1,006,250 shares to 996,776 shares and providing that the 9,474 shares of the 8.40% Cumulative Preferred Stock designated by the Pricing Committee but not issued and outstanding resume the status of authorized and unissued Preferred Stock, all in accordance with the provisions of Section 151 of The General Corporation Law of the State of Delaware and the aforesaid Restated Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused this certificate to be signed by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its Assistant Secretary, this 6th day of September, 1995. By /s/ Richard B. Fisher ----------------------------------- Name: Richard B. Fisher Title: Chairman ATTEST: By /s/ Patricia A. Kurtz --------------------------------- Name: Patricia A. Kurtz Title: Assistant Secretary EX-11 3 COMPUTATION OF EARNINGS PER SHARE. 1 Morgan Stanley Group Inc. Exhibit 11 Computation of Earnings Per Share (In millions, except share data)
Three Months Ended Six Months Ended Seven Months ----------------------------- ---------------------------- Ended August 31, July 31, August 31, July 31, August 31, 1995 1994 1995 1994 1995 ------------ ----------- ----------- ----------- ----------- Primary: Common stock and common stock equivalents: Average common shares outstanding 77,211,630 77,790,902 77,149,916 77,806,247 76,915,953 Average common shares issuable under employee benefit plans 1,406,829 1,814,603 1,252,776 1,935,119 1,161,910 ------------ ----------- ----------- ----------- ----------- Total average common and common equivalent shares outstanding 78,618,459 79,605,505 78,402,692 79,741,366 78,077,863 ============ =========== =========== =========== =========== Earnings: Net income $209 $121 $375 $238 $413 Less: Preferred stock dividend requirements 17 17 33 33 38 ------------ ----------- ----------- ----------- ----------- Earnings applicable to common shares $192 $104 $342 $205 $375 ============ =========== =========== =========== =========== Primary earnings per share $2.45 $1.31 $4.36 $2.58 $4.80 ============ =========== =========== =========== =========== Fully diluted: Common stock and common stock equivalents: Average common shares outstanding 77,211,630 77,790,902 77,149,916 77,806,247 76,915,953 Average common shares issuable under employee benefit plans 1,600,970 1,851,260 1,708,055 1,935,119 1,639,862 Common shares issuable upon conversion of preferred stock 3,778,053 3,811,454 3,783,427 3,814,924 3,785,015 ------------ ----------- ----------- ----------- ----------- Total average common and common equivalent shares outstanding 82,590,653 83,453,616 82,641,398 83,556,290 82,340,830 ============ =========== =========== =========== =========== Earnings: Net income $209 $121 $375 $238 $413 Less: Preferred stock dividend requirements 16 16 31 31 37 ------------ ----------- ----------- ----------- ----------- Earnings applicable to common shares $193 $105 $344 $207 $376 ============ =========== =========== =========== =========== Fully diluted earnings per share $2.34 $1.26 $4.16 $2.48 $4.57 ============ =========== =========== =========== ===========
EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Morgan Stanley Group Inc. Exhibit 12 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (Dollars in millions)
Seven Three Months Ended Six Months Ended Months Ended --------------------- --------------------- ------------ August 31, July 31, August 31, July 31, August 31, 1995 1994 1995 1994 1995 --------- -------- --------- -------- ------------ RATIO OF EARNINGS TO FIXED CHARGES Earnings: Income before income taxes $298 $182 $549 $366 $607 Add: Fixed charges, net 1,762 1,360 3,429 2,772 3,990 --------- -------- --------- -------- ----------- Income before income taxes and fixed charges, net $2,060 $1,542 $3,978 $3,138 $4,597 ========= ======== ========= ======== =========== Fixed charges: Total interest expense (1) $1,745 $1,355 $3,415 $2,760 $3,974 Interest factor in rents (2) 11 11 22 20 25 --------- -------- --------- -------- ----------- Total fixed charges $1,756 $1,366 $3,437 $2,780 $3,999 ========= ======== ========= ======== =========== Ratio of earnings to fixed charges 1.2 1.1 1.2 1.1 1.1 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings: Income before income taxes $298 $182 $549 $366 $607 Add: Fixed charges, net 1,762 1,360 3,429 2,772 3,990 --------- -------- --------- -------- ----------- Income before income taxes and fixed charges, net $2,060 $1,542 $3,978 $3,138 $4,597 ========= ======== ========= ======== =========== Fixed charges: Total interest expense (1) $1,745 $1,355 $3,415 $2,760 $3,974 Interest factor in rents (2) 11 11 22 20 25 Preferred stock dividends (3) 23 24 48 50 56 --------- -------- --------- -------- ----------- Total fixed charges and preferred stock dividends $1,779 $1,390 $3,485 $2,830 $4,055 ========= ======== ========= ======== =========== Ratio of earnings to fixed charges and preferred stock dividends 1.2 1.1 1.1 1.1 1.1
Fiscal Year Ended Year Ended January 31, December 31, ------------------------------ ------------------ 1995 1994 1993 1991 1990 -------- -------- -------- -------- -------- RATIO OF EARNINGS TO FIXED CHARGES Earnings: Income before income taxes $594 $1,200 $793 $772 $470 Add: Fixed charges, net 5,916 5,055 4,397 3,963 3,759 -------- -------- -------- -------- -------- Income before income taxes and fixed charges, net $6,510 $6,255 $5,190 $4,735 $4,229 ======== ======== ======== ======== ======== Fixed charges: Total interest expense (1) $5,899 $5,020 $4,362 $3,946 $3,723 Interest factor in rents (2) 41 35 35 38 36 -------- -------- -------- -------- -------- Total fixed charges $5,940 $5,055 $4,397 $3,984 $3,759 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 1.1 1.2 1.2 1.2 1.1 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings: Income before income taxes $594 $1,200 $793 $772 $470 Add: Fixed charges, net 5,916 5,055 4,397 3,963 3,794 -------- -------- -------- -------- -------- Income before income taxes and fixed charges, net $6,510 $6,255 $5,190 $4,735 $4,264 ======== ======== ======== ======== ======== Fixed charges: Total interest expense (1) $5,899 $5,020 $4,362 $3,946 $3,723 Interest factor in rents (2) 41 35 35 38 36 Preferred stock dividends (3) 97 85 82 47 35 -------- -------- -------- -------- -------- Total fixed charges and preferred stock dividends $6,037 $5,140 $4,479 $4,031 $3,794 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges and preferred stock dividends 1.1 1.2 1.2 1.2 1.1
(1) Total interest expense for the three, six, and seven months ended August 31, 1995, the three and six months ended July 31, 1994, the fiscal year ended January 31, 1995, and the years ended December 31, 1991 and 1990 includes capitalized interest. (2) Interest factor in rents represents one-third of rent expense which is considered representative of the interest factor. (3) The preferred stock dividend amounts represent pre-tax earnings required to cover dividends on preferred stock. EX-27 5 FINANCIAL DATA SCHEDULE
BD MORGAN STANLEY GROUP INC. FINANCIAL DATA SCHEDULE (IN MILLIONS, EXCEPT SHARE DATA) This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Financial Condition at August 31, 1995 (Unaudited) and the Condensed Consolidated Statement of Income for the Seven Months Ended August 31, 1995 (Unaudited) and is qualified in its entirety by reference to such condensed financial statements. 1,000,000 7-MOS NOV-30-1995 AUG-31-1995 4,854 6,766 47,849 21,055 49,947 1,228 132,264 6,707 13,440 62,322 5,983 28,159 9,111 81 0 818 3,981 132,264 904 4,229 298 708 215 3,965 1,188 607 607 0 0 413 4.80 4.57
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