-----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, EdFkuyLbuSmhjwiZU8c706Rm5RwtHpOX2cD0xAZOPACatwYm4tUSpWn+nWfL3zuw WFgHYXzKJFkRab1qjnBT8g== 0000950123-96-003565.txt : 19960715 0000950123-96-003565.hdr.sgml : 19960715 ACCESSION NUMBER: 0000950123-96-003565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960712 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: 96593824 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 10-Q 1 FORM 10-Q FOR MORGAN STANLEY GROUP INC. 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 May 31, 1996 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 June 30, 1996, there were 151,824,982 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 May 31, 1996 (Unaudited) and November 30, 1995. Condensed Consolidated Statement of Income (Unaudited) for the Three and Six Months Ended May 31, 1996 and May 31, 1995. Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended May 31, 1996 and May 31, 1995. 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
May 31, 1996 November 30, (Unaudited) 1995 ----------- ------------ Cash and interest-bearing equivalents $ 3,742 $ 2,471 Cash and securities deposited with clearing organizations or segregated under federal and other regulations (securities at market value of $1,901 at May 31, 1996 and $859 at November 30, 1995) 2,279 1,339 Financial instruments owned: U.S. government and agency securities 10,547 12,480 Other sovereign government obligations 14,536 13,792 Corporate and other debt 11,523 10,690 Corporate equities 13,024 13,185 Derivative contracts 8,277 8,043 Physical commodities 372 410 Securities purchased under agreements to resell 61,326 45,886 Securities borrowed 37,821 27,069 Receivables: Customers 5,807 3,413 Brokers, dealers and clearing organizations 1,351 1,475 Interest and dividends 997 1,082 Fees and other 729 506 Property, equipment and leasehold improvements, at cost, net of accumulated depreciation and amortization of $543 at May 31, 1996 and $462 at November 30, 1995 1,289 1,286 Other assets 1,107 626 -------- -------- Total assets $174,727 $143,753 ======== ========
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
May 31, 1996 November 30, (Unaudited) 1995 ----------- ------------ Short-term borrowings $ 15,168 $ 11,703 Financial instruments sold, not yet purchased: U.S. government and agency securities 8,606 6,459 Other sovereign government obligations 9,365 8,972 Corporate and other debt 1,019 1,076 Corporate equities 9,273 3,585 Derivative contracts 6,902 7,537 Physical commodities 53 71 Securities sold under agreements to repurchase 75,442 60,738 Securities loaned 9,119 9,340 Payables: Customers 14,795 13,818 Brokers, dealers and clearing organizations 2,506 1,974 Interest and dividends 1,053 1,019 Other liabilities and accrued expenses 1,304 595 Accrued compensation and benefits 1,309 1,192 Long-term borrowings 12,631 9,635 --------- --------- 168,545 137,714 --------- --------- Capital Units 865 865 --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock 817 818 Common stock, $1.00 par value; authorized 600,000,000 shares; issued 165,476,289 shares at May 31, 1996 and 162,838,920 shares at November 30, 1995 165 163 Paid-in capital 672 730 Retained earnings 4,296 3,815 Cumulative translation adjustments (16) (9) --------- --------- Subtotal 5,934 5,517 Less: Note receivable related to sale of preferred stock to ESOP 87 89 Common stock held in treasury, at cost (13,000,468 shares at May 31, 1996 and 7,635,174 shares at November 30, 1995) 530 254 --------- --------- Total stockholders' equity 5,317 5,174 --------- --------- Total liabilities and stockholders' equity $ 174,727 $ 143,753 ========= =========
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)
Three Months Ended Six Months Ended May 31, May 31, May 31, May 31, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- Revenues: Investment banking $ 542 $ 273 $ 941 $ 516 Principal transactions: Trading 565 438 1,269 637 Investments 38 (6) 31 13 Commissions 159 131 313 242 Interest and dividends 1,946 1,742 3,879 3,602 Asset management and administration 143 88 265 179 Other -- 1 3 3 ------------- ------------- ------------- ------------- Total revenues 3,393 2,667 6,701 5,192 Interest expense 1,865 1,656 3,724 3,388 ------------- ------------- ------------- ------------- Net revenues 1,528 1,011 2,977 1,804 ------------- ------------- ------------- ------------- Expenses excluding interest: Compensation and benefits 750 475 1,455 841 Occupancy and equipment 86 80 172 163 Brokerage, clearing and exchange fees 68 66 134 121 Communications 34 34 67 68 Business development 42 34 79 77 Professional services 53 40 95 84 Other 39 31 79 68 Relocation charge -- -- -- 59 ------------- ------------- ------------- ------------- Total expenses excluding interest 1,072 760 2,081 1,481 ------------- ------------- ------------- ------------- Income before income taxes 456 251 896 323 Provision for income taxes 155 85 322 110 ------------- ------------- ------------- ------------- Net income $ 301 $ 166 $ 574 $ 213 ============= ============= ============= ============= Earnings applicable to common shares (1) $ 284 $ 150 $ 541 $ 181 ============= ============= ============= ============= Average common and common equivalent shares outstanding (1)(2) 155,143,633 157,595,614 155,652,016 155,513,120 ============= ============= ============= ============= Primary earnings per share (2) $ 1.83 $ 0.95 $ 3.48 $ 1.17 ============= ============= ============= ============= Fully diluted earnings per share (2) $ 1.75 $ 0.91 $ 3.32 $ 1.11 ============= ============= ============= =============
(1) Amounts shown are used to calculate primary earnings per share. (2) 1995 share and per share amounts have been retroactively adjusted to give effect for the two-for-one common stock split, effected in the form of a 100% stock dividend, which became effective in January, 1996. See Notes to Condensed Consolidated Financial Statements. Page 5 6 MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
Six Months Ended May 31, May 31, 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 574 $ 213 Adjustments to reconcile net income to net cash used for operating activities: Relocation Charge -- 59 Non-cash charges included in net income 77 216 Changes in assets and liabilities: Cash and securities deposited with clearing organizations or segregated under federal and other regulations (940) 624 Financial instruments owned, net of financial instruments sold, not yet purchased 7,839 319 Securities borrowed, net of securities loaned (10,973) 1,959 Receivables and other assets (2,592) (696) Payables and other liabilities 2,335 (2,744) -------- -------- Net cash used for operating activities (3,680) (50) Cash flows from investing activities: Net payments for: Property, equipment and leasehold improvements (76) (236) -------- -------- Net cash used for investing activities (76) (236) Cash flows from financing activities: Net proceeds related to short-term borrowings 3,451 2,802 Securities sold under agreements to repurchase, net of securities purchased under agreements to resell (737) (2,271) Proceeds from: Issuance of common stock 66 17 Issuance of long-term borrowings 4,406 991 Issuance of Capital Units -- 144 Payments for: Purchase of Miller Anderson & Sherrerd, LLP, net of cash acquired (200) -- Repurchases of common stock (465) (110) Repayments of long-term borrowings (1,409) (818) Cash dividends (85) (56) -------- -------- Net cash provided by financing activities 5,027 699 -------- -------- Net increase in cash and interest-bearing equivalents 1,271 413 Cash and interest-bearing equivalents, at beginning of period 2,471 2,135 -------- -------- Cash and interest-bearing equivalents, at end of period $ 3,742 $ 2,548 ======== ========
See Notes to Condensed Consolidated Financial Statements. Page 6 7 MORGAN STANLEY GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS) SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: In connection with the Company's acquisition of Miller Anderson & Sherrerd, LLP, the Company issued approximately $66 million of notes payable, as well as 2,012,264 shares of common stock having a fair value on the date of acquisition, January 3, 1996, of approximately $83 million. Page 7 8 MORGAN STANLEY GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation On February 28, 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 fiscal period ended November 30, 1995, and, accordingly, this report includes the results for the second quarter and six months ended May 31, 1996. As a result of this change, the comparable six month period of the prior year includes the final two months of fiscal 1994 (December 1994 and January 1995) and the first four months of fiscal 1995. 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 on Form 10-K for the fiscal period ended November 30, 1995 (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 1996 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 generally are based on listed market prices. If listed market prices are not available or if liquidating the Company's positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors, including dealer price quotations and price quotations for similar instruments traded in different markets, including markets located in different geographic areas. Fair values for certain derivatives contracts are derived from pricing models which consider current market and contractual prices for the underlying financial instruments or commodities, as well as time value and yield curve or volatility factors underlying the positions. Purchases and 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 on a net-by-counterparty basis 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 consistent with 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. 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 plus accrued interest less reserves, if deemed necessary, for estimated losses. Page 8 9 Included in the Company's Condensed Consolidated Statement of Financial Condition at May 31, 1996 and November 30, 1995 are $865 million of 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 in the principal amount of $25 guaranteed by the Company and having maturities from 2013 to 2015, and (b) a related Purchase Contract issued by the Company, which may be accelerated by the Company beginning approximately one year after the issuance of each Capital Unit, requiring the holder to purchase one 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. Common share data for fiscal 1995 have been retroactively adjusted to reflect a two-for-one common stock split, effected in the form of a 100% stock dividend, declared on January 4, 1996 and payable on January 26, 1996 to holders of record on January 16, 1996. On April 3, 1996, the Company's stockholders approved an increase in the number of authorized shares of common stock from 300,000,000 to 600,000,000. 2. Long-Term Borrowings Long-term borrowings at May 31, 1996 scheduled to mature within one year aggregate $2,175 million. During the six month period ended May 31, 1996, the Company issued senior notes aggregating $4,481 million, including non-U.S. dollar currency notes aggregating $780 million, primarily pursuant to its public debt shelf registration statements. The weighted average coupon interest rate of these notes at May 31, 1996 was 5.2%; 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 of these notes for the fiscal years ending November 30 are as follows: 1998, $1,342 million; 1999, $1,423 million; 2000, $84 million; 2001, $1,333 million; and thereafter, $299 million. As of May 31, 1996, the aggregate outstanding principal amount of the Company's Senior Indebtedness (as defined in the aforementioned registration statements) was approximately $24.2 billion. From June 1, 1996 to June 30, 1996, additional senior notes aggregating $602 million were issued primarily pursuant to the Company's public debt shelf registration statements. These notes have maturities from 1997 to 2011. Page 9 10 3. Derivative Contracts and Other 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 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 on 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", and Note 5 to the Consolidated Financial Statements, included in the Form 10-K. These derivative instruments involve varying degrees of off-balance sheet market risk. Future changes in interest rates, foreign currency exchange rates or the fair values of the financial instruments, commodities or indices underlying these contracts ultimately may result in cash settlements exceeding fair value 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 with respect to these derivative instruments at any point in time is represented by the fair value of the contracts reported as assets. These amounts are presented on a net-by-counterparty basis consistent with FASB Interpretation No. 39, 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 May 31, 1996 and November 30, 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 10 11 May 31, 1996
- ----------------------------------------------------------------------------------------------------------------------- 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) $ 606 $1,088 $1,227 $ 409 $ 21 $ 116 $3,467 Foreign exchange forward contracts and options 555 687 407 41 -- 33 1,723 Mortgage-backed securities forward contracts, swaps and options 55 41 132 10 -- 10 248 Other fixed income securities contracts (including options) 17 10 17 22 -- 14 80 Equity securities contracts (including equity swaps, warrants and options) 540 232 295 131 221 13 1,432 Commodity forwards, options and swaps 196 227 265 235 -- 404 1,327 ------ ------ ------ ------ ------ ------ ------ Total $1,969 $2,285 $2,343 $ 848 $ 242 $ 590 $8,277 ====== ====== ====== ====== ====== ====== ====== Percent of total 24% 28% 28% 10% 3% 7% 100% ====== ====== ====== ====== ====== ====== ======
Page 11 12 November 30, 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) $ 660 $1,269 $1,148 $ 535 $ 88 $ 141 $3,841 Foreign exchange forward contracts and options 548 531 674 83 -- 27 1,863 Mortgage-backed securities forward contracts, swaps and options 23 31 36 7 12 14 123 Other fixed income securities contracts (including options) 25 33 33 42 -- 4 137 Equity securities contracts (including equity swaps, warrants and options) 612 98 232 143 178 159 1,422 Commodity forwards, options and swaps 103 129 152 126 -- 147 657 ------ ------ ------ ------ ------ ------ ------ Total $1,971 $2,091 $2,275 $ 936 $ 278 $ 492 $8,043 ====== ====== ====== ====== ====== ====== ====== Percent of total 25% 26% 28% 12% 3% 6% 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 and other principal investment activities, often involve substantial amounts and significant exposure to individual issuers and businesses, including non-investment grade issuers. The Company seeks to limit concentration risk created in its businesses through a variety of separate but complementary financial, position and credit exposure reporting systems, including the use of trading limits based in part upon the Company's review of the financial condition and credit ratings of its counterparties. See also "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 $3.8 billion of letters of credit outstanding at May 31, 1996 to satisfy various collateral requirements. 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. Page 12 13 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 ------- -------- ------- -------- May 31, November May 31, November 30, 30, 1996 1995 1996 1995 ------- -------- ------- -------- (in millions) ESOP Convertible Preferred Stock, liquidation preference $35.88 3,727,448 3,758,133 $134 $135 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 $817 $818 ==== ====
On May 23, 1996, the Company announced that it had called for redemption, on June 24, 1996, all 5,500,000 shares of its 9.36% Cumulative Preferred Stock at a redemption price of $25.156 per share, which reflects the stated value of $25 per share together with an amount equal to all dividends accrued and unpaid to, but excluding, June 24, 1996. 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 Commodity Futures Trading Commission. MS&Co. has consistently operated in excess of these requirements with aggregate net capital, as defined, totaling $942 million at May 31, 1996, which exceeded the amount required by $747 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"), a Tokyo-based broker-dealer, is subject to the capital requirements of the Japanese Ministry of Finance. MSIL and MSJL have consistently operated in excess of their respective regulatory 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 13 14 6. Miller Anderson & Sherrerd, LLP ("MAS") During the first quarter of fiscal 1996, the Company completed its acquisition of MAS, a Philadelphia-based investment manager, for approximately $350 million. The goodwill associated with this transaction is being amortized on a straight-line basis over 25 years. The Company's results for the six months ended May 31, 1996 include the results of MAS since January 3, 1996, the date of acquisition. 7. Van Kampen/American Capital, Inc. The Company announced on June 24, 1996 that it had signed a definitive agreement to purchase VK/AC Holdings, Inc. ("VK/AC"), the parent of Van Kampen/American Capital, Inc. ("Van Kampen"), for $745 million. Van Kampen is the fourth largest non-proprietary mutual fund provider in the United States with more than $57 billion in assets under management or supervision. The consideration for the purchase of the equity of VK/AC will consist of cash and $25 million of preferred securities exchangeable into common stock of the Company. As of May 31, 1996, VK/AC had long-term debt outstanding of approximately $430 million. The acquisition is expected to close by November 30, 1996 and is subject to customary closing conditions. The acquisition will be accounted for as a purchase. Page 14 15 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 great 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; 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 principal and merchant banking investments). In addition, such factors also may have an impact on the Company's ability to achieve its strategic objectives, including (without limitation) profitable global expansion. 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 and by the ability to cost-effectively develop and maintain the technology necessary to support its trading, clearing and risk management systems. The Company's financial results for the second quarter of fiscal 1996 surpassed the record levels of net revenues and earnings attained during the first quarter of 1996, benefiting from continued favorable market and economic conditions, including noninflationary growth, high levels of cash inflows into mutual funds and stable interest rates. Buoyed by a strong market for initial public offerings, high levels of merger, acquisition and restructuring transactions and increased investor activity, the Company's core businesses - investment banking, asset management and sales and trading - generated higher profits than the comparable prior year period. The possibility of renewed inflationary fears and higher interest rates in the U.S. and weak growth and higher unemployment in Western Europe may lead to less favorable market conditions in the future. The Company's financial results for the remainder of fiscal 1996 will reflect whether favorable market and economic conditions continue to exist, as well as the effectiveness of the Company's efforts to manage costs and risk management processes. - -------- * Except for the historical information contained herein, this Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that could be affected by the risks and uncertainties involved in the Company's business, including (without limitation) the risks and uncertainties set forth herein and in the Company's Annual Report on Form 10-K for the fiscal period ended November 30, 1995 (Part I, Item 1 and Part II, Item 7). Page 15 16 Consistent with the Company's long-term strategic goal of expanding recurring fee-based revenues, the Company announced on June 24, 1996 that it had signed a definitive agreement to purchase VK/AC Holdings, Inc. ("VK/AC"), the parent of Van Kampen/American Capital, Inc. ("Van Kampen"), for $745 million. Van Kampen is the fourth largest non-proprietary mutual fund provider in the United States with more than $57 billion is assets under management or supervision. The consideration for the purchase of the equity of VK/AC will consist of cash and $25 million of preferred securities exchangeable into common stock of the Company. As of May 31, 1996, VK/AC had long-term debt outstanding of approximately $430 million. To the extent that operating cash flow between signing and closing permits paydown of such long-term debt, the purchase price of the equity will be increased, but in no circumstances will the sum of the equity purchase price and the remaining long-term debt exceed $1.175 billion. The acquisition is expected to close by November 30, 1996 and is subject to customary closing conditions. Including VK/AC and Miller Anderson & Sherrerd, LLP ("MAS"), an institutional investment management firm acquired by the Company in January 1996, the Company's asset management division will manage assets totaling approximately $160 billion on a pro forma basis. For a description of the Company's business, including its trading in cash instruments and derivative products, its merchant banking and other principal investment 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 period ended November 30, 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 fiscal period ended November 30, 1995. The discussion which follows compares the results of operations for the three and six months ended May 31, 1996 to the three and six months ended May 31, 1995. Due to the Company's change in fiscal year-end, the results for the six months ended May 31, 1995 includes the final two months of fiscal 1994 (December 1994 and January 1995) and the first four months of fiscal 1995. Three Months Ended May 31, 1996 Compared with Three Months Ended May 31, 1995 (Amounts for the three months ended May 31, 1995 are given in parentheses). Revenues net of interest expense (net revenues) were $1,528 million ($1,011 million) and net income totaled $301 million ($166 million), primarily reflecting record levels of investment banking revenues and increased principal transaction trading revenues, partially offset by higher incentive-based compensation. Investment banking revenues increased to $542 million ($273 million), the highest quarterly level achieved by the Company. Revenues from merger, acquisition and restructuring activities increased significantly benefiting from increased transaction volumes coupled with the Company's strong global presence. Equity underwriting revenues increased significantly, resulting from a strong primary calendar in the U.S. and Europe. Fixed income revenues increased primarily reflecting higher levels of high yield issuance activity. Page 16 17 Secondary revenues (combined principal trading, commissions and net interest revenues) increased to $805 million ($655 million). Principal transaction revenues from trading activities, including derivatives, were $565 million ($438 million). Equity trading revenues were substantially higher, driven by strong revenues across all business product lines. Equity cash products were positively affected as individuals continued to infuse money into mutual funds at a record level, and equity derivatives revenues increased due to heightened trading activities in these products and higher levels of volatility in the U.S. markets. Fixed income trading revenues were comparable to prior year levels, reflecting improved performance in agency mortgage-backed securities trading, offset by lower revenues from global high-yield activities reflecting a slight weakening in the global fixed income markets as well as a decreased interest in the secondary markets as compared to the new issue market. Revenues from commodities trading rose significantly, benefiting from increased volatility in refined energy products as a result of uncertainty over Iraq's reentry into the world crude oil markets and low inventory levels. Foreign exchange trading revenues decreased, largely due to lower market volatility in the major currencies. Principal transaction investment gains aggregating $38 million ($6 million loss) were recognized in the second quarter of fiscal 1996, primarily in connection with increases in the carrying value of certain merchant banking investments. Commission revenues increased to $159 million ($131 million), principally reflecting heightened customer demand for equity cash products resulting from a strong primary calendar, as well as increased cash inflows into the equity markets from institutional investors. Net interest and dividend revenues decreased to $81 million ($86 million). Interest and dividend revenues rose to $1,946 million ($1,742 million), and interest and dividend expense increased to $1,865 million ($1,656 million), principally reflecting growth in interest-bearing assets and liabilities. 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. 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 $143 million ($88 million), primarily reflecting contributions from MAS. Revenues from international equity and emerging market products increased resulting from new products, inflows of client assets and market appreciation. Customer assets under management increased to $100 billion ($49 billion), including $36 billion associated with the acquisition of MAS as well as continued inflows of new assets and appreciation in the value of existing customer portfolios. Customer assets under administration increased to $130 billion ($104 billion), primarily reflecting appreciation in the value of customer portfolios, as well as additional assets placed under custody with the Company. Page 17 18 Total expenses excluding interest increased to $1,072 million ($760 million). Within that total, compensation and benefits expense increased $275 million to $750 million ($475 million), principally reflecting increased levels of incentive compensation based on record levels of revenues and earnings. Non-compensation expenses, excluding brokerage, clearing and exchange fees, increased $35 million to $254 million. Brokerage, clearing and exchange fees increased $2 million to $68 million, reflecting increased securities volumes, particularly in the U.S. and Europe. Occupancy and equipment expenses increased $6 million, primarily related to increased costs associated with the Company's move to 1585 Broadway, new leased office space in Tokyo and occupancy costs of MAS. Business development expenses increased $8 million, reflecting increased travel and entertainment and advertising costs as the Company developed new business and products. Professional services expenses increased $13 million reflecting increased consulting and executive recruitment costs associated with the Company's increased global business activities. Other expenses increased $8 million, partly attributable to the amortization of goodwill associated with the acquisition of MAS. A portion of the increase in non-compensation expenses is due to significantly higher overall levels of business activity resulting from the favorable market conditions which enhanced the Company's earnings. Nevertheless, the Company continuously monitors these expenses in order to control the level of discretionary spending. Six Months Ended May 31, 1996 Compared with Six Months Ended May 31, 1995 (Amounts for the six months ended May 31, 1995 are given in parentheses). Revenues net of interest expense (net revenues) were $2,977 million ($1,804 million), and net income totaled $574 million ($213 million), reflecting increased revenues among all three of the Company's core businesses - investment banking, asset management and sales and trading - partially offset by higher incentive-based compensation. Investment banking revenues increased to $941 million ($516 million) reflecting significantly higher levels of merger, acquisition and restructuring revenues as well as increased equity and debt underwriting revenues, resulting from a higher level of equity and debt financing activity as well as increased market share. Secondary revenues (combined principal trading, commissions and net interest revenues) increased to $1,737 million ($1,093 million). Principal transaction revenues from trading activities were $1,269 million ($637 million), reflecting substantially higher revenues from trading in equity and fixed income products, including derivative related products. Equity trading revenues were substantially higher, driven by strong revenues across all business product lines as increased trading volumes and customer demand positively impacted the markets. Fixed income trading revenues were also substantially higher, including improved trading revenues from emerging market and high-yield activities as economic conditions stabilized globally, including in Mexico and certain emerging markets. Commodities trading revenues also increased significantly, reflecting higher revenues from refined energy products. Revenues from foreign exchange trading decreased due to lower volatility in the markets for major currencies. Principal transaction investment revenues aggregating $31 million ($13 million) were recognized during the six month period ended May 31, 1996, primarily reflecting revenues related to the increase in carrying value of certain of the Company's merchant banking investments. Commission revenues increased to $313 million ($242 million), principally reflecting increased customer activity in the global markets for equity securities, including revenues related to a strong primary calendar in the U.S. and Europe. Page 18 19 Net interest and dividend revenues were $155 million ($214 million). Interest and dividend revenues rose to $3,879 million ($3,602 million) and interest expense increased to $3,724 million ($3,388 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 $265 million ($179 million), primarily attributable to revenues associated with MAS, as well as increased revenues in international equity and emerging markets products and continued growth in customer assets under management and administration. Total expenses excluding interest increased to $2,081 million ($1,481 million). Within that total, employee compensation and benefits expense increased to $1,455 million ($841 million), principally reflecting increased levels of incentive compensation based on higher revenues and earnings. Non-compensation expenses, excluding brokerage, clearing and exchange fees and fiscal 1994's $59 million relocation charge, increased to $492 million ($460 million). Brokerage, clearing and exchange fees increased $13 million, reflecting increased securities trading volumes. Professional services expenses increased $11 million, reflecting higher executive recruitment and consulting costs as a result of the increased level of overall business activity. Occupancy and equipment expense increased $9 million, reflecting increased costs associated with the Company's move to 1585 Broadway, new leased office space in Tokyo and the occupancy costs of MAS. Other expenses increased by $11 million primarily as a result of goodwill amortization associated with the acquisition of MAS, as well as the increase in the overall level of business activity. Page 19 20 Liquidity and Capital Resources The Company's total assets increased from $143.8 billion at November 30, 1995 to $174.7 billion at May 31, 1996, primarily reflecting growth in resale agreements and securities borrowed. 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 often reviewed by counterparties and creditors in order to evaluate a securities firm's overall financial risk. Details of ending assets, month-end average assets and leverage ratios for the six months ended May 31, 1996 and for fiscal 1995 are as follows:
Average Assets for the Six Average Months Assets Assets at Ended Assets at for May 31, May 31, November 30, Fiscal (Dollars in Millions) 1996 1996 1995 1995 - -------------------------------------------------------------------------------------------------------------------------- Cash, deposits and receivables $ 14,905 $ 15,065 10,286 12,690 Financial instruments owned 58,279 60,241 58,600 52,387 Securities purchased under agreements to resell and securities borrowed 99,147 89,237 72,955 66,539 Property, equipment and leasehold improvements and other assets 2,396 2,291 1,912 1,725 -------- -------- -------- -------- Total assets $174,727 $166,834 $143,753 $133,341 ======== ======== ======== ======== Leverage ratios: Total assets/equity 32.9x 32.2x 27.8x 27.8x Net assets (1)/equity 21.3x 21.4x 18.9x 18.6x
(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 and capital 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, reviews the foreign exchange risk of the Company, and oversees the liquidity and interest rate sensitivity of the Company's asset and liability position. The primary goal of the Company's funding and liquidity activities is to ensure the stability of the Company's funding base and provide adequate financing sources over a wide range of potential credit ratings and market environments. The Company actively manages its consolidated capital position based upon, among other things, business opportunities, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines and, therefore, may in the future expand or contract its capital base to address the changing needs of its businesses. The Company returns internally generated equity capital which is in excess of the needs of its businesses through common stock repurchases and dividends. Page 20 21 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. 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 generally 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 derivative transactions. The Company's short-term and long-term senior debt ratings as of May 31, 1996 are as follows:
Agency Short-Term Rating Long-Term Rating - ------------------------------------------------- -------------------------------- ------------------------------- Moody's Investors Service 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. As the Company continues its global expansion and as revenues are increasingly derived from various currencies, foreign currency management is a key element of the Company's financial policies. The Company benefits from operating in a number of different currencies because weakness in any particular currency is often offset by strength in another currency. The Company closely monitors its exposure to fluctuations in currencies and, where cost-justified, adopts strategies to reduce the impact of these fluctuations on the Company's financial performance. These strategies include engaging in various hedging activities to manage income and cash flows denominated in foreign currencies and using foreign currency borrowings, when appropriate, to finance investments outside the U.S. During the six month period ended May 31, 1996, the Company issued senior notes aggregating $4,481 million, including non-U.S. dollar currency notes aggregating $780 million. These notes have maturities from 1997 to 2011 and a weighted average coupon interest rate of 5.2%. As of May 31, 1996, the aggregate outstanding principal amount of the Company's Senior Indebtedness (as defined in the Company's public debt shelf registration statements) was approximately $24.2 billion. During the second quarter of fiscal 1996, the Company filed a shelf registration statement for the issuance of up to $4,286 million of debt securities, warrants to purchase debt securities, or preferred stock. Between June 1, 1996 and June 30, 1996, additional senior notes aggregating $602 million were issued. These notes have maturities from 1997 to 2011. Page 21 22 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 enables 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 maintains a secured committed credit agreement with a group of banks that are parties to the master collateral facility under which such banks are committed to provide up to $1.25 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. In December, 1995, the Company established a revolving committed financing facility that enables Morgan Stanley & Co. International Limited ("MSIL"), the Company's U.K. broker-dealer subsidiary, to secure committed funding from a syndicate of banks by providing a broad range of collateral under repurchase agreements. Such banks are committed to provide up to an aggregate of $1.25 billion available in twelve major currencies for up to 364 days. Any amounts outstanding on the commitment termination date may, at MSIL's option, be extended to mature on or before the first anniversary of the commitment termination date. There were no borrowings outstanding under any of the foregoing credit, collateral or committed financing facilities at May 31, 1996; however, the Company anticipates utilizing these facilities for short-term funding from time to time. On May 23, 1996, the Company announced that it had called for redemption, on June 24, 1996, all 5,500,000 shares of its 9.36% Cumulative Preferred Stock at a redemption price of $25.156 per share, which reflects the stated value of $25 per share together with an amount equal to all dividends accrued and unpaid to, but excluding, June 24, 1996. During the six month period ended May 31, 1996, the Company repurchased approximately 11 million shares of its common stock at an aggregate cost of approximately $465 million. On March 27, 1996, the Board of Directors authorized the purchase, in the open market or otherwise, subject to market conditions and certain other factors, of an additional $150 million of the Company's common stock. Common stock repurchases between June 1, 1996 and June 30, 1996 aggregated $31 million; the unused portion of the Company's stock repurchase authorization at such date was approximately $267 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, and certain high-yield debt securities, emerging market debt and 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 May 31, 1996, the aggregate carrying value of the Company's equity investments (including direct investments and partnership interests) in privately held companies was $100 million, and its aggregate investment in publicly held companies was $305 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 takes positions in market segments where liquidity can vary greatly from time to time. The carrying value of such financial instruments traded in markets currently experiencing lower levels of liquidity approximated $824 million at May 31, 1996. Page 22 23 In addition, at May 31, 1996, the aggregate value of high-yield debt securities and emerging market loans and securitized instruments held in inventory was $1,372 million (a substantial portion of which was subordinated debt) with not more than 5%, 12% and 12% 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 be, characterized by periods of volatility and illiquidity. The Company has in place credit and other risk policies and procedures to control total inventory positions and risk concentrations for non-investment grade securities and emerging market loans and securitized instruments. The Company may, from time to time, also provide financing or financing commitments to companies in connection with its investment banking activities that may subject the Company to increased credit and liquidity risks. At May 31, 1996, no such loans were outstanding. At May 31, 1996, financial instruments owned by the Company included derivative products (generally in the form of futures, forwards, swaps, caps, collars, floors, swap options and similar instruments which derive their value from underlying interest rates, foreign exchange rates or commodity or equity instruments and indices) related to financial instruments and commodities with an aggregate net replacement cost of $8.3 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 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 monitoring the creditworthiness of counterparties and credit limits on an ongoing basis; entering into master netting agreements and collateral arrangements with counterparties in appropriate circumstances; and limiting the duration of exposure. Page 23 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. (a) The following litigation was recently commenced against Morgan Stanley & Co. Incorporated. County of Orange and Moorlach v. Morgan Stanley & Co., Inc. On June 11, 1996, an adversary proceeding was commenced by Orange County and its Treasurer-Tax Collector against Morgan Stanley & Co. Incorporated ("Morgan Stanley") in the United States Bankruptcy Court for the Central District of California. The adversary proceeding is related to Orange County's Chapter 9 bankruptcy proceeding pending before the same court. The complaint asserts that Orange County, acting through its former Treasurer-Tax Collector, entered into various reverse repurchase agreements and other transactions with Morgan Stanley which were beyond the County's authority or ultra vires, and, therefore, void. The complaint also asserts that Morgan Stanley allowed Orange County to enter into unsuitable transactions. In addition, the complaint alleges that Morgan Stanley violated the automatic stay provisions of the Bankruptcy Code when it liquidated the County's collateral and closed out certain reverse repurchase transactions subsequent to the County's December 6, 1994 bankruptcy filing. The complaint asserts claims for ultra vires, setoff, equitable subordination, restitution, enforcement of the automatic stay, avoidance of post-petition transfers and negligence, and seeks compensatory damages in an unspecified amount, declaratory and injunctive relief, restitution, interest, various costs and attorneys' fees. (b) 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 fiscal quarter ended February 29, 1996. State of West Virginia v. Morgan Stanley & Co. Incorporated. The recommendation in the February 26, 1996 report that the recusal motion be denied was subsequently adopted by the Supreme Court of Appeals. The retrial has been scheduled for December 2, 1996. ITEM 2. CHANGES IN SECURITIES. On May 23, 1996, the Company announced that it had called for redemption all 5,500,000 issued and outstanding shares of the Company's 9.36% Cumulative Preferred Stock. The shares were redeemed on June 24, 1996 at a price of $25.156 per share, reflecting the stated value of $25 per share together with an amount equal to all dividends accrued and accumulated and unpaid to, but excluding, June 24, 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of stockholders of the Company was held on April 3, 1996. A Proxy Statement, dated February 26, 1996 (the "Proxy Statement"), was distributed by management pursuant to Regulation 14 of the Securities Exchange Act of 1934. The stockholders voted on proposals to (1) approve the election of directors, (2) approve the Company's 1995 Equity Incentive Compensation Plan ("EICP"), (3) amend the Restated Certificate of Incorporation to increase from 300,000,000 to 600,000,000 the total number of shares of Common Stock, par value $1.00 per share, which the Company will have authority to issue and (4) approve 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 approval of the EICP, the approval of the amendment of the Restated Certificate of Incorporation and the ratification of 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. Page 24 25
Election of Directors % of % of % of Votes Against/ Votes Votes Nominee: For Cast Withheld Cast Abstain Cast - ----------------------------------------------------------------------------------------------------------------- Richard B. Fisher 142,158,542 99.320 972,998 .680 N/A John J. Mack 142,025,077 99.227 1,106,463 .773 N/A Barton M. Biggs 133,166,003 93.037 9,965,537 6.963 N/A Peter F. Karches 142,043,588 99.240 1,087,952 .760 N/A Sir David A. Walker 142,040,478 99.238 1,091,062 .762 N/A Robert P. Bauman 142,149,720 99.314 981,820 .686 N/A Daniel B. Burke 141,890,569 99.133 1,240,971 .867 N/A S. Parker Gilbert 141,928,609 99.160 1,202,931 .840 N/A Allen E. Murray 141,899,327 99.139 1,232,213 .861 N/A Paul J. Rizzo 133,065,963 92.968 10,065,577 7.032 N/A Approval of the 1995 Equity Incentive Compensation Plan* 97,093,052 74.915 32,184,655 24.833 327,106 .252 Approval of an Amendment to the Restated Certificate of Incorporation: 133,121,690 93.007 9,719,483 6.791 290,367 .203 Ratification of Independent Auditors: 142,635,842 99.654 221,514 .155 274,184 .192
* There was a total of 13,526,727 broker non-votes with respect to the proposal to approve the 1995 Equity Incentive Compensation Plan. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 2 - Agreement and Plan of Merger, dated as of June 21, 1996, among VK/AC Holdings, Inc., Morgan Stanley Group Inc., MSAM Holdings II, Inc. and MSAM Acquisition Inc. Exhibit 4 - Restated Certificate of Incorporation of the Company, as amended to date. 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 25 26 (b) Reports on Form 8-K 1. Form 8-K dated February 20, 1996, Item 7 only.** 2. Form 8-K dated February 20, 1996, Item 7 only.** 3. Form 8-K dated February 23, 1996, Item 7 only.** 4. Form 8-K dated February 28, 1996, Item 7 only.** 5. Form 8-K dated March 7, 1996, Item 7 only. 6. Form 8-K dated March 15, 1996, Item 7 only. 7. Form 8-K dated March 27, 1996, Items 5 and 7. 8. Form 8-K dated April 8, 1996, Item 7 only. 9. Form 8-K dated May 6, 1996, Items 5 and 7. 10. Form 8-K dated May 9, 1996, Item 7 only. 11. Form 8-K dated May 23, 1996, Items 5 and 7. 12. Form 8-K dated May 30, 1996, Item 7 only. ** Filed with the Securities and Exchange Commission in March 1996. Page 26 27 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: July 12, 1996 /s/ Eileen K. Murray --------------------- Eileen K. Murray Treasurer and Chief Accounting Officer Date: July 12, 1996 /s/ Jonathan M. Clark ---------------------- Jonathan M. Clark General Counsel and Secretary Page 27 28 EXHIBIT INDEX - ------------- Exhibit 2 - Agreement and Plan of Merger, dated as of June 21, 1996, among VK/AC Holdings, Inc., Morgan Stanley Group Inc., MSAM Holdings II, Inc. and MSAM Acquisition Inc. Exhibit 4 - Restated Certificate of Incorporation of the Company, as amended to date. 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 28 EX-2.0 2 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2 CONFORMED COPY ============================================================ AGREEMENT AND PLAN OF MERGER AMONG VK/AC HOLDING, INC., MORGAN STANLEY GROUP INC., MSAM HOLDINGS II, INC. AND MSAM ACQUISITION INC. DATED AS OF JUNE 21, 1996 ============================================================ 2 TABLE OF CONTENTS
Page ARTICLE I THE MERGER 1.1. The Merger..................................................................................................2 1.2. Effective Time..............................................................................................2 1.3. Organizational Documents, Directors and Officers of the Surviving Corporation............................................................................3 1.4. Further Assurances..........................................................................................3 1.5. Conversion of Common Stock, Preferred Stock and Options..............................................................................................4 1.6. Acquisition Price...........................................................................................6 1.7. Dissenting Shares...........................................................................................7 1.8. Payment of Merger Consideration and Other Amounts...........................................................7 ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1. Representations and Warranties of the Company...............................................................9 2.1.1. Authorization; No Conflicts; Status of VKAC Group, etc...................................................................9 2.1.2. Capitalization..............................................................................11 2.1.3. Financial Information.......................................................................12 2.1.4. Undisclosed Liabilities.....................................................................13 2.1.5. Absence of Changes..........................................................................13 2.1.6. Taxes.......................................................................................17 2.1.7. Properties and Assets.......................................................................21 2.1.8. Contracts...................................................................................22 2.1.9. Intellectual Property.......................................................................24 2.1.10. Insurance ..................................................................................25 2.1.11. Litigation..................................................................................26 2.1.12. Compliance with Laws and Other Instruments; Governmental Approvals...............................................26 2.1.13. Environmental Matters.......................................................................27 2.1.14. Affiliate Transactions......................................................................28 2.1.15. Government Regulation.......................................................................28 2.1.16. Funds; Sub-Advisory Funds; Clients..........................................................32 2.1.17. Labor Matters, etc..........................................................................34 2.1.18. ERISA.......................................................................................34 2.1.19. Brokers, Finders, etc.......................................................................36 2.1.20. List of ERISA Clients.......................................................................36 2.1.21. Hedging Activities..........................................................................36 2.1.22. Financial Projections.......................................................................36
i 3 2.1.23. Assets Under Management....................................................................37 2.2. Representations and Warranties of the Parent, Holdco and the Buyer.......................................................................................37 2.2.1. Corporate Status; Authority for Agreement...........................................................................37 2.2.2. No Conflicts, etc...........................................................................37 2.2.3. Litigation..................................................................................38 2.2.4. Brokers, Finders, etc.......................................................................38 2.2.5. No Disqualifying Participants...............................................................38 2.2.6. Financing...................................................................................39 2.2.7. Section 15(f) Materials.....................................................................39 ARTICLE III COVENANTS 3.1. Covenants of the Company...................................................................................39 3.1.1. Conduct of Business.........................................................................39 3.1.2. No Solicitation.............................................................................40 3.1.3. Access and Information......................................................................41 3.1.4. Subsequent Financial Statements, Debt Prepayments and Filings.............................................................42 3.1.5. Public Announcements........................................................................42 3.1.6. Further Actions.............................................................................43 3.1.7. Compliance with Investment Company Act Section 15......................................................................45 3.1.8. Qualification of the Funds; Tax Affairs.....................................................46 3.1.9. ERISA Clients...............................................................................48 3.2. Covenants of the Parent, Holdco and the Buyer..............................................................48 3.2.1. Public Announcements........................................................................48 3.2.2. Further Actions.............................................................................48 3.2.3. Compliance with Investment Company Act Section 15......................................................................49 3.2.4. Employee Matters Subsequent to the Effective Time......................................................................51 3.2.5. List of Affiliates..........................................................................52 3.2.6. Contribution Agreement......................................................................52 ARTICLE IV CONDITIONS PRECEDENT 4.1. Conditions to Obligations of Each Party....................................................................53 4.1.1. HSR Act Notification........................................................................53 4.1.2. No Injunction, etc..........................................................................53 4.1.3. Contribution Agreement......................................................................53 4.1.4. Assets Under Management.....................................................................53 4.2. Conditions to Obligations of the Parent, Holdco and the Buyer...........................................................................................53 4.2.1. Representations; Performance................................................................54
ii 4 4.2.2. Consents....................................................................................54 4.2.3. MCM Indemnity...............................................................................54 4.2.4. Resignation of Directors....................................................................55 4.2.5. Opinion of Counsel..........................................................................55 4.2.6. Proceedings.................................................................................55 4.2.7. Govett Agreements...........................................................................55 4.2.8. FIRPTA Certification........................................................................55 4.3. Conditions to Obligations of the Company...................................................................55 4.3.1. Representations, Performance, etc...........................................................56 4.3.2. Consents....................................................................................56 4.3.3. Merger Consideration........................................................................56 4.3.4. Certain Indebtedness........................................................................57 4.3.5. Opinions of Counsel.........................................................................57 4.3.6. Corporate Proceedings.......................................................................57 ARTICLE V TERMINATION 5.1. Termination................................................................................................57 5.2. Effect of Termination......................................................................................58 ARTICLE VI DEFINITIONS, MISCELLANEOUS 6.1. Definition of Certain Terms................................................................................58 6.2. Survival of Representations and Warranties.................................................................74 6.3. Expenses; Transfer Taxes...................................................................................75 6.4. Severability...............................................................................................75 6.5. Notices....................................................................................................75 6.6. Miscellaneous..............................................................................................76 6.6.1. Headings....................................................................................76 6.6.2. Entire Agreement............................................................................77 6.6.3. Counterparts................................................................................77 6.6.4. Governing Law...............................................................................77 6.6.5. Binding Effect..............................................................................77 6.6.6. Assignment..................................................................................77 6.6.7. No Third Party Beneficiaries................................................................78 6.6.8. Waiver of Jury Trial........................................................................78 6.6.9. Amendment; Waivers..........................................................................78 6.6.10. Certain Disclosures.........................................................................78
iii 5 SCHEDULES AND EXHIBITS Exhibit A -- Adjustment Based on Assets Under Management Exhibit B -- Form of MCM Indemnification Agreement Exhibit C-1 -- Form of Opinion of General Counsel of the Company Exhibit C-2 -- Form of Opinion of Special Counsel to the Company Exhibit D -- Form of Opinion of Special Counsel to the Buyer Schedule 2.1.1(b) -- Company Conflicts and Governmental Approvals Schedule 2.1.1(c) -- Due Organization Schedule 2.1.2(a) -- Owners of Preferred Stock and Common Stock Schedule 2.1.2(b) -- Equity Interests of the VKAC Group Schedule 2.1.2(c) -- Option Holders Schedule 2.1.2(d) -- Agreements with Respect to Capital Stock Schedule 2.1.2(e) -- Other Investments Schedule 2.1.5 -- Changes Since December 31, 1995 Schedule 2.1.6(a) -- Tax Returns; Payment of Taxes Schedule 2.1.6(b) -- Tax Extensions Schedule 2.1.6(c) -- Group For Tax Purposes; Tax Filing Jurisdictions Schedule 2.1.6(d) -- Tax Audits and Assessments Schedule 2.1.6(f) -- Tax Sharing Arrangements Schedule 2.1.6(g) -- Regulated Investment Company Exceptions Schedule 2.1.6(j) -- Real Property in Transfer Tax Jurisdictions Schedule 2.1.6(k) -- Qualified Stock Purchases Schedule 2.1.7 -- Real Property Schedule 2.1.8(a) -- Contracts Schedule 2.1.8(b) -- Contract Exceptions Schedule 2.1.8(c) -- Investment Advisory Clients Schedule 2.1.8(f) -- Proprietary and Preferred Vendors Schedule 2.1.9(a) -- Intellectual Property Schedule 2.1.9(b) -- Intellectual Property Infringements Schedule 2.1.10 -- Insurance Policies Schedule 2.1.11 -- Litigation Schedule 2.1.12(a) -- Compliance with Laws Schedule 2.1.12(b) -- Governmental Approvals Schedule 2.1.14 -- Affiliate Transactions Schedule 2.1.15(a) -- Regulatory Compliance: Investment Advisers Schedule 2.1.15(b) -- Regulatory Compliance: Broker-Dealers Schedule 2.1.15(c) -- Funds and Sub-Advisory Funds Schedule 2.1.15(f) -- Regulatory Compliance: Transfer Agent Schedule 2.1.15(g) -- Regulatory Compliance: Trust Companies iv 6 Schedule 2.1.18(a) -- ERISA Plans Schedule 2.1.19 -- Brokers, Finders, etc. Schedule 2.1.20 -- ERISA Accounts Schedule 2.2.2 -- Parent and Buyer Conflicts and Governmental Approvals Schedule 3.1.1 -- Conduct of Business Schedule 3.1.6(f) -- Other Consents Schedule 3.2.4(c) -- Change of Control v 7 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of June 21, 1996, among VK/AC Holding, Inc., a Delaware corporation (the "Company"), Morgan Stanley Group Inc., a Delaware corporation (the "Parent"), MSAM Holdings II, Inc., a Delaware corporation and a wholly owned subsidiary of the Parent ("Holdco"), and MSAM Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Holdco (the "Buyer"). W I T N E S S E T H : WHEREAS, the Company is a Delaware corporation having authorized capital of (i) 32,500 shares of Preferred Stock, all of which shares are issued and outstanding on the date hereof, (ii) 3,250,000 shares of Class A Common Stock, of which 2,317,474 shares are issued and outstanding on the date hereof and (iii) 3,250,000 shares of Class B Common Stock, of which 117,817 shares are issued and outstanding on the date hereof; WHEREAS, the Company owns all of the issued and outstanding capital stock of Van Kampen American Capital, Inc., a Delaware corporation ("VKAC"); WHEREAS, the Buyer wishes to acquire the Company on the terms and conditions and for the consideration described in this Agreement (capitalized terms used herein without definition having the meanings specified therefor in Section 6.1); WHEREAS, the Parent, Holdco and the Designated Managers have entered into a Contribution Agreement dated as of the date hereof (the "Contribution Agreement"); WHEREAS, in furtherance of such acquisition, (i) the Boards of Directors of the Company and the Buyer have approved a merger of the Buyer with and into the Company (the "Merger") upon the terms and subject to the conditions set forth in this Agreement, and have directed that this Agreement be submitted to their respective stockholders for adoption, and (ii) each of the holder of a majority of the shares of Common Stock issued and outstanding on the date hereof and Holdco, as the sole stockholder of the Buyer, has approved the Merger, upon the terms and subject to the conditions set forth in this 8 Agreement, in each case pursuant to a written stockholder consent; and WHEREAS, the Company, the Parent, Holdco and the Buyer desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger; NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1. The Merger. In accordance with and subject to the terms and provisions of this Agreement and the DGCL, at the Effective Time: (i) the Buyer shall be merged with and into the Company, the separate existence of the Buyer shall cease and the Company shall be the surviving corporation (the "Surviving Corporation") and shall continue its corporate existence under the laws of the State of Delaware; (ii) all rights, privileges, immunities, powers, purposes, franchises, properties and assets of the Company and the Buyer shall vest in the Surviving Corporation; and (iii) all debts, liabilities, obligations, restrictions, disabilities and duties of the Company and the Buyer shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. 1.2. Effective Time. Upon the terms and subject to the conditions of this Agreement, no later than the second Business Day after the satisfaction or waiver of the conditions set forth in Article IV, the Company shall execute and file a Certificate of Merger (together with any other documents required by Applicable Law to effectuate the Merger) with the Secretary of State of the State of Delaware in accordance with Sections 251 and 103 of the DGCL (the "Certificate of Merger"). Prior to such filing, a closing (the "Closing") will be held at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York (or such other place as the parties may agree), for the purpose of confirming all of the foregoing. The Merger shall become effective simultaneously with the filing of the Certificate of Merger. The date and time when the Merger shall become effective is referred to in this Agreement as the "Effective Time." 2 9 1.3. Organizational Documents, Directors and Officers of the Surviving Corporation. (a) Certificate of Incorporation. From and after the Effective Time, the Certificate of Incorporation of the Buyer in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until thereafter amended, altered or repealed as provided therein or by Applicable Law. (b) By-Laws. From and after the Effective Time, the by-laws of the Buyer in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended, altered or repealed as provided therein. (c) Directors and Officers. From and after the Effective Time, the directors of the Buyer immediately prior to the Effective Time shall be the directors of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until his or her successor is elected or appointed, as the case may be, and qualified or until his or her earlier death, resignation, disqualification or removal. 1.4. Further Assurances. If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of the Company or the Buyer, or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to solicit in the name of the Company or the Buyer any third party consents or other documents required to be delivered by any third party, to execute and deliver, in the name and on behalf of the Company or the Buyer, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of the Company or the Buyer, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of the Company or the Buyer and otherwise to carry out the purposes of this Agreement. 3 10 1.5. Conversion of Common Stock, Preferred Stock and Options. (a) Common Stock and Preferred Stock in General. Each share of Common Stock and Preferred Stock outstanding at the Effective Time (except for (x) any shares of Common Stock then held in the treasury of the Company or by any Subsidiary of the Company, (y) Dissenting Shares and (z) any shares of Common Stock then held by Holdco) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the Per Share Merger Consideration (such amounts, in the aggregate, the "Merger Consideration"). (b) Shares Held by the Company, a Subsidiary or Holdco. Each share of Common Stock that at the Effective Time is held in the treasury of the Company, by any Subsidiary of the Company or by Holdco shall, by virtue of the Merger and without any action on the part of the Company, any such Subsidiary or Holdco, be cancelled and retired and cease to exist, without any conversion thereof. (c) No Rights as Stockholders. The holders of certificates representing shares of Common Stock shall as of the Effective Time cease to have any rights as stockholders of the Company, except such rights, if any, as holders of Dissenting Shares may have pursuant to the DGCL, and, except as aforesaid, their sole right shall be the right to receive their share of the Merger Consideration, as determined and paid in the manner set forth in this Agreement. (d) Employee Options. At the Effective Time, each option outstanding at such time under the VK/AC Holding, Inc. Stock Option Plan (the "Option Plan") and the Management Stock Option Agreements entered into pursuant to the Option Plan (each, an "Employee Option"), whether or not vested, other than any Employee Option subject to an Acknowledgment, Waiver and Agreement between the Company and the holder thereof (each such agreement, a "Stock Option Waiver"), shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled for the right to receive from the Surviving Corporation at the Effective Time an amount of cash in dollars (subject to reduction for any applicable withholding Taxes) equal to the product of (i) the excess of the Per Share Merger Consideration over the exercise price per share of such Employee Option, and (ii) the number of shares of Class A Common Stock subject to such Employee Option. On the Business Day immediately preceding the Effective Time, the Company shall deliver to the Buyer a certificate, signed by an officer of the Company, setting forth (A) the aggregate amount (the "Total Employee Option Cancellation Amount") 4 11 payable by the Surviving Corporation under this Section 1.5(d) without reduction for applicable withholding Taxes and (B) the aggregate applicable withholding Taxes payable with respect thereto. (e) Deferred Stock Units. Each deferred stock unit outstanding at such time under the separate Deferred Stock Agreements between the Company and employees of members of the VKAC Group (each such employee, a "Grantee," each such agreement, a "Deferred Stock Agreement" and each such unit, a "Deferred Stock Unit") and each Employee Option outstanding at such time that is subject to a Stock Option Waiver, in each case whether or not vested, shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled in exchange for the right, subject to and in accordance with the terms of the applicable Deferred Stock Agreement in the case of the Deferred Stock Units, or the applicable Stock Option Waiver in the case of the Employee Options, to receive from the Surviving Corporation an amount of cash in dollars (subject to reduction for any applicable withholding Taxes) equal to (i) in the case of such Deferred Stock Unit, the Per Share Merger Consideration, and (ii) in the case of such Employee Option, the product of (A) the excess of the Per Share Merger Consideration over the exercise price per share of such Employee Option, and (B) the number of shares of Class A Common Stock subject to such Employee Option. (f) Travelers Option and Jones Option. On the Business Day immediately preceding the Effective Time, the Company shall prepare and deliver to the Parent, Holdco and the Buyer: (i) in the event that the Effective Time occurs after January 1, 1997, a certificate setting forth (x) the number of shares of Class B Common Stock for which the Travelers Option would become exercisable on the Closing Date (the "Travelers Option Shares"), based upon the Average Annual Net Asset Value Increase (as defined in the Travelers Option Agreement) as of the Business Day immediately preceding the date such certificate is delivered and (y) (A) the aggregate amount payable by the Surviving Corporation at the Effective Time to Travelers in respect of the cancellation of the Travelers Option without reduction for applicable withholding Taxes (such amount, the "Travelers Option Cancellation Amount"), and (B) the aggregate applicable withholding Taxes payable with respect thereto, if any; and (ii) a certificate setting forth (x) the number of shares of Class A Common Stock for which the Jones Option would become exercisable on the Effective Time (the "Jones Option Shares"), based upon the Average Annual Net Asset Value Increase (as defined in the Jones Option 5 12 Agreement) as of the Business Day immediately preceding the date such certificate is delivered and (y) (A) the aggregate amount, if any, payable by the Surviving Corporation at the Effective Time to E.D. Jones in respect of the cancellation of the E.D. Jones Option without reduction for applicable withholding Taxes (such amount, the "Jones Option Cancellation Amount") and (B) the aggregate applicable withholding Taxes payable with respect thereto. (g) Common Stock of the Buyer. At the Effective Time, each share of common stock of the Buyer then issued and outstanding shall, by virtue of the Merger and without any action on the part of the Buyer, be converted into and become one fully paid and nonassessable share of common stock, par value $1.00 per share, of the Surviving Corporation. 1.6. Acquisition Price. (a) Amount. The "Acquisition Price" shall be $1,175,000,000, subject to adjustment as provided in Section 1.6(b). (b) Adjustments to Acquisition Price. The Acquisition Price shall be subject to the following two adjustments: (i) The Acquisition Price shall be adjusted prior to the Effective Time in accordance with the formula set forth in Exhibit A hereto. At or prior to 12:00 noon, New York City time, on the Business Day immediately preceding the Effective Time, the Company shall deliver to the Buyer a certificate, signed by an officer of the Company, setting forth the Closing Assets Under Management and the Market Assets Under Management as of the close of business on the second Business Day immediately preceding the Effective Time. Such certificate will include information with respect to each open end Fund, the Prime Rate Trust and the Institutional Accounts (including each Sub-Advisory Fund), and will show the amount and calculation of the adjustment, if any, to the Acquisition Price pursuant to Exhibit A hereto and this Section 1.6(b)(i). (ii) In addition to the adjustment provided for in clause (i), the Acquisition Price shall be reduced by: (A) the Adjusted Senior Notes Amount; (B) the Adjusted Bank Debt Amount; and (C) 50% of the Transaction Expenses up to an amount of such Expenses not to exceed $16,000,000 and 100% of any such Expenses in excess of $16,000,000. Two Business Days prior to the Effective Time, the Company shall deliver to the 6 13 Buyer a certificate, executed by the president and the chief financial officer of the Company, setting forth the individual amounts, if any, by which the Acquisition Price will be adjusted pursuant to the foregoing clauses (A), (B) and (C), together with reasonable supporting calculations for each component of such adjustments, such determinations to be made as of the Business Day (the "Determination Date") that is six Business Days prior to the Effective Time. (iii) The Acquisition Price shall be increased by an amount equal to the product of (i) the Acquisition Price, as adjusted pursuant to Section 1.6(b)(ii) but without regard to Section 1.6(b)(i) and this Section 1.6(b)(iii), times (ii) Base LIBOR (as defined in the Credit Agreement) plus .15 of 1%, times (iii) a fraction, the numerator of which shall be the number of days from and including the Determination Date to the Effective Time and the denominator of which shall be 360. The Buyer and the Company shall for federal Income Tax purposes treat the increase in the Acquisition Price pursuant to this Section 1.6(b)(iii) as a portion of the acquisition price for the Company, not as interest. 1.7. Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock which are held by stockholders who shall have effectively dissented from the Merger and perfected their appraisal rights in accordance with the provisions of Section 262 of the DGCL (the "Dissenting Shares"), shall not be converted into or be exchangeable for the right to receive the Merger Consideration, but the holders thereof shall be entitled to payment from the Surviving Corporation of the appraised value of such shares in accordance with the provisions of Section 262 of the DGCL. 1.8. Payment of Merger Consideration and Other Amounts. (a) Surrender of Certificates, etc. Prior to the Effective Time, the Parent, Holdco, the Buyer and the Company shall enter into an exchange agent agreement (the "Exchange Agent Agreement") with a bank or trust company designated by the Company and reasonably acceptable to the Buyer pursuant to which such bank or trust company shall act as exchange agent (the "Exchange Agent") for the payment of the Merger Consideration. As soon as practicable after the Effective Time, each holder of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Common Stock or Preferred Stock (the "Certificates") shall, upon surrender to the Exchange Agent 7 14 of such Certificate or Certificates and acceptance thereof by the Exchange Agent, be entitled to the amount of cash (rounded to the nearest $0.01) into which the aggregate number of shares of Common Stock or Preferred Stock previously represented by such Certificate or Certificates surrendered shall have been converted pursuant to Section 1.5(a) of this Agreement. The Exchange Agent shall accept such Certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. The Exchange Agent shall deliver all funds which each holder of Common Stock or Preferred Stock is entitled to receive pursuant to this Section 1.8 within one Business Day following such holder's surrender of such holder's Certificates. The Buyer shall furnish to the Exchange Agent prior to or at the Effective Time all funds required to make such payments. No interest will be paid or accrued on the Merger Consideration upon the surrender of the Certificates. All payments in respect of shares of Common Stock or Preferred Stock which are made in accordance with the terms hereof shall be deemed to have been made in full satisfaction of all rights pertaining to such shares. With respect to any Certificate alleged to have been lost, stolen or destroyed, the owner or owners of such Certificate shall be entitled to the Merger Consideration in respect of such Certificate upon delivery to the Exchange Agent of an affidavit of such owner or owners setting forth such allegation and a bond sufficient to indemnify the Parent, Holdco and the Surviving Corporation against any claim that may be made against any of them on account of the alleged loss, theft or destruction of any such Certificate or the delivery of such Merger Consideration. (b) Payments in Respect of Options. At or prior to the Effective Time, the Buyer shall pay to the Company an amount equal to the Total Employee Option Cancellation Amount, the Jones Option Cancellation Amount and, if the Effective Time occurs after January 1, 1997, the Travelers Option Cancellation Amount, net in each case of withholding Taxes, if any, which amounts shall be paid by the Surviving Corporation to the Persons entitled to receive such amounts pursuant to Sections 1.5(d) and (f). (c) Endorsement of Certificates; Transfer Taxes. If Merger Consideration is to be delivered to a Person other than the Person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition to delivery of such Merger Consideration that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the Person requesting such 8 15 Merger Consideration shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Exchange Agent and the Surviving Corporation that such Tax has been paid or is not applicable. (d) Status of Certificates. Until surrendered in accordance with the provisions of this Section 1.8, from and after the Effective Time, each Certificate (other than (i) Certificates representing shares of Common Stock held in the treasury of the Surviving Corporation, by any Subsidiary of the Surviving Corporation or by Holdco and (ii) Dissenting Shares in respect of which appraisal rights are perfected) shall represent for all purposes only the right to receive a portion of the Merger Consideration as determined and paid in the manner set forth in this Agreement. (e) No Further Transfers. After the Effective Time there shall be no transfers on the stock transfer books of the Surviving Corporation of the shares of Common Stock or Preferred Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Merger Consideration as provided in Section 1.8(d). ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1. Representations and Warranties of the Company. The Company represents and warrants to the Parent, Holdco and the Buyer as follows: 2.1.1. Authorization; No Conflicts; Status of VKAC Group, etc. (a) Authorization, etc. The Company has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by it. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, by the Company have been duly authorized by all requisite corporate action of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms. 9 16 (b) No Conflicts. Except as set forth in Schedule 2.1.1(b), the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not contravene, result in any violation of, loss of rights or default under, constitute an event creating rights of acceleration, termination, repayment or cancellation under, entitle any party to receive any payment pursuant to, or result in the creation of any Lien upon any of the properties or assets of any member of the VKAC Group under, (i) any provision of the Organizational Documents of any member of the VKAC Group, (ii) any Applicable Law applicable to any member of the VKAC Group or any Fund or any of their respective properties or (iii) any Contract, except for, in the case of this clause (iii), any such contraventions, violations, losses, defaults, accelerations, terminations, repayments, cancellations or Liens that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 2.1.1(b), no Governmental Approval (other than pursuant to the HSR Act) or other Consent is required to be obtained or made by any member of the VKAC Group or any Fund in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (c) Due Organization, etc. Schedule 2.1.1(c) sets forth a correct and complete list of each member of the VKAC Group, its form and jurisdiction of organization and each jurisdiction in which such member is qualified to do business. Each member of the VKAC Group is a corporation, partnership, limited liability company, trust or trust company duly organized, validly existing and in good standing under the laws of such member's jurisdiction of organization, with the requisite corporate, partnership, company, trust or trust company power and authority, as applicable, to carry on its business as now conducted and to own or lease and to operate its properties as and in the places where such business is now conducted and such properties are now owned, leased or operated. Each member of the VKAC Group is duly qualified to do business and is in good standing as a foreign corporation, partnership, limited liability company, trust or trust company, as applicable, in all jurisdictions in which the failure to be so qualified, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on such member of the VKAC Group. (d) Organizational Documents, etc. The Company has made available to the Buyer complete and correct copies 10 17 of the Organizational Documents, as in effect on the date hereof, of each member of the VKAC Group. The Buyer has been given the opportunity to inspect the corporate minutes and stock transfer books of the Company and VKAC. 2.1.2. Capitalization. (a) The Company. The authorized capital stock of the Company consists of (i) 3,250,000 shares of Class A Common Stock, of which 2,317,474 shares as of the date hereof are issued and outstanding, (ii) 3,250,000 shares of Class B Common Stock, of which 117,817 shares as of the date hereof are issued and outstanding and (iii) 32,500 shares of Preferred Stock, all of which shares as of the date hereof are issued and outstanding. All of the outstanding shares of Preferred Stock and Common Stock have been duly authorized, validly issued, fully paid and nonassessable. The record owners as of the date hereof of the Preferred Stock and the Common Stock are listed in Schedule 2.1.2(a). (b) Other Members of the VKAC Group. Schedule 2.1.2(b) sets forth a complete and correct description of the authorized stock or other equity interests of each member of the VKAC Group (other than the Company) and the amount of such stock or other equity interests that are issued and outstanding as of the date hereof. All of such outstanding shares of stock or other equity interests of each member of the VKAC Group (other than the Company) have been duly authorized and validly issued and are fully paid and nonassessable, and are owned beneficially and of record by the member of the VKAC Group or other Person specified on such Schedule 2.1.2(b). (c) Options. There are 358,301 shares of Class A Common Stock reserved for issuance upon exercise of the Employee Options outstanding on the date hereof, 57,750 shares of Class A Common Stock reserved for issuance upon exercise of the Jones Option, 120,222 shares of Class B Common Stock reserved for issuance upon exercise of the Travelers Option (the Employee Options, the Jones Option and the Travelers Option, collectively, the "Options"), 3,350 shares of Class A Common Stock reserved for issuance in connection with Deferred Stock Units outstanding on the date hereof, 32,500 shares of Class A Common Stock reserved for issuance upon exchange of the Preferred Stock for such shares and 3,132,183 shares of Class B Common Stock reserved for issuance upon exchange of shares of Class A Common Stock for such shares. There are Options relating to 536,273 shares of Common Stock outstanding as of the date hereof, and the Company has not agreed to, nor does it have commitments to, issue options relating to any additional shares 11 18 of Common Stock. The Travelers Option will terminate without having become exercisable so long as the Effective Time occurs prior to January 1, 1997. Schedule 2.1.2(c) sets forth a complete and correct list of all holders of Options as of the date hereof (collectively, the "Option Holders") and all holders of Deferred Stock Units as of the date hereof, including the exercise price of each such Option and the number of shares of Common Stock issuable upon exercise thereof and upon vesting of each such Deferred Stock Unit. (d) Other Agreements with Respect to Capital Stock. There are no preemptive or similar rights on the part of any Person with respect to the issuance of any shares of capital stock of the Company or any other member of the VKAC Group, except for such rights as may be set forth in the Registration and Participation Agreement. Except (i) for this Agreement, (ii) in respect of the Options and the Deferred Stock Agreements, (iii) in respect of certain repurchase rights with respect to the shares of Class A Common Stock held by current or former officers or employees of the Company or any of its Subsidiaries and (iv) and as set forth in Schedule 2.1.2(c) or 2.1.2(d), currently there are no subscriptions, options, warrants or other similar rights, agreements or commitments of any kind obligating the Company or any other member of the VKAC Group to issue or sell, or to cause to be issued or sold, or to repurchase or otherwise acquire, any shares of its capital stock or any securities convertible into or exchangeable for, or any options, warrants or other similar rights relating to, any such shares. (e) Other Investments. Except as set forth in Schedule 2.1.2(e) and except for securities of and other interests in members of the VKAC Group, investments in publicly traded securities acquired or held in the ordinary course of business as trading inventory, investments in the Company's investment products and cash equivalents, no VKAC Company holds any outstanding securities or other interests in any corporation, partnership, company, joint venture or other entity. 2.1.3. Financial Information. The Company has delivered to the Buyer the Financial Statements. The Financial Statements have been prepared in all material respects in accordance with generally accepted accounting principles in the United States applied on a consistent basis ("GAAP") throughout the periods presented in the Financial Statements, except, in the case of the Company Financial Statements as at and for the three months ended March 31, 12 19 1996, for normal year-end audit adjustments and the absence of footnotes. The consolidated balance sheets of the Company and its Subsidiaries included in the Company Financial Statements present fairly in all material respects the financial position of the Company and its Subsidiaries as at the respective dates thereof; and the consolidated statements of income, statements of stockholders' equity and statements of cash flow of the Company and its Subsidiaries included in the Company Financial Statements present fairly in all material respects the results of operations, stockholders' equity and cash flows of the Company and its Subsidiaries for the respective periods indicated. The statements of net assets or statements of assets and liabilities and investment portfolio included in the Fund Financial Statements for each of the Funds present fairly in all material respects the financial position of such Fund as at the respective dates thereof, and the statements of operations and statements of changes in net assets included in the Fund Financial Statements for each of the Funds present fairly in all material respects the results of operations and changes in net assets of such Funds for the respective periods indicated. 2.1.4. Undisclosed Liabilities. The VKAC Group is not subject to any obligation or liability of any nature, whether absolute, accrued, contingent or otherwise and whether due or to become due, and, to the knowledge of the Company, there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such an obligation or liability, that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, other than (i) obligations and liabilities contemplated by or in connection with this Agreement or the transactions contemplated hereby, (ii) as and to the extent disclosed or reserved against in the audited consolidated balance sheet as at December 31, 1995 included in the Company Financial Statements and (iii) obligations and liabilities incurred since December 31, 1995 in the ordinary course of business consistent with past practices and not prohibited by this Agreement. 2.1.5. Absence of Changes. Since December 31, 1995, except (i) as set forth in Schedule 2.1.5, (ii) as reflected or reserved against in the Financial Statements, or (iii) as contemplated by (including, without limitation, Section 3.1.1) or in connection with this Agreement or the transactions contemplated hereby, the business of the VKAC Group and, to the knowledge of the Company, the Funds have been conducted in the ordinary course consistent with past 13 20 practices and no member of the VKAC Group and, to the knowledge of the Company, no Fund has: (a) undergone any change in its business, financial condition, results of operations or properties (other than changes of a general economic or political nature, including but not limited to changes in the net asset value of any Fund or Sub-Advisory Fund resulting from fluctuations in market price) that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect; (b) in the case of the Company or the Funds, declared, set aside, made or paid any dividend or other distribution in respect of its capital stock or repurchased, redeemed or otherwise acquired any shares of its capital stock, except, in the case of the Funds, in the ordinary course of business consistent with past practices; (c) issued or sold any shares of its capital stock of any class or any options, warrants or other similar rights, agreements or commitments of any kind to purchase any such shares or any securities convertible into or exchangeable for any such shares, except (i) for issuances or sales of shares of capital stock of the Funds in the ordinary course of business consistent with past practices and (ii) as permitted under Section 3.1.2; (d) in the case of any member of the VKAC Group, incurred, assumed, guaranteed or prepaid any indebtedness for borrowed money (including, without limitation, letters of credit) or issued or sold any debt securities, except for any such incurrence, assumption, guarantee or prepayment of (i) indebtedness under the Credit Agreement which, in the case of prepayments after the date hereof, shall not exceed the Permitted Debt Prepayment Amount for the applicable period, (ii) indebtedness under the BONY Loan Agreement for the purpose of financing trading inventory in the ordinary course of business consistent with past practices or (iii) other indebtedness in the ordinary course of business consistent with past practices in an aggregate amount not exceeding $5,000,000; (e) mortgaged, pledged or otherwise subjected to any Lien any of its properties or assets, tangible or intangible, except for Permitted Encumbrances or in the 14 21 ordinary course of business consistent with past practices; (f) entered into (i) any agreement or commitment involving more than $1,000,000 that, pursuant to its terms, is not cancelable without penalty on 60 days' notice or less or (ii) any other agreement, commitment or other transaction, other than (A) any agreement, commitment or other transaction involving an expenditure of not more than $500,000 or (B) Investment Advisory Contracts, distribution agreements, Underwriting Agreements and Custodian/Transfer Agent Agreements entered into in the ordinary course of business consistent with past practices; (g) paid (or committed to pay) any bonus or other incentive compensation to any officer, director, partner, employee or sales representative or granted (or committed to grant) to any officer, director, partner, employee or sales representative any other increase in compensation, except in each case in the ordinary course of business consistent with past practices or pursuant to the terms of any agreement or commitment existing at December 31, 1995; (h) (i) entered into, adopted or amended in any material respect, any employment, collective bargaining, deferred compensation, severance, retirement, bonus, profit-sharing, stock option or other equity, pension or welfare plan or agreement maintained for the benefit of any officer, director, partner, employee or sales representative or (ii) granted any severance or termination pay to any officer, director, partner, employee or sales representative, except in any such case in the ordinary course of business consistent with past practices, as required under Applicable Law or, in the case of clause (ii), for any such grant required to be made pursuant to any plan, agreement or commitment existing at December 31, 1995; (i) suffered any strike or other labor dispute that has had or would reasonably be expected to have a Material Adverse Effect; (j) suffered any loss of employees or customers that has had or would reasonably be expected to have a Material Adverse Effect; 15 22 (k) amended its certificate of incorporation or by-laws or any other Organizational Documents; (l) granted any rights or licenses under any of its trademarks or trade names or other Company Intellectual Property or entered into any licensing or similar agreements or arrangements other than in the ordinary course of business consistent with past practices; (m) made any material changes in policies or practices relating to selling practices, returns, discounts or other material terms of sale or accounting therefor, including any material change in sales load reallowance policies with respect to sales of shares of the Funds; (n) in the case of any Fund, had any action taken by the Board of Directors or Trustees of such Fund other than in the ordinary course of business consistent with past practices or as contemplated by or in connection with this Agreement; (o) changed in any material respect its accounting practices, policies or principles, other than any such changes as may be required under GAAP; (p) in the case of any VKAC Company, amended or agreed to amend (i) any fee arrangement with respect to services provided by it to any Fund, (ii) any fee arrangement with any Person relating to the distribution of shares of any Fund or (iii) any fee arrangement existing under any Investment Advisory Contract; (q) in the case of any Fund, amended or agreed to amend the distribution-related fees payable to any Person in connection with the distribution of its shares, or otherwise amended the terms applicable to any existing class of its shares, or authorized the creation of a new class of shares; (r) suffered any damage, destruction or other casualty loss (whether or not covered by insurance) affecting its properties or assets which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; or 16 23 (s) taken any action or omitted to take any action that would result in the occurrence of any of the foregoing. 2.1.6. Taxes. (a) Filing of Returns and Payment of Taxes. Except as set forth on Schedule 2.1.6(a), all material Returns required to be filed on or before the date hereof have been filed in accordance with Applicable Law and all material Returns required to be filed on or before the Closing Date will have been filed by the Closing Date in accordance with Applicable Law or, in each case, the time for filing such Returns shall have been validly extended as set forth in Schedule 2.1.6(b). Except for Taxes set forth on Schedule 2.1.6(a), the following Taxes (collectively, "Company Taxes") have (or, in the case of Taxes that become due after the date hereof and on or before the Closing Date, by the Closing Date will have) been duly paid: (i) all Taxes shown to be due on such Returns and (ii) all material Taxes due and payable on or before the date hereof and all material Taxes due and payable on or before the Closing Date that are or may become payable by the VKAC Companies or chargeable as a Lien upon the assets thereof (whether or not shown on any Return). Except as set forth on Schedule 2.1.6(a), all material Employment and Withholding Taxes required to be withheld and paid on or before the date hereof, and all material Employment and Withholding Taxes required to be withheld and paid on or before the Closing Date, have been or by the Closing Date will have been duly paid to the proper Governmental Authority or properly set aside in accounts for such purpose. Except as set forth on Schedule 2.1.6(a), all interest and penalties in respect of material Taxes that were not timely paid have been paid. (b) Extensions, etc. Except as set forth on Schedule 2.1.6(b), (i) no agreement or document extending or waiving, or having the effect of extending or waiving, the period of assessment or collection of any Company Taxes or Employment and Withholding Taxes, and no power of attorney with respect to any such Taxes, has been executed or filed with the IRS or any other taxing authority; (ii) none of the VKAC Companies has requested any extension of time within which to file any Return and has not yet filed such Return; and (iii) there are no requests for rulings in respect of any Company Taxes or Employment and Withholding Taxes pending between any VKAC Company and any Governmental Authority. (c) Tax Filing Groups; Income Tax Jurisdictions. Except as set forth on Schedule 2.1.6(c), none of the VKAC Companies is or has been at any time a member of any affili- 17 24 ated, consolidated, combined or unitary group for Tax purposes. Set forth on Schedule 2.1.6(c) for the VKAC Companies are all countries, states, provinces, cities or other jurisdictions in which any material Tax is properly payable by any VKAC Company. (d) Copies of Returns; Audits; etc. The Company has (or by the Closing Date will have) made available to the Buyer complete and accurate copies of all Returns as filed and, if applicable, as amended, with respect to all open Tax periods that have been filed or will be required to be filed (after giving effect to all valid extensions of time for filing) on or before the Closing Date. Except as set forth on Schedule 2.1.6(d), (i) no Company Taxes or Employment and Withholding Taxes have been asserted in writing (or, to the knowledge of the Company, after January 31, 1995, orally) by any Governmental Authority to be due in respect of any open Tax period, (ii) no revenue agent's report or written (or, to the knowledge of the Company, after January 31, 1995, orally) assessment for Taxes has been issued by any Governmental Authority in the course of any audit with respect to Company Taxes or Employment and Withholding Taxes for any open Tax period and (iii) no issue has been raised by any Governmental Authority in writing (in a writing that has been received by the VKAC Companies) or, to the knowledge of the Company, after January 31, 1995, orally in the course of any audit that has not been completed with respect to Company Taxes or Employment and Withholding Taxes. Except as set forth on Schedule 2.1.6(d), all Returns filed with respect to Tax years of the VKAC Companies through the Tax year ended December 31, 1983, have been closed or are Returns with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, has expired. The audits of the Returns with respect to federal Income Taxes for the following taxable periods have been completed: All taxable periods beginning on or after September 9, 1983 and ended on or prior to December 31, 1986. The Returns with respect to federal Income Taxes for the following taxable periods are currently under audit by the IRS: 1987 through 1992. Except as set forth on Schedule 2.1.6(d), there is no judicial or administrative claim, audit, action, suit, proceeding or, to the knowledge of the Company, investigation now pending or threatened against or with respect to any VKAC Company in respect of any Company Tax, Employment and Withholding Tax or Tax Asset. Except as set forth on Schedule 2.1.6(d), there is no reasonable basis for any deficiency, claim or adjustment of additional Company Taxes or Employment and Withholding Taxes of which the Company is aware. Except as set forth on Schedule 2.1.6(d), 18 25 there are no Liens for Taxes upon the assets of any VKAC Company except Liens for current Taxes not yet due or being contested in good faith and by appropriate proceedings. (e) Section 1445(a) of the Code. The Buyer will not be required to deduct and withhold any amount pursuant to section 1445(a) of the Code upon the payment of the Merger Consideration pursuant to this Agreement. (f) Tax Sharing Agreements. Except as set forth on Schedule 2.1.6(f), (i) none of the VKAC Companies is a party to or bound by or has any obligation under any Tax sharing agreement or arrangement and (ii) no VKAC Company is currently under any contractual obligation to pay any amounts of the type described in clause (ii) or (iii) or the definition of "Tax." (g) Regulated Investment Company, etc. (i) As to each of the Funds other than those to which the provisions of paragraph (ii) or (iii) of this Section 2.1.6(g) apply: Except as set forth on Schedule 2.1.6(g), (A) each of such Funds made or will make the election set forth in section 851(b) of the Code for its first taxable year for which it represented to its shareholders that it was a RIC; (B) except for its current taxable year and other than Van Kampen American Capital Pace Fund prior to June 30, 1977, each of such Funds has qualified as a RIC, for such first taxable year and for each succeeding taxable year; (C) except for failure to comply with the provisions of section 852(a)(1) of the Code, each of such Funds would qualify as a RIC, for its current taxable year if the last day of its most recent fiscal quarter ended on or prior to the date of this Agreement were treated as the last date of such taxable year and (D) no such Fund has any earnings and profits accumulated in any taxable year in which it did not qualify as a RIC. As of the Closing Date, each of such Funds will have qualified as a RIC, for each of its taxable years ended prior to the Closing Date, other than Van Kampen American Capital Pace Fund prior to June 30, 1977. As of the Closing Date, except for failure to comply with the provisions of section 852(a)(1) of the Code, (E) each of such Funds whose taxable years end within three months after the Closing Date would so qualify for its taxable year during which the Closing Date occurs if the Business Day immediately preceding the Closing Date were treated as the last date of such taxable year, and (F) except for a failure to comply with section 851(b)(4) of the Code that would not prevent such Fund from curing such failure under section 851(d) of 19 26 the Code and that is consistent with past practice of such Fund and with such Fund's fiduciary obligations, each of such Funds would so qualify for its taxable year in which the Closing Date occurs if the last day of its most recent fiscal quarter ended on or prior to the Closing Date were treated as the last date of such taxable year. (ii) In the case of Van Kampen American Capital Exchange Fund, Van Kampen American Capital Monthly Accumulation Plans and each of the Funds that is a unit investment trust, other than those unit investment trusts that have made the election set forth in section 851(b) of the Code (to which the provisions of paragraph (i) of this Section 2.1.6(g) shall apply), such Fund is not and has not been at any time since its inception (or, if later, the effective date of section 851(f) of the Code) an association taxable as a corporation for federal Income Tax purposes. Van Kampen American Capital Exchange Fund is and has been since its inception treated as a partnership for federal Income Tax purposes. Van Kampen American Capital Monthly Accumulation Plans is and has been since its inception (or, if later, the effective date of section 851(f) of the Code) treated as a business arrangement to which the provisions of such section 851(f) apply. All portions of each Fund that is a unit investment trust, other than a unit investment trust that has made the election set forth in section 851(b) of the Code, are and have been since their inception subject to subpart E of part I of subchapter J of chapter 1 of subtitle A of the Code. (iii) Each of the Van Kampen American Capital Navigator Funds is organized as a "societe d'investissement a capital variable a compartiments multiples" under the laws of Luxembourg. Each such Fund maintains its principal office, as defined for purposes of section 864(b)(2)(A)(ii) of the Code, outside the United States. (iv) Except as set forth on Schedule 2.1.6(g), all material Tax returns, reports, declarations, forms or information statements relating to Taxes required to be filed by any Fund with any Governmental Authority, or provided by any Fund to any other Person, on or before the Closing Date (the "Fund Returns") have been duly filed, or provided to the appropriate Person, by or on behalf of such Fund in accordance with all applicable laws. Except as set forth on Schedule 2.1.6(g), as of the time each Fund Return was filed or provided to the relevant Person, such Fund Return was accurate and complete in all material respects. Except as set forth on Schedule 2.1.6(g), all material Taxes payable by or on behalf of any Fund on or before the date 20 27 hereof have been timely paid, or withheld and remitted, to the appropriate Governmental Authority. Except as set forth on Schedule 2.1.6(g), there is no judicial or administrative claim, audit, action, suit, proceeding or investigation now pending or to the knowledge of the Company, threatened against or with respect to any Fund in respect of any Tax. (h) Reserves for Taxes. As of the date hereof, the financial statements of the VKAC Companies reflect charges, accruals and reserves to cover taxes and deferred taxes that are adequate in all material respects in accordance with GAAP. As of the Closing Date, the financial statements of the VKAC Companies will reflect charges, accruals and reserves to cover taxes and deferred taxes that are adequate in all material respects in accordance with GAAP. All information set forth in the Financial Statements, including the notes thereto, relating to tax matters is true and complete in all material respects in accordance with GAAP. (i) Section 481 Adjustment. No VKAC Company is or will be required to include any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for a Pre-Closing Tax Period or pursuant to the provisions of any agreement entered into with any Taxing Authority on or before the Closing Date with regard to the Tax liability of any VKAC Company for any Pre-Closing Tax Period. (j) Real Property. Except as set forth on Schedule 2.1.6(j), none of the VKAC Companies owns any interest in real property in the State of New York or in any other jurisdiction in which a Tax is imposed on the transfer of a controlling interest in an entity that owns any interest in real property. (k) Qualified Stock Purchases. Except as set forth on Schedule 2.1.6(k), no VKAC Company has consummated a "qualified stock purchase" within the meaning of section 338 of the Code since December 20, 1994. 2.1.7. Properties and Assets. Schedule 2.1.7 sets forth a complete and correct list, as of the date hereof, of all real property leased by any member of the VKAC Group (the "Real Property"), including the names of each of the parties to such lease and the location of the applicable property. None of the members of the VKAC Group owns any real property. Each member of the VKAC Group has 21 28 valid title to all material personal property owned by it, and valid leasehold interests in all real and material personal property leased by it, in each case free and clear of all Liens, except (i) Liens specified in Schedule 2.1.7 or reflected in the Financial Statements, (ii) Liens for Taxes not yet delinquent or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained on its books in accordance with GAAP, (iii) statutory Liens incurred in the ordinary course of business consistent with past practices that have not had and would not reasonably be expected to have a Material Adverse Effect and (iv) Liens which do not materially detract from the value or materially interfere with the use of the properties affected thereby (the exceptions described in the foregoing clauses (i), (ii), (iii) and (iv) being referred to collectively as "Permitted Encumbrances"). Schedule 2.1.7 sets forth a list of each real property lease under which any VKAC Company is a lessee as to which the consummation by the Company of the transactions contemplated hereby would result in a violation of, loss of rights or default under or constitute an event creating rights of acceleration, termination or cancellation under such lease. 2.1.8. Contracts. (a) Schedule of Contracts, etc. Schedule 2.1.8(a) sets forth a correct and complete list, as of the date hereof, of all Contracts. The term "Contracts" means all written agreements, contracts and commitments of the following types to which any member of the VKAC Group is a party or by which any member of the VKAC Group or its respective properties is bound and which is currently in effect, as amended, supplemented, waived or otherwise modified as of the date hereof: (i) agreements, contracts and commitments for the performance of investment advisory or investment management services for clients (the "Investment Advisory Contracts"); (ii) agreements, contracts and commitments for the distribution of shares of the Funds or any other mutual funds, closed end companies, variable annuities or other similar products to which any of the top 20 selling agents (which such agents represented more than 54% of the sales of such products during the year ended December 31, 1995) of the investment products of the VKAC Group (measured by sales of such products during the year ended December 31, 1995) is a party (the "Selling Agreements") and underwriting agreements with the Funds as to which any member of the VKAC Group is the principal underwriter (the "Underwriting Agreements"); (iii) custody, transfer agent and other similar material agreements (the "Custodian/Transfer Agent Agreements"); (iv) employment, consulting, retention and collective bargaining agreements, 22 29 if any, with officers, directors, key employees, former employees or sales representatives; (v) mortgages, indentures, security agreements relating to indebtedness for borrowed money, letters of credit, loan agreements and other material agreements, guarantees and instruments relating to the borrowing of money or extension of credit; (vi) material licenses and other similar material agreements involving Intellectual Property rights; (vii) joint venture, partner- ship and similar agreements; (viii) stock purchase agreements (other than any such agreements pursuant to which the Company issued Preferred Stock or Common Stock to any Person), asset purchase agreements and other acquisition or divestiture agreements; (ix) material agreements, contracts and commitments with respect to the sharing or capping of fees or other payments received from any Client or other Person or the sharing of expenses of any other Person; (x) personal property leases providing for annual rentals of $1,000,000 or more; (xi) agreements, contracts and commitments for the purchase of supplies, services, equipment or other assets that provide for either (A) annual payments by the VKAC Group of $500,000 or more or (B) aggregate payments by the VKAC Group of $1,000,000 or more; (xii) any other agreements, contracts or commitments that are material to the business, financial condition, results of operations or properties of the VKAC Group, taken as a whole; and (xiii) any guaranty of any of the foregoing. The Company has made available to the Buyer for inspection complete and correct copies of all Contracts, including a fee schedule, where applicable. (b) No Defaults, etc. Except as set forth in Schedule 2.1.8(b) and excluding any failure to obtain Consents with respect to the Contracts listed in Schedule 2.1.1(b), (i) each Contract is in full force and effect in all material respects, and (ii) there does not exist under any material Contract any material event of default, or any event or condition that, after notice or lapse of time or both, would constitute a material event of default, on the part of any member of the VKAC Group or, to the knowledge of the Company, on the part of any other party to any material Contract. Except as disclosed in Schedule 2.1.8(b), no member of the VKAC Group is subject to any contract, agreement or commitment materially restricting or limiting the type or scope of business or operations that it may conduct now or immediately after the Effective Time. (c) Certain Investment Advisory Clients. Schedule 2.1.8(c) sets forth a correct and complete list of each investment advisory client of the VKAC Companies as of the date hereof. Except as set forth on Schedule 2.1.8(c), as 23 30 of the date hereof each such client is being served by the VKAC Company specified on such Schedule and the Company has not received written notice from any such client of, and, to the knowledge of the Company, no such client has stated orally, its intention to terminate its Investment Advisory Contract. (d) Certain Selling Agents. As of the date hereof, the Company has not received written notice from any selling agent that is a party to any Selling Agreement of, and, to the knowledge of the Company, no such party has stated orally, its intention to terminate its Selling Agreement. (e) Investment Contracts. To the knowledge of the Company, and except as would not reasonably be expected to have a Material Adverse Effect on any VKAC Company or Fund party thereto, (x) each Investment Advisory Contract, Selling Agreement, Underwriting Agreement and Custodian/Transfer Agent Agreement and any renewal thereof after the date hereof and prior to the Effective Time has been duly authorized, executed and delivered by each party thereto and, to the extent applicable, has been adopted in compliance with Section 15 of the Investment Company Act and is a valid and binding agreement of each such party, enforceable in accordance with its terms (subject to bankruptcy, insolvency, moratorium, fraudulent transfer and similar laws affecting creditors' rights generally and to general equity principles) and (y) each of the Company and, to the knowledge of the Company, the other party thereto is in compliance in all material respects with the terms of each Investment Advisory Contract, Selling Agreement, Underwriting Agreement and Custodian/Transfer Agent Agreement to which it is a party, and no event has occurred or condition exists that constitutes or with notice or the passage of time would constitute a material default by any member of the VKAC Group thereunder. (f) Status. Schedule 2.1.8(f) sets forth a complete and correct list of the top 20 firms (measured by sales of Fund shares during the year ended December 31, 1995) that distribute shares of the Funds with whom the VKAC Group has a proprietary vendor or preferred vendor relationship as of the date hereof. 2.1.9 Intellectual Property. (a) Schedule of Intellectual Property. Schedule 2.1.9(a) sets forth a correct and complete list of all of the trade or service marks and all other material Intellectual Property used in the business and operations of the VKAC Group as of the date 24 31 hereof (the "Company Intellectual Property") and sets forth the owner and nature of the interest of the VKAC Group therein. The Company has previously made available to the Buyer correct and complete copies of all licenses, sublicenses or other similar agreements (including any amendments thereto) set forth on Schedule 2.1.9(a). Except as set forth in Schedule 2.1.9(a), the VKAC Group has the legal right to use the Company Intellectual Property in connection with the business as currently conducted by the VKAC Group and, except as set forth on Schedule 2.1.1(b), immediately after the Effective Time, the Surviving Corporation or its Subsidiaries will have such right to the same extent and on the same terms as the VKAC Group was entitled to use the Company Intellectual Property immediately prior to the Effective Time. (b) No Infringement, etc. To the knowledge of the Company, the business and operations of the VKAC Group as currently conducted do not infringe or otherwise conflict with any rights of any Person in respect of any Intellectual Property. To the knowledge of the Company, none of the Company Intellectual Property owned by any member of the VKAC Group is being materially infringed or otherwise materially used or available for use by any Person other than a member of the VKAC Group, except as set forth in Schedule 2.1.9(a) or (b). No Company Intellectual Property owned by any member of the VKAC Group is subject to any out standing judgment, injunction, order, decree or agreement restricting the use thereof by any member of the VKAC Group with respect to its business or restricting the licensing thereof by such member to any Person. Except as set forth on Schedule 2.1.9(b), no member of the VKAC Group has entered into any agreement to indemnify any other Person against any charge of infringement of Intellectual Property, other than pursuant to any such agreements entered into in connection with the use of commercially available information systems applications. 2.1.10. Insurance. Schedule 2.1.10 sets forth a correct and complete list of all insurance policies and fidelity bonds maintained on the date hereof by or for the benefit of the members of the VKAC Group and the Funds. The Company has made available to the Buyer complete and correct copies of all such policies and bonds, together with all riders and amendments thereto as of the date hereof. As of the date hereof, such policies and bonds are in full force and effect, and all premiums due thereon have been paid. The members of the VKAC Group have complied in all material respects with the terms and provisions of such policies and bonds. Except as set forth on Schedule 2.1.10, there is no 25 32 claim in excess of $100,000 by any member of the VKAC Group or any Fund pending as of the date hereof under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. Such policies and bonds (or other policies and bonds providing substantially similar insurance coverage) have been in effect since the Relevant Date and are of the type and in amounts customarily carried by Persons conducting businesses similar to the businesses of the VKAC Group. If so requested by the Parent, the VKAC Companies will have their insurance broker(s) notify the underwriters of such policies and bonds of the transactions contemplated by this Agreement and advise such insurance broker(s) to maintain all such policies and bonds in accordance with their terms until further notice. Immediately after the Effective Time, the members of the VKAC Group shall continue to have coverage under the policies and bonds set forth in items 2, 3, 4, 5, 6, 7, 8, 10 and 11 of Schedule 2.1.10. The fidelity insurance, the directors and officers liability insurance, and errors and omissions policies and all other insurance coverage of each member of the VKAC Group and, to the knowledge of the Company, each Fund has been since the Relevant Date maintained in accordance with Applicable Law. 2.1.11. Litigation. Except as set forth in Schedule 2.1.11, there is no judicial or administrative action, suit, investigation, inquiry or proceeding pending or, to the knowledge of the Company, threatened that (a) individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect or result in any liability on the part of the VKAC Group in an amount in excess of $2,000,000 individually or $5,000,000 in the aggregate or (b) questions the validity of this Agreement or of any action taken or to be taken by any member of the VKAC Group in connection herewith. 2.1.12. Compliance with Laws and Other Instruments; Governmental Approvals. (a) Compliance with Laws, etc. Except as disclosed in Schedule 2.1.12(a), no member of the VKAC Group and, to the knowledge of the Company, no Fund is in material violation of or material default under, or has at any time since the Relevant Date materially violated or been in material default under, (i) any Applicable Law applicable to it or any of its properties or business or (ii) any provision of its Organizational Documents. Schedule 2.1.12(a) sets forth a correct and complete list of all consent decrees or other similar agreements entered into by any member of the VKAC Group with any Governmental Authority after the Relevant Date or prior to the Relevant Date if currently in effect. 26 33 (b) Governmental Approvals. Except as disclosed in Schedule 2.1.12(b), all material Governmental Approvals necessary for the conduct of the business and operations of each member of the VKAC Group have been duly obtained and are in full force and effect. There are no proceedings pending or, to the knowledge of the Company, threatened that would reasonably be expected to result in the revocation, cancellation or suspension, or any materially adverse modification, of any such Governmental Approval, and except with respect to Governmental Approvals set forth on Schedule 2.1.1(b), the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in any such revocation, cancellation, suspension or modification. (c) Filings. Since the Relevant Date, the VKAC Group has filed all material registrations, reports, statements, notices and other material filings required to be filed with the Commission or any other Governmental Authority by any member of the VKAC Group, including all required amendments or supplements to any of the above (the "Filings"). The Filings complied in all material respects, where applicable, with the requirements of the Securities Act, the Exchange Act, the Advisers Act and the Investment Company Act. As of their respective dates, each of the Filings constituting prospectuses, statements of additional information, Part II of Form ADVs or annual reports on Form 10-K did not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company has made or will make available to the Buyer complete and correct copies of (i) all Filings made within the past two years (including but not limited to all filings on Form ADV, Form TA, Form NSAR and Form BD), (ii) of all audit reports received by any member of the VKAC Group from the Commission or any other Governmental Authority and all written responses thereto made by any such member during the past two years, (iii) copies of all inspection reports provided to any VKAC Company by the Commission or any state regulatory authority during the past two years and (iv) all correspondence relating to any inquiry or investigation provided to any VKAC Company by the Commission or any state regulatory authority during the past two years. 2.1.13. Environmental Matters. Each member of the VKAC Group is and has been in compliance in all material respects with all Environmental Laws applicable to it and its properties, and no Environmental Activity has otherwise occurred in material violation of any Environmental Law for 27 34 which any member of the VKAC Group may be responsible. No member of the VKAC Group has any material liabilities, absolute or contingent, in connection with any Environmental Activity or under any Environmental Law. To the knowledge of the Company, all Real Property is free from contamination in all material respects from any Hazardous Materials (including but not limited to asbestos). All material permits, licenses, registrations and authorizations required under applicable Environmental Laws as currently in effect for the conduct of the business and operations of the VKAC Group have been obtained and are presently in effect, and there are no material violations thereof outstanding. 2.1.14. Affiliate Transactions. Schedule 2.1.14 sets forth a correct and complete list of all agreements, arrangements or other commitments in effect as of December 31, 1995 between any member of the VKAC Group, on the one hand, and any Affiliate of any member of the VKAC Group, other than another member of the VKAC Group or the Funds and other than, in the case of any officer or employee of the Company or any of its Subsidiaries who may be deemed to be an Affiliate, in the ordinary course of business consistent with past practices, on the other hand. Since December 31, 1995, except as set forth in Schedule 2.1.14, no member of the VKAC Group has entered into any agreement, arrangement or other commitment or transaction with any Affiliate of the Company, other than another member of the VKAC Group or the Funds and other than, in the case of any officer or employee of the Company or any of its Subsidiaries who may be deemed to be an Affiliate, in the ordinary course of business consistent with past practices. 2.1.15. Government Regulation. (a) Investment Advisers. Each of Van Kampen American Capital Investment Advisory Corp., Van Kampen American Capital Management, Inc., Van Kampen American Capital Advisors, Inc., Van Kampen American Capital Asset Management, Inc. and Van Kampen Merritt Equity Advisors Corp. (collectively, the "Registered Investment Advisers") is, and at all times required by the Advisers Act during the past five years has been, duly registered as an investment adviser under the Advisers Act. Except as set forth in Schedule 2.1.15(a), each of the Registered Investment Advisers is, and at all times required by Applicable Law (other than the Advisers Act) during the past two years has been, duly registered, licensed or qualified as an investment adviser in each state where the conduct of its business required such registration, licensing or qualification, except for any such failure to be so registered, licensed or qualified that would not reasonably be expected to have a Material Adverse Effect on 28 35 such Registered Investment Adviser. Each such United States federal and state registration, license or qualification, as of the date hereof, is listed in Schedule 2.1.15(a) and is in full force and effect. No VKAC Company other than the Registered Investment Advisers is or has been during the past five years an "investment adviser" within the meaning of the Advisers Act, required to be registered, licensed or qualified as an investment adviser under the Advisers Act or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified. None of the VKAC Companies is or has been during the past five years an Investment Company. (b) Broker-Dealers. Each of Van Kampen American Capital Distributors, Inc. and American Capital Contractual Services, Inc. (collectively, the "Registered Broker-Dealers") is, and at all times required by the Exchange Act during the past five years has been, a broker-dealer duly registered under the Exchange Act and a member firm in good standing of the NASD and, to the extent required, the Municipal Securities Rulemaking Board. Except for any Registered Broker-Dealer set forth on Schedule 2.1.15(b), each of the Registered Broker-Dealers is, and at all times required by Applicable Law (other than the Exchange Act) during the past two years has been, duly registered, licensed or qualified as a broker-dealer in each state where the conduct of its business required such registration, licensing or qualification, except for any such failure to be so registered, licensed or qualified that would not reasonably be expected to have a Material Adverse Effect on such Registered Broker-Dealer. Each such United States federal and state registration, license or qualification, as of the date hereof, is listed in Schedule 2.1.15(b) and is in full force and effect. Except for any Registered Broker-Dealer set forth on Schedule 2.1.15(b), no VKAC Company other than the Registered Broker-Dealers is or has been during the past five years required to be registered, licensed or qualified as a broker-dealer under the Exchange Act, or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified, except for any such failure that would not reasonably be expected to have a Material Adverse Effect on such VKAC Company. (c) Funds and Sub-Advisory Funds. Schedule 2.1.15(c) sets forth each Investment Company for which a VKAC Company acts as investment adviser, sponsor or manager as of the date hereof, including but not limited to mutual funds, closed end companies, unit investment trusts and any other pooled investment vehicle (whether or not registered) 29 36 (collectively, the "Funds"), and each Investment Company for which a VKAC Company acts as an investment subadviser as of the date hereof (the "Sub-Advisory Funds"). Each of the Funds and, to the knowledge of the Company, the Sub-Advisory Funds that is or during the past five years in the case of the Funds and two years in the case of the Sub-Advisory Funds has been required by the Investment Company Act to be registered with the Commission as an investment company under the Investment Company Act is, and at all times required by the Investment Company Act during the past five years or two years, as the case may be, has been, so registered. Except with respect to the Funds and the Sub-Advisory Funds, no VKAC Company acts as investment adviser or subadviser to any Investment Company. Each VKAC Company that acts as investment adviser or subadviser to a Fund or Sub-Advisory Fund has a written Investment Advisory Contract pursuant to which such VKAC Company serves as investment adviser or subadviser to such Fund or Sub-Advisory Fund. As of the date hereof, no VKAC Company and no "interested person" of any VKAC Company, as such term is defined in the Investment Company Act, receives or is entitled to receive any compensation directly or indirectly (a) from any Person in connection with the purchase or sale of securities or other property to, from or on behalf of any of the Funds or Sub-Advisory Funds, other than bona fide ordinary compensation as principal underwriter, distributor or sponsor for the Funds, or (b) from the Funds or Sub-Advisory Funds or their respective security holders for other than bona fide investment advisory, sub-advisory or other services. (d) Codes of Ethics, etc. (i) The VKAC Companies have adopted a formal code of ethics and a written policy regarding insider trading, a complete and accurate copy of each of which has been made available to the Buyer. Such code of ethics complies in all material respects with Section 17(j) of the Investment Company Act, Rule 17j-1 thereunder and Section 204A of the Advisers Act. Such insider trading policy complies in all material respects with Section 204A of the Advisers Act and Section 15(f) of the Exchange Act. The policies of the VKAC Companies as of the date hereof with respect to avoiding conflicts of interest are as set forth in the most recent Form ADV or policy manual of the VKAC Companies, as amended, which has been made available to the Buyer. To the knowledge of the Company, there have been no violations of such code of ethics or such policies that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 30 37 (ii) Each Fund that is registered under the Investment Company Act has duly adopted procedures pursuant to Rules 17a-7, 17e-1 and 10f-3 under the Investment Company Act, to the extent applicable. Each Fund that is registered under the Investment Company Act has for the past two years been operated and is currently operating in compliance in all material respects with Rules 17a-7, 17e-1 and 10f-3 thereunder, to the extent applicable. (e) No Disqualifications. (i) No member of the VKAC Group, (ii) no Person "associated" (as defined under the Advisers Act) with any member of the VKAC Group and (iii) with respect to the Funds, no Person within the scope of Section 9(a) of the Investment Company Act, is or has been during the past two years subject to any disqualification that would be a basis (A) for denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the Exchange Act, (B) for disqualification as an investment adviser or a principal underwriter for an investment company pursuant to Section 9(a) of the Investment Company Act or (C) for prohibition from holding certain positions pursuant to Section 411 of ERISA and, to the knowledge of the Company, there is no proceeding or investigation, and no basis for any proceeding or investigation, that would reasonably be expected to become the basis for any such disqualification, denial, suspension, revocation or prohibition. (f) Transfer Agent. ACCESS Investor Services, Inc. (the "Transfer Agent") is, and at all times required by the Exchange Act during the past five years has been, duly registered as a transfer agent under the Exchange Act. Except as set forth in Schedule 2.1.15(f), the Transfer Agent is, and at all times required by Applicable Law (other than the Exchange Act) during the past two years has been, duly registered, licensed or qualified as a transfer agent in each state where the conduct of its business required such registration, licensing or qualification, except for any such failure to be so registered, licensed or qualified that would not reasonably be expected to have a Material Adverse Effect on the Transfer Agent. Each such United States federal and state registration, license or qualification, as of the date hereof, is listed in Sched ule 2.1.15(f) and is in full force and effect. No VKAC Company other than the Transfer Agent is or has been during the past five years a "transfer agent" within the meaning of the Exchange Act, or required to be registered, licensed or qualified as a transfer agent under the Exchange Act, or 31 38 subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified, except for any such failure that would not reasonably be expected to have a Material Adverse Effect on such VKAC Company. (g) Trust Companies. Except as set forth in Schedule 2.1.15(g), Van Kampen American Capital Trust Com pany is, and at all times required by Applicable Law during the past two years has been, duly registered, licensed or qualified as a trust company in each state, if any, where the conduct of its business required such registration, licensing or qualification, except for any such failure to be so registered, licensed or qualified that would not reasonably be expected to have a Material Adverse Effect on such company. Each such registration, license or qualification, as of the date hereof, is listed in Schedule 2.1.15(g) and is in full force and effect. No VKAC Company other than Van Kampen American Capital Trust Company is or has been during the past two years required to be registered, licensed or qualified as a trust company under any Applicable Law, or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified, except for any such failure that would not reasonably be expected to have a Material Adverse Effect on such VKAC Company. (h) Other Entities. The members of the VKAC Group and each of their partners or employees which are or who are required to be registered as a registered representative, an investment adviser representative, insurance agent or a sales person with the Commission, the securities or insurance commission of any state or any self-regulatory body is duly registered as such and such registration is in full force and effect, except where the failure to be so registered or to have such registration in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 2.1.16. Funds; Sub-Advisory Funds; Clients. (a) Fund Compliance with Legal and Other Requirements. (i) Each Investment Advisory Contract with respect to any Fund and, to the knowledge of the Company, with respect to any Sub-Advisory Fund, and each Underwriting Agreement, during the past five years in the case of a Fund and two years in the case of a Sub-Advisory Fund, has been duly adopted and maintained in compliance in all material respects with Section 15 of the Investment Company Act. 32 39 (ii) Since the Relevant Date, each Fund has been operated in compliance with its respective objectives, policies and restrictions, including without limitation those set forth in the applicable prospectus and registration statement for a Fund or governing instruments for a client, except where lack of compliance would not reasonably be expected to have a Material Adverse Effect. (iii) To the extent that any VKAC Company has acted as a fiduciary, plan administrator or other service provider where such VKAC Company is deemed to be a fiduciary to any employee benefit plan that is subject to ERISA, such VKAC Company during the past four years has complied with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such plan, except any such failures to comply that would not reasonably be expected to have a Material Adverse Effect on such VKAC Company. (b) Status of the Funds and Sub-Advisory Funds. Except where the violation of any of the representations and warranties contained in this Section 2.1.16(b) would not reasonably be expected to have a Material Adverse Effect: (i) (A) The shares of each Fund are qualified for sale, or an exemption therefrom is in full force and effect, in each state and territory of the United States and the District of Columbia to the extent required by Applicable Law; (B) all outstanding shares of each Fund that were required to be registered under the Securities Act have been sold pursuant to an effective registration statement filed thereunder; (C) all outstanding shares of each Fund have been duly authorized, validly issued and are fully paid and nonassessable and (D) each Fund and, to the knowledge of the Company, each Sub-Advisory Fund is currently operating in compliance with Applicable Law, has been operating in compliance with Applicable Law of (1) any U.S. federal Governmental Authority for the past five years and (2) any other Governmental Authority for the past two years and is not subject to any stop order or similar order restricting the sale of its shares. (ii) To the knowledge of the Company, (a) no Fund registration statement contained, as of its effective date, (b) no Fund proxy statement contained, as of its date, and (c) no current prospectus (which term, as used in this Agreement, shall include any related statement of additional information and any private placement memorandum), as amended or supplemented, 33 40 relating to a Fund, contained or contains any untrue statement of a material fact or omitted or (in the case of any such current prospectus) omits to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading. To the knowledge of the Company, each such current prospectus and all current advertising and marketing materials relating to a Fund and, to the extent applicable, relating to any VKAC Company complies in all material respects with the Securities Act, the Investment Company Act, applicable provisions of state law and, in the case of such advertising and marketing materials only, in form and substance with the applicable rules of the NASD. (iii) Each Fund and, to the knowledge of the Company, each Sub-Advisory Fund that is a juridical entity is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite corporate, trust or partnership power and authority to own its properties and to carry on its business as it is now conducted, and is qualified to do business in each jurisdiction where it is required to do so under Applicable Law. 2.1.17. Labor Matters, etc. No member of the VKAC Group is a party to or bound by any collective bargaining agreement. Each member of the VKAC Group has materially complied for the past four years and is in material compliance with all applicable provisions of United States federal, state and local laws pertaining to the employment or termination of their respective employees. 2.1.18. ERISA. (a) Schedule of Plans, etc. Schedule 2.1.18(a) sets forth a list of each written "employee benefit plan," within the meaning of section 3(3) of ERISA, and each written bonus, incentive or deferred compensation, stock option or other equity, severance, retention, change in control or other employee benefit plan, program or arrangement, including, but not limited to, those providing for insurance coverage (including any self- insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits and retirement benefits, (x) that is maintained by any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group or to which any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group contributes or is obligated to contribute and (y) under which any employee of any member of the VKAC Group is or may become 34 41 entitled to, or any former employee thereof is currently entitled to, an accrued benefit (collectively, the "Plans"). For purposes of this Section 2.1.18, "ERISA Affiliate" of any entity means any other entity which, together with such entity, is treated as a single employer under section 414(b), (c) or (m) of the Code. The Company has made available to the Buyer correct and complete copies of all written Plans, all related trust agreements and the most recent IRS Form 5500 filed in respect of any such Plan. Except as disclosed on Schedule 2.1.18(a), each Plan intended to be qualified under section 401(a) of the Code has received a favorable determination letter from the IRS as to its qualification under the Code and, to the knowledge of the Company, (x) no amendment has been made to any such Plan since the date of its most recent determination letter that would reasonably be expected to result in the disqualification of such Plan and (y) no other event has occurred with respect to any such Plan which would reasonably be expected to adversely affect the qualification of such Plan. The Company has provided to the Buyer copies of the most recent Internal Revenue Service determination letters received with respect to each such Plan. (b) No Minimum Funding Standards, etc. No Plan is subject to the minimum funding standards of section 302 of ERISA or section 412 of the Code. No Plan is a multiemployer plan (as defined in section 3(37) of ERISA) or a multiple employer plan and no Plan is maintained in connection with any trust described in section 501(c)(9) of the Code. No material liability to the Pension Benefit Guaranty Corporation in respect of any Plan or any other plan subject to Title IV of ERISA maintained by any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group has been incurred pursuant to the provisions of Title IV of ERISA by any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group. (c) Operation of the Plans, etc. Each of the Plans has been operated and administered in material compliance with its terms and all Applicable Law, including but not limited to ERISA and the Code. There are no material claims pending or, to the knowledge of the Company, threatened by or on behalf of any employee of any member of the VKAC Group involving any such Plan (other than routine claims for benefits under the terms of any such Plan). All contributions required to have been made to any Plan or any other plan subject to Title IV of ERISA maintained by any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group by any member of the VKAC Group or any ERISA Affiliate of any member of the VKAC Group pursuant 35 42 to Applicable Law (including, without limitation, ERISA and the Code) have been made. (d) Code Section 280G. There is no contract, agreement, plan or arrangement covering any employee of any member of the VKAC Group that, to the knowledge of the Company, individually or collectively, would reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. 2.1.19. Brokers, Finders, etc. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried on without the participation of any Person acting on behalf of the Company in such manner as to give rise to any valid claim against any member of the VKAC Group or the Buyer for any brokerage or finder's commission, fee or similar compensation, other than as set forth in Schedule 2.1.19, and by Goldman, Sachs & Co. and Merrill Lynch & Co., Inc., in each case whose fee for services provided in respect of this Agreement and the transactions contemplated hereby shall be paid by the Company. 2.1.20. List of ERISA Clients. Schedule 2.1.20 sets forth a correct and complete list of each Client (other than a Client that is a Client solely by reason of its investment in a Fund that is an Investment Company) that, to the knowledge of the Company, is (i) an employee benefit plan, as defined in Section 3(3) of ERISA (unless the Client has represented to the Company that it is a governmental plan, church plan or otherwise not subject to Title I of ERISA or Code section 4975 or the Company reasonably believes that it is not subject to Title I of ERISA or Code section 4975) or (ii) a person acting on behalf of such a plan (hereinafter referred to as an "ERISA Client"). 2.1.21. Hedging Activities. The derivative products held by any VKAC Company were acquired (i) for the purpose of hedging against market value changes in such VKAC Company's trading inventory relating to its unit investment trust business in the ordinary course of business consistent with past practices or (ii) to hedge its variable rate debt. 2.1.22. Financial Projections. The financial projections relating to the VKAC Companies that have been delivered to the Parent or the Buyer by the Company were made in good faith and, to the knowledge of the Company, were not unreasonable when made. 36 43 2.1.23. Assets Under Management. As of the close of business on June 20, 1996, the aggregate amount of assets under management for (i) the open end Funds was $27,797,424,000, (ii) the Prime Rate Trust was $4,804,106,000 and (iii) the Institutional Accounts (including the Sub-Advisory Funds) was $3,310,303,000. 2.2. Representations and Warranties of the Parent, Holdco and the Buyer. The Parent, Holdco and the Buyer represent and warrant to the Company as follows: 2.2.1. Corporate Status; Authority for Agreement. Each of the Parent, Holdco and the Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Each of the Parent, Holdco and the Buyer has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by it. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, by the Parent, Holdco and the Buyer have been duly authorized (except for the authorization of the shares of common stock of the Parent that will be issuable to the Designated Managers in exchange for certain shares of preferred stock of Holdco as contemplated by the Contribution Agreement) by all requisite corporate action of the Parent, Holdco and the Buyer. This Agreement has been duly executed and delivered by each of the Parent, Holdco and the Buyer and constitutes the valid and legally binding obligation of the Parent, Holdco and the Buyer, enforceable against each of them in accordance with its terms. Each of the Parent, Holdco and the Buyer has all requisite corporate power and authority to carry on its business as now conducted and to own or lease or to operate its properties as and in the places where such business is now conducted and such properties are now owned, leased or operated. 2.2.2. No Conflicts, etc. Except as set forth in Schedule 2.2.2, the execution and delivery by the Parent, Holdco and the Buyer of this Agreement and the consummation of the transactions contemplated hereby will not result in any violation of, loss of rights or default under, constitute an event creating rights of acceleration, termination, repayment or cancellation under, entitle any party to receive any payment pursuant to, or result in the creation of any Lien upon any of the properties or assets of the Buyer under, (i) any provision of the Organizational Documents of the Parent, Holdco or the Buyer, (ii) any Applicable Law applicable to the Parent, Holdco, the Buyer 37 44 or any of their respective properties or (iii) any agreement or other instrument to which the Parent, Holdco or the Buyer is a party or by which the Parent, Holdco or the Buyer or any of its properties is bound, except, in the case of clause (iii), for violations, losses, defaults, accelerations, terminations, repayments, cancellations or Liens that would not reasonably be expected to have a material adverse effect on the ability of the Parent, Holdco or the Buyer to consummate the Merger and the other transactions contemplated hereby. Except as set forth in Schedule 2.2.2, no Governmental Approval or other Consent (other than pursuant to the HSR Act) is required to be obtained or made by the Parent, Holdco or the Buyer in connection with the execution and delivery of this Agreement or the consummation by the Parent, Holdco and the Buyer of the transactions contemplated hereby. 2.2.3. Litigation. There is no judicial or administrative action, proceeding or investigation pending or, to the knowledge of the Parent, Holdco or the Buyer, threatened which (a) questions the validity of this Agreement or any action taken or to be taken by the Parent, Holdco or the Buyer in connection herewith, or (b) would reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or properties of the Parent, Holdco or the Buyer or the ability of the Parent, Holdco or the Buyer to consummate the Merger and the other transactions contemplated hereby. 2.2.4. Brokers, Finders, etc. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried on without the participation of any Person acting on behalf of the Parent, Holdco, the Buyer or any of their Affiliates in such manner as to give rise to any valid claim against the Company, any other member or Affiliate of the VKAC Group or any stockholder of the Company for any brokerage or finder's commission, fee or similar compensation. 2.2.5. No Disqualifying Participants. The consummation of the Merger will not cause any member of the VKAC Group to become subject to any disqualification that would be a basis (i) for denial, suspension or revocation of registration as an investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the Exchange Act, (ii) for disqualification as an investment adviser or a principal underwriter for an investment company pursuant to Section 9(a) of the Investment Company Act or (iii) for 38 45 prohibition from holding certain positions pursuant to Section 411 of ERISA. 2.2.6. Financing. The Buyer will have available as of the Effective Time immediately available funds sufficient to consummate the transactions contemplated by this Agreement. 2.2.7. Section 15(f) Materials. Neither the Parent, Holdco, the Buyer nor any of their respective Affiliates is aware of any documents, records, memoranda, work papers or other written materials that would reasonably be likely to be evidence that the requirements of any of the provisions of Section 15(f) of the Investment Company Act have not been or will not be met in respect of this Agreement and the transactions contemplated hereby, except for such as have been furnished to the Company or described in writing to the Company in reasonable detail. ARTICLE III COVENANTS 3.1. Covenants of the Company. 3.1.1. Conduct of Business. From the date hereof to the Effective Time, except as contemplated by or in connection with this Agreement or the transactions contemplated hereby, as described on Schedule 3.1.1 or as consented to by the Parent, any request for such consent to be considered by the Parent in good faith, the Company will, and will cause each of the VKAC Companies to and, subject to applicable fiduciary duties to the Funds, will use its reasonable best efforts to cause each of the Funds to: (a) carry on its business in the ordinary course consistent with past practices, and use all reasonable best efforts (to the extent consistent with good business judgment) to preserve intact its present business organization, keep available the services of its executive officers and key employees, and preserve its relationships with customers, clients, suppliers and others having material business dealings with it; (b) not amend its certificate of incorporation or by-laws or other Organizational Document; (c) not merge or consolidate with, or agree to merge or consolidate with, or purchase substantially 39 46 all of the assets of, or otherwise acquire any business or any corporation, partnership, association or other business organization or division thereof; (d) not engage in any transaction with the Buyer, the Parent or their Affiliates that would be a violation of the Investment Company Act, the Advisers Act, ERISA or other Applicable Law, provided that none of the Company, any other VKAC Company or any Fund will be in breach of this Section 3.1.1(d) if it engages in a transaction with an Affiliate of the Buyer or the Parent that violates ERISA unless the Company, such other VKAC Company or such Fund engaging in such transaction has or reasonably should have had knowledge of such affiliation; (e) not take any action or omit to take any action, which action or omission would result in a breach or inaccuracy of any of the representations and warranties set forth in Section 2.1.5 at, or as of any time prior to, the Effective Time; (f) not sell any assets outside the ordinary course of business consistent with past practices; (g) not sell, transfer or otherwise dispose of any CDSC Assets; (h) not agree or commit to do any of the foregoing referred to in clauses (a)-(g); and (i) promptly advise the Buyer of any fact, condition, occurrence or change known to the Company that is reasonably expected to have a Material Adverse Effect or cause a breach of this Section 3.1.1. 3.1.2. No Solicitation. From the date hereof to the earlier of the Effective Time and the termination of this Agreement, the Company shall not, and shall not permit any member of the VKAC Group or any officer, director, partner, employee, agent or advisor of any member of the VKAC Group to, directly or indirectly, (a) solicit, initiate or encourage any proposals for, or enter into any discussions with respect to, a merger or other business combination involving the Company or VKAC or the acquisition of shares of capital stock of any member of the VKAC Group or all, or substantially all, of the assets of any member of the VKAC Group (an "Acquisition Proposal") or (b) furnish or cause to be furnished in connection with any proposals described in clause (a) above any non-public information 40 47 concerning the business and operations of any member of the VKAC Group to any Person (other than the Parent, Holdco, the Buyer and their agents and representatives and the Company and their agents and representatives). From the date hereof to the Effective Time, the Company shall not, and shall not permit any member of the VKAC Group to, sell, transfer or otherwise dispose of, grant any option or proxy to any Person with respect to, create any Lien upon, or transfer any interest in, any shares of capital stock of any VKAC Company, other than (i) as contemplated by or in connection with this Agreement or the transactions contemplated hereby, (ii) such sales, transfers, dispositions, grants and creations to or in favor of the Company or (iii) pursuant to any agreement or commitment existing on the date hereof. If at any time after the date hereof and prior to the Effective Time, the Company or any of its representatives is approached by, or receives an offer from, any third party concerning an Acquisition Proposal or a request to provide information referred to in clause (b) above, the Company will promptly disclose such offer or request to the Parent and will keep the Parent fully informed of the nature, details and status of any such offer or request. 3.1.3. Access and Information. From the date hereof to the Effective Time, the Company will, and will cause each member of the VKAC Group to, give to the Parent and the Parent's accountants, counsel and other representatives reasonable access during normal business hours to such of the VKAC Companies' and the Funds' respective offices, properties, books, contracts, commitments, reports and records relating to the VKAC Companies and the Funds, and to furnish them or provide them access to all such documents, financial data, records and information with respect to the properties and businesses of the VKAC Companies as the Parent shall from time to time reasonably request, provided that the foregoing shall be under the general coordination of the Company and shall be subject to the Confidentiality Agreement. In addition, from the date hereof to the Effective Time the Company will, and will cause each member of the VKAC Group to, permit the Parent and the Parent's accountants, counsel and other representatives reasonable access to such personnel of the VKAC Group during normal business hours as may be necessary to or reasonably requested by the Parent in its review of the properties of the VKAC Group and the Funds, the business affairs of the VKAC Group and the Funds and the above-mentioned documents and records, provided that the Company shall have the right to have its representatives participate in such discussions with personnel of the VKAC Group and the 41 48 Funds and such discussions shall be subject to the Confidentiality Agreement. 3.1.4. Subsequent Financial Statements, Debt Prepayments and Filings. (a) From the date hereof to the Effective Time, the Company will cause the members of the VKAC Group to make available to the Parent, promptly after the same become available, copies of (i) the monthly management reports for the VKAC Group substantially in the form furnished to the senior management of the Company, together with such monthly financial statements furnished to such management and (ii) the financial statements of the Funds as the same are filed with the Commission. (b) After the date hereof and until the Effective Time, within five Business Days after the end of each month, the Company shall deliver a certificate to the Buyer, signed by the chief financial officer of the Company, setting forth the aggregate amount of loans that were prepaid under the Credit Agreement during such month and the Pre-Tax Income as of the end of such month. (c) From the date hereof to the Effective Time, the Company will file, or cause to be filed, with the Commission or other relevant Governmental Authority, and promptly thereafter make available to the Parent, copies of each registration, report, statement, notice or other filing required to be filed by any member of the VKAC Group with the Commission or any other Governmental Authority under the Exchange Act, the Advisers Act, the Investment Company Act, the Securities Act or any other Applicable Law. All such registrations, reports, statements, notices or other filings shall comply in all material respects with Applicable Law. (d) From the date hereof to the Effective Time, the Company will cause the members of the VKAC Group to make available to the Parent, promptly after the same become available, (i) copies of all inspection reports provided to any VKAC Company by the Commission or any state regulatory authority or any self-regulatory agency and (ii) all correspondence and other documents relating to any inquiry or investigation provided to any VKAC Company by the Commission or any state regulatory authority or any self-regulatory agency. 3.1.5. Public Announcements. From the date hereof to the Effective Time, except as required by Applicable Law, the Company shall not, and shall not permit any member of the VKAC Group to, make any public announcement in respect of this Agreement or the 42 49 transactions contemplated hereby without the prior consent of the Parent. 3.1.6. Further Actions. (a) Generally. From the date hereof to the Effective Time, the Company will, and will cause each member of the VKAC Group to, use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby. (b) Filings, etc. From the date hereof to the Effective Time, the Company will, as promptly as practicable, file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by or on behalf of the Company or any member of the VKAC Group pursuant to Applicable Law in connection with this Agreement, the Merger or the consummation of the other transactions contemplated hereby, including but not limited to filings pursuant to the HSR Act. From the date hereof to the Effective Time, the Company, as promptly as practicable, will make, or cause to be made, all such other filings and submissions under any Applicable Law applicable to the Company or any member of the VKAC Group and give such reasonable undertakings, as may be required for the Company to consummate the Merger and the other transactions contemplated hereby. (c) Investment Company Consents. The members of the VKAC Group shall use their reasonable best efforts to (i) cause the boards of trustees/directors of Investment Company Clients to approve, and to solicit their respective shareholders as promptly as practicable with regard to the approval of, new investment advisory agreements and related ancillary agreements for such Clients, and (ii) cause the boards of trustees/directors of Investment Company Clients to approve, to the extent such approval is required by Applicable Law or the terms of existing agreements relating to such services, new agreements relating to any other services provided by members of the VKAC Group to Investment Company Clients, including, but not limited to, such agreements relating to the distribution of fund shares, fund administration, accounting and transfer agency, in each case referred to in clauses (i) and (ii) above, such approval to be effective on or as promptly as practicable after the Effective Time, pursuant to the provisions of Section 15 of the Investment Company Act, and consistent with all requirements of the Investment Company Act applicable thereto, provided that, in the case of both such clauses (i) and (ii), such agreements are identical in all material 43 50 respects to the existing agreements other than the term of the agreement and other than such non-material changes as may be made in order to make any such agreement consistent with other agreements of the same type to which any VKAC Company is a party. (d) Certain Other Consents. As promptly as practicable after execution of this Agreement, the Company shall cause the Clients of the VKAC Group listed on Schedule 2.1.8(c)(A)(9) to be informed of the transactions contemplated by this Agreement and shall request the written Consent of such Clients to the transaction, such Consents to be in form and substance satisfactory to the Parent in its reasonable judgment. If such Consent is not received from any such Client within 60 days, the Company will promptly send a new notice advising such Client of its intention to continue the advisory services, pursuant to the Company's existing contracts with such Clients, subject to such Client's right to terminate such contract within 45 days of receipt of such notice, and that each such Client's consent will be implied if it continues to accept the services without rejection during such specified 45-day period. At least two weeks prior to the Effective Time, the Company shall also use its reasonable best efforts to contact personally each such Client which has not yet executed a Consent to inquire as to such Client's intentions unless the Parent in its sole discretion agrees to waive this requirement with respect to any such Client. (e) Consent Procedures. In connection with obtaining the Consents required by subsections (c) and (d), the Company shall (i) keep the Parent informed of the status of obtaining Client Consents, (ii) facilitate the Parent's or the Buyer's communication with Clients regarding Consents, (iii) provide to the Parent draft proxy statements and (iv) to the extent applicable, deliver to the Parent prior to the Closing copies of all executed Client Consents and make available for inspection the originals of such Consents prior to the Closing. (f) Other Consents. The Company, as promptly as practicable, will use its reasonable best efforts to obtain, or cause to be obtained, the Consents listed on Schedule 3.1.6(f). (g) Other Actions. The Company will use, and cause each member of the VKAC Group to use, its reasonable best efforts to take, or cause to be taken, all other actions necessary, proper or advisable in order for them to fulfill their obligations in respect of this Agreement and 44 51 the transactions contemplated hereby. The Company will, and will cause each member of the VKAC Group to, coordinate and cooperate with the Parent in exchanging such information and supplying such reasonable assistance as may be reasonably requested by the Parent in connection with the filings and other actions contemplated by Section 3.2.2. (h) Notice of Certain Events. From the date hereof to the Effective Time, the Company shall promptly notify the Parent of: (i) any fact, condition, event or occurrence known to the Company that will or reasonably may be expected to result in the failure of any of the conditions contained in Sections 4.1 and 4.2 to be satisfied; (ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and (iv) any actions, suits, claims, investigations or proceedings commenced or, to the knowledge of the Company, threatened against, relating to or involving or otherwise affecting any member of the VKAC Group which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 2.1.11 or which relate to the consummation of the transactions contemplated by this Agreement. 3.1.7. Compliance with Investment Company Act Section 15. The Company will not take and, prior to the Effective Time, will cause each member of the VKAC Group not to take, any action not contemplated by this Agreement that would have the effect, directly or indirectly, of causing the requirements of any of the provisions of Section 15(f) of the Investment Company Act not to be met in respect of this Agreement and the transactions contemplated hereby. In addition, the Company will not fail to take, and, prior to the Effective Time, will not cause any member of the VKAC Group to fail to take, any action if the failure to take such action would have the effect, directly or indirectly, of causing the requirements of any of the provisions of Section 15(f) of the Investment Company Act not to be met in 45 52 respect of this Agreement and the transactions contemplated hereby. 3.1.8. Qualification of the Funds; Tax Affairs. (a) Subject to applicable fiduciary duties to the Funds, the Company will cause the VKAC Companies to refrain from, and will use its reasonable best efforts to cause each of the Funds to refrain from, taking any action after the date hereof and on or prior to the Closing Date (a) (i) in the case of each of the Funds to which the provisions of paragraph (i) of Section 2.1.6(g) apply, that would prevent such Fund from qualifying as a RIC, or that would require such Fund to take actions in order to so qualify that would have a material adverse effect on such Fund, (ii) in the case of each of the Funds to which the provisions of paragraph (ii) of Section 2.1.6(g) apply, that would cause it to be an association taxable as a corporation for federal Income Tax purposes, (iii) in the case of Van Kampen American Capital Monthly Accumulation Plans, that would prevent any portion thereof from being treated as a business arrangement to which the provisions of section 851(f) of the Code apply, (iv) in the case of Van Kampen American Capital Exchange Fund, that would prevent it from being treated as a partnership for federal Income Tax purposes or (v) in the case of the unit investment trusts to which the provisions of paragraph (ii) of Section 2.1.6(g) apply, that would prevent any portion thereof from being subject to subpart E of part I of subchapter J of chapter 1 of subtitle A of the Code, or (b) that would conflict in any material respect with the registration statement, prospectus and other offering materials of such Fund. (b) After the date hereof and until the Closing Date, the Company shall supply to the Parent all calculations and other written information it produces or receives with respect to the qualification as RICs of the Funds to which the provisions of paragraph (i) of Section 2.1.6(g) apply within 5 Business Days after such calculations or information are produced or received. As promptly as possible, and in no event later than the Closing Date, the Company shall deliver to the Parent (i) with respect to each of such Funds, a full description of the reasons, if any (other than failure to comply with the provisions of section 852(a)(1) of the Code) that such Fund would fail to qualify as a RIC for its then-current taxable year if the last day of its most recent fiscal quarter ended on or prior to the Closing Date were treated as the last date of such taxable year and (ii) with respect to each of such Funds whose taxable year ends within three months after the Closing Date, a full description of the reasons, if any, 46 53 (other than failure to comply with the provisions of section 852(a)(1) of the Code) that such Fund would fail to qualify as a RIC for its then-current taxable year if the Business Day immediately preceding the Closing Date were treated as the last date of such taxable year. As promptly as possible, and in no event later than three Business Days after the date hereof, the Company shall deliver to the Parent with respect to each of such Funds, a full description of the reasons, if any (other than failure to comply with the provisions of section 852(a)(1) of the Code) that such Fund would fail to qualify as a RIC for its current taxable year if June 19, 1996 were treated as the last day of such taxable year. (c) Without the prior written consent of the Parent, none of the VKAC Companies shall, to the extent it may affect or relate to the VKAC Companies, make or change any Tax election (other than making an election pursuant to section 338(h)(10) of the Code with respect to the sale of Advantage Capital Corporation pursuant to Section 5.8 of the Stock Purchase Agreement between SunAmerica Inc. and the Company, dated as of December 21, 1995), change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment, surrender any right to claim a Tax refund, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment or take or knowingly omit to take any other similar action (but excluding the Company's reporting the distribution of MCM and Hansberger as a taxable disposition on its Return for the taxable year in which the distributions occur) if (i) any such action or omission would have the effect of increasing the Tax liability or reducing any Tax Asset of any VKAC Company, the Parent or any Affiliate of the Parent by more than $25,000 or (ii) all such actions or omissions would, in the aggregate, have the effect of increasing the Tax liability or reducing any Tax Asset of any VKAC Company, the Parent or any Affiliate of the Parent by more than $100,000. The Company shall notify Lou Palladino of Morgan Stanley & Co. Incorporated at 1251 Avenue of the Americas, 21th floor, New York, New York 10020, in writing of any proposed action or omission that would require the Parent's consent pursuant to this Section 3.1.8(c). (d) After the date hereof and until the Closing Date, the VKAC Companies shall conduct all affairs relating to Taxes only in good faith and in a manner consistent with past practices of the VKAC Companies. 47 54 3.1.9. ERISA Clients. As soon as practicable following the date of this Agreement, the Company and the Parent shall cooperate and, in connection therewith, shall each use its reasonable best efforts, to identify each written contract or agreement in effect as of the date of this Agreement entered into by any member of the VKAC Group with or on behalf of any ERISA Client pursuant to which, to the knowledge of the Company or the Parent, in each case, after due inquiry, the Parent or any of its Affiliates has agreed to: (i) execute securities transactions; (ii) provide any other goods or services; or (iii) purchase, sell, exchange or swap securities or other economic interests therein or derivatives thereof, including, but not limited to, rights to receive or obligations to pay interest or principal under any debt obligation or rights to receive or obligations to pay interest or principal denominated in a particular security. 3.2. Covenants of the Parent, Holdco and the Buyer. 3.2.1. Public Announcements. From the date hereof to the Effective Time, except as required by Applicable Law, neither the Parent, Holdco nor the Buyer shall, nor shall any of them permit any of their Affiliates to, make any public announcement in respect of this Agreement or the transactions contemplated hereby without the prior consent of the Company. 3.2.2. Further Actions. (a) Generally. The Parent, Holdco and the Buyer agree to use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby. (b) Filings, Consents, etc. Each of the Parent, Holdco and the Buyer will, as promptly as practicable, file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by or on behalf of it or its Affiliates pursuant to Applicable Law in connection with this Agreement, the Merger or the consummation of the other transactions contemplated hereby, including but not limited to filings pursuant to the HSR Act. Each of the Parent, Holdco and the Buyer, as promptly as practicable, (i) will make, or cause to be made, all such other filings and submissions under any Applicable Law applicable to the Parent, Holdco, the Buyer or any of their respective Affiliates, and give such reasonable undertakings, as may be required for the Parent, 48 55 Holdco and the Buyer to consummate the Merger and the other transactions contemplated hereby, (ii) will use its reasonable best efforts to obtain, or cause to be obtained, all Consents (including, without limitation, all Governmental Approvals) necessary to be obtained by it or any of its Affiliates in order for it so to consummate the Merger and such transactions, and (iii) will use its reasonable best efforts to take, or cause to be taken, all other actions necessary, proper or advisable in order for it to fulfill its obligations in respect of this Agreement and the transactions contemplated hereby. Each of the Parent, Holdco and the Buyer will coordinate and cooperate with the Company, including by supplying such reasonable assistance and information (which information shall be correct and complete and shall conform in all material respects with the requirements of all Applicable Laws) as may be reasonably requested by the Company, in connection with the filings and other actions contemplated by Section 3.1.6. (c) Notice of Certain Events. At all times prior to the Effective Time, the Parent, Holdco and the Buyer shall promptly notify the Company of: (i) any fact, condition, event or occurrence known to either of them that will or reasonably may be expected to result in the failure of any of the conditions contained in Sections 4.1 and 4.3 to be satisfied; and (ii) any actions, suits, claims, investigations or proceedings commenced or, to the knowledge of the Parent, Holdco or the Buyer, threatened against, relating to or involving or otherwise affecting the Parent, Holdco or the Buyer which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 2.3.3 or which relate to the consummation of the transactions contemplated by this Agreement. 3.2.3. Compliance with Investment Company Act Section 15. (a) No Unfair Burden, etc. The Parent, Holdco and the Buyer acknowledge that the Company has entered into this Agreement in reliance upon the benefits and protections provided by Section 15(f) of the Investment Company Act. Each of the Parent, Holdco and the Buyer shall not take, and each of them shall cause its Affiliates not to take, any action not contemplated by this Agreement that would have the effect, directly or indirectly, of causing the requirements of any of the provisions of Section 15(f) of the Investment Company Act not to be met in respect of this 49 56 Agreement and the transactions contemplated hereby, and each of them shall not fail to take, and, after the Effective Time, shall not cause any member of the VKAC Group to fail to take, any action if the failure to take such action would have the effect, directly or indirectly, of causing the requirements of any of the provisions of Section 15(f) of the Investment Company Act not to be met in respect of this Agreement and the transactions contemplated hereby. In that regard, each of the Parent, Holdco and the Buyer shall conduct its business and shall, subject to applicable fiduciary duties to the Funds and the Sub-Advisory Funds, use its reasonable best efforts to cause each of its Affiliates to conduct its business so as to assure that, insofar as within the control of the Parent, Holdco, the Buyer or their respective Affiliates: (i) for a period of three years after the Effective Time, at least 75% of the members of the Board of Directors or trustees of each of the Funds that is registered under the Investment Company Act and that continues after the Effective Time its existing or a replacement Investment Advisory Contract with any of the VKAC Companies, the Parent, Holdco, the Buyer or any Affiliate of the Parent, Holdco or the Buyer are not (A) "interested persons" of the investment manager of such Fund after the Effective Time, or (B) "interested persons" of the present investment manager of such Fund; (ii) for a period of two years after the Effective Time, the investment advisory fee paid to any VKAC Company by any Fund or Sub-Advisory Fund that is registered under the Investment Company Act shall not be increased, nor shall any waiver in effect on the date hereof of any portion of such an investment advisory fee be allowed to expire except in accordance with the terms of such waiver and except, in each case, (x) pursuant to an exemptive order naming the Funds as parties issued by the Commission, subject in each case to each of the conditions set forth in such exemptive order having been satisfied in the reasonable judgment of C&D Fund IV, or (y) with the prior written consent of C&D Fund IV; and (iii) for a period of two years after the Effective Time, there shall not be imposed on any of the Funds or Sub-Advisory Funds that is registered under the Investment Company Act an "unfair burden" as a result of the transactions contemplated by this Agreement, or 50 57 any terms, conditions or understandings applicable thereto. (b) Certain Terms. The terms used in quotations in this Section 3.2.3 shall have the meanings set forth in Section 15(f) or Section 2(a)(19) of the Investment Company Act. (c) No Assignment of Investment Advisory Contracts. For a period of three years from the Effective Time, none of the Parent, Holdco, the Buyer, any of their respective Affiliates nor any of the VKAC Companies will voluntarily engage in any transaction which would constitute an assignment of any Investment Advisory Contract with any Fund that is registered under the Investment Company Act currently managed by any of the VKAC Companies to which the Parent, Holdco, the Buyer, any such Affiliate or any VKAC Company is a party without first obtaining a covenant in all material respects the same as that contained in this Section 3.2.3. 3.2.4. Employee Matters Subsequent to the Effective Time. (a) Employee Plans and Agreements. From and after the Effective Time, the Parent, Holdco and the Buyer will, and will cause each member of the VKAC Group to, honor, without modification, perform all acts and pay all amounts required or due under or with respect to each Plan and each agreement which relates to any current or former employee of the VKAC Group or the terms of any such employee's employment or termination of employment, including without limitation, all employment, retention, change of control, employment protection, severance, termination, consulting, deferred compensation, executive pension and retirement, welfare and fringe benefit agreements, plans and programs, except for any modification to any such Plan or agreement to the extent permitted in accordance with Section 3.2.4(d). (b) Maintenance of Employee Benefits. For a period of two years from the Effective Time, the Parent or the Buyer will, or will cause the VKAC Companies to, continue to maintain employee and retiree compensation and benefit plans, programs, arrangements and policies (other than equity based plans) for the benefit of current and former employees of the VKAC Group which provide compensation and benefits that are substantially comparable, in the aggregate, to those provided by the VKAC Companies for 51 58 the benefit of such employees and former employees immediately prior to the Effective Time. (c) Change of Control. Each of the Parent, Holdco and the Buyer acknowledges and agrees that the consummation of the transactions contemplated by this Agreement will constitute a "change of control" of the Company for purposes of each Plan and each program, policy and agreement covering any current or former employee of the VKAC Group identified in Schedule 3.2.4(c) and, accordingly, agrees to, and to cause the Company and each other member of the VKAC Group to, honor all provisions under such Plans, programs, policies and agreements relating to a change of control. (d) Modifications. Notwithstanding the foregoing, nothing in this Section 3.2.4 shall preclude the Buyer from seeking to (i) modify any employment agreement with the consent of the affected employee or employees or (ii) modify any Plan to the extent such modification is permitted by the terms of such Plan and is consistent with Section 3.2.4(b). (e) Withholding Taxes. Following the Effective Time, the Parent shall, or shall cause the Surviving Corporation to, pay on a timely basis all withholding Taxes payable by the Surviving Corporation in connection with the transactions contemplated by Sections 1.5(d), 1.5(e) and 1.5(f). 3.2.5. List of Affiliates. As soon as practicable following the date hereof, the Parent shall deliver to the Company a list of each entity that is an Affiliate of the Parent, Holdco or the Buyer. 3.2.6. Contribution Agreement. Each of the Parent, Holdco and the Buyer agree to use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by the Contribution Agreement and, in connection therewith, will not agree to amend or modify any of the closing conditions set forth in the Contribution Agreement in a way that would impair the ability of the parties thereto to satisfy such conditions on or before the Effective Time, provided that nothing in this Section 3.2.6 shall prohibit the parties to the Contribution Agreement from unilaterally agreeing to terminate such agreement. 52 59 ARTICLE IV CONDITIONS PRECEDENT 4.1. Conditions to Obligations of Each Party. The obligations of the Company, the Parent, Holdco and the Buyer to effect the Merger and to consummate the other transactions contemplated hereby shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: 4.1.1. HSR Act Notification. In respect of the notifications of the Parent, Holdco and the Buyer on the one hand and the Company on the other hand pursuant to the HSR Act, the applicable waiting period and any extensions thereof shall have expired or been terminated. 4.1.2. No Injunction, etc. Consummation of the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited by any Applicable Law, including any order, injunction, decree or judgment of any court or other Governmental Authority, and no action or proceeding brought by any Governmental Authority shall be pending at the Effective Time before any court or other Governmental Authority to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated hereby, and there shall not have been promulgated, entered, issued or determined by any court or other Governmental Authority to be applicable to this Agreement any Applicable Law making illegal the consummation of the transactions contemplated hereby and no proceeding brought by any Governmental Authority with respect to the application of any such Applicable Law shall be pending. 4.1.3. Contribution Agreement. If the Contribution Agreement has not been terminated prior to the Effective Time, the transactions contemplated by the Contribution Agreement shall have been consummated. 4.1.4. Assets Under Management. Market Assets Under Management shall not be less than $26,933,875,000 and Closing Assets Under Management shall not be less than $30,525,058,000 or more than $41,298,608,000. 4.2. Conditions to Obligations of the Parent, Holdco and the Buyer. The obligations of the Parent, Holdco and the Buyer to effect the Merger and to consummate the other transactions contemplated hereby shall be subject to the fulfillment (or waiver by the Buyer) at or prior to the Effective Time of the following additional conditions, which 53 60 the Company agrees to use its reasonable best efforts to cause to be fulfilled: 4.2.1. Representations; Performance. The representations and warranties set forth in Section 2.1 shall have been true and correct in all material respects at and as of the date hereof, and shall be true and correct in all respects at and as of the Effective Time as though made at and as of the Effective Time, without regard to any qualification as to materiality or Material Adverse Effect contained therein, except to the extent that any failure to be true and correct at and as of the Effective Time would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, provided that the accuracy of any representation or warranty that by its terms speaks only as of the date hereof or another date prior to the Effective Time shall be determined solely as of the date hereof or such other date, as the case may be. The Company shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Effective Time. The Company shall have delivered to the Parent and the Buyer a certificate, dated the Effective Time and signed by the President or a Vice President of the Company, to the effect set forth above in this Section 4.2.1 and with respect to the matters set forth in Section 4.1.4. 4.2.2. Consents. All Consents required to be made or obtained by the Company or any member of the VKAC Group in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby shall have been made or obtained that are (i) Governmental Approvals, Consents of the Boards of Directors or Trustees of the Funds or Consents of any member of the VKAC Group, (ii) Consents of shareholders of the Prime Rate Trust and (iii) the Consents listed in Schedule 3.1.6(f). Copies of all such Consents shall have been delivered to the Parent. All Governmental Approvals required to be made or obtained by the Parent, Holdco, the Buyer or their respective Affiliates in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby shall have been made or obtained. 4.2.3. MCM Indemnity. An Indemnification Agreement, dated as of the Effective Time, substantially in the form of Exhibit B hereto, and a tax sharing agreement reasonably satisfactory to the Buyer, shall have been entered into by MCM. 54 61 4.2.4. Resignation of Directors. All directors of the VKAC Companies whose resignations shall have been requested by the Parent in writing not less than ten Business Days prior to the Effective Time shall have submitted their resignations or been removed from office effective as of the Effective Time. 4.2.5. Opinion of Counsel. The Buyer shall have received favorable opinions, in each case addressed to it and dated the Closing Date, from the General Counsel of the Company and from Debevoise & Plimpton, special counsel to the Company, with respect to the matters and substantially in the form set forth in Exhibits C-1 and C-2 hereto, respectively. 4.2.6. Proceedings. All corporate and other proceedings of the Company and the VKAC Group that are required in connection with the transactions contemplated by this Agreement, and all documents and instruments incident to such proceedings, shall be reasonably satisfactory to the Buyer and its counsel, and the Buyer and its counsel shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. 4.2.7. Govett Agreements. Within five Business Days following the delivery to the Company of a notice from the Parent requesting the Company to terminate any Govett Agreement, the Company shall have sent written notice under such Govett Agreement to terminate such agreement. 4.2.8. FIRPTA Certification. The Parent and the Buyer shall have received (a) a certification from the Company, dated no more than 30 days prior to the Closing Date and signed by a responsible corporate officer of the Company, that the Company is not, and has not been at any time during the five years preceding the date of such certification, a United States real property holding company, as defined in section 897(c)(2) of the Code, and (b) proof reasonably satisfactory to the Parent and the Buyer that the Company has provided notice of such certification to the Internal Revenue Service in accordance with the provisions of Treasury regulations section 1.897-2(h)(2). 4.3. Conditions to Obligations of the Company. The obligation of the Company to effect the Merger and to consummate the other transactions contemplated hereby shall be subject to the fulfillment (or waiver by the Company), at or prior to the Effective Time, of the following additional 55 62 conditions, which each of the Parent, Holdco and the Buyer agrees to use its reasonable best efforts to cause to be fulfilled: 4.3.1. Representations, Performance, etc. The representations and warranties set forth in Section 2.2 shall have been true and correct in all material respects at and as of the date hereof, and shall be true and correct in all material respects at and as of the Effective Time as though made at and as of the Effective Time except to the extent that any failure to be true and correct would not reasonably be expected to materially adversely affect the ability of the Parent, Holdco and the Buyer to consummate the transactions contemplated by this Agreement, provided that the accuracy of any representation or warranty that by its terms speaks only as of the date hereof or another date prior to the Effective Time shall be determined solely as of the date hereof or such other date, as the case may be. The Parent, Holdco, the Buyer and their respective Affiliates shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or at the Effective Time. The Parent, Holdco and the Buyer shall have delivered to the Company a certificate or certificates, dated the Effective Time and signed by the President or a Vice President of each of them, to the effect set forth above in this Section 4.3.1. 4.3.2. Consents. All Consents required to be made or obtained by the Buyer or its Affiliates in connection with the execution and delivery of the Agreement or the consummation of the transactions contemplated hereby shall have been made or obtained that are (i) Governmental Approvals or (ii) other Consents not included in clause (i), except for any such other Consents the failure of which to be made or obtained would not reasonably be expected to adversely affect the ability of the Buyer or its Affiliates to consummate the transactions contemplated hereby. Copies of all such Consents shall have been delivered to the Company. All Governmental Approvals required to be made or obtained by any member of the VKAC Group in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby shall have been made or obtained. 4.3.3. Merger Consideration. The Buyer shall have deposited with the Exchange Agent the Merger Consideration, and with the Company (net of applicable withholding Taxes, if any) the Total Employee Option Cancellation Amount, the Jones Option Cancellation Amount 56 63 and, if the Effective Time occurs after January 1, 1997, the Travelers Option Cancellation Amount, in each case, in immediately available funds. 4.3.4. Certain Indebtedness. The Buyer shall have provided for either (i) the repayment of all borrowings outstanding under the Credit Agreement immediately prior to or as of the Effective Time, the payment of all other amounts then due and payable thereunder and the termination of the Credit Agreement or (ii) a waiver by the requisite lenders under the Credit Agreement of all defaults and events of default that may occur as a result of the Merger and the other transactions contemplated hereby. 4.3.5. Opinions of Counsel. The Company shall have received a favorable opinion, addressed to it and dated the Closing Date, from Davis Polk & Wardwell, special counsel to the Buyer, with respect to the matters and substantially in the form set forth in Exhibit D hereto. 4.3.6. Corporate Proceedings. All corporate and other proceedings of the Buyer and its Affiliates in connection with the transactions contemplated by this Agreement, and all documents and instruments incident thereto, shall be reasonably satisfactory to the Company and its special counsel, and the Company and such counsel shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. ARTICLE V TERMINATION 5.1. Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) by the written agreement of the Buyer and the Company; (b) by the Company, on the one hand, or the Buyer, on the other hand, by written notice to the other after 5:00 p.m., New York City time, on February 1, 1997 if the Effective Time shall not have occurred by such date (unless the failure of the Effective Time to occur shall be due to any material breach of this Agreement by the party seeking to terminate), unless such date is extended by the mutual written consent of the Company and the Buyer; 57 64 (c) by the Company if there has been a breach on the part of the Parent, Holdco or the Buyer of the covenants of the Parent, Holdco and the Buyer set forth herein, or any failure on the part of the Parent, Holdco, the Buyer or any of their respective Affiliates to perform its obligations hereunder (provided that the terminating party shall have performed and complied with, in all material respects, all agreements and covenants required by this Agreement to have been performed or complied with by such terminating party) prior to such time, such that, in any such case, any of the conditions to the effectiveness of the Merger set forth in Section 4.1 or 4.3 could not be satisfied on or prior to the termination date contemplated by Section 5.1(b); or (d) by the Buyer, if there has been a breach on the part of the Company of its covenants set forth herein or any failure on the part of the Company to perform its obligations hereunder (provided that the terminating party shall have performed and complied with, in all material respects, all agreements and covenants required by this Agreement to have been performed or complied with by such terminating party) prior to such time, such that, in any such case, any of the conditions to the effectiveness of the Merger set forth in Sections 4.1 or 4.2 could not be satisfied on or prior to the termination date contemplated by Section 5.1(b). 5.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 5.1, this Agreement shall become void and have no effect, without any liability to any Person in respect hereof or of the transactions contemplated hereby on the part of any party hereto, or any of its directors, officers, employees, agents, consultants, representatives, advisers, stockholders or Affiliates, except for any liability resulting from any party's breach of this Agreement and except that the provisions of Article VI shall survive any such termination. ARTICLE VI DEFINITIONS, MISCELLANEOUS 6.1. Definition of Certain Terms. The terms defined in this Section 6.1, whenever used in this Agreement (including in the Schedules) shall have the respective meanings indicated below for all purposes of this Agreement. 58 65 All references herein to a Section, Article or Schedule are to a Section, Article or Schedule of or to this Agreement, unless otherwise indicated. Acquisition Price: as defined in Section 1.6(a). Acquisition Proposal: as defined in Section 3.1.2. Adjusted Bank Debt Amount: the sum of (i) the principal amount of all loans outstanding on the Determination Date under the Credit Agreement, plus any accrued and unpaid interest thereon on the Determination Date, minus (ii) all Transaction Expenses that have been paid prior to the Determination Date, plus (iii) the absolute amount of Working Capital at the Determination Date, if the actual amount is a negative number plus (iv) the amount, if any, by which the Total Debt Prepayment Amount exceeds the Permitted Debt Prepayment Amount determined as of the Determination Date. Adjusted Senior Note Amount: $153,000,000 plus accrued and unpaid interest as of the Determination Date on the outstanding principal amount of VKAC's 9 3/4% Senior Secured Notes due 2003. Advisers Act: the Investment Advisers Act of 1940, as amended, and the rules and regulations of the Commission promulgated thereunder. Affiliate: of a Person means a Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the first Person, including but not limited to a Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary. "Control" (including the terms "Controlled by" and "under common Control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. Aggregate Employee Option Exercise Price: an amount equal to the sum of the respective exercise price under each Employee Option outstanding immediately prior to the Effective Time, whether or not 59 66 vested, multiplied by the respective number of shares of Class A Common Stock subject to each such Employee Option. Aggregate Jones Option Exercise Price: an amount equal to the exercise price under the Jones Option multiplied by the number of Jones Option Shares. Aggregate Travelers Option Exercise Price: an amount equal to the exercise price under the Travelers Option multiplied by the number of Travelers Option Shares. Agreement: this Agreement and Plan of Merger, including the Schedules and Exhibits hereto. American Capital Companies: collectively, Van Kampen American Capital Advisors, Inc., Van Kampen American Capital Asset Management, Inc., ACCESS Investor Services, Inc., Van Kampen American Capital Trust Company, Van Kampen American Capital Exchange Corporation, Van Kampen American Capital Services, Inc., American Capital Contractual Services, Inc., American Capital Shareholders Corporation and Advantage Capital Credit Services, Inc. Applicable Law: all applicable provisions of all (i) statutes, laws, rules, administrative codes, regulations or ordinances of any Governmental Authority, (ii) Governmental Approvals and (iii) orders, decisions, injunctions, judgments, awards and decrees of any Governmental Authority. BONY Loan Agreement: the General Loan and Security Agreement, dated as of February 3, 1989, between Van Kampen American Capital Distributors, Inc. and The Bank of New York, as amended, supplemented, waived or otherwise modified from time to time. Business Day: a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. Buyer: as defined in the introductory paragraph of this Agreement. C&D Fund IV: The Clayton & Dubilier Private Equity Fund IV Limited Partnership, a Connecticut limited partnership. 60 67 CDSC Assets: assets reflected on the Company's balance sheet in respect of deferred company funded distribution costs (including 12b-1 receivables). Certificate of Merger: as defined in Section 1.2. Certificates: as defined in Section 1.8(a). Class A Common Stock: the Class A Common Stock, par value $.01 per share, of the Company. Class B Common Stock: the Class B Common Stock, par value $.01 per share, of the Company. Client: any client (including any Fund or Sub-Advisory Fund) to which the Company or any of its Subsidiaries or Affiliates provides investment management, investment advisory, administration or distribution services on the date hereof or on the Closing Date, as the case may be. Closing: as defined in Section 1.2. Closing Assets Under Management: the aggregate assets of such of the open end Funds, the Institutional Accounts (including the Sub-Advisory Funds) and the Prime Rate Trust as to which any VKAC Company (i) has received shareholder Consent or, in the case of Institutional Accounts (other than a Sub-Advisory Fund), has followed the procedures set forth in Section 3.1.6(d) or other procedures reasonably acceptable to the Parent and no VKAC Company has been notified, orally or in writing, as of the close of business on the second Business Day immediately preceding the Effective Time, of any such Institutional Account's intention to terminate its relationship with the applicable VKAC Company and (ii) will act as investment adviser, subadviser or manager immediately following the Effective Time, determined as follows: (x) in the case of open end Funds and Sub-Advisory Funds, based on the average of such aggregate amount over the 10-day period immediately prior to the second Business Day immediately preceding the Effective Time, provided that, as of any date of determination, the aggregate assets of such Funds and Sub-Advisory Funds shall be deemed to be equal to the sum of (i) the aggregate net asset values of the outstanding shares of such Funds and Sub-Advisory 61 68 Funds as of June 20, 1996 or, if later, the first date on which such Fund or Sub-Advisory Fund issued shares, plus (ii) the aggregate number of shares of such Funds and Sub-Advisory Funds issued since such date (including dividend reinvestments) multiplied by the respective net asset values of such shares when issued, minus (iii) the aggregate number of shares of such Funds and Sub-Advisory Funds redeemed since such date multiplied by the respective net asset values of such shares when redeemed; (y) in the case of the Prime Rate Trust, its aggregate assets shall be deemed to be equal to the sum of (i) the aggregate net asset values of the outstanding shares of the Prime Rate Trust as of June 20, 1996, plus (ii) the aggregate number of shares of the Prime Rate Trust issued after June 20, 1996 to the close of business on the second Business Day immediately preceding the Effective Time (including dividend reinvestments), multiplied by the respective net asset values of such shares when issued, minus (iii) the aggregate number of shares of the Prime Rate Trust redeemed since such date multiplied by the respective net asset values of such shares when redeemed; and (z) the aggregate assets of such Institutional Accounts (other than the Sub-Advisory Funds) shall be deemed to be equal to the sum of (i) the aggregate assets under management of such Institutional Accounts as of June 20, 1996 or, if later, the date on which such Institutional Account was created, plus (ii) the aggregate amount of assets deposited in such Institutional Accounts from such date to the close of business on the second Business Day immediately preceding the Effective Time, based upon the respective asset values at the time of such deposits, minus (iii) the aggregate amount of assets withdrawn, or for which oral or written notice of withdrawal has been given, from Institutional Accounts (including terminated Institutional Accounts) from such date to the close of business on the second Business Day immediately preceding the Effective Time, based upon the respective asset values at the time of such withdrawals or terminations. Closing Date: the date of the Closing. 62 69 Code: the Internal Revenue Code of 1986, as amended. Commission: the Securities and Exchange Commission. Common Stock: the Class A Common Stock and the Class B Common Stock. Company: as defined in the introductory paragraph of this Agreement. Company Financial Statements: the consolidated financial statements of the Company and its Subsidiaries as at and for the three months ended March 31, 1996 and the years ended December 31, 1995 and 1994, including in each case a balance sheet, a statement of income, a statement of stockholders' equity and a statement of cash flows, together, in the case of such financial statements as at and for the years ended December 31, 1995 and 1994, with an audit report thereon by KPMG Peat Marwick, dated January 26, 1996 except for the second and following paragraphs of Note 15, as to which the date is June 4, 1996. Company Intellectual Property: as defined in Section 2.1.9(a). Company Taxes: as defined in Section 2.1.6(a). Confidentiality Agreement: that letter agreement, dated March 4, 1996, between Morgan Stanley & Co. Incorporated and the Company. Consent: any consent, approval, authorization, waiver, permit, license, grant, exemption or order of, or registration, declaration or filing with, any Person, including but not limited to any Governmental Authority. Contract: as defined in Section 2.1.8(a). Contribution Agreement: as defined in the fourth recital of this Agreement. Credit Agreement: the Amended and Restated Credit Agreement, dated as of December 20, 1994, among VKAC, the Company, the banks named therein and Chemical Bank, as administrative agent, collateral agent and issuing bank, and Chemical Bank and The Chase Manhattan Bank, 63 70 N.A., as managing agents, as amended, supplemented, waived or otherwise modified from time to time. Custodian/Transfer Agent Agreements: as defined in Section 2.1.8(a). Deferred Stock Agreement: as defined in Section 1.5(e). Deferred Stock Unit: as defined in Section 1.5(e). Designated Managers: the employees of any member of the VKAC Group who are parties to the Contribution Agreement as of the Effective Time. Determination Date: as defined in Section 1.6(b)(ii). DGCL: the General Corporation Law of the State of Delaware, as in effect from time to time. Disclosed Matter: any fact that was (i) disclosed by the Company, any of its Subsidiaries or any Fund or any of their respective employees, attorneys, accountants or financial and other advisers ("Representatives") to Parent, Holdco, the Buyer or any of their respective Representatives and reviewed by Parent, the Buyer or any of their respective Representatives or (ii) discovered by Parent, Holdco, the Buyer or any of their respective Representatives and discussed with the Company, any of its Subsidiaries or any Fund or any of their respective Representatives, in each case on or prior to the date hereof. Dissenting Shares: as defined in Section 1.7. Effective Time: as defined in Section 1.2. Employee Option: as defined in Section 1.5(d). Employment and Withholding Taxes: any federal, state, local, foreign or other employment, unemployment insurance, social security, disability, workers' compensation, payroll, health care or other similar tax, duty or other governmental charge or assessment or deficiencies thereof and all Taxes required to be withheld by or on behalf of each of the VKAC Companies in connection with amounts paid or owing to any employee, independent contractor, creditor or other party 64 71 (including, but not limited to, all interest and penalties thereon and additions thereto whether disputed or not). Environmental Activity: any storage, holding, release, emission, discharge, generation, disposal, handling or transportation of any Hazardous Materials. Environmental Laws: all Applicable Laws relating to the protection of the environment, to human health and safety, or to any Environmental Activity, including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, and the Occupational Safety and Health Act, and (ii) all other requirements pertaining to reporting, licensing, permitting, investigation or remediation of emissions, discharges or releases of Hazardous Materials into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Materials. ERISA: the Employee Retirement Income Security Act of 1974, as amended. ERISA Affiliate: as defined in Section 2.1.18(a). ERISA Client: as defined in Section 2.1.20. Exchange Act: the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. Exchange Agent: as defined in Section 1.8(a). Exchange Agent Agreement: as defined in Section 1.8(a). Filings: as defined in Section 2.1.12(c). Financial Statements: the Company Financial Statements and the Fund Financial Statements. Fund Financial Statements: the audited financial statements of each of the Funds (excluding the unit investment trusts) for the two most recently completed fiscal years which have been filed with the Commission, together with reports on such year-end statements by such Fund's independent public accountants, including, 65 72 in each case, a statement of net assets or statement of assets and liabilities and investment portfolio, a statement of operations and a statement of changes in net assets. Fund Returns: as defined in Section 2.1.6(g)(iv). Funds: as defined in Section 2.1.15(c). GAAP: as defined in Section 2.1.3. Governmental Approval: any Consent of, with or to any Governmental Authority. Governmental Authority: any nation or government, any state or other political subdivision thereof, including, without limitation, any governmental agency, department, commission or instrumentality of the United States, any State of the United States or any political subdivision thereof, or any stock exchange or self-regulatory agency or authority. Govett Agreements: (i) the Master Agreement, dated September 1994, among John Govett & Co. Limited and various of its affiliates and various members of the VKAC Group and (ii) the Underwriting Agreement, dated November 17, 1995, between The Govett Funds, Inc. and Van Kampen American Capital Distributors, Inc. (successor by merger to American Capital Marketing, Inc.). Hazardous Materials: any substance that: (i) is or contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, (ii) requires investigation, removal or remediation under any Environmental Law, or is defined as a "hazardous waste" or "hazardous substance" thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by any Governmental Authority or Environmental Law. HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder. Holdco: as defined in the introductory paragraph of this Agreement. 66 73 Income Tax: any federal, state, local or foreign income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits or windfall profits tax or other similar tax, estimated tax, duty or other governmental charge or assessment or deficiencies thereof (including, but not limited to, all interest and penalties thereon and additions thereto whether disputed or not). Institutional Accounts: Clients, other than the Funds, OakRe Life Insurance Company and the Cova Series Trust, as to which any VKAC Company acts as investment adviser, subadviser or manager. Intellectual Property: United States and foreign trademarks, service marks, trade names, trade dress, copyrights, and similar rights, including registrations and applications to register or renew the registration of any of the foregoing; United States and foreign letters patent and patent applications; and inventions, processes, designs, formulae, trade secrets, know-how and all similar intellectual property rights. Investment Advisory Contracts: as defined in Section 2.1.8(a). Investment Company: as defined in the Investment Company Act. Investment Company Act: the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission promulgated thereunder. IRS: the Internal Revenue Service. Jones Option: the option to purchase up to 57,750 shares of Class A Common Stock granted to The Jones Financial Companies, a Limited Partnership, pursuant to the Jones Option Agreement. Jones Option Agreement: The Amended and Restated Stock Option Agreement, dated as of June 1, 1995, between the Company and The Jones Financial Companies, a Limited Partnership. Jones Option Cancellation Amount: as defined in Section 1.5(f). Jones Option Shares: as defined in Section 1.5(f). 67 74 knowledge of the Company: the actual knowledge, after due inquiry, of Don G. Powell, Dennis J. McDonnell, William R. Molinari, William R. Rybak, Ronald A. Nyberg, Paul R. Wolkenberg, Alan T. Sachtleben, Peter W. Hegel, William N. Brown, Douglas B. Gehrman, Robert Peck, Jack Zimmerman, Scott West, Gary DeMoss, Jeffrey W. Maillet, Robert J. Froehlich, Gwen Shaneyfelt and Walter E. Rein. Lien: any mortgage, pledge, hypothecation, security interest, encumbrance, title retention agreement, lien, charge or other similar restriction. Market Assets Under Management: the aggregate assets of such of the open end Funds, the Institutional Accounts (including the Sub-Advisory Funds) and the Prime Rate Trust as to which any VKAC Company (i) has received shareholder Consent or, in the case of Institutional Accounts (other than a Sub-Advisory Fund), has followed the procedures set forth in Section 3.1.6(d) or other procedures reasonably acceptable to the Parent and no VKAC Company has been notified, orally or in writing, as of the close of business on the second Business Day immediately preceding the Effective Time, of any such Institutional Account's intention to terminate its relationship with the applicable VKAC Company and (ii) will act as investment adviser, subadviser or manager immediately following the Effective Time, determined as of the close of business on the second Business Day immediately preceding the Effective Time based on the average of such aggregate amount over the 10-day period immediately prior to such date. Material Adverse Effect: with respect to any Person or Persons, a materially adverse effect on the business, financial condition, results of operations or properties of such Person or Persons, taken as a whole in the event that there is more than one such Person, other than any such materially adverse effect arising because of the identity of the Buyer, the Parent or any of their respective Affiliates, and provided that neither a decline in the securities markets nor in assets under management of any Fund or Sub-Advisory Fund shall be taken into account in determining if a materially adverse effect shall have occurred. Any reference in this Agreement to "Material Adverse Effect" without a reference to a specific Person or Persons shall mean a Material Adverse Effect on the VKAC Group, taken as a whole. 68 75 MCM: McCarthy, Crisanti & Maffei, Inc., a New York corporation. Merger Consideration: as defined in Section 1.5(a). NASD: National Association of Securities Dealers, Inc. Option Holder: as defined in Section 2.1.2(c). Option Plan: as defined in Section 1.5(d). Options: as defined in Section 2.1.2(c). Organizational Documents: as to any Person, if a corporation, its articles or certificate of in corporation and by-laws; if a partnership, its partnership agreement; and if some other entity, its constituent documents. Per Share Merger Consideration: an amount of cash in dollars (rounded to the nearest $0.0001) determined by dividing (i) an amount equal to the sum of (A) the Acquisition Price, (B) the Aggregate Employee Option Exercise Price, (C) the Aggregate Jones Option Exercise Price and (D) in the event that the Closing Date occurs after January 1, 1997, the Aggregate Travelers Option Exercise Price, by (ii) an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the Effective Time (including the number of shares of Common Stock subject to the Contribution Agreement), (B) the aggregate number of shares of Class A Common Stock subject to the Employee Options immediately prior to the Effective Time, whether or not vested, (C) the Jones Option Shares, (D) in the event that the Closing Date occurs after January 1, 1997, the Travelers Option Shares, (E) the number of shares of Preferred Stock outstanding immediately prior to the Effective Time and (F) the number of Deferred Stock Units outstanding immediately prior to the Effective Time. Permitted Debt Prepayment Amount: as of the end of any calendar month, the Prepayment Target for such month, provided that (x) if Pre-Tax Income as of the end of such month is less than Pre-Tax Income Target as of the end of such month, then the Permitted Debt Prepayment Amount shall be the Prepayment Target minus the amount of such shortfall and (y) if Pre-Tax Income 69 76 as of the end of such month is greater than Pre-Tax Income Target as of the end of such month, then the Permitted Debt Prepayment Amount shall be the Prepayment Target plus 50% of such excess; provided further that if the Determination Date is any day other than on the last Business Day of any month, "Prepayment Target" and "Pre-Tax Income Target" for the month in which the Determination Date occurs shall be equal to (A) the amount therefor determined as of the end of the preceding month plus (B) a pro rata amount (based on the number of days elapsed in the month in which the Determination Date occurs) of the difference between (i) the Prepayment Target or the Pre-Tax Income Target, as the case may be, for the end of the month in which the Determination Date occurs and (ii) the Prepayment Target or the Pre-Tax Income Target, as the case may be, as of the end of the preceding month. Permitted Encumbrances: as defined in Section 2.1.7. Person: any natural person or any firm, partnership, limited liability partnership, association, corporation, limited liability company, trust, business trust, Governmental Authority or other entity. Plans: as defined in Section 2.1.18(a). Post-Closing Tax Period: any Tax period (or portion thereof) ending after the close of business on the Closing Date. Pre-Closing Tax Period: any Tax period (or portion thereof) ending on or before the close of business on the Closing Date. Prepayment Target: with respect to the period as of the end of any month, the amount set forth on Exhibit E for such month below the heading "Cumulative Debt Repayment Target." Pre-Tax Income: pre-tax income of the VKAC Group on a consolidated basis determined in accordance with GAAP for the period from July 1, 1996 to the Determination Date without giving effect to extraordinary items. Pre-Tax Income Target: with respect to the period as of the end of any month, the amount set forth on 70 77 Exhibit E for such month below the heading "Cumulative Pre-Tax Target Income." Preferred Stock: the Junior Non-Cumulative Participating Preferred Stock, par value $200.00 per share, of the Company. Preferred Stock Trustee: Van Kampen American Capital Trust Company, as trustee with respect to The Van Kampen American Capital, Inc. Profit Sharing and Savings Plan pursuant to the Master Defined Contribution Trust Agreement, dated as of December 20, 1994, between the Company and Van Kampen American Capital Trust Company, as amended, supplemented, waived or otherwise modified from time to time. Prime Rate Trust: the Van Kampen American Capital Prime Rate Income Trust. Real Property: as defined in Section 2.1.7. Registered Broker-Dealers: as defined in Section 2.1.15(b). Registered Investment Advisers: as defined in Section 2.1.15(a). Registration and Participation Agreement: the Registration and Participation Agreement, dated as of February 17, 1993, as amended by Amendment No. 1 to Registration and Participation Agreement, dated as of April 15, 1994, Amendment No. 2 to Registration and Participation Agreement, dated as of December 20, 1994, and Amendment No. 3 to Registration and Participation Agreement, dated as of May 1, 1995, among the Company and certain stockholders of the Company. Relevant Date: February 17, 1993, with respect to the Van Kampen Companies (without giving effect to any merger into such companies of the American Capital Companies); or December 20, 1994, with respect to the American Capital Companies. Return: any return, report, declaration, form, claim for refund or information statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, required to be filed by or on behalf of any VKAC Company. 71 78 RIC: a "regulated investment company" within the meaning of section 851 of the Code. Securities Act: the Securities Act of 1933, as amended. Selling Agreements: as defined in Section 2.1.8(a). Stock Option Waiver: as defined in Section 1.5(d). Sub-Advisory Funds: as defined in Section 2.1.15(c). Subsidiary: each corporation or other Person in which a Person owns or controls, directly or indirect ly, capital stock or other equity interests representing more than 50% of the outstanding voting stock or other equity interests. Surviving Corporation: as defined in Section 1.1. Tax: (i) any federal, state, local or foreign income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, sales, use, excise, custom duties, transfer, registration, stamp, premium, real property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment, social security, disability, workers' compensation, payroll, withholding, estimated or other similar tax, duty or other governmental charge of any kind whatsoever (including, but not limited to, all interest and penalties thereon and additions thereto whether disputed or not), (ii) any liability of any VKAC Company for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group, or of being a party to any agreement or arrangement whereby liability of any VKAC Company for payments of such amounts was determined or taken into account with reference to the liability of any other Person, and (iii) any liability of any VKAC Company for the payment of any amounts as a result of being party to any tax sharing agreement with respect to the payment of any amounts of the type described in clause (i) or (ii) as a result of any obligation to indemnify any other Person. 72 79 Tax Asset: any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute that could reduce Taxes through carryovers or carrybacks to other taxable years (including, without limitation, deductions and credits related to alternative minimum Taxes). Total Debt Prepayment Amount: the aggregate amount of loans under the Credit Agreement prepaid from the date hereof to the Determination Date. Total Employee Option Cancellation Amount: as defined in Section 1.5(d). Transaction Expenses: (i) the fees and expenses payable to Goldman, Sachs & Co. and Merrill Lynch & Co., Inc. in connection with the Merger; (ii) the fee payable to Gordon McMahon, a director of the Company, in connection with the Merger; (iii) the fees and expenses of Debevoise & Plimpton, as special counsel to the Company, and of Friedman & Kaplan, as special counsel to the Designated Managers, incurred in connection with the transactions contemplated by the Merger Agreement; (iv) the expenses, costs and fees incurred by the Company in connection with any and all Consents required to be obtained by the VKAC Companies in connection with the transactions contemplated hereby; and (v) all transfer Taxes (including any real property transfer gains Taxes but excluding stock transfer Taxes) that relate to or result from the Merger. Transfer Agent: as defined in Section 2.1.15(f). Travelers Option: the option to purchase up to 120,222 shares of Class B Common Stock granted to The Travelers Inc. pursuant to the Travelers Option Agreement. Travelers Option Agreement: The Stock Option Agreement, dated as of December 20, 1994, between the Company and The Travelers Inc. Travelers Option Cancellation Amount: as defined in Section 1.5(f). Travelers Option Shares: as defined in Section 1.5(f). 73 80 Underwriting Agreements: as defined in Section 2.1.8(a). Van Kampen Companies: collectively, the Company, VKAC, Van Kampen American Capital Investment Advisory Corp., Van Kampen American Capital Management, Inc., Van Kampen American Capital Distributors, Inc., VSM Inc., VCJ Inc., Van Kampen Merritt Equity Holdings Corp. and Van Kampen Merritt Equity Advisors Corp. VKAC: as defined in the second recital to this Agreement. VKAC Companies or VKAC Group: the Company, VKAC and VKAC's direct and indirect Subsidiaries. Working Capital: Working Capital Assets minus Working Capital Liabilities. Working Capital Assets: as of any date, all cash and cash equivalents (whether or not restricted), short-term investments, receivables, trading inventory and investments in VKAC funds related to deferred compensation, in each case as set forth on the consolidated balance sheet of the VKAC Group, in accordance with GAAP. Working Capital Liabilities: as of any date, all broker-dealer loans (including loans outstanding under the BONY Agreement), accounts payable and accrued expenses (excluding accrued interest on loans under the Credit Agreement and the Senior Notes), payables to Affiliates (MCM/ACC), payables to trustees, all outstanding indebtedness incurred after the date of this Agreement under Section 2.1.5(d)(iii), deferred compensation and current income taxes payable in each case as set forth on the consolidated balance sheet of the VKAC Group, in accordance with GAAP, excluding (i) deferred Taxes and (ii) any accrued but unpaid Transaction Expenses. 6.2. Survival of Representations and Warranties. The representations and warranties, and covenants and other obligations to be performed prior to or at the Effective Time, contained in this Agreement or in any certificate delivered in connection herewith shall survive the execution and delivery of this Agreement but shall not survive the Effective Time, and any and all breaches of such representations and warranties and covenants and other 74 81 obligations shall be deemed to be waived as of the Effective Time. 6.3. Expenses; Transfer Taxes. Except as set forth below in this Section 6.3 and except with respect to Transaction Expenses, the Company, on the one hand, and the Parent, Holdco and the Buyer, on the other hand, shall bear their respective expenses, costs and fees (including attorneys' fees) in connection with the transactions contemplated hereby, including the preparation, execution and delivery of this Agreement and compliance herewith, whether or not the transactions contemplated hereby shall be consummated. All Transaction Expenses shall be borne by the Company, and the Acquisition Price shall be adjusted in respect thereof as provided in Section 1.6(b)(ii). The Parent, Holdco and the Buyer shall bear all stock transfer Taxes that relate to or result from the Merger. 6.4. Severability. If any provision of this Agreement is inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses, Sections or subsections of this Agreement shall not affect the remaining portions of this Agreement. 6.5. Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be (a) mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or (b) transmitted by hand delivery or reputable overnight delivery service, addressed as follows: (i) if to the Company, to: VK/AC Holding, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60187 Telecopy: (708) 684-6155 Telephone: (708) 684-6363 Attention: Ronald A. Nyberg, Esq. 75 82 With a copy to: Clayton, Dubilier & Rice, Inc. 375 Park Avenue, 18th Floor New York, New York 10152 Telecopy: (212) 407-5252 Telephone: (212) 407-5200 Attention: Mr. Alberto Cribiore and to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Telecopy: (212) 909-6836 Telephone: (212) 909-6000 Attention: Franci J. Blassberg, Esq. (ii) if to the Parent, Holdco or the Buyer, to: Morgan Stanley Asset Management, Inc. 1321 Avenue of the Americas New York, New York 10020 Telecopy: (212) 296-7778 Telephone: (212) 296-7125 Attention: Mr. James M. Allwin with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telecopy: (212) 450-4800 Telephone: (212) 450-4000 Attention: John R. Ettinger, Esq. or, in each case, at such other address as may be specified in writing to the other parties hereto. 6.6. Miscellaneous. 6.6.1. Headings. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 76 83 6.6.2. Entire Agreement. This Agreement, including the Schedules and Exhibits, and the Confidentiality Agreement constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 6.6.3. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. 6.6.4. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE OF DELAWARE SHALL MANDATORILY APPLY. THE PARENT, HOLDCO, THE BUYER AND THE COMPANY HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE, CITY AND COUNTY OF NEW YORK SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A NEW YORK STATE OR FEDERAL COURT. THE PARENT, HOLDCO, THE BUYER AND THE COMPANY HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 6.5, OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF. 6.6.5. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. 6.6.6. Assignment. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. 77 84 6.6.7. No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any person or entity other than the parties hereto and their respective heirs, successors and permitted assigns, except that each Person that is a stockholder of the Company, or that holds any Options or Deferred Stock Units, immediately prior to the Effective Time shall be a third party beneficiary with respect to the covenants of the Parent, Holdco and the Buyer set forth in Section 3.2.3. 6.6.8. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) IT UNDER- STANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.6.8. 6.6.9. Amendment; Waivers. No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. Neither the waiver by any of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure by any of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder. 6.6.10. Certain Disclosures. To the extent that any Disclosed Matter can reasonably be deemed to constitute an exception to any of the representations or warranties made by the Company in Section 2.1.6, such Disclosed Matter 78 85 shall be deemed to have been adequately disclosed in the Schedules hereto for purposes of the representations and warranties contained in Sections 2.1.6, 2.1.3 and 2.1.4. [Remainder of page intentionally left blank.] 79 86 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. VK/AC HOLDING, INC. By: /s/ Ronald A. Nyberg ------------------------- Name: Ronald A. Nyberg Title: Executive Vice President MORGAN STANLEY GROUP INC. By: /s/ Eileen K. Murray -------------------------- Name: Eileen K. Murray Title: Treasurer MSAM HOLDINGS II, INC. By: /s/ Harold Schaaff -------------------------- Name: Harold Schaaff Title: Vice President and Secretary MSAM ACQUISITION INC. By: /s/ Harold Schaaff -------------------------- Name: Harold Schaaff Title: Vice President and Secretary 80 87 EXHIBIT A Adjustment to Acquisition Price Based on Assets Under Management The amount of the increase or decrease in the Acquisition Price pursuant to Section 1.6(a)(i) shall be equal to the amount determined pursuant to the following formula: 1. If Closing Assets Under Management is greater than $37.707 billion but is equal to or less than $39.503 billion, increase Acquisition Price by the product of .0115 times the excess of Closing Assets Under Management over $37.707 billion. 2. If Closing Assets Under Management is greater than $39.503 billion, increase Acquisition Price by $20.649 million plus the product of .0231 times the excess of Closing Assets Under Management over $39.503 billion. 3. If Closing Assets Under Management is equal to or greater than $34.116 billion and equal to or less than $37.707 billion, no change in Acquisition Price. 4. If Closing Assets Under Management is less than $34.116 billion but greater than or equal to $32.321 billion, decrease Acquisition Price by the product of .0115 times the excess of $34.116 billion over Closing Assets Under Management. 5. If Closing Assets Under Management is less than $32.321 billion, decrease Acquisition Price by $20.649 million plus the product of .0231 times the excess of $32.321 billion over Closing Assets Under Management. 88 Exhibit B INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT, dated as of ________, 1996, made by McCarthy, Crisanti & Maffei, Inc., a New York corporation (the "Company"), in favor of VK/AC Holding, Inc., a Delaware corporation ("VKAC Holding") and Morgan Stanley Group Inc., a Delaware corporation ("Morgan Stanley"). WHEREAS, VKAC Holding has entered into an Agreement and Plan of Merger with Morgan Stanley, Holdco and the Buyer, dated as of June 21, 1996 (as such agreement may be amended, the "Merger Agreement"); WHEREAS, prior to the closing of the transactions contemplated by the Merger Agreement, VKAC Holding intends to distribute to its common stockholders (the "MCM Spinoff") all of the outstanding common stock of a new Delaware corporation ("MCM Holding") to be formed by VKAC Holding for the purpose of holding all of the outstanding common stock of the Company, which is currently a wholly-owned subsidiary of VKAC Holding (collectively, MCM Holding, the Company and the subsidiaries of the Company, the "MCM Group"); WHEREAS, in connection with the MCM Spin-off, the Company and VKAC Holding have entered into a Tax Sharing Agreement, dated as of _________, 1996, (the "Tax Sharing Agreement"); and WHEREAS, pursuant to Section 4.2.3 of the Merger Agreement, it is a condition to the obligations of Morgan Stanley and the Buyer that the Company shall have entered into an Indemnification Agreement with respect to the ownership of the stock of the Company and of MCM Holding prior to the MCM Spin-off; NOW THEREFORE, in consideration of the promises herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, VKAC Holding and Morgan Stanley hereby agree as follows: 1. Indemnity. (a) The Company (hereinafter sometimes referred to as the "Indemnitor") hereby agrees to indemnify and hold harmless VKAC Holding, Morgan Stanley and their respective affiliates, successors and assigns (collectively, the "Indemnitees"), from and against, and to 89 pay or reimburse each Indemnitee for, any and all claims, actions, causes of action, suits, judgments, losses, taxes, liabilities, damages, obligations, costs and expenses including, but not limited to, reasonable attorneys' fees (and the costs and expenses, including reasonable attorneys' fees and expenses, of enforcing the Company's obligations hereunder) incurred by any of the Indemnitees in connection with or arising from (each, an "Indemnifiable Loss") incurred or suffered by any of the Indemnitees, whether arising before, on or after the MCM Spin-off, (i) except as otherwise provided in the Tax Sharing Agreement, of or relating to the MCM Group or arising from or in connection with the conduct of the business of the MCM Group, including but not limited to taxes of the MCM Group to the extent that such taxes are attributable to income, assets or operations of the MCM Group and VKAC Holding has not previously received a payment with respect thereto, (ii) the ownership of the stock of the Company and MCM Holding prior to the MCM Spin-off (other than any taxes imposed upon VKAC Holding or any of its subsidiaries as a consequence of the Spin-Off) and (iii) the Guarantee, dated December 7, 1993, by Van Kampen American Capital, Inc. of the Company's obligations under the Lease Agreement, dated December 7, 1993, between the Company, as lessee, and The Chase Manhattan Bank, N.A., as lessor, with respect to certain premises occupied by the Company on the 37th floor of the building located at One Chase Manhattan Plaza, New York, New York. (b) Any indemnity payable hereunder shall be made on an after-tax basis (taking into account both the deductibility of the Indemnifiable Loss and the inclusion in income of the indemnity payment and using for this purpose the maximum statutory rate applicable to the recipient of such indemnity payment for the relevant taxable year). 2. Claims. In the case of any claim asserted by a third party against an Indemnitee, notice shall be given by such Indemnitee to the Indemnitor promptly after such Indemnitee shall have received (i) notice of the commencement by a third party of any suit or other proceeding against or otherwise involving such Indemnitee or (ii) information from a third party alleging the existence of a claim against such Indemnitee, in either case, with respect to which indemnification may be sought under this Agreement (a "Third-Party Claim"); provided that the failure of such Indemnitee to give notice as provided by this Section 2 shall not relieve the Indemnitor of its obligations under this Agreement, except to the extent that the Indemnitor is materially damaged as a result of such 2 90 failure to give notice. Within 30 days after receipt of such notice, the Indemnitor may (i) by giving written notice thereof to such Indemnitee, acknowledge liability for such indemnification claim and at its option and at its sole cost and expense assume the defense of any claim or any litigation resulting therefrom, provided that counsel for the Indemnitor, who shall conduct the defense of such claim or litigation, shall be reasonably satisfactory to such Indemnitee, and such Indemnitee may participate in such defense at such Indemnitee's expense, or (ii) object to the claim for indemnification set forth in the notice delivered by such Indemnitee pursuant to this Section 2, provided that if the Indemnitor does not within such 30-day period give such Indemnitee written notice objecting to such indemnification claim and setting forth the grounds therefor, the Indemnitor shall be deemed to have acknowledged its liability for such indemnification claim. The Indemnitor, in the defense of any such claim or litigation, shall not, except with the prior written consent of the Indemnitee against whom the claim was made or the litigation was brought, consent to entry of any judgment or enter into any settlement that provides for injunctive or other non-monetary relief affecting such Indemnitee or that does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnitee of a release from all liability with respect to such claim or litigation. In the event that an Indemnitee shall in good faith determine that such Indemnitee has available to it one or more defenses or counterclaims that conflict with one or more of those that may be available to the Indemnitor in respect of such claim or any litigation relating thereto, such Indemnitee shall have the right at all times to take over and assume control over the defense, settlement, negotiations or litigation relating to any such claim at the sole cost of the Indemnitor, provided that if such Indemnitee does so take over and assume control, such Indemnitee shall not consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnitor. In the event that the Indemnitor does not exercise its right to assume the defense of any matter as above provided, the Indemnitee shall have the right (but not the obligation) to defend against any such claim or demand. 3. Cooperation. The Indemnitees and their affiliates shall make available to the Indemnitor and its attorneys and accountants, and the Indemnitor and its affiliates shall make available to the Indemnitees and their attorneys and accountants, at reasonable times and for 3 91 reasonable periods, during normal business hours, all books and records in its possession or under its control reasonably requested by the Indemnitor relating to any matter with respect to which indemnification is being provided pursuant to this Agreement, and the Indemnitees and the Indemnitor, and their respective affiliates, shall render to the Indemnitor or the Indemnitees, as the case may be, such assistance as may be reasonably required to ensure prompt and adequate prosecution or the defense of any suit, claim or proceeding, including using its reasonable efforts to make available for interviews and to give testimony those officers or employees of the Indemnitees or the Indemnitor, or their respective affiliates, as the Indemnitor or the Indemnitees, as the case may be, may reasonably request; provided, however, that in each such case, any expense reasonably incurred by the Indemnitees in connection therewith shall be promptly paid by the Indemnitor upon submission to the Indemnitor of an itemized request for such payment. 4. Subrogation. The Indemnitor shall be subrogated to any claims or rights of the Indemnitees against any other person with respect to any Indemnifiable Loss assumed or borne by the Indemnitor. The Indemnitees shall cooperate with the Indemnitor to the extent reasonable under the circumstances consistent with the provisions of Section 3, at the expense of the Indemnitor, in connection with the assertion by the Indemnitor of any such claim against any such other persons. 5. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed to: (i) if to the Indemnitor: McCarthy, Crisanti & Maffei, Inc. One Chase Manhattan Plaza New York, New York 10005 Attention: President with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: Franci J. Blassberg, Esq. 4 92 (ii) if to the Indemnitees: VK/AC Holding, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60187 Telecopy: (708) 684-6155 Telephone: (708) 684-6363 Attention: Ronald A. Nyberg, Esq. with a copy to: Morgan Stanley Asset Management, Inc. 1221 Avenue of the Americas New York, New York 10020 Telecopy: (212) 296-7778 Telephone: (212) 296-7125 Attention: James M. Allwin Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telecopy: (212) 450-4800 Telephone: (212) 450-4000 Attention: John R. Ettinger, Esq. (iii) or, as to any party, at such other address as shall be designated by such party in a written notice to other parties. All such notices and other communications shall be made by certified mail, postage prepaid, and shall be effective the third business day after being deposited in the mails; provided that such notices and other communications may be faxed, telegraphed, telexed or delivered by hand delivery, but in any such case shall be effective only when receipt is confirmed in writing by the party to which sent. 6. Waivers; Remedies. No failure on the part of Indemnitees to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided 5 93 are cumulative and not exclusive of any remedies provided by law. 7. Amendments, Etc. No amendment, waiver, modification, discharge or termination of any provisions of this Agreement, and no consent to any departure by the Indemnitor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Indemnitee or Indemnitees affected thereby, and then such amendment, waiver, modification, discharge, termination or consent shall be effective only in the specific instance and for the specific purpose for which given. Any such amendment, waiver, modification, discharge, termination or consent shall be effective only if approved by the directors of the applicable Indemnitees who are unaffiliated with the Indemnitor. 8. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW). 9. Parties in Interest. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto, and any attempt to assign this Agreement without such consent shall be void and of no effect. This Agreement shall be binding on and enforceable against the Indemnitor and its successors and permitted assigns, and shall inure to the benefit of and be enforceable by the Indemnitees and their respective successors and permitted assigns. 10. Headings. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 6 94 11. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, each of the Indemnitor and the Indemnitees has caused this Indemnification Agreement to be duly executed and delivered by its officer duly authorized as of the date first written above. MCCARTHY, CRISANTI & MAFFEI, INC. By ______________________ Name: Title: VK/AC HOLDING, INC. By ______________________ Name: Title: MORGAN STANLEY GROUP INC. By ______________________ Name: Title: 7 95 Exhibit C-1 [Form of Opinion of General Counsel of VK/AC Holding, Inc.] ________ __, 1996 Morgan Stanley Group Inc. MSAM Holdings II, Inc. MSAM Acquisition Inc. c/o Morgan Stanley Asset Management, Inc. 1221 Avenue of the Americas New York, New York 10020 Ladies and Gentlemen: I am Executive Vice President, General Counsel and Secretary of VK/AC Holding, Inc., a Delaware corporation (the "Company"). As such, I and other members of the Office of the General Counsel of the Company have counseled the Company in connection with the execution and delivery of the Agreement and Plan of Merger, dated as of June 21, 1996 (the "Merger Agreement"), among the Company, Morgan Stanley Group Inc., a Delaware corporation (the "Parent"), MSAM Holdings II, Inc., a Delaware corporation ("Holdco"), and MSAM Acquisition Inc., a Delaware corporation (the "Buyer"), and the transactions contemplated thereby. Capitalized terms used herein and not otherwise defined herein have the respective meanings ascribed them in the Merger Agreement. In so acting, I have reviewed or caused to be reviewed under my supervision the Merger Agreement. I have examined and relied upon the representations and warranties as to factual matters contained in or made pursuant to the Merger Agreement and have examined and relied upon originals or copies, certified or otherwise identified to my satisfaction, of such other agreements, instruments, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates, corporate or other records, authorizations, proceedings and other instruments, and have made such additional examinations and conducted such other investigations of fact and law, as I have deemed necessary or appropriate for the purposes of Exhibit C-1 96 Morgan Stanley Group Inc. 2 June __, 1996 rendering the opinions expressed below. I have assumed the genuineness of all signatures of, and the authority of, persons signing the Merger Agreement on behalf of parties thereto other than the Company and the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon the foregoing, I am of the opinion that: 1. Corporate Status. Each Significant Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization, with the requisite corporate power and authority to carry on its business as now conducted. Each Significant Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the failure to be so qualified, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. As used herein, "Significant Subsidiary" means the companies listed on Annex I hereto. 2. Capitalization. The authorized capital stock of the Company consists of (i) 3,250,000 shares of Class A Common Stock, of which __________ shares are issued and outstanding, (ii) 3,250,000 shares of Class B Common Stock, of which 117,817 shares are issued and outstanding and (iii) 32,500 shares of Preferred Stock of which 32,500 shares are issued and outstanding. As of the date of the Merger Agreement, to the best of my knowledge, there were _______ shares of Class A Common Stock reserved for issuance upon exercise of the Employee Options outstanding on the date thereof, 57,750 shares of Class A Common Stock reserved for issuance upon exercise of the Jones Option, 120,222 shares of Class B Common Stock reserved for issuance upon exercise of the Travelers Option (the Employee Options, the Jones Option and the Travelers Option, collectively, the "Options"), 3,350 shares of Class A Common Stock reserved for issuance in connection with Deferred Stock Units outstanding on the date thereof, 32,500 shares of Class A Common Stock reserved for issuance upon exchange of the Preferred Stock for such shares and 3,132,183 shares of Class B Common Stock reserved for issuance upon exchange of shares of Class A Common Stock for such shares. There were Options relating to _________ shares of Common Stock outstanding as of the date of the Exhibit C-1 97 Morgan Stanley Group Inc. 3 June __, 1996 Merger Agreement, and since the date thereof the Company has not agreed to, nor does it have commitments to, issue options relating to any additional shares of Common Stock. To the best of my knowledge, there are no preemptive or similar rights on the part of any Person with respect to the issuance of any shares of capital stock of the Company or any other member of the VKAC Group, except for such rights as may be set forth in the Registration and Participation Agreement. Except (i) for this Agreement, (ii) in respect of the Options and the Deferred Stock Agreements, (iii) in respect of certain repurchase rights with respect to shares of Class A Common Stock held by current or former officers or employees of the Company or any of its Subsidiaries and (iv) as set forth in Schedule 2.1.2(c) or 2.1.2(d) of the Merger Agreement, there are no subscriptions, options, warrants or other similar rights, agreements or commitments of any kind obligating the Company or any other member of the VKAC Group to issue or sell, or to cause to be issued or sold, or to repurchase or otherwise acquire, any shares of its capital stock or any securities convertible into or exchangeable for, or any options, warrants or other similar rights relating to, any such shares. 3. No Conflict. Except as set forth in Schedule 2.1.1(b) to the Merger Agreement, the execution and delivery by the Company of the Merger Agreement, and the consummation of the transactions contemplated thereby, will not result in any violation of, loss of rights or default under, constitute an event creating rights of acceleration, termination, repayment or cancellation under, entitle any party to any payment pursuant to or result in the creation of any Lien (or any obligation to create any Lien) upon any of the properties or assets of any member of the VKAC Group under (i) any provision of the Organizational Documents of any member of the VKAC Group or (ii) to the best of my knowledge, any Material Contract, except for, in the case of clause (ii), any such violations, losses, defaults, accelerations, terminations, repayments, cancellations or Liens that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect. As used herein, "Material Contract" shall mean any Contract that would be a "material contract" of any member of the VKAC Group within the meaning of Item 601(b)(10) of Securities and Exchange Commission Regulation S-K, without giving effect (except as to management contracts) to clause (iii)(A) of such Item 601(b)(10). Exhibit C-1 98 Morgan Stanley Group Inc. 4 June __, 1996 4. Litigation. To the best of my knowledge, except as set forth in Schedule 2.1.11 of the Merger Agreement, there is no judicial or administrative action, suit, investigation, inquiry or proceeding pending or threatened that (a) individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect or result in any liability on the part of the VKAC Group in an amount in excess of $2,000,000 individually or $5,000,000 in the aggregate or (b) questions the validity of the Merger Agreement or of any action taken or to be taken by any member of the VKAC Group in connection therewith. 5. Regulatory Matters. Each of the Registered Investment Advisers is duly registered as an investment adviser under the Advisers Act. Each such registration is in full force and effect. Each of the Registered Investment Advisers is not registered and is not required to be registered as a broker-dealer under federal law, and is not a member and is not required to be a member of any self-regulatory organization. Each of the Registered Broker-Dealers is a broker-dealer duly registered under the Exchange Act and a member firm in good standing of the NASD, and, to the extent required, the Municipal Securities Rulemaking Board. Each such registration is in full force and effect. No VKAC Company other than the Registered Broker-Dealers is required to be registered, licensed or qualified as a broker-dealer under the Exchange Act, or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified. Except with respect to the Funds and the Sub-Advisory Funds, no VKAC Company acts as investment adviser or subadviser to any Investment Company. The Transfer Agent is duly registered as a transfer agent under the Exchange Act. Such registration is in full force and effect. No VKAC Company other than the Transfer Agent is a "transfer agent" within the meaning of the Exchange Act, or required to be registered, licensed or qualified as a transfer agent under the Exchange Act, or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified. None of the VKAC Companies is an Investment Company. Van Kampen American Capital Trust Company is duly registered, licensed or qualified as a trust company in the State of Texas and such registration, license or qualification is in full force and effect. 6. Certain Approvals and Contracts. The approval of each investment advisory agreement with a Client of the Registered Investment Adviser which is an Investment Company required in connection with the performance by the parties Exhibit C-1 99 Morgan Stanley Group Inc. 5 June __, 1996 of the Merger Agreement has been effected in accordance with the provisions of Section 15 of the Investment Company Act. Each Investment Advisory Contract with respect to any Fund, and each Underwriting Agreement, has been duly adopted and maintained in compliance in all material respects with Section 15 of the Investment Company Act. With respect to each client of the VKAC Group listed on Schedule 2.1.8(c)(A)(9) of the Merger Agreement the assets of which have been included by the Company in determining Closing Assets Under Management and Market Assets Under Management under the Merger Agreement, a Consent has been obtained in accordance with the provisions of Section 3.1.6(d) of the Merger Agreement which, to my knowledge, is consistent with the requirements of the Advisers Act as interpreted by the staff of the Commission in Jennison Associates Capital Corp. (avail. Dec. 2, 1985). I am a member of the Bar of the State of Illinois and express no opinion as to matters governed by any laws other than the laws of the State of Illinois, the Federal laws of the United States of America, the General Corporation Law of the State of Delaware and, with respect to the opinion expressed in the last sentence of paragraph (5) above, the State of Texas. In rendering the opinions set forth above, I have, with your permission, relied on certain members of my staff with respect to certain matters covered in this opinion. I am delivering this opinion to you pursuant to Section 4.2.6 of the Merger Agreement and no person other than you is entitled to rely on this opinion. Very truly yours, Exhibit C-1 100 Annex I Significant Subsidiaries Van Kampen American Capital, Inc. Van Kampen American Capital Investment Advisory Corp. Van Kampen American Capital Asset Management, Inc. Van Kampen American Capital Management, Inc. Van Kampen American Capital Distributors, Inc. ACCESS Investor Services, Inc. Van Kampen American Capital Trust Company American Capital Contractual Services, Inc. Van Kampen American Capital Advisors, Inc. Van Kampen American Capital Exchange Corp. Exhibit C-1 101 Exhibit C-2 [Form of Opinion of Debevoise & Plimpton] _________ __, 1996 Morgan Stanley Group Inc. MSAM Holdings II, Inc. MSAM Acquisition Inc. c/o Morgan Stanley Asset Management, Inc. 1221 Avenue of the Americas New York, New York 10020 Ladies and Gentlemen: We have acted as special counsel to VK/AC Holding, Inc., a Delaware corporation (the "Company"), in connection with the execution and delivery of the Agreement and Plan of Merger, dated as of June 21, 1996 (the "Merger Agreement"), among the Company, Morgan Stanley Group Inc., a Delaware corporation (the "Parent"), MSAM Holdings II, Inc., a Delaware corporation ("Holdco"), and MSAM Acquisition Inc., a Delaware corporation (the "Buyer"), and the transactions contemplated thereby. Capitalized terms used herein and not otherwise defined herein have the respective meanings ascribed them in the Merger Agreement. In so acting, we have participated in the preparation of the Merger Agreement. We have examined and relied upon the representations and warranties as to factual matters contained in or Exhibit C-2 102 Morgan Stanley Group Inc. 2 _________ __, 1996 made pursuant to the Merger Agreement and have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction, of such other agreements, instruments, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates, corporate or other records, authorizations, proceedings and other instruments, and have made such additional examinations and conducted such other investigations of fact and law, as we have deemed necessary or appropriate for the purposes of rendering the opinions expressed below. We have assumed the genuineness of all signatures of, and the authority of, persons signing the Merger Agreement on behalf of parties thereto other than the Company and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon the foregoing, we are of the opinion that: 1. Corporate Status; Merger Agreement; Etc. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to execute and deliver the Merger Agreement, to perform its respective obligations thereunder and to consummate the transactions contemplated thereby. The execution and delivery of the Merger Agreement, and the consummation of the transactions contemplated thereby, have been duly authorized by all requisite corporate action of the Company. The Merger Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization or other laws relating to or affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2. No Conflict. The execution and delivery by the Company of the Merger Agreement, and the consummation of the transactions contemplated thereby, will not result in any violation of any New York State or federal law, rule or Exhibit C-2 103 Morgan Stanley Group Inc. 3 ________ __, 1996 regulation or the Delaware General Corporation Law (it being understood that the rules and regulations of a self regulatory body or organization such as the National Association of Securities Dealers, Inc. shall not be deemed to be federal laws, rules or regulations). 3. Governmental Approvals. Except for filings in connection with the Merger which will become effective after the Closing and other Governmental Approvals to be made or obtained after the Closing (none of which are required to be made prior to the Closing), no Governmental Approval (other than pursuant to the HSR Act, which Governmental Approval has been obtained) required by the laws of the State of New York, the federal laws of the United States or the Delaware General Corporation Law is required to be obtained or made by the Company in connection with the execution and delivery of the Merger Agreement or the consummation of the transactions contemplated thereby other than those which have been obtained or made. We are members of the Bar of the State of New York and express no opinion as to matters governed by any laws other than the laws of the State of New York, the Federal laws of the United States of America and the General Corporation Law of the State of Delaware. We are delivering this opinion to you pursuant to Section 4.2.6 of the Merger Agreement and no person other than you is entitled to rely on this opinion. Very truly yours, Debevoise & Plimpton Exhibit C-2 104 Exhibit D [Form of Opinion of Davis Polk & Wardwell] ______________ _____, 1996 VK/AC Holding, Inc. One Park View Plaza Oakbrook Terrace, Illinois 60181 Each of the Designated Managers Party to the Contribution Agreement Referred to herein Ladies and Gentlemen: We have acted as special counsel to MSAM Acquisition Inc., a Delaware corporation (the "Buyer"), MSAM Holdings II, Inc., a Delaware corporation ("Holdco"), and Morgan Stanley Group Inc., a Delaware corporation (the "Parent"), in connection with (i) the execution and delivery of the Agreement and Plan of Merger, dated as of June 21, 1996, (the "Merger Agreement"), among VK/AC Holding, Inc., a Delaware corporation (the Company"), the Parent, Holdco and the Buyer, and (ii) the execution and delivery of the Contribution Agreement, dated as of June 21, 1996 (the "Contribution Agreement"), among the Parent, Holdco and the Designated Managers, and the transactions contemplated thereby. Capitalized terms used herein and not otherwise defined herein have the respective meanings ascribed them in the Merger Agreement. Exhibit D 105 VK/AC Holding, Inc. 2 _______ __, 1996 In so acting, we have participated in the preparation of the Merger Agreement and the Contribution Agreement. We have examined and relied upon the representations and warranties as to factual matters contained in or made pursuant to the Merger Agreement and the Contribution Agreement and have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction, of such other agreements, instruments, certificates of public officials, certificates of officers or other representatives of the Buyer and others, and such other documents, certificates, corporate or other records, authorizations, proceedings and other instruments, and have made such additional examinations and conducted such other investigations of fact and law, as we have deemed necessary or appropriate for the purposes of rendering the opinions expressed below. We have assumed the genuineness of all signatures of, and the authority of, persons signing the Merger Agreement and the Contribution Agreement on behalf of parties thereto other than the Buyer, Holdco and the Parent and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon the foregoing, we are of the opinion that: 1. Corporate Status; Authority for Agreements(1); Etc. Each of the Parent, Holdco and the Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. All of the outstanding shares of capital stock of the Buyer are owned by Holdco, and all the outstanding shares of capital stock of Holdco are owned by Parent, except for the Preferred Stock referred to below being issued to the Designated Managers pursuant to the Contribution Agreement. Each of the Parent, Holdco and the Buyer, as the case may be, has the requisite corporate power and authority to execute and deliver the Merger Agreement, and the Contribution Agreement, to perform its respective obligations thereunder and to consummate the transactions contemplated thereby. The execution and delivery of the - -------- 1 This opinion to cover such other agreements in addition to the Contribution Agreement as Parent or Holdco may enter into pursuant to Section 6.1(c) of the Contribution Agreement. Exhibit D 106 VK/AC Holding, Inc. 3 _______ __, 1996 Merger Agreement and the Contribution Agreement, and the consummation of the transactions contemplated thereby, have been duly authorized by all requisite corporate action of the Parent, Holdco and the Buyer, as the case may be. Each of the Merger Agreement and the Contribution Agreement has been duly executed and delivered by each of the Parent, Holdco and the Buyer, as the case may be, and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them, as the case may be, in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization or other laws relating to or affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2. Validity of Shares. The shares of 4% Exchangeable Redeemable Preferred Stock, par value $100 per share (the "Preferred Stock"), of Holdco to be issued to the Designated Managers pursuant to the Contribution Agreement have been duly authorized and, when issued and delivered in accordance with the terms of such Contribution Agreement, will be validly issued, fully paid and non-assessable. The Certificate of Designation of the Preferred Stock has been duly authorized by Holdco, and has been duly filed with the Secretary of State of the State of Delaware. The shares of common stock, par value $1.00 per share, of the Parent issuable in exchange for the Preferred Stock have been duly authorized and, when issued and delivered in exchange for shares of the Preferred Stock in accordance with the terms thereof, will be validly issued, fully paid and nonassessable.(2) 3. No Conflict.(3) The execution and delivery by each of the Parent, Holdco and the Buyer, as the case may be, of the Merger Agreement and the Contribution Agreement, and the consummation of the transactions contemplated thereby, will not result in any violation of (i) any provision of the certificate of incorporation, by-laws of other organizational documents of such party or (ii) any New York State or federal law, rule or regulation or the Delaware General Corporation Law (it being understood that the rules and regulations of a self regulatory body or __________________________ 2 To be included in the opinion if the Preferred Stock is issued. 3 See Note 1. Exhibit D 107 VK/AC Holding, Inc. 4 _________ __, 1996 organization such as the National Association of Securities Dealers, Inc. shall not be deemed to be federal laws, rules or regulations). 4. Governmental Approvals.(4) Except for filings in connection with the Merger which will become effective after the Closing and other Governmental Approvals to be made or obtained after the Closing (none of which are required to be made prior to the Closing), no Governmental Approval required by the laws of the State of New York, the federal laws of the United States or the Delaware General Corporation Law is required to be obtained or made by the Parent, Holdco or the Buyer, as the case may be, in connection with the execution and delivery of the Merger Agreement and the Contribution Agreement or the consummation of the transactions contemplated thereby other than those which have been obtained or made. We are members of the Bar of the State of New York and express no opinion as to matters governed by any laws other than the laws of the State of New York, the Federal laws of the United States of America and the General Corporation Law of the State of Delaware (but including only those federal and New York State and Delaware laws which, in our experience, are normally applicable to transactions of this type). We are delivering this opinion to you pursuant to Section 4.3.5 of the Merger Agreement and Section 6.3 of the Contribution Agreement and no person other than you is entitled to rely on this opinion. Very truly yours, Davis Polk & Wardwell __________________________ 4 See note 1. Exhibit D 108 EXHIBIT E SCHEDULE OF CUMULATIVE PRE-TAX INCOME TARGET AMOUNTS AND CUMULATIVE DEBT PREPAYMENT TARGET AMOUNTS
CUMULATIVE PRE-TAX CUMULATIVE DEBT MONTH INCOME TARGET PREPAYMENT TARGET(1) - ----- ------------------ -------------------- ($ in millions) July $ 7.3 $15 August 14.9 20 September 22.3 35 October 30.4 45 November 38.3 55 December 47.0 65 January 56.0 75
- -------- (1) Based on the assumption that debt outstanding under the Credit Agreement on the date hereof is $275,000,000. 2 EX-4 3 RESTATED CERTIFICATE OF INCORP-MOR. STAN GRP INC. 1 EXHIBIT 4 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(l) of the Code and Section 407(d)(5) of ERISA, or any successor provision of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, then, in such event, the terms of such consolidation or merger or similar transaction shall provide that the shares of ESOP Preferred Stock of such holder shall be converted into or exchanged for and shall become preferred securities of such successor or resulting company, having in respect of such company insofar as possible (taking into account, without limitation, any requirements relating to the listing of such preferred securities on any national securities exchange or the qualification of such preferred securities for trading in any over-the-counter market) the 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 127 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF THE 8.20% 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 128 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 October 13, 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 862,500 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 129 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 8.20% 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 862,500. The Cumulative Preferred Stock is issuable in whole shares only. 2. Dividends. Holders of shares of Cumulative Preferred Stock will be entitled to receive, when, as and if declared by the Board or the Committee out of assets of the Corporation legally available for payment, cash dividends payable quarterly at the rate of 8.20% per annum. Dividends on the Cumulative Preferred Stock will be payable quarterly on February 28, May 30, August 30 and November 30 (each a "dividend payment date"). Dividends on shares of the Cumulative Preferred Stock will be cumulative from the date of initial issuance of such shares of Cumulative Preferred Stock. Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Corporation on such record dates, not more than 60 days nor less than 10 days preceding the payment dates thereof, as shall be fixed by the Board or the Committee. The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of a 360-day year of twelve 30-day months. No dividends may be declared or paid or set apart for payment on any Parity Preferred Stock (as defined in paragraph 9(b) below) with regard to the payment of dividends unless there shall also be or have been declared and paid or set apart for payment on the Cumulative Preferred Stock, like dividends for all dividend payment periods of the Cumulative Preferred Stock ending on or before the dividend payment date of such Parity Preferred Stock, ratably in proportion to the respective amounts of dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock, on the one hand, and (y) accumulated and unpaid through the dividend payment period or periods of the Cumulative Preferred Stock next preceding such dividend payment date, on the other hand. 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 130 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 131 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 132 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 133 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 November 30, 2000. Subject to the foregoing, on or after such date, shares of the Cumulative Preferred Stock are redeemable at $200.00 per share together with an amount equal to all dividends (whether or not earned or declared) accrued and accumulated and unpaid to, but excluding, the date fixed for redemption. If full cumulative dividends on the Cumulative Preferred Stock have not been paid, the Cumulative Preferred Stock may not be redeemed in part and the Corporation may not purchase or acquire any shares of the Cumulative Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of the Cumulative Preferred Stock. If fewer than all the outstanding shares of Cumulative Preferred Stock are to be redeemed, the Corporation will select those to be redeemed by lot or a substantially equivalent method. If a notice of redemption has been given pursuant to this paragraph 6 and if, on or before the date fixed for redemption, the funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares of Cumulative Preferred Stock so called for redemption, then, notwithstanding that any certificates for such shares have not been surrendered for 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. 134 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 135 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 (viii) if issued, the Corporation's 9.00% Cumulative Preferred Stock, with a liquidation value of $200.00 per share and (ix) if issued, the Corporation's 8.40% Cumulative Preferred Stock, with a liquidation value of $200.00 per share. 136 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 13th day of October, 1995. MORGAN STANLEY GROUP INC. By /s/ Richard B. Fisher -------------------------------- Name: Richard B. Fisher Title: Chairman of the Board [SEAL] Attest: By /s/ Patricia A. Kurtz ---------------------------------- Name: Patricia A. Kurtz Title: Assistant Secretary 137 CERTIFICATE OF DECREASE OF AUTHORIZED NUMBER OF SHARES OF 8.20% 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 8.20% Cumulative Preferred Stock, was filed in said Office of the Secretary of State on October 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 April 12, 1995 (the "Resolutions"), the Pricing Committee fixed certain designations, preferences and rights of the aforesaid 8.20% 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 October 27, 1995 duly adopted a resolution authorizing and directing a decrease in the authorized number of shares of the 8.20% Cumulative Preferred Stock of the Corporation, from 862,500 shares to 847,500 shares and providing that the 15,000 shares of the 8.20% 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 31st day of October, 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 138 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF MORGAN STANLEY GROUP INC. 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 its 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 1 of the Restated Certificate of Incorporation is hereby amended in full to read as follows: 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 630,000,000 shares, which shall include: (a) 30,000,000 shares of preferred stock of no par value each (hereinafter referred to as "Preferred Stock"); and (b) 600,000,000 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". IN WITNESS WHEREOF, MORGAN STANLEY GROUP INC. has caused this certificate to be signed by Richard B. Fisher, its Chairman, and attested by Jonathan M. Clark, its General Counsel and Secretary, this 16th day of April, 1996. MORGAN STANLEY GROUP INC. By /s/ Richard B. Fisher --------------------------------- Name: Richard B. Fisher Title: Chairman ATTEST: /s/ Jonathan M. Clark - --------------------------------- Name: Jonathan M. Clark Title: General Counsel and Secretary 139 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF MORGAN STANLEY GROUP INC. 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 its 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 1 of the Restated Certificate of Incorporation is hereby amended in full to read as follows: 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 630,000,000 shares, which shall include: (a) 30,000,000 shares of preferred stock of no par value each (hereinafter referred to as "Preferred Stock"); and (b) 600,000,000 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". 140 IN WITNESS WHEREOF, MORGAN STANLEY GROUP INC. has caused this certificate to be signed by Richard B. Fisher, its Chairman, and attested by Jonathan M. Clark, its General Counsel and Secretary, this 16th day of April, 1996. MORGAN STANLEY GROUP INC. By _________________________________ Name: Richard B. Fisher Title: Chairman ATTEST: _______________________________ Name: Jonathan M. Clark Title: General Counsel and Secretary EX-11.0 4 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 ------------------------------ ------------------------------ MAY 31, MAY 31, MAY 31, MAY 31, 1996 1995 (1) 1996 1995 (1) ------------ ------------ ------------ ------------ PRIMARY: Common stock and common stock equivalents: Average common shares outstanding 153,126,379 154,176,406 153,477,960 152,654,034 Average common shares issuable under employee benefit plans 2,017,254 3,419,208 2,174,056 2,859,086 ------------ ------------ ------------ ------------ Total average common and common equivalent shares outstanding 155,143,633 157,595,614 155,652,016 155,513,120 ============ ============ ============ ============ Earnings: Net income $ 301 $ 166 $ 574 $ 213 Less: Preferred stock dividend requirements 17 16 33 32 ------------ ------------ ------------ ------------ Earnings applicable to common shares $ 284 $ 150 $ 541 $ 181 ============ ============ ============ ============ Primary earnings per share $ 1.83 $ 0.95 $ 3.48 $ 1.17 ============ ============ ============ ============ FULLY DILUTED: Common stock and common stock equivalents: Average common shares outstanding 153,126,379 154,176,406 153,477,960 152,654,034 Average common shares issuable under employee benefit plans 2,017,254 3,974,652 2,450,073 3,556,976 Common shares issuable upon conversion of ESOP preferred stock 7,478,600 7,577,602 7,493,963 7,586,678 ------------ ------------ ------------ ------------ Total average common and common equivalent shares outstanding 162,622,233 165,728,660 163,421,996 163,797,688 ============ ============ ============ ============ Earnings: Net income $ 301 $ 166 $ 574 $ 213 Less: Preferred stock dividend requirements 16 16 31 31 ------------ ------------ ------------ ------------ Earnings applicable to common shares $ 285 $ 150 $ 543 $ 182 ============ ============ ============ ============ Fully diluted earnings per share $ 1.75 $ 0.91 $ 3.32 $ 1.11 ============ ============ ============ ============
(1) All share and per share amounts have been retroactively adjusted to give effect for a two-for-one common stock split, effected in the form of a 100% stock dividend, which became effective on January 26, 1996. EX-12.0 5 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------- -------------------- FISCAL PERIOD ENDED MAY 31, MAY 31, MAY 31, MAY 31, NOVEMBER 30, 1996 1995 1996 1995 1995 ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES Earnings: Income before income taxes $ 456 $ 251 $ 896 $ 323 $ 883 Add: Fixed charges, net 1,875 1,667 3,745 3,410 5,538 ------ ------ ------ ------ ------ Income before income taxes and fixed charges, net $2,331 $1,918 $4,641 $3,733 $6,421 ====== ====== ====== ====== ====== Fixed charges: Total interest expense (1) $1,865 $1,670 $3,724 $3,409 $5,512 Interest factor in rents (2) 10 11 20 22 37 ------ ------ ------ ------ ------ Total fixed charges $1,875 $1,681 $3,744 $3,431 $5,549 ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 1.2 1.1 1.2 1.1 1.2 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings: Income before income taxes $ 456 $ 251 $ 896 $ 323 $ 883 Add: Fixed charges, net 1,875 1,667 3,745 3,410 5,538 ------ ------ ------ ------ ------ Income before income taxes and fixed charges, net $2,331 $1,918 $4,641 $3,733 $6,421 ====== ====== ====== ====== ====== Fixed charges: Total interest expense (1) $1,865 $1,670 $3,724 $3,409 $5,512 Interest factor in rents (2) 10 11 20 22 37 Preferred stock dividends (3) 25 25 51 49 80 ------ ------ ------ ------ ------ Total fixed charges and preferred stock dividends $1,900 $1,706 $3,795 $3,480 $5,629 ====== ====== ====== ====== ====== Ratio of earnings to fixed charges and preferred stock dividends 1.2 1.1 1.2 1.1 1.1
FISCAL YEAR ENDED JANUARY 31, YEAR ENDED -------------------------------- DECEMBER 31, 1995 1994 1993 1991 ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES Earnings: Income before income taxes $ 594 $1,200 $ 793 $ 772 Add: Fixed charges, net 5,916 5,055 4,397 3,963 ------ ------ ------ ------ Income before income taxes and fixed charges, net $6,510 $6,255 $5,190 $4,735 ====== ====== ====== ====== Fixed charges: Total interest expense (1) $5,899 $5,020 $4,362 $3,946 Interest factor in rents (2) 41 35 35 38 ------ ------ ------ ------ Total fixed charges $5,940 $5,055 $4,397 $3,984 ====== ====== ====== ====== Ratio of earnings to fixed charges 1.1 1.2 1.2 1.2 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings: Income before income taxes $ 594 $1,200 $ 793 $ 772 Add: Fixed charges, net 5,916 5,055 4,397 3,963 ------ ------ ------ ------ Income before income taxes and fixed charges, net $6,510 $6,255 $5,190 $4,735 ====== ====== ====== ====== Fixed charges: Total interest expense (1) $5,899 $5,020 $4,362 $3,946 Interest factor in rents (2) 41 35 35 38 Preferred stock dividends (3) 97 85 82 47 ------ ------ ------ ------ Total fixed charges and preferred stock dividends $6,037 $5,140 $4,479 $4,031 ====== ====== ====== ====== Ratio of earnings to fixed charges and preferred stock dividends 1.1 1.2 1.2 1.2
(1) Total interest expense for the three months ended May 31, 1995, the six months ended May 31, 1995, the fiscal period ended November 30, 1995, the fiscal year ended January 31, 1995 and the year ended December 31, 1991 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-27.0 6 FINANCIAL DATA SCHEDULE
BD This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Financial Condition at May 31, 1996 (Unaudited) and the Condensed Consolidated Statement of Income for the Six Months Ended May 31, 1996 (Unaudited) and is qualified in its entirety by reference to such condensed consolidated financial statements. 1,000,000 6-MOS NOV-30-1996 MAY-31-1996 6,021 8,884 61,326 37,821 58,279 1,289 174,727 15,168 19,658 75,442 9,119 35,218 12,631 0 817 165 4,335 174,727 1,269 3,879 313 941 265 3,724 1,455 896 896 0 0 574 3.48 3.32
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